As CCM is poised to win the TWO bidding war, an integration test awaits

With CrossCountry Mortgage’s deal to acquire Two Harbors Investment Corp. one step closer to the finish line after securing shareholder approval, the focus is shifting to what may be the next major challenge: integrating the businesses.

Industry experts pointed out the complex task of bringing a large servicing portfolio in-house, but analysts expressed confidence in CCM’s ability to combine both companies without losing track of its financials, while flagging rising leverage. 

Like its peers, CCM is seeking scale in mortgage servicing rights (MSRs). TWO would bring a $159 billion portfolio to CCM’s $202 billion as of the first quarter, per Inside Mortgage Finance. The deal pushes the lender from the No. 15 spot into the No. 8 spot among top servicers by owned portfolio.

If the acquisition closes as currently designed, CCM will pay about $1.26 billion, after weathering a public bidding battle with United Wholesale Mortgage that increased the price by about $126 million.

The company raised its cash bid from $10.80 per share in March to $11.30 in April and then to $12 in May, adding a dividend component. The current price came in at a 19% premium to TWO’s end of March tangible book value.

“Lately, people have been paying up for MSR assets. That’s not been a secret in the industry,” said Ryan Wallace, a Fitch director, primary rating analyst covering nonbank financial institutions. “I don’t think they’re being unreasonable. They see the value in this. They operate pretty conservatively, but they ended up paying probably what would be a full price.” 

In response to HousingWire‘s questions about the deal, CCM said the price reflects the deal’s strategic value and long-term financial benefits.

“When viewed through the lens of long-term earnings power, cash flow generation and strategic positioning, we believe this transaction creates compelling shareholder value,” it said. “Our immediate priority is successfully integrating the business, realizing the strategic and financial benefits of the transaction, generating strong cash flow and reducing leverage over time.”

The servicing play

With this transaction, CCM reaches a scale at which maintaining a dedicated, in-house servicing unit makes clear financial sense.

TWO subservices $40 billion in loans. Its servicing arm is RoundPoint Mortgage Servicing LLC, which it acquired in 2023. TWO also has a small direct-to-consumer origination business, launched in 2024 for recapture. In the first quarter, TWO funded $92 million in unpaid principal balance (UPB) and brokered $38 million in second liens.

CCM and TWO have been working together, including MSR sales by TWO to CCM and subservicing by RoundPoint of CCM-owned MSRs — an existing operating familiarity that should reduce risk.

“RoundPoint already subservices a significant portion of CCM’s servicing portfolio today, so this is not a new operating relationship. Over the past year, we’ve worked closely together and developed a deep understanding of the platform, technology and operating model,” CCM stated. “RoundPoint will continue operating with its experienced team and proven servicing platform, making this much more of a scaled expansion of an existing platform than a traditional systems conversion.”

However, CCM also uses Mr. Cooper Group. The lender is pursuing a strategy similar to one drafted by UWM. Following Rocket Companies‘ acquisition of Mr. Cooper, UWM moved its servicing in-house to keep it away from its biggest rival, and subsequently aimed to acquire TWO to boost its own scale.

“We have already begun boarding newly originated CCM loans onto the RoundPoint platform. Following closing, the transfer of legacy loans currently serviced by Mr. Cooper will occur in phases over the following months,” CCM added. “The phased approach is designed to minimize operational risk, ensure regulatory compliance and provide a seamless borrower experience throughout the transition.”

Balancing servicing and origination

By acquiring TWO, CCM will achieve a better balance between its servicing and origination businesses. It also reduces the need for the company to be active in the MSR bulk market. CCM said that the additional scale from this transaction allows it “to be even more selective in today’s market.”

Servicing fees provide steadier, more predictable earnings than origination volume alone, while the expanded MSR portfolio will fuel significant recapture opportunities.

“Much of the deal valuation was built on the ability to churn consumers, and CCM has one of the best consumer-direct and retention platforms in the industry,” said Rick Roque, corporate vice president of new growth at NFM Lending, who previously worked at CCM. “They could pick up another $10 billion a year in volume just from that extra pickup. There’s no indication that rates are going down, but if they were to go down, that could add another $3 billion to $5 billion in production over the next 12 to 18 months.”

In 2025, CCM originated $51 billion in mortgages, making it the No. 7 overall lender and the top distributed retail mortgage lender in the country. According to Roque’s estimates, the added recapture volume could generate roughly 50 to 60 basis points in net profit after corporate allocations, delivering an immediate impact within the first 12 months post-close.

Nick Kinsella, assistant vice president of the financial institutions group at Moody’s Ratings, added that bringing servicing in-house introduces new regulatory and operational risks. However, he noted, “given the company’s track record, management’s experience, and the complementary nature of the platform with CrossCountry’s business model, we view all those risks along with the integration risk as modest going forward.”

The MSR book profile

CCM has no history of operating a servicing business at this scale, according to Coby Hakalir, who leads the mortgage banking division at real estate consulting firm T3 Sixty. Integrating the technology and systems could take one to two years, spanning compliance, escrow management, custodial accounts and servicing platforms.

“The MSRs are already marked to market — 119% of that estimate is a big bet,” Hakalir said. “CCM’s hedge is the fact that they can refinance that book of business, which represents about three times their 2025 volume.”

If the deal closes in August, pending final regulatory hurdles, the key question is whether CCM will be operationally ready if rates drop soon. Because most borrowers in the portfolio were not originally CCM customers, recapture could prove difficult, Hakalir added.

“The risk is that the opportunity to refinance these clients comes too quickly,” he said. “But that’s not a death sentence; it’s just that it would become a more expensive deal if they couldn’t recapture some of that business based on the premium they paid on the MSRs.”

Based on TWO’s portfolio profile, however, rapid runoff is a low risk. As of March 31, the portfolio had a weighted average gross coupon of 3.54%, a 60-plus-day delinquency rate of 0.81% and a three-month conditional prepayment rate (CPR) of 5.6%. 

With this weighted average coupon on TWO’s MSR portfolio, mass rate-and-term refinancing is unlikely. However, the real opportunity is in cash-out refinances — borrowers at those low rates have seen home values rise, creating significant equity to tap.

“The reality is: it’s difficult to make money in just originating loans, so having this servicing play – not only as a hedge against higher interest rates, but to go for example from recapturing 20% of your customers to potentially 50% – is a game changer,” Hakalir said. “This is a long-term strategic play.”

CCM stated the deal creates a substantial opportunity to improve borrower retention over time.

“Historically, Two Harbors did not have the origination scale necessary to fully capitalize on those customer relationships,” the company said. “By combining their servicing portfolio with CCM’s national origination platform, we expect to create significantly more opportunities to recapture borrowers throughout the life of the loan.”

Leverage figures

When the deal was at $10.80 per share, Fitch estimated it would bring CCM’s corporate leverage — defined as gross non-funding debt to tangible equity — to about 2.1x on a pro forma basis at year-end 2025, assuming the transaction is fully debt-funded. The estimate may change depending on the deal’s final price and structure, as well as updated financials from both companies. 

This exceeds the agency’s downgrade trigger of 1.5x. However, retained earnings growth is expected to reduce leverage toward the company’s 1.0x target over the medium term.

“We still think that is pretty manageable for them,” Wallace said. “They’re going above our stated downgrade trigger, which is risky. But we just feel that there’s, all things considered, a good chance that they will get back within sensitivities in the medium term there. The integration is certainly what they’re going to be focused on whenever they do close, and it should probably take at least a year or two to fully work that through.”

CCM said that its fundamental approach to leverage hasn’t changed, with the lender still committed to target about 1.0x net leverage over the medium term. “While leverage will temporarily increase following the transaction, it’s important to view that in the context of a significantly larger and more cash-generative business,” the company said.

It added that, “The combined company will benefit from substantially higher recurring servicing cash flows, a larger MSR portfolio and meaningful synergy opportunities, all of which support rapid deleveraging over time.”

The negotiations with CrossCountry Intermediate Holdco, an affiliate of CCM, include $3.4 billion of committed financing: a $2 billion secured facility and a $1.4 billion unsecured commitment from Citi. CCM completed two large unsecured issuances last year totaling $1.5 billion to repay MSR lines. Fitch assumes it may return to the market for additional funding.

Moody’s Ratings also sees the company’s leverage increasing due to the all-cash nature of the deal, but anticipates a clear path to recovery.

“Due to the company’s prudent financial policies, and conservative and disciplined risk management practices, we expect them to manage it appropriately over the long term, and maintain a solid level of capital,” Kinsella said. “We would view a shift from secured to unsecured debt as a credit positive because it frees up collateral and strengthens liquidity.”