Analysis: Mortgage vendor IPO woes reflect U.S. housing market peak

Home Point Capital

22/02/2021 12:00

By David French and Chibuike Oguh
    Feb 22 (Reuters) - Investors fueling an initial public
offering bonanza are snubbing many U.S. mortgage providers'
stock market debuts over concerns that the sector might have
reached its peak.
    Five mortgage vendors have scaled back or canceled plans to
go public in the last four months, as investors flinched at
their frothy valuations. This may bode poorly for IPOs by other
home loan providers such as Better.com and NewRez.
    Many lenders have never had it so good, as affluent
professionals fleeing big cities during the COVID-19 pandemic
take out large loans to buy homes in the suburbs, and as
near-record low interest rates fuel refinancings.
    Yet investors and analysts say IPO hopefuls in the sector
have not priced in an expected housing market slowdown in 2021. 
    "Investors don't like buying into a company at the start of
a down cycle, and mortgage originations are an extremely
cyclical business," said Matthew Kennedy, a senior strategist at
IPO-focused research firm Renaissance Capital.
    LoanDepot Inc  LDI.N  was forced to cut its IPO by 75% to
$54 million this month, after investors balked at its request to
be valued as highly as $6.8 billion. Home Point Capital Inc
 HMPT.O  downsized its IPO by 40% at the end of January to $94
million, giving up hopes of an up-to-$2.9 billion valuation.
 urn:newsml:reuters.com:*:nL4N2KH1ST  urn:newsml:reuters.com:*:nL4N2K451V
    This is despite 62% of U.S. operating companies that went
public in January having upsized their offerings on strong
investor demand, according to data compiled by IPO expert Jay
Ritter, a professor at the University of Florida.
    Two other mortgage vendors, AmeriHome and Caliber Home
Loans, pulled their IPOs in October. AmeriHome's owner, private
equity firm Apollo Global Management  APO.N , clinched a deal
last week to sell the company to regional bank Western Alliance
Bancorp  WAL.N  at a 23% discount to the $1.3 billion valuation
it was seeking in the IPO.  urn:newsml:reuters.com:*:nL4N2HJ5UK  urn:newsml:reuters.com:*:nL4N2KM3WX
    The investor pushback reflects concerns about the industry
outlook, as mortgage rates gradually creep up with the economic
recovery, and home price inflation begins to weigh on purchases.
The Mortgage Bankers Association is forecasting a 49% decline in
the number of refinancings in 2021.
    Other warning signs have emerged. Shares in Rocket Companies
Inc  RKT.N , parent of America's largest mortgage lender Quicken
Loans, trade barely above the level at which the company priced
its IPO in August, which was downsized by a third on poor
demand.  urn:newsml:reuters.com:*:nL1N2F72VM
    Guild Holdings Co  GHLD.N , which listed in October after
shrinking its IPO by 24%, has reported net income for the first
nine months of 2020 of $293 million, reversing a loss of $39
million in the year-ago period. Yet its shares are up 10% since
the IPO, underperforming a 13% rise in the S&P 500 Index  .SPX .
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    "Investors are saying these are earnings that are unlikely
to be growing and we are not willing to give the (mortgage)
company a valuation at a high price-to-earnings ratio," Ritter
said.
    
    IPO PIPELINE
    Some big industry players are still hoping to tap the IPO
market in the coming weeks. Online lender Better.com, backed by
banks including Citigroup  C.N  and Goldman Sachs Group  GS.N 
and investors such as Activant Capital and 9 Yards Capital, has
been working with bookrunners to launch an IPO in the first half
of this year, according to people familiar with the matter.
    A spokeswoman for Better.com declined to comment.
    NewRez, a mortgage lender and servicer, said in November it
had filed confidentially for an IPO. Its owner, real estate
investment firm New Residential Investment Corp  NRZ.N , has
recently expressed apprehension about its listing prospects.
    "It is on the table. It is just one of those things that we
just want to make sure before we do it, that it is going to be
something that is worth it for our shareholders," New
Residential Chairman Michael Nierenberg said on the company's
quarterly earnings call this month.


 (Reporting by David French and Chibuike Oguh in New York;
Editing by Greg Roumeliotis and Richard Chang in New York)
 ((davidj.french@thomsonreuters.com; +1 646 223 5211; Reuters
Messaging: davidj.french.thomsonreuters.com@reuters.net))