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Is This Mortgage IPO Worth a Look?

By Matthew Frankel, CFP® - Feb 12, 2021 at 6:43AM

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Yet another mortgage lender just made its public debut.

There certainly hasn't been a shortage of mortgage lenders hitting the public markets in recent months, with Rocket Mortgage (RKT 0.23%), United Wholesale Mortgage (UWMC -2.52%), and Home Point Capital (HMPT -0.53%) all completing IPOs. Now, loanDepot is joining them.

In this Fool Live video clip recorded on Feb. 2, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discussed why so many mortgage lenders are going public and whether loanDepot should be on investors' radar. 

Jason Moser: LoanDepot, another mortgage lender going to be IPOing here. This looks like a business with some real traction.

Matt Frankel: Well, you said it. It's another mortgage lender. We've seen quite a few of them come public lately. There was Rocket Mortgage, United Wholesale Mortgage is another one that just recently went public, and Home Point which we talked about on last week's show, just went public. It's worth mentioning that Home Point went public at $13 a share. You know what it's trading at now?

Jason Moser: I don't.

Matt Frankel: Eleven fifty. It has not had 2020 IPO reaction we're used to seeing lately. Market didn't receive it very well. [laughs]

Jason Moser: What's up, man?

Matt Frankel: It didn't triple on its first day. That's a fail.

Jason Moser: Pass.

Matt Frankel: LoanDepot is going public. TD Ameritrade has it listed on their calendar for Thursday.

Jason Moser: All right.

Matt Frankel: It's coming up pretty soon. They're going public the traditional route, not through a SPAC, not through a direct listing, which feels so 2019 at this point.

Jason Moser: I was going to say, man, I don't even understand what that means anymore.

Matt Frankel: Are you even using a SPAC? Come on. [laughs]

Jason Moser: Do you even SPAC, bro? [laughs]

Matt Frankel: LoanDepot, you're right. They do have a lot of traction to go. They first tried to go public in 2015, they pulled the plug because of bad market conditions, which a lot of companies did at that point. They've grown their market share, they're the fifth largest retail mortgage lender. Retail meaning, consumer-initiated like a mortgage lender that you would just go to apply to.

Jason Moser: Like a retail bank.

Matt Frankel: Right. Not like sold through a homebuilder or sold through a broker or things like that, direct to consumer. They're the fifth-largest retail lender in the U.S. They're up there, they're a big company. They've grown their market share from 1% in 2014 to 2.6% now. Their lending volume has more than doubled over the past year, but you have to take that with a grain of salt. We've talked about it last week when we talked about Home Point, everybody's been refinancing. You can't judge a mortgage lender based on how much volume they did in 2020 because everybody was refinancing their homes. [laughs] Anyone who didn't refinance their home in 2020, I don't know what they were doing. You can't really judge it by the volume growth, judge it by the market share, which is why I quoted that statistic first. They went from one percent to 2.6%, so they almost tripled their market share. That's pretty impressive. But like I said, there's a reason all of these mortgage companies, I mentioned Rocket, United Wholesale, Homepoint, they're all going public right now. It's because they're on the tail end of this giant mortgage boom of the refinancing, and that people are buying homes on record numbers, and home prices were going through the roofs, so the actual mortgage principal amounts were getting larger because there was so little supply in 2020. 2020 was not a normal year for the housing market and it made a lot of mortgage lenders look very, very good. I mentioned Home Point is trading for below its IPO price, and I think it's because the market's figured this out. [laughs] The 2020 numbers are making these companies look a little bit better than reality.

Jason Moser: A little bit pull forward.

Matt Frankel: I don't want to take anything away from loanDepot, their growth has certainly been impressive. Like I mentioned, from 2014 to now, they've grown their market share that much. That's over a longer period of time than just the 2020 great environment. I'm more hesitant -- take a step back and pump the brakes on all these mortgage lenders before I would get interested in those. I want to see how 2021 plays out and I want to see how they do when everyone's already refinanced and that part of the market is calming down because there's only so many people who can benefit from refinancing.

Jason Moser: I know, you're right. I remember we talked about that so much several years back with Ellie Mae (ELLI), the mortgage software provider, that we recognized the amount of volume that they did in refinancing a loan. Purchase was a big part of it. In times when refis start to shrink up a little bit, purchase does jump in there and take a little bit of that share. But it really is trying to figure out exactly how much. Yet to your point, refi volume has just been so on fire here over the past couple of years. You're right, it's not normal, it's going to slow down and how it impacts these businesses. I certainly understand them wanting to get in now where they can present really the best case scenario with those numbers.

Matt Frankel: It makes sense why they're doing this wave of IPOs. But there's also a reason you're not seeing the giant first-day IPO pops like you were with Airbnb and DoorDash or any of those.

Jason Moser: Yeah, that makes a lot of sense.

Matt Frankel: You might actually be able to get in close to the IPO price.

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Stocks Mentioned

Home Point Capital Inc. Stock Quote
Home Point Capital Inc.
HMPT
$3.77 (-0.53%) $0.02
Ellie Mae, Inc. Stock Quote
Ellie Mae, Inc.
ELLI
Rocket Companies, Inc. Stock Quote
Rocket Companies, Inc.
RKT
$8.75 (0.23%) $0.02
UWM Holdings Corporation Stock Quote
UWM Holdings Corporation
UWMC
$3.87 (-2.52%) $0.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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