Mahwah, N.J.-based top 10 reverse mortgage lender Longbridge Financial announced late Wednesday that it will be acquired by mortgage investment firm Ellington Financial. The firm, which already has an equity interest in the lender, will acquire an additional 49.6% ownership interest from Home Point Capital for $75 million, which will effectively give Ellington substantially all of the equity in the reverse mortgage lender.
The deal is expected to close in the second quarter of 2022, according to an announcement issued by Longbridge on Wednesday.
To get a better understanding of the implications of the acquisition, RMD sat down with Chris Mayer, CEO of Longbridge Financial to discuss what this deal will mean for the company, its products and the reverse mortgage industry more broadly.
Why the deal happened, and Ellington’s confidence in Longbridge
The deal has been discussed in general terms between teams at Ellington and Longbridge before, but more formal conversations about an acquisition only recently came into clearer view, Mayer tells RMD in an interview. In terms of any changes that could be made internally, Mayer explains that Longbridge will maintain its existing structure.
“I will remain CEO of the company,” Mayer says. “Longbridge operates as an independent entity from Ellington. While we are being consolidated financially just because we are sufficiently large that they have to consolidate our financials, from an operational perspective, [we’ll remain independent] and are actually bigger than Ellington in terms of our number of employees.”
This is largely because Ellington recognizes its own strengths can be complemented with those of Longbridge, Mayer explains.
“Ellington is excellent at the things they do, and Longbridge is excellent at the things we do,” he says. “We both understand that we should be focusing on each of our strengths, and then the synergies that are really going to mean ‘one plus one is three.’”
Impacts on product development, broker partners
Longbridge’s largest source of growth recently has been through its Platinum line of proprietary reverse mortgages, Mayer says. While this deal could impact the trajectory of proprietary product development in the future, that is a conversation for a later date after the acquisition deal goes through the necessary regulatory approvals and is ultimately closed.
Ellington is also a company very active on the forward side of the mortgage business, which could create opportunities for partnership in the future, but that is not the focus of this deal, he says.
“We would expect to have some of those conversations, but that’s not the biggest goal of this transaction,” Mayer explains. “[Ellington does] own a large stake in a forward mortgage originator. Are there some opportunities there? Yes, but our goal isn’t to cross-sell a whole bunch of products. We think we are best served heavily focusing on reverse mortgages.”
This is also a deal that will hopefully expand the landscape for Longbridge’s existing broker and other TPO partners, Mayer says.
“We continue to see this as providing greater opportunities for us to execute, and provide the kind of service, products and support quality that our broker and P.A. partners are looking for, as well as our closed-loan correspondent partners,” Mayer says. “In all of our wholesale channels, we think this is great news. Ellington wants the same thing we want, which is strong customer relationships — and more of them — that we can grow over time. We’ve seen tremendous growth in that sector.”
Longbridge currently stands as the number two wholesale reverse mortgage lender in the country, with aspirations to grow even further, Mayer says.
“For our wholesale business, this is positive news for those people. But frankly, the people who work with us already, like us, and nothing is going to change except for there being more opportunity for people who do not yet work with us to start.”
‘Yesterday, today and tomorrow‘
When asked what he would most like the reverse mortgage industry to know about this acquisition deal, Mayer describes an ongoing commitment to growing the entirety of the reverse mortgage industry for all involved, partners and others alike.
“Longbridge was there for them yesterday, Longbridge is here today, and Longbridge will be here tomorrow,” Mayer says. “We have a permanent capital base supporting us, we have a long-term dedicated investor who has been here with us as a company since before Longbridge existed, and is heavily committed to the space. They don’t need someone to explain what a HECM or an HMBS is or how to spell ‘reverse mortgage.’ Ellington is a company that is deeply committed to this, and so their involvement with Longbridge is really with a dedicated player in the space who believes in it, and is expressing their belief in our company and in the industry through this investment.”
Ellington has been invested in Longbridge since acquiring a stake in the company in 2014. Longbridge itself was initially started in 2012 by a small group of former New York Life employees who announced their plans to gain licensing in the reverse mortgage space earlier that same year.
From 2019 to 2021, Longbridge more than tripled its annual loan volume to $2.2 billion, commensurately growing its net income by five times. Since November 2021, Longbridge has ranked as the third-largest reverse mortgage lender in the industry and had overtaken a competitor to become the sixth-largest lender industry-wide in the full 2021 calendar year.
The acquisition builds on the confidence that Ellington has cultivated in the company over its time as a major investor, according to Laurence Penn, president and CEO of Ellington Financial.
“Longbridge has cemented its position as a thought leader in reverse mortgage lending, with a proven track record, strong operations, and a commitment to highly ethical practices and best-in-class servicing,” Penn said in a statement. “Significant synergies exist between the Longbridge and Ellington Financial businesses, and we are confident in our ability to work with Longbridge to develop new proprietary products and programs and meaningfully grow its platform in the years ahead.”
Last summer, when Ellington Financial shared its Q2 2021 earnings with shareholders, Penn had previously indicated a belief that Longbridge’s mortgage servicing rights (MSRs) were its “largest tangible asset” and that the company could seek to acquire those from Longbridge at an unspecified future time.
“I’m really getting ahead of myself here, but I think in the future, it’s possible that we could acquire excess servicing rights for example, from Longbridge,” Penn explained in August, 2021. “[T]here [are] no discussions around that right now, but that’s something that I think could be a really interesting asset class for Ellington Financial.”