When Tim Holmes addressed the shareholders of Homeloans Ltd at the company's annual general meeting, on November 25, he told them to expect consolidation in the "second tier of the non-bank" sector in 2012. Holmes has been chairman of Homeloans since 2003 and managing director since 2008, and his plan is for the company to emerge from this period of consolidation with some acquisitions under its belt.Small groups in the mortgage market see 2012 as a crunch year. Businesses have been on the market since the financial crisis first hit, but the asking prices of many of them have been too high for acquirers.Now that the financial crisis has entered another difficult phase, and the growth outlook in the domestic mortgage market looks weak, merger parties are getting down to tacks."Homeloans is actively looking for acquisition opportunities. With fewer brands in the marketplace, this will strengthen our position as a genuine alternative to the major banks," said Holmes.Consolidation has already started. Last week Firstfolio completed its A$13 million acquisition of Calibre Financial Services. And MyState finalised its acquisition of The Rock Building Society.But it is not just consolidation that is going on. Earlier in the year FirstMac launched an online lending business, loans.com.au, hoping to establish a new distribution channel.FirstMac chief executive Kim Cannon told delegates at the Australian Securitisation Forum conference, held last month, that he had did not believe that small lenders could rely on mortgage brokers to support them. Cannon said the brokers were giving more and more of their business to the big banks. Small lenders would, therefore, have to look for others ways to grow their businesses.Cannon said: "We have lost that battle. Large aggregator groups are giving 90 per cent of their business to the banks. We are going more retail, with sales direct to the customer. Brokers are a dead loss for us." A Homeloans senior executive, Scott McWilliam, said the company was looking at acquisitions that would increase its book size or provide new sources of distribution, or open up new funding lines. McWilliam said: "We have been quiet over the past couple of years, but we have spent that time putting our house in order.  "We have no debt and last financial year we made a $32 million return of capital. We cut our headcount by a third during the GFC and cut again by about 25 per cent coming into this downturn. "We spent the past couple of years making sure we had a very efficient operation."We looked at some deals, but for one reason or another they did not fit. We believe we are in a position now where there are a number of strategic assets we could acquire at reasonable prices."Homeloans does most of its business through brokers. It has a small high street presence, with 15 shopfronts - most of them in Western Australia and Queensland. McWilliam said the company would like to expand this network and is looking at a Sydney store opening for next year.Homeloans