By Elise Daniel
Even in the middle of an economic recession, IPOs are booming and mortgage companies don’t want to miss out. The mortgage industry at large is at a peculiar crossroads and companies and investors are jumping to cash in on a unique set of circumstances, at least in the short term.
Though some public debuts went on hold in the fall, likely due to market uncertainty surrounding COVID stimulus negotiations and the election, IPOs are back in 2021. Several lenders either went public or announced their plans to go public last year and many are expected to go public in the first quarter.
Between jaw-droppingly low interest rates and a booming stock market, many experts aren’t surprised so many mortgage companies are going public.
“The surge in mortgage IPOs is likely a combination of the general strength in the IPO market and the record-low interest rate environment,” Matt Frankel, mortgage analyst for The Motley Fool, said. “With companies like Airbnb, Snowflake, DoorDash, and more trading for several times their IPO prices, and extreme investor demand for financial technology (fintech) stocks, it’s no wonder that mortgage disruptors are choosing to go public.”
The companies announcing IPOs are a combination of mergers, delayed offerings and public debuts, showing that, even though many Americans are stuck at home, the housing market continues to be an area of interest to investors.
Here’s a quick run-down of some of what was launched in 2020 and what is planned for 2021:
Rocket: Rocket Companies, the parent company of Rocket Mortgage and Quicken Loans, celebrated its public debut on August 6 offering 100 million shares at $18 per share. “We see tremendous runway to drive long-term profitable growth by increasing market share in the massive and fragmented mortgage industry,” said Jay Farner, CEO of Rocket Companies.
Guild Mortgage: On October 22, Guild Holdings Company announced its IPO of 6.5 million shares had been priced at just $15 per share. (Just two days earlier, the company agreed to pay the federal government $25 million to settle a 2016 lawsuit.)
United Wholesale Mortgage: United Wholesale Mortgage’s (UWM) highly anticipated public debut is up next, set for January 22 through a merger with special-purpose acquisition company (SPAC) Gores Holdings. Though the merger was originally scheduled for the fourth quarter of 2020, it was punted to the new year due to uncertainties surrounding the Covid-19 pandemic. According to Reuters, the deal means UWM will retain about 94 percent ownership of the combined company.
Finance of America: In October, Finance of America announced its plan to go public through a merger with the SPAC Replay Acquisition Corp.
AmeriHome: In October, AmeriHome announced its IPO filing with the SEC with plans to sell 14.7 million shares priced between $16 and $18, but they reportedly pushed their debut back shortly after amid shaky market conditions related to Covid-19 and ongoing stimulus package negotiations.
Caliber Home Loans: Like AmeriHome, Caliber also filed in October and delayed its public offering. “Caliber will continue to evaluate the timing for the proposed offering as market conditions develop,” the company said in a statement.
New Residential: New Residential Investment Corp announced in November that their affiliate, NewRez LLC, had filed with the SEC to go public.
Better.com: In November, Better.com selected Bank of America and Morgan Stanley to prepare their IPO sometime this year.
loanDepot: LD Holdings Group LLC announced on January 11 that its newly formed affiliate, loanDepot, Inc. had filed to go public.
After the economic uncertainty of 2020, which included historic levels of unemployment and upended housing markets in many urban areas, it may seem like an odd time for an IPO and stock market boom. What’s going on?
Experts attribute much of this unprecedented trend to the government’s response to the Covid-19 pandemic. Between massive stimulus packages and the Federal Reserve pushing down interest rates to historically low numbers, public policy is creating optimism in the stock market and a unique opportunity for mortgage companies to go public.
Despite everything, could this actually be a good time for mortgage companies to go public? The answer appears to be yes. A surge in home buying and refinancing, driven by low interest rates, has created a hot opportunity for mortgage lenders.
“These companies have extremely impressive growth figures to show prospective shareholders,” said Frankel, adding that some companies experienced remarkable growth in 2020.
LoanDepot, for example, increased its origination volume during the first nine months of 2020. by a staggering 116 percent in 2020 compared with the same period in 2019.
The government’s response to Covid-19 is creating a dichotomy of a struggling economy and a booming stock market. Will the mortgage IPO craze last? Some experts say it will, confident that the Federal Reserve wants the refinance boom to last and will keep interest rates low.
“The Fed realizes that the easiest way to get money into people’s pockets is to let them cut their mortgage payment or to get a cash-out refinance. I suspect the Fed will keep the refi boom going for the near term,” mortgage analyst Brent Nyitray speculates.
Others are not so sure, comparing the mortgage IPO craze to the dot-com bubble and burst in the late ‘90s and 2000s. Frankel says his biggest concern is that the mortgage market could cool off significantly in 2021 and over the next few years.
“We’re already seeing an early 2021 surge in demand as borrowers are afraid they’ll miss out on the low rates,” he said. “Given the massive amounts of stimulus being injected into the economy combined with the presumptive decline in unemployment as the Covid-19 pandemic gradually starts to taper off, it’s certainly possible that we could see mortgage rates climb significantly. This would likely lead to a slowdown in demand, especially for refinancing, which could cause some of the mortgage IPO stocks to cool off.”
The strength of this trend seems to rest primarily on the stock market continuing its hot streak and the likelihood of low interest rates persisting with a Biden Administration. But for now, it pays to be in the business of debt.
Elise Daniel is a freelance writer and reporter for the Mortgage Note.