Online brokerage Redfin has agreed to acquire mortgage lender Bay Equity Home Loans in a move Redfin said would increase its scale and efficiency while giving customers more lending options.
The Seattle-based Redfin said yesterday that it would acquire Bay Equity Home Loans in a deal valued at approximately $135 million in cash and stock. 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. “Just having one company offer all these services is more efficient, letting us keep customers’ lending fees low. But our long-term vision is to combine lending and brokerage services into new ways for people to move from one home to another. Buying Bay Equity not only gives us the scale to execute better on the first stage of this vision; it also gives us the latitude to start earlier on the second stage, which will let Redfin customers buy homes they couldn’t have gotten through a stand-alone broker or lender.”
Bay Equity, which is headquartered in the San Francisco Bay area, is a licensed mortgage lender in 42 states including Massachusetts, where it made 169 residential purchase loans and 268 refinance loans worth a combined $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, originated 91 purchase loans and two refis worth a combined $41.89 million in Massachusetts during the same period.
Bay Equity has about 1,200 employees and has generated positive net income for the last three years, according to Redfin’s announcement.
Bay Equity originated 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 statement. More than half of Bay Equity’s volume represented purchase loans, while almost all of Redfin’s volume involved purchase activity. Redfin had launched its mortgage lending division in 2017.
Processing efficiency and technology are factors driving the deal. Redfin said Bay Equity’s scale makes it more efficient at producing loans, adding that Bay Equity can get better terms when selling those loans to investors.
And using Bay Equity’s loan-origination system will reduce Redfin’s 2022 investment in lending software, the company said.
“With Bay Equity’s geographic presence and full product suite, we’ll be able to offer mortgages to a larger share of Redfin’s home-buying customers right away, including jumbo loans and loans for veterans and folks with lower credit scores,” Adam Wiener, Redfin’s president of real estate operations, said in a statement. “Perhaps most important of all, Bay Equity shares Redfin’s commitment to customer service. Our customers and agents have worked with Bay Equity to finance hundreds of purchases and the customer ratings are top-notch.”
The Bay Equity management team will continue to operate under the Bay Equity name after the deal closes, the statement said, and Bay Equity will originate mortgages for customers working with Redfin agents and other brokerages, as well as with customers seeking to refinance.
Redfin’s mortgage lending operations will be consolidated into Bay Equity’s operations, and the company said it does not have plans to reduce Bay Equity’s staff. Some Redfin Mortgage employees, including Redfin’s loan officers, will move to Bay Equity.
About 120 Redfin jobs will be eliminated, and those employees will have opportunities to apply for other roles at the company, including in Redfin’s real estate support, title and iBuying organizations, or receive a severance package.
“Reorganizing our mortgage operations unfortunately means some colleagues and friends will be leaving Redfin,” Wiener said. “Many of these people are the pioneers who helped build Redfin Mortgage from scratch 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,” McGovern said. “In addition to our established book of business, we will benefit from the customers generated by Redfin’s more than $25 billion in real estate transactions each year. Plus, we will have the opportunity to present Bay Equity to Redfin’s more than 40 million monthly online visitors. It’s all about making it easier for our customers to go from mortgage loan application to closing.”
The estimated purchase price of $135 million represents a $72.5 million premium 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 stock.
