Lenders withdraw IPOs even as mortgage market thrives
Two fast-growing US real estate lenders suspended plans to list their stocks last week, suggesting that the housing boom sparked by falling interest rates may be on weak foundations.
Caliber Home Loans generated $ 57 billion in home loans in the first nine months of 2020, a 50% increase from the previous year. But last Wednesday, the day it was listed, the company announced it would “report“Its public offer and” assess the timing of the proposed offer as market conditions change “. AmeriHome, with $ 45 billion in creations since the start of the year and a growth rate on par with Caliber, was also due to price its offering last week, but also delayed its listing.
The IPOs have reportedly given Caliber, which is owned by private equity firm Lone Star Funds, a market cap of $ 1.9 billion. AmeriHome, which is controlled by Apollo, was expected to be valued at $ 1.3 billion when it went public.
The delays are surprising in that it is a great time to be a mortgage lender. The volume of mortgage refinancing applications, although down from dizzying spring highs, is still about 60% higher than it was a year ago, according to the Mortgage Bankers Association. The mortgage purchase requests are around 20 per plus.
Profitability is also strong. The difference between the average rate consumers pay on their mortgages and the coupon on government guaranteed mortgage bonds stands at 1.6%, up from levels of around 1% before Covid. The spread is a rough approximation of lender profit margins because it measures the difference between the price at which lenders can buy mortgages and the price at which they can sell them in the bond market.
According to someone familiar with the situation, however, investors fear the good times for mortgage lenders may be at their peak, with just one downside from here on out.
The fact that other IPOs continued at a steady pace over the past week, including the debut of Chinese wealth management platform Lufax and Root online insurer – pointed out that IPOs had more to do with investor disenchantment with the mortgage industry than general stock market conditions.
The disappointing performance of several recent offerings from other lenders and a drop in shares of publicly traded lenders weighed on the Caliber and AmeriHome listings, according to those briefed on the matter. Rocket Companies’ Quicken Loans is the nation’s largest mortgage lender. Rocket listed its shares at $ 18 a share in August, below its initial target range. They stay close to this level. Smaller Guild Mortgage also faced lackluster investor interest in its IPO earlier in October, selling fewer shares than expected. These shares have slipped from an already reduced listing price.
Listed mortgage lenders PennyMac Financial and Mr. Cooper have seen their stocks underperform in recent weeks after a strong summer.
Rising interest rates are one of the reasons sentiment towards mortgage lenders has changed. Since August, the 10-year Treasury yield has fallen from around 0.5% to 0.86%. If this trend continues, it would reduce both the demand for mortgages and the profitability of lenders.
“With elections approaching, there are concerns of a ‘blue wave’ [a Democratic sweep] it translates into inflation because of big government spending and then the 10-year hike, causing mortgage rates to rise, ”said Kevin Barker, mortgage finance analyst at Piper Sandler.
Recent market volatility, triggered by the surge in Covid-19 cases and election uncertainty, has also contributed to the suspensions. The S&P 500 fell nearly 5% last week and the Vix volatility index hit its highest level since June. This limited the chances for both lenders to get their offer at a good price, said Christopher Whalen of Whalen Global Advisors. “Caliber and AmeriHome are well run businesses with professional owners. They won’t pull the trigger if pricing doesn’t make sense, ”he said.
“The moment of these [announcements] has everything to do with the volatility of the market in general, ”said Walt Schmidt, mortgage strategist at FHN Financial. At the same time, he said, “there is uncertainty over delinquencies in the coming months” as borrower forbearance programs expire. Just under 6% of mortgages to stay forbearance, according to the Mortgage Bankers Association.
Two other mortgage lenders, United Wholesale Mortgages and the Loan deposit also recently announced their intention to list the first on the stock exchange by merging with special purpose acquisition company (Spac) Gores Holdings. Their prospects are now uncertain.
“There was a small window of opportunity, and I’m not sure if it will open again,” Mr. Whalen said.
Caliber and AmeriHome declined to comment.