Morning Report: M&A in the mortgage space

Vital Statistics:

 

Last Change
S&P futures 3372 23.6
Oil (WTI) 42.83 0.52
10 year government bond yield 0.63%
30 year fixed rate mortgage 2.85%

 

Stocks are higher this morning on no real news. Bonds and MBS are down.

 

Job openings increased to 5.9 million at the end of June according to the JOLTs jobs report. Hires fell to 6.7 million, but that was the second-highest reading for the series. The quits rate fell to 1.9%, which is to be expected during a recession.

 

Small Business optimism slipped in July, according to the NFIB. “This summer has been challenging for many small business owners who are working hard to keep their doors open and remain in business,” said NFIB’s Chief Economist Bill Dunkelberg. “Small business represents nearly half of the GDP and this month we saw a dip in optimism. There is still plenty of work to be done to get businesses back to pre-crisis numbers.”

 

The Intercontinental Exchange bought Ellie Mae from private equity firm Thoma Bravo for $11 billion last week. Note Thoma Bravo paid $3.7 billion for Ellie Mae just a year before. The Intercontinental Exchange is best known for owning the New York Stock Exchange, but it has been building a mortgage business. ICE owns MERS and Simplifile, and believes the acquisition of Ellie Mae gives it access to the entire mortgage value chain, from origination to post-closing. Analysts did raise their eyebrows on the announcement conference call regarding the price, but it does make strategic sense for ICE to do the acquisition. That said, Ellie Mae is expected to do about $470 million in EBITDA this year, and 23x EBITDA is not cheap.

 

Black Knight is buying Optimal Blue as well. On the earnings conference call, Black Knight explained some of the reasoning behind the acquisition:

Sure. Good morning Tien-Tsin. Thank you. Yeah, we’re obviously very excited with Optimal Blue. We think that there are a lot of opportunities there. In addition to the reasons that we’re excited to acquire them, they’ve got a really sticky network effect in their marketplace where they bring mortgage originators and investors together. And we see a lot of cross-sell opportunity in terms of us selling some of our capabilities into their client base and for them to sell some of those capabilities to our client base. So as we look at it, from that perspective, we think there are, as you can imagine with any acquisition, you always find the obvious. And then there’s always hidden gems, we always look for, and we see some of those as well, such as, the trading platform that they have. We’ve been talking about that for a while, adding our loans — seasoned loans on top of that, as well as all of our data and our analytics that have tremendous insight into those loans and facilitating trading. So we see a lot of areas of revenue synergy from that perspective.

 

Meanwhile, CoreLogic continues to be pursued by Cannae (which sold Optimal Blue to Black Knight). Cannae is offering $65 in cash for Corelogic, and hopes to call a special meeting of stockholders to replace half of CoreLogic’s Board.

 

30 day delinquencies increased in May to 7.3% of all mortgages, according to CoreLogic. Frank Martell, CEO of CoreLogic had this to say:

“Government and industry relief programs have helped to cushion the initial financial blow of the pandemic for millions of U.S. homeowners. COVID-19 and the resulting pressures continue to influence the economic activity of many households. Barring additional intervention from the Federal and State governments, we are likely to see meaningful spikes in delinquencies over the short to medium term.”

 

Meanwhile, the number of mortgages in forbearance fell for the 8th straight week, according to the MBA. Forbearances fell by 23 basis points to 7.44% of homes with a mortgage. Many borrowers who were making payments while in forbearance decided to exit their plans.

30 Responses

  1. Good read:

    “The Grifters, Chapter 2 – N95 Masks
    August 11, 2020 | Ben Hunt”

    https://www.epsilontheory.com/the-grifters-chapter-2-n95-masks/

    Like

    • Worse than I thought and in-freaking-credible. Thanks for the link, Joe.

      Like

      • While I like the overall take of the piece, I do think that Trump was justified in going after 3M after they cleared the construction N95 masks for medical use and discovered that in the meantime 3M had exported the 35 million.

        Assuming the piece is accurate, if I was Trump I’d have asked Mark Cuban to take charge of the issue.

        Like

  2. “Biden won’t rule out naming donors as envoys, despite corruption concerns

    “It’s totally un-American to have people slave away for years to gain the skills to do this, and others just write a check and show up,” one former diplomat said.

    By NAHAL TOOSI
    08/11/2020 12:46 PM EDT”

    https://www.politico.com/news/2020/08/11/biden-donors-envoys-393594

    That’s completely wrong. There’s nothing more American than that.

    Liked by 1 person

  3. Worth checking out. It’s on Netflix:

    “‘Mr. Jones’ and the deadly consequences of shoddy journalism

    Opinion by
    Sonny Bunch
    July 31, 2020 at 7:00 a.m. EDT”

    https://www.washingtonpost.com/opinions/2020/07/31/mr-jones-deadly-consequences-shoddy-journalism/

    Like

    • this one hits home and is on my list to watch.

      Like

    • Some of the replies . . . it’s like, there’s no reason to talk to people about things. They’ve just got a voicebox that you pull the string and they say “orange man bad” or whatever rightw-wing boogieman of the day is.

      Duranty could be a star on Fox News.

      Seriously, what?

      sounds like a Republican congressperson’s dream for America

      Again, I think not.

      Like

  4. its Kamala

    Liked by 1 person

  5. Worth noting:

    Like

    • Of Ark Restaurants’ five Manhattan restaurants, only two have reopened, while its properties in Florida — where the virus is far worse —

      This doesn’t feel accurate.

      Deaths by state has New York as 169 for every 100,000 people and Florida as 41 per ever 100,000 people. And Florida recently got caught out for reportng 100% positive on COVID testing, which kind of throws those numbers into question.

      But ultimately, that’s the downside of being both a state and a city where it’s hugely expensive to do business in: big changes turn barely affordable into unaffordable, where as places with lower costs of living and a lighter touch on taxes make it easier to survive a downturn.

      Like

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