CrossCountry Mortgage Acquires Two Harbors Investment Corp.

CrossCountry Mortgage (CCM) is poised to finalize its acquisition of Two Harbors Investment Corp. (TWO) after securing shareholder approval, marking a significant step in the mortgage servicing rights (MSR) market. The integration of the two companies presents the next major challenge, involving the complex task of bringing a large servicing portfolio in-house. Analysts, however, express confidence in CCM's ability to manage the combined entity's financials, while noting an increase in leverage.

The acquisition will significantly bolster CCM's MSR portfolio. TWO's $159 billion portfolio, combined with CCM's existing $202 billion as of the first quarter, will elevate CCM from the 15th to the 8th largest servicer by owned portfolio, according to Inside Mortgage Finance. The deal's final price is approximately $1.26 billion, a figure that increased by about $126 million due to a public bidding war with United Wholesale Mortgage. CCM raised its cash bid multiple times, from $10.80 per share in March to $11.30 in April and finally to $12 per share in May, also adding a dividend component.

This final price represents a 19% premium over TWO's tangible book value at the end of March. Ryan Wallace, a Fitch director and primary rating analyst for nonbank financial institutions, commented that the industry has seen increased valuations for MSR assets, suggesting CCM's payment is not unreasonable given the perceived value. CCM stated that the acquisition price reflects the strategic value and long-term financial benefits, emphasizing "compelling shareholder value" through "long-term earnings power, cash flow generation and strategic positioning."

CCM's immediate priority following the acquisition's closure will be the successful integration of the businesses to realize the intended strategic and financial benefits. The company views the transaction as a critical move to achieve scale in the competitive mortgage servicing rights market, a strategy common among its peers seeking to enhance their market position and operational efficiency.