Vishal’s Back (?) & Where LOs Go After M&A

Guess who’s back, back again. Vishal’s back (maybe?), tell a... dumb dolphin 🐬friend?

That’s right, there’s a power struggle at lender/mortgage tech company Better, w/ founder & former CEO Vishal Garg trumpeting 🎺 that he has the shareholder votes to reclaim the company & lead it to the promised land (profitability).

Also in today’s edition: Which lenders have been the most — & least — successful at retaining LOs after acquiring their company. Plus, what happens when the CD says no prepayment penalty, but a side agreement financially penalizes the borrower for refinancing early?

At my request, the guys at RETR pulled the pre-acquisition rosters from seven relatively recent mortgage acquisitions — 1,573 loan officers in total — & tracked every one of them through July 25 of this year 🙏. Only 644 LOs are still inside the buyer's corporate family today — roughly 41% 😢 .

Steven Wynands & the RETR team ran this as a three-part study over the last few weeks about what you're actually purchasing when you buy a retail shop. I wanted to add a few reporting insights to the mix.

Part 1: you lose them before you buy them. Of the 1,573 LOs on those rosters, 1,108 could be verified as making the jump to the buyer. Nearly 3 in 10 never showed up. And the spread by deal was enormous:

Interestingly, the first attrition event is the transaction itself. I’ve broken most of the mortgage M&A stories over the past five years. It always reminds me a little bit of the 1994 thriller “Speed.” 🚌 You have to move fast. Not so fast that you drive so recklessly that you crash, but that bus has to be going at least 50 mph.

“You really don’t want any leaks,” said one executive who’s been tasked w/ retaining branches following M&A deals. “Once word gets out, suddenly every recruiter sharpens their pitch & begins targeting your people. You might have to overpay or make promises you’re not sure you can keep. So you don’t want to communicate too early, but if you wait too late they might feel deceived. It’s a tricky balance.”

Part 2: then you lose half of what's left. RETR then tracked 1,165 transferred LOs across eight deals & measured retention at fixed checkpoints so newer deals didn't flatter the numbers. Three months: 82.2%. Six months: 72.3%. Twelve months: 61.9%. Eighteen: 57.6%. Twenty-four: 51.7%.

Interestingly, the three deals w/ a full two-year history landed within six percentage points of each other. Draper & Kramer → NAF at 53.0%, Academy → Guild at 51.9%, Norcom → CMG at 47.4%. Guild converted nearly twice as much of the original roster as NAF did, & two years later they were retaining the same share of who they got, per RETR’s analysis. Transfer & retention are different challenges, & being good at the first one doesn't guarantee you the second. 

IMO, this is more a reflection of the broader pressures & timing: good-quality branches/LOs can get 100 bps on the open market, & lots of LOs are still on two-year contracts. Plenty of retail lenders — CCM, Rate, CMG, NAF, Union to name a few — are known to be aggressive in the market, so I think this is why we see so many departures around then. It’s not just for big producers, either: I know several $15M LOs who are receiving $150K on three- or four-year terms these days (w/ clawbacks, of course).

Part 3: well, uh, they didn't retire. Of the 495 transferred LOs no longer w/ the buyer, 318 — 64.2% — are actively originating somewhere else. They're at 128 different companies, but they're not evenly scattered: 55.7% of them landed at a shop that now employs at least three LOs off the same acquired roster. Twenty-four ex-Sierra Pacific LOs at NFM. Twenty-four ex-Academy LOs at CMG. Twelve more ex-Academy at CCM, 11 at Barrett Financial.

NFM, CMG & CCM were all buyers in this study themselves. Everybody's on both sides of this trade.

Indeed, Avon. Indeed.

(As an aside, CCM in particular is such a fascinating company. The Cleveland-based lender has lost 873 LOs over the past year, per RETR, but gained 1,579. Think about how challenging it is to operationally handle that many comings-and-going. No one in the industry brings aboard as many LOs as CCM, or loses as many in a year.)

In my view, a retail acquisition is a very expensive recruiting campaign w/ a rented roster. If you convert 70% at close & hold 52% of those at 24 months, you paid for a team of LOs & kept about 4 in 10, & your competitors picked up 2 of the 6 you lost, w/ the Realtor relationships attached.

Stephen Moye, a top LO at NAF, described going through an acquisition where, within about six weeks, the four top originators in his region had all left.

“For a high producer, leaving can actually offer more control over technology, operations, branding & economics than staying with the acquiring company. The irony may be that the people an acquirer most wants to retain are also the people w/ the most options to leave. Which raises an interesting question: how much future production is actually transferable in an acquisition?”

Wynands says Part 4 will cut it by production cohort, which is a question everyone wants answered: are these your $8M-a-year LOs walking, or your $80M ones?

Check out this post on a mortgage FB group. Like, how could this possibly be legal?

On Thursday night, Garg issued a press release stating that he's secured signed declarations from shareholders representing a majority vote, & they really miss him!

Garg demanded that every board director not named Hugh Frater or Michael Farello resign, said that he would work under a $1 salary until the lender is profitable & would even look for a long-term CEO. He told NMN that “the comeback story was in full force, & it was just paused abruptly."

In response, the board basically said, “Bro, what comeback? You fuckin’ lost $1.5B!” The company said Friday that its board, excluding Garg of course, unanimously voted to terminate the CEO "following a series of decisions and actions that raised serious concerns regarding his judgment, temperament and credibility."

Nevertheless, it looks like Garg might be able to raise enough money to buy back the firm & take it private. Here are some unreported details for Mortgage Scoop Insiders.