The U.S. Census Bureau has published some facts featuring the metro areas represented by the two teams playing in Super Bowl XLIX (the New England Patriots and the Seattle Seahawks). In the Boston area, home to the Patriots, 45% of Boston residents are 25 and older have a bachelor's degree and 91% had graduated from high school. This compares favorably to the national figures of 30% and 87%, respectively. In Seattle 39% of residents who are 25 and older have a bachelor's degree or higher. The median home value of owner-occupied homes in Boston is $363k, Seattle $308k, compared to the national median of $174k. The median household income in Boston is $73k compared to the national median of $52k and $67k for Seattle.

Reports on the death of the refi market are exaggerated.  There's talk of continual support for the purchase market as well - it will probably pick up when refis slow in a couple months. I don't know if both predictions will make it past the realities of the real estate and lending markets of 2015, however. What I do know is a year ago when lenders were watching their pipelines shrink, and the only salvation to 2014 appeared to be the recovering purchase market, anything which appeared even remotely positive was quickly brought back to earth by economic uncertainties. Now we enter the depths of 1Q2015 and I'm starting to read more-and-more bullish reports coming from traditionally conservative groups, groups such as Wells Fargo.

WF writes, "Even though 2014 proved to be a disappointing year for home sales and new single-family construction, there are several reasons to be optimistic about the housing sector in the New Year. Most importantly, job growth has improved to the point that household formations are rising again. State-to-state migration has also improved, reflecting more boomers moving into retirement and an increase in corporate relocations. Mortgage rates have also come back down, with the rate on conventional 30-year fixed mortgages falling below 4 percent. When coupled with easing credit standards and more moderate gains in home prices, the pieces all appear to be in place for a more meaningful recovery in home sales. We have slightly raised our forecast for 2015, reflecting stronger household formations."

Bank and mortgage bank mergers and acquisitions are happening all over the country. That being said, with the swelled pipelines some LOs and lenders seem a little less anxious these days to make a move. No wants to "get into bed" with a company where the fit is poor. Bank Director Magazine lists five questions that boards of directors should ask about any acquisition, whether they are with a bank or any company. What impact does this deal have on shareholders? What is the rationale for doing this deal, strategic or otherwise? How will this impact our institution? What kind of due diligence has been done? What are the integration challenges to be faced?

But bank changes are becoming hard to keep track of. Just in the last week or so we learned that Opus Bank ($4.7B, CA) will acquire escrow company Commerce Escrow (CA) and RPM Investments (CA) for about $25mm in cash (45%) and stock (55%). Commerce offers escrow services on business transactions, commercial and residential property sales, tract sales, stock transfers, industrial facilities and developer site acquisitions. RPM operates as a "qualified intermediary" to facilitate 1031 tax deferred exchanges. In a move to simplify its operations and reduce operating costs, Mercantile Bank ($334mm, IL) will dissolve its investment asset management unit.

Falcon International Bank ($915mm, TX) will buy a branch from PlainsCapital Bank ($8.6B, TX). United Community Bank ($7.5B, GA) will acquire First National Bank ($420mm, TN) for $52mm in cash (20%) and stock (80%). In Mississippi First Commercial Bank ($318mm) will acquire DeSoto County Bank ($82mm). In the Buckeye State The Farmers National Bank of Canfield ($1.1B) will acquire First National Bank ($526mm) for about $74mm in cash and stock. Old National Bank ($11.0B, IN) will acquire commercial and personal property and casualty insurance agency Mutual Underwriters Insurance (KY). Over in Wisconsin AnchorBank, fsb ($2.1B) will sell 1 branch to Royal Bank ($325mm). Bank of Lancaster ($346mm, VA) will consolidate 3 of its branches into 2 and close 1 branch. Bank of America, who has been closing branches aggressively nationwide, now said it plans to open some branches in CO and MN over the next 2 years. The industry wonders if it will get back into correspondent lending.

Independent Bank ($2.2B, MI) will consolidate about 9% of its branches (6 of 70), as it adjusts to declining branch volumes and increased mobile and other electronic channel usage. But things don't always happen voluntarily. Recently First National Bank of Crestview, Crestview, Florida, was closed by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver, who then brought in First NBC Bank, New Orleans, Louisiana, to assume all of the deposits. A week later Highland Community Bank, Chicago, Illinois, was closed by the Illinois Department of Financial & Professional Regulation-Division of Banking, which brought in the FDIC who then tapped United Fidelity Bank, fsb, Evansville, Indiana, to assume all of the deposits of Highland Community Bank.

Is all of this courtship new? Not really, although it has really picked up. A new SNL Financial report found that there were 294 M&A deals (banks and thrifts) in 2014, 228 in 2013 and 222 in 2012. Pacific Coast Bankers Bancshares observed that "In 2014 about 4% of institutions were acquired vs. about 3% each for 2013 and 2012. Using this perspective, we find that while 2014 did increase in count vs. the prior 2 years, it stayed within the normal range expected based on history (about 3% to 4% per year). Further, while the prior 2 years has fewer total acquisitions, they too were also within the expected normal historical range." Applying the average number of deals for the last twenty years to 2015, given an estimated 6,500 banks and thrifts as of year-end 2014, we should expect about 200-250 bank M&A deals.

But non-depository mortgage bankers and brokers are doing the same thing. This week we learned that GenEquity Mortgage, Inc., a mortgage banker licensed in 19 states, has completed the purchase of Houston Capital Mortgage, a Houston-based mortgage banker that has been in business for more than 25 years. The acquisition adds several branches for GenEquity in the Houston metroplex and provides entrance points into new markets. Christopher Viviano, chief executive officer, and Stacy G. London, president, will continue to lead Houston Capital Mortgage as a division of GenEquity and join the management team to assist in opportunities for growth. "Because of our similar cultures and identical attitudes regarding propriety, compliance and just simply doing the right thing at any cost, GenEquity and Houston Capital are a perfect fit."

On the topic of mergers and acquisitions, I asked STRATMOR's Jeff Babcock about what deal structures are most common. Jeff replied that a simple "asset purchase" is the most common with the premium distributed between an upfront payment and a multi-year earn out. The factors which determine portion of premium is paid at closing include the sustainability of earnings, purchase business share, quality and tenure of the Management Team, quality and productivity of the sales force, and counterparty reputation. The earn out can be based on consolidated profitability or override on production volume, but an employment agreement is usually put in place with key go-forward management to include on-solicitation and non-compete for 1-2 years beyond the earn out term.

Jeff is often asked by potential sellers, "How do I determine the value of my company?" Jeff answered that valuing mortgage origination companies is a tricky proposition. "Earnings multiples are not a workable valuation metric in our inherently cyclical business and accompany earnings volatility, but that the premium value usually equals the NPV (net present value) of the future production income stream. And the parties should remember that the NPV is a function of production forecast and go-forward revenue/expense structure. And culture is so critical..."

Is the subprime securitization market finally coming back? Maybe. On the non-QM side of things, independent mortgage banks must compete with banks putting those loans on their books. But some hedge funds, always looking for a way to make a buck, are thinking of selling MBS backed by these loans. Of course the big question will be how much overcollateralization the Street will require. High quality jumbos have been having something like a 50% equity tranche. That said, financial repression leads to investors reaching for yield, so this may work.

And Jody Shenn reports that Social Finance, a marketplace lender hoping to go public, "is now getting bids on $25-30m of 30-year mortgages, though plans to complete sale this month were delayed by market volatility and separate SoFi student-loan securitization. There is purported interest from REITs, their affiliates, and banks. Blue Elephant Capital Management, which buys Prosper-originated consumer loans, is planning an unrated $60 million securitization early next month...Small-business marketplace lender Funding Circle, which operates in U.S. and U.K., signed a purchase agreement of $200m with KLS Diversified Asset Management.

Investors in debt know that they have numerous choices, including municipal bonds, corporate debt, risk-free Treasuries, securities backed by mortgages, foreign debt; the list goes on and on. I mention this because one doesn't often think of being able to buy refinanced student debt - but you can. Social Finance Inc., which also does mortgages as noted above and which is expected to go public this year, is planning to sell $313.8 million of securities backed by student loans, the largest bond offering yet from a firm that extends credit to consumers through an approach known as marketplace or peer-to- peer lending. The notes are backed by $348.6 million of borrowings that former graduate students mainly used to refinance existing federal loans, according to a presale report by credit rater DBRS Ltd., which plans to offer AA grades to the debt. SoFi has previously issued $735.7 million of securities in three deals since 2013, the largest of which was a $303.2 million offering in November, according to data compiled by Bloomberg. The company, which has originated more than $1.5 billion of loans since being founded in 2011 by focusing on refinancing the debt of former students, announced in October it would also deal in home mortgages.

While we're talking about the capital markets, lenders are out there wondering if all this refi business is too good to be true and pushing the rest of 2015's volumes into the first quarter, and wondering if they should raise margins to slow things down a little. No one wants to have the reputation for lousy service and bad processing times. Meanwhile, the supply of agency MBS and the demand for it continues on.

Thursday the bond markets were relatively quiet with the 10-yr closing at 1.76% - near where it began. This morning we've already had 4^th quarter GDP (expected lower, it was +2.6%) and Q4 ECI (+0.7% last, +.6%). At 6:45AM PST is January Chicago PMI (58.3 previously), followed 10 minutes later by University of Michigan survey (January final) with consensus expectations right around 98.2 existing mark. Rates liked the GDP number and we're down to 1.69% on the 10-yr and agency MBS prices are better by roughly .250.

Jobs and Announcements

We have a few job postings, but before that a correction to one from yesterday. Illinois-based Home State Bank welcomed industry veteran Howard Ackerman as its mortgage group SVP and Home State is recruiting in Illinois and Wisconsin." Howard's e-mail was incorrect, and should be hackerman@homestateonline. com. I apologize for the confusion.

In another region, PHH Mortgage, already the 4^th largest originator of residential purchase mortgages in the U.S., continues to grow. PHH is expanding and actively recruiting Loan Officers in the Houston and Dallas markets, in addition to new opportunities in Southern California, Orlando/Central Florida, and the Greater Boston areas. "If you are looking for a company that provides you with the necessary tools and processes that simplify your job, a range of loan products to serve a variety of customer needs, unprecedented access to partner with the world's largest real estate franchisor and a competitive compensation package that rewards success, then this is the opportunity for you."  To learn more click on the link above or send your resume or questions to Christine English.

And "One of the nation's premiere mortgage companies, Gold Star Mortgage Financial Group, is interested in speaking with the industry's finest Loan Originators and Branch Managers." Headquartered in Ann Arbor, MI and expanding from coast-to-coast, Gold Star "has become one of the fastest growing companies and top 50 lenders in the nation. Founded in 2000 and currently operating in 22 states, Gold Star's commitment to relationship-based customer service, full service marketing platform, cutting edge technology and a superior operations infrastructure fuels its stability and success. Gold Star has been recognized as an Inc. 500/5000 company, and most recently by Mortgage Technology Magazine as one of the nation's Top Tech-Savvy Lenders." To learn more, contact Tina Jablonski.