Many of us start the new year with an array of New Year Resolutions – losing weight, exercising more, finishing a project at home, etc –, but most of us just fall into our same old habits.  At the end of the year we are still out of shape and have yet to complete the kitchen remodel.   It’s easy to sit on our arm chair and fantasize about our resolutions, but it’s another thing to get off our backside and do what we said we would do. 

Over the weekend, my wife and I decided, as a New Year’s Resolution, to visit interesting places within 2 hours driving time from our house. We live in the San Francisco Bay Area and there are many great places within a short drive.   My wife made a list close to 40 places we want to visit this year.  So, on Sunday we visited one of the places, Point Reyes National Seashore (it is north of San Francisco).  The shoreline starts near Bolinas, wraps around the lighthouse, continues north to the opening of Tomeles Bay.

Here are some pictures of the park:

Over the past month, we‘ve had a few private equity groups contact us that are interested in making an investment in a mortgage banking company.   Generally, these companies will invest from $2M to $5M. The capital can be invested as subordinated debt or as preferred stock.  They generally require a minimum return on the debt and stock, with a decent share in the profits.  The objective is not necessarily a liquidity event like an IPO or a sale of the company, but a nice year-over-year return. 

For mortgage bankers, private equity can be a valuable source of capital and liquidity to help a company grow.  It can provide core capital to expand warehouse lines and obtain GSE approvals.  It also provides much needed liquidity to finance haircuts, growth and settlement timing issues of hedge activities. 

The opening line of Charles Dicken’s book, A Tale of Two Cities, sums it up for mortgage bankers today:  “It was the best of times, it was the worst of times”

For mortgage operators with capital and cash, it is the best of times:  increasing production and profits.  For operators without capital and cash, it can be the worst of times:  delays in fundings, inadequate cash to pay overhead, little to no profits.

For mortgage banking operators seeking capital from private equity groups, there are a couple of things to remember:

  1. Be realistic about the valuation of your company. 
  2. Be focused on profits over volume
  3. Be prepared to be accountable to your new partners.