Redfin to buy Bay Equity Home Loans for $ 135 million to boost mortgage activity
Seattle real estate giant Redfin has announced it will pay around $ 135 million in cash and stocks to buy Bay Equity Home Loans, a Bay Area-based mortgage lender that is active in 42 states and employs 1 200 people.
The deal is expected to give Redfin’s lending activity a boost. Bay Equity took out $ 8.5 billion in loans last year and is almost 10 times the size of Redfin Mortgage. It has also generated positive net profit each of the past three years.
Redfin will consolidate its Redfin Mortgage operations under Bay Equity, which will retain its name and continue to work with other brokerages after the acquisition.
Redfin said it will cut investment in lending software and also lay off 121 people as part of the deal, less than 2% of its overall workforce. Its mortgage business employed around 250 people as of December 31.
Redfin will help place workers in other roles within the company, or offer between 12 and 26 weeks of severance pay. Bay Equity will not be laying off staff.
The purchase price represents a premium of $ 72.5 million over the estimated tangible book value of Bay Equity as of December 31.
“We welcome this deal as it will allow Redfin to accelerate its focus on tying mortgages (and other ancillary real estate transaction services) to the core brokerage business – a key part of any brokerage business. good bull thesis on RDFN, “Brad Erickson of RBC Capital Markets wrote in a report.
In a press release, Redfin CEO Glenn Kelman said the acquisition will help the company combine lending and brokerage services under one roof, and support the company’s long-term vision. allow “customers to buy homes that they could not have obtained through a stand-alone system.” broker or lender.
Redfin started Redfin Mortgage five years ago with the goal of serving clients from start to finish of the home buying process. At the time, some real estate professionals were concerned about a potential conflict of interest between Redfin’s brokerage and mortgage business.
Various real estate companies have attempted to consolidate multiple real estate services “under one roof,” including Seattle giant Zillow Group.
Redfin Mortgage closed 24% more loans in the third quarter of 2021 compared to the same period last year. But overall mortgage income fell 5% on lower income per loan sold, Kelman said during the company’s third-quarter earnings call.
Kelman said the percentage of Redfin homebuyers who choose a Redfin mortgage is “still too low.”
“We plan to make changes to our lending system in the first half of 2022 to support a wider range of loans,” he added. “With a full range of products, and as the laws of various states in the United States allow, we can then launch incentives for brokerage sales that also involve mortgage and title services. “
Jason Bateman, the longtime leader of Redfin Mortgage, left in August for a managing director position at Goldman Sachs. Kelman said in November that the company had made “great strides” in finding a replacement.
After its share price rose sharply throughout 2020, Redfin’s shares fell almost 60% in 2021. The stock was held steady after hours of trading.