Mortgage Industry Consolidation

The reduction in non-bank lending, reduced commissions, and decreased lending volumes have led to an increase in amalgamations and business sales.

Many brokers embark on a proposed sale or purchase without understanding the significant risks associated with such a transaction.

In this report we look at three key risks:

• taxation;

• default liability;

• trail forfeiture.

Taxation

The purchase price paid for a loan book will generally be a capital expense and will not be deductible against the income derived from the book. Accordingly, if a purchaser pays $300K for a book, at a 50% tax rate, trail income of double that amount, $600K will be required just to break even.