One of the largest mortgage lenders in Minnesota, River City Mortgage, has agreed to be taken over by a much larger bank from Illinois rather than face a raft of new regulations.
The Bloomington-based mortgage firm, which has 120 employees and six offices in the Twin Cities, said it has agreed to sell itself to Wintrust Financial Corp., a Lake Forest, Ill.-based company that owns 15 community banks in the Chicago and Milwaukee areas.
Louis Olsen, who founded River City in 1994 and has been its longtime president, said tighter federal regulations played a key role in his decision to sell. New rules have created an "uneven playing field" between non-bank mortgage firms like River City and large banks that are exempt from the regulations, he argued.
The deal has resulted in the loss of about 15 back-office jobs; no further job cuts are expected, Olsen said.
"It's horrible," Olsen said of the new regulations. "This will cost consumers in the long run because it will reduce competition and banks will be able to charge whatever they can" for mortgages.
The deal comes amid growing consolidation in the mortgage industry, spurred by the weak housing market and far-reaching changes to lending rules. This year new licensing rules went into effect that require all mortgage brokers and loan officers to be licensed, and federal regulators are requiring that all mortgage lenders keep more capital on their books as a buffer against losses.
In addition, mortgage lenders will soon face additional scrutiny from the Consumer Financial Protection Bureau, the new federal agency created to police financial products.
Olsen said he recently opened a mortgage lending office in Omaha, but hasn't been able to make any loans yet because the firm is still waiting for regulators to issue the licenses.
"There will be some lenders that will stay, but they will fight an uphill battle," he said.
The new layers of regulation were designed to prevent a repeat of the foreclosure crisis. However, they have also compelled hundreds of independent mortgage brokers to close shop or sell to larger banks.
Wintrust has been among the acquirers. The publicly traded bank holding company, which has about $14 billion in assets, has purchased three small mortgage lenders since the housing crisis began more than three years ago.
"A lot of the old [mortgage] brokers are saying, 'Holy cow, I gotta do all this compliance now and I'm not prepared for it,'" said Edward Wehmer, president and chief executive of Wintrust. "The good ones are linking up with banks that have been subjected to these rules forever and a day."
With River City Mortgage, Wintrust will be acquiring one of the five largest nonbank mortgage lenders in Minnesota. The firm originated nearly $500 million in mortgages last year.
River City and Wintrust did not reveal terms of the deal. However, the firms said that a "significant portion of the purchase price" for River City is dependent upon future profitability measures, according to a written statement. Olsen will become senior vice president at Wintrust Mortgage.
Wintrust stock rose 17 cents to $36.61 a share Friday.
Chris Serres • 612-673-4308
