Redfin Expands Mortgage Footprint with Acquisition of Bay Shares

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Online brokerage firm Redfin has agreed to acquire mortgage lender Bay Equity Home Loans, which Redfin said would increase its scale and efficiency while giving clients more lending options.

Seattle-based firm Redfin said yesterday it would buy Bay Equity Home Loans in a deal valued at around $ 135 million in cash and shares. The transaction is expected to close in the second quarter.

“For years, Redfin has talked about becoming a one-stop-shop for brokerage, mortgage, iBuying and title services,” Redfin CEO Glenn Kelman said in a statement. “It’s more efficient to have one company that offers all of these services, which allows us to keep client loan costs low. But our long-term vision is to combine loan and brokerage services into new ways for people to move from home to home. Buying Bay Equity not only gives us the scale to better execute the first step of that vision; it also gives us the ability to start step two earlier, which will allow Redfin clients to purchase homes that they would not have been able to get through a broker or stand-alone lender.

Bay Equity, headquartered in the San Francisco Bay Area, is an approved mortgage lender in 42 states, including Massachusetts, where it has made 169 home purchase loans and 268 loan refinancing a combined value of $ 136 million in the first three quarters of 2021 according to The Warren Group, publisher of Banker & Tradesman. Redfin Mortgage, the company’s lending division, issued 91 purchase loans and two refis with a combined value of $ 41.89 million in Massachusetts during the same period.

Bay Equity has approximately 1,200 employees and has generated positive net income over the past three years, according to the Redfin announcement.

Bay Equity has granted more than 25,300 loans in 2021 for $ 8.5 billion, compared to Redfin’s 2,644 loans for $ 985 million, according to data provided in the release. More than half of Bay Equity’s volume was purchase loans, while almost all of Redfin’s volume was from purchasing activities. Redfin launched its mortgage division in 2017.

The efficiency of the processing and the technology are the determining factors of the transaction. Redfin said the Bay Equity ladder makes it more efficient at producing loans, adding that Bay Equity can get better terms when selling these loans to investors.

And using Bay Equity’s lending system will reduce Redfin’s 2022 investment in lending software, the company said.

“With Bay Equity’s geographic presence and its full product line, we will be able to immediately offer mortgages to a greater portion of Redfin’s homebuying clients, including jumbo loans and veteran loans.” and people with lower credit scores, ”Adam Wiener, president of real estate operations at Redfin, said in a statement. “Perhaps most important of all, Bay Equity shares Redfin’s commitment to customer service. Our clients and agents have worked with Bay Equity to fund hundreds of purchases and the client ratings are excellent.

The Bay Equity management team will continue to operate as Bay Equity after the transaction closes, the statement said, and Bay Equity will offer mortgages for clients working with Redfin agents and other brokerages. , as well as with clients looking to refinance.

Redfin’s mortgage operations will be consolidated into Bay Equity operations, and the company has said it has no plans to cut Bay Equity staff. Certain Redfin Mortgage employees, including Redfin loan officers, will be transferred to Bay Equity.

Approximately 120 Redfin jobs will be cut and these employees will have the option to apply for other positions within the company, including Redfin’s real estate, title and iBuying support organizations, or to receive severance pay.

“The reorganization of our mortgage operations unfortunately means that some colleagues and friends will be leaving Redfin,” Wiener said. “Many of these people are the pioneers who helped create Redfin Mortgage from the ground up and we owe them a debt of gratitude. “

Bay Equity has branches in Norwood, Leominster, Milford, South Easton, Orange, Wilbraham and Great Barrington.

Bay Equity CEO Brett McGovern called the deal a “formidable combination.”

“Redfin is a technology leader and the alignment positions us both to thrive in a changing mortgage market,” said McGovern. “In addition to our established business volume, we will benefit from the clients generated by Redfin’s more than $ 25 billion real estate transactions each year. Additionally, we will have the opportunity to introduce Bay Equity to Redfin’s over 40 million monthly online visitors. It’s about making it easier for our clients to go from mortgage application to closing.

The estimated purchase price of $ 135 million represents a premium of $ 72.5 million over Bay Equity’s estimated tangible book value as of Dec. 31, the statement said. Two-thirds of the purchase price will be paid in cash and one-third will be paid in Redfin shares.

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