Dallas-based Town Square Mortgage has merged with Palatine, Illinois-based American Portfolio Mortgage Corp., a move to better position both companies to weather the storm as the rapid rise in interest rates has stalled homebuying activity.
Both companies will retain their individual names and brands as well as their leaders, Lisa Thomas, chief executive officer of Town Square Mortgage, and Paul Kessel, president of American Portfolio Mortgage. No cash changed hands in the deal, Thomas said.
The transaction brings together Town Square’s 94 loan originators and American Portfolio Mortgage’s 108 originators. There will not be any layoffs through the merger.
Thomas said she has known the owners of American Portfolio Mortgage and has done business with them since the mid-1990s, and that she has been talking to Kessel about a potential deal since last September as rates were on the rise.
Nationally, residential mortgage originations were down 55% in the last three months of 2022 from a year before, according to Attom Data Solutions. Purchase lending was down 45% and refinancing dropped 73%.
“Volatility in the market overall breeds uncertainty, and uncertainty kind of paralyzes the market,” Thomas said in an interview. “So it becomes more difficult to have a stable and growing business if the overall industry is on a decline or not executing because of rates.”
Founded in 2009, Town Square focuses primarily on purchase loans rather than refinancing, working with homebuyers, real estate agents and builders. It originated just over $1 billion in mortgages in both 2020 and 2021, Thomas said.
In 2021, Town Square entered a partnership with Newport Beach, California-based mortgage technology company Havenly, a company Thomas co-founded. At that time, Town Square was setting itself up for continued growth and expansion, Thomas said.
That growth path was interrupted as mortgage rates rose and inflation soared. The company’s originations sunk to just over $800 million in 2022. Thomas said being focused on purchases held the company up better than refinance-heavy lenders.
Thomas said the deal will allow Town Square to keep growing by bringing the company into additional markets and reducing costs through combining systems used by both companies. Town Square focuses on Texas and surrounding states, while American Portfolio Mortgage is centered in the Midwest, giving both companies a larger national footprint.
“It gave us the ability to scale quickly, and that creates economies across the platform,” Kessel said. “It made for a really attractive opportunity.”
The deal also gives Town Square new business lines, such as construction lending for builders, and gives American Portfolio Mortgage access to technology it did not have before.
“We’re so complementary of each other with what we are bringing from an expertise and leadership standpoint,” Thomas said. “We’re better and stronger together; there are not any casualties from coming together, which is just delightful.”
Mergers and acquisitions in the mortgage industry surged in 2022 due to industry challenges and owner retirements, according to an October report from mortgage industry analyst Stratmor Group.
Thomas said Town Square was not looking for a merger or acquisition prior to the American Portfolio Mortgage deal, although the company’s size, footprint and business model did interest other firms.
“But the people that approached us didn’t hold a candle to this deal,” Thomas said. “This merger came about organically and really made sense for both those companies and the leadership.”