Redfin will buy Bay Equity Home Loans for $135M in bid to boost mortgage business

(Photo GeekWire / Nat Levy)

Seattle real estate giant Redfin Announced which will pay an estimated $ 135 million in cash and stock to buy Bay Equity Mortgage Loans, a Bay Area-based mortgage lender that is active in 42 states and employs 1,200 people.

The deal should boost Redfin’s loan business. Bay Equity closed $ 8.5 billion in loans last year and is nearly 10 times the size of Redfin Mortgage. It has also generated positive net income in each of the last 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 reduce investment in software loans and also lay off 121 people as part of the transaction, or less than 2% of its total workforce. His mortgage business employed about 250 people as of December 31.

Redfin will help place workers in other roles at the company or offer 12-26 weeks of severance pay. Bay Equity will not lay off personnel.

The purchase price represents a premium of $ 72.5 million over Bay Equity’s estimated tangible book value as of December 31.

“We view this deal positively as it will allow Redfin to accelerate its goal of linking mortgage (and other ancillary real estate transaction services) to the core brokerage business, a key part of any good bullish thesis on RDFN,” Brad Erickson of RBC Capital Markets wrote in a report.

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(Red fin photo)

In a press release, Redfin CEO Glenn Kelman said the acquisition will help the company combine loan and brokerage services under one roof, and will support the company’s long-term vision of enabling ” clients buy houses that they couldn’t have gotten through an independent company. ” broker or lender ”.

Redfin launched Redfin Mortgage five years ago in an effort to serve its clients from start to finish in the home buying process. At the time, some real estate professionals raised concerns about a potential conflict of interest between Redfin’s mortgage and brokerage sides.

Several real estate companies have tried to bring multiple real estate services “under one roof,” including Seattle’s 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% due to a decline in income from loans sold, Kelman said on the company’s third-quarter earnings call.

Kelman said the percentage of Redfin home buyers who choose a Redfin mortgage is “still too low.”

“We expect to make changes to our loan origination system in the first half of 2022 to support a broader range of loans,” he added. “With a full suite of products, and as allowed by the laws of different US states, we are able to launch incentives for brokerage sales that also involve title and mortgage services.”

jason bateman, the longtime leader of Redfin Mortgage, left in August to take a managing director role at Goldman Sachs. Kelman said in November that the company had made “great progress” in finding a replacement.

After a large increase in its share price throughout 2020, Redfin shares fell nearly 60% in 2021. The shares were stable in after-hours trading.

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