Following up on a deal initially announced in February, mortgage investment firm Ellington Financial LLC (NYSE: EFC) has completed its acquisition of Mahwah, N.J.-based reverse mortgage lender and servicer Longbridge Financial according to an 8K filing with the Securities and Exchange Commission (SEC).
The firm, which already had an equity interest in the lender, has acquired an additional 49.6% ownership interest from Home Point Capital for $75 million. This has effectively given Ellington substantially all of the equity in the reverse mortgage lender.
The deal closes
“On October 3, 2022 [Ellington] paid Home Point $38.9 million in cash to complete the purchase of the equity interest,” the filing reads. “There is no material relationship between Home Point and the company, its subsidiaries or any of its affiliates, or any director or officer of the company, or any associate of any director or officer of the company, other than with respect to the company’s purchase of the equity interest.”
The deal was originally expected to close in Q2 2022.
Analysts including John Lunde of Reverse Market Insight (RMI) and Credit Suisse Market Analyst Douglas Harter previously related for RMD that this looks to be a favorable investment on the part of Ellington.
“[I’m] familiar with the favorable demographics and the favorable environment that has been [prevalent in] the past year or two with the strong home price appreciation helping volumes,” Harter told RMD in March. “So with that, I think the backdrop and the investment case to be made in Longbridge is favorable. For EFC specifically, the fact that [Longbridge] is still about 10% or so of their equity even with this deal, I think it fits very much into what they are looking to do.”
To gauge the company’s reaction to the closure of the deal, RMD reached out to Longbridge CEO Chris Mayer.
“I am pleased to let you know that this transaction has been completed with all required regulatory approvals,” Mayer told RMD. “Ellington, which has been an investor in Longbridge since 2014, now holds substantially all of Longbridge’s equity.”
Mayer explained that he is “extremely enthusiastic” about the consummation of the deal, saying that both organizations’ broader goals are aligned.
“This purchase by Ellington allows Longbridge to continue to grow and secure its position as the leading reverse mortgage company. The company has continued its strong growth.”
In Q3 2022, Longbridge became the second largest issuer of Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) backed by newly-issued HECM loans, Mayer says, noting that the company’s market share has increased significantly. Mayer also reiterated that the company’s existing leadership team will remain in their current positions including himself, Chief Revenue and Marketing Officer Melissa Macerato, and COO Bill Packer.
“Furthermore, with Ellington’s support, Longbridge will have the financial backing and expertise to continue investing in our growth, develop more and better proprietary products, and ultimately reach our goal of bringing reverse mortgages further into the mainstream of the mortgage and financial services marketplace.”
Mayer also explained that Ellington’s broad range of relationships within the realm of financial services and strong capital position will further enhance the standing of Longbridge as a company.
“This is great news for our employees, customers, and our origination and servicing clients, as well as the broader reverse mortgage industry,” he said.
While Ellington recorded an economic loss for Q2 2022 according to its earnings release, Ellington remained bullish about the prospects for the reverse mortgage business according to Ellington CEO Larry Penn.
“On the bright side, securitization spreads are showing signs of stabilizing and Longbridge continues to add market share,” he said. “As we saw during the economic turmoil of 2020, demand for reverse mortgages can surge in a challenging economic environment because reverse mortgages provide liquidity to borrowers without the requirement to make monthly principal and interest payments.”
Longbridge appointed Bill Packer as its new COO in May, specifically to help the lender expand on its existing technology offerings while streamlining processes. This month, Mayer was also named a 2022 HW Vanguard by HousingWire.
Editor’s note: This story was updated to include a statement from Longbridge Financial CEO Chris Mayer.