Key facts
- CrossCountry Mortgage (CCM) has received shareholder approval for its acquisition of Two Harbors Investment Corp. (TWO).
- The deal's price increased by $126 million due to a bidding war with United Wholesale Mortgage.
- CCM's final bid for TWO was $12 per share plus a dividend, a 19% premium to TWO's March tangible book value.
- The acquisition will add TWO's $159 billion servicing portfolio to CCM's $202 billion, making CCM the 8th largest servicer.
- CCM plans to integrate TWO's servicing operations, including RoundPoint Mortgage Servicing LLC, and transition loans from Mr. Cooper Group.
CrossCountry Mortgage (CCM) is on the verge of acquiring Two Harbors Investment Corp. (TWO) after securing crucial shareholder approval, marking a significant step towards consolidating its position in the mortgage servicing market. The deal, which saw CCM increase its bid multiple times and fend off a rival offer from United Wholesale Mortgage, is valued at approximately $1.26 billion.
Industry experts acknowledge the complexity of integrating TWO's substantial $159 billion servicing portfolio into CCM's existing operations, which already manage $202 billion. This acquisition is set to elevate CCM from the 15th to the 8th largest servicer in the industry. Despite the challenges, analysts express confidence in CCM's ability to manage the integration and its financials, though rising leverage is noted.
CCM views the acquisition as a strategic move to achieve greater scale in mortgage servicing rights (MSRs), which provide steadier earnings compared to origination alone. The company highlighted that its existing relationship with RoundPoint Mortgage Servicing LLC, TWO's servicing arm, will facilitate a smoother transition, as RoundPoint already subservices a significant portion of CCM's portfolio. CCM also plans a phased transfer of legacy loans currently serviced by Mr. Cooper Group.
The deal is expected to enhance borrower retention, with estimates suggesting an additional $10 billion in annual recapture volume and potential production increases if interest rates decline. While bringing servicing in-house introduces regulatory and operational risks, Moody's views these risks as modest given CCM's track record and management experience. The integration of technology and systems is anticipated to take one to two years. The profile of TWO's portfolio, with a low weighted average gross coupon and prepayment rate, suggests a low risk of rapid runoff, with opportunities in cash-out refinances.
CCM stated that the transaction's value is underpinned by its long-term earnings power, cash flow generation, and strategic positioning, aiming to reduce leverage over time.