CrossCountry, UWM vie for Two Harbors in bidding war

Two Harbor released a statement early Monday calling CrossCountry's unsolicited acquisition offer "superior" to other acquisition proposals it has received, but noted that determination is not set in stone amid ongoing competition from prospective buyers.

CrossCountry has offered to buy all Two Harbors' stock for $10.70 cash. Two Harbors said CrossCounty also pledged to pay a $25.4 million fee the REIT would owe United Wholesale Mortgage if the $1.3 billion all-stock acquisition deal with UWM was terminated.

However, a higher cash offer of $10.75 per share also is pending from another unnamed third party that arrived after the determination related to CrossCountry Mortgage and UWM is revising terms of its offer.

"There can be no assurance that this process will result in TWO entering into an amended agreement with UWMC, terminating the UWMC merger agreement, or entering into a definitive agreement with CCM or any other party," Two Harbors wrote in a press release issued Monday.

UWM's stock-based deal lacked sufficient votes to proceed and had lost 28% of its value as of last Thursday, according to analysts at Keefe, Bruyette & Woods. Since then UWM's stock price inched down temporarily but was recovering at the time of this writing.

"We have proposed revised terms and continue to be in discussions with TWO. We will stay disciplined in our approach," United Wholesale said in a statement.

CrossCountry had not immediately responded to an inquiry at the time of this writing.

Other M&A activity

The bidding war around Two Harbors has arrived amid other recent announcements of planned nonbank mortgage acquisitions, including one CrossCountry announced recently for top 35 lender Summit Funding.

Others since February include:

• Freedom Mortgage — a previous owner of Two Harbors's RoundPoint — has struck a deal to buy Seneca Mortgage Servicing;

• Private equity firm Hale Capital Management recently reported plans to buy the mortgage-related technology company formerly known as Voxtur Analytics; 

• Non QM specialist LenderMac agreed to acquire Utah's Direct Mortgage; and

• Pennymac is under contract to purchase Cenlar's subservicing business 
  

The outcome of acquisition activity in the current market has varied.
While Two Harbors and its RoundPoint unit have drawn a bidding war, Radian recently made the decision to wind down a mortgage conduit after attempting to sell it.

Larger mortgage lenders have been particularly interested in acquiring strong servicing players since nonbank giant Rocket acquired Mr. Cooper.

There have been some disagreements around valuations in the market, David Sheeler, a senior executive vice president at Freedom, told attendees at the Mortgage Bankers Association's servicing conference last month.

Servicing typically acts as a hedge for originations when mortgage rates, which have been more volatile recently, rise. But servicing's value to lenders is deals like Rocket's has been more closely pegged to customer retention and recapture.

Nonbank home lenders and servicers potentially face what analysts have generally said would be some limited competition from banks as the Trump administration has engaged in multiple policy actions aimed at increasing those financial institutions' presence in the mortgage market.

These actions include reforming bank capital rules in ways that could make mortgage servicing rights and holding loans with lower loan-to-value ratios in portfolio more attractive.

President Trump also has issued an executive order aimed at encouraging more "smaller banks" with less than $100 billion in assets to get more involved in mortgage lending.