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Over the last several years our industry has experienced many mergers and acquisitions as companies fight to stay alive in a smaller and highly regulated market. For some, this has worked out quite well, and for others, (think of a huge bank that bought a huge mortgage company) legacy issues haunt the new owners for years. 

Generally, the financials or anticipated production are the biggest determinant; along with the culture of the two companies. I would suggest adding one more consideration, which is how, does this acquisition affect your fair lending results. With the recent Supreme Court decisions, lenders are going to be under the fair lending microscope more than usual. 

For instance, let’s say you lend in predominantly well-served markets. You meet a company that is looking for a buyer and they are also in predominantly well-served markets. As you are doing your financial assessment, you should also be doing your fair lending assessment to see how the M&A will “add to” or “detract from” any potential diversity or disparate impact issue. This is an area that is generally overlooked, yet just as important as profitability. The wrong mix can lead to lethal regulatory results, and no one wants that. 

On the other hand, you may decide that you want to demonstrate more diversity and direct your M&A team to look for companies, or performing originators in under-served markets. This strategic approach can assist you in demonstrating that you are building diversity in lending. If you do this, be sure that you check out margins and rates historically charged by the lender you are seeking to acquire. You definitely don’t want to pick up a company that charges substantially higher rates to minority clients as compared to what you charge to your well-served clients, or that could be disastrous as well. 

Times are certainly changing and the methods you adopt going forward will determine your success from production and during your exams. Thinking beyond just the production acquisition, will allow your company to increase production, increase your efficiency and demonstrate fair and diverse lending. 

 

Tammy Butler, Master CMB

Author Tammy Butler, Master CMB

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