Redfin is expanding its presence in mortgage lending with the acquisition of an established national lender, with plans to lay off some of its own mortgage employees and consolidate its lending operations within the newly acquired company, the brokerage announced Tuesday.
The deal to acquire San Francisco-based Bay Equity Home Loans for $135 million in cash and stock will allow Redfin to provide financing for more of the deals facilitated by its 2,400 agents, and reduce its investment in lending software.
Bay Equity, which is licensed in 42 states and employs and employs about 1,200 people, closed nearly 10 times as many loans as Redfin Mortgage did on its own last year.
“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.”
The acquisition is slated to close in the second quarter of the year, at which point Redfin will move some of its employees to Bay Equity.
Redfin will also lay off 2 percent of its workforce in the process. These 121 layoffs will come primarily from its mortgage business’s sales support, capital markets and operations staff, the company said. Redfin said it does not plan to lay off any Bay Equity employees.
Bay Equity CEO Brett McGovern called the acquisition “a formidable combination” that would benefit both companies.
“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,” McGovern said in a statement. “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.”
Although Bay Equity has generated positive net income for each of the last three years, the $135 million purchase price represents a $72.5 million premium over Bay Equity’s estimated tangible book value, the companies said.
The move allows Redfin to immediately ramp up its mortgage operations. Last year, the brokerage’s lending arm closed 2,644 loans and had a total origination volume of $985 million. In the same period, Bay Equity closed 25,338 loans with an origination volume of $8.5 billion.
Redfin is betting that lending on this scale will be more efficient and also allow the company to get better terms when it sells its loans to investors, according to the release. It will also enable the company to offer mortgages to more Redfin clients and site users.
“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 president of real estate operations, said in the release.