The recent halt to a proposed initial public offering by loanDepot Inc. served as a check on a rally in the mortgage finance industry here.
The Foothill Ranch-based lender had set the stage for what would have been among the highest IPOs of Orange County companies in recent years, priced to raise up to $621 million. It then canceled the offering, citing market conditions.
The step back from public markets comes as loanDepot continues to carve out its market share. The company’s reconsideration came after a 12-month stretch that saw other lenders in OC make strategic moves that—taken together—reflect a local mortgage-lending landscape that has been reshaped since the recession, with a smaller cast of bigger nonbank lenders.
The local group has filled niches that banks have steered away from in the wake of the mortgage meltdown and heightened regulation, and they seem to have enough room to maneuver going forward, even if interest rates begin a modest climb, as expected. Recent moves here have included mergers and acquisitions, private equity capital investments, and bets on diversification.
“There is now a viewpoint that mortgage companies, especially if they’re connected to more diversified loan products, such as consumer loans, are going to be fairly well accepted,” said Bill Ashmore, president of Irvine-based Impac Mortgage Holdings Inc. “There are things that have happened in the mortgage industry, just in the past year or two, that are probably a good sign overall. Even though mortgage lending and real estate in general are some of the largest businesses, they haven’t been held in high regard here since 2008. [But today,] mortgage companies are raising stock, engaging in mergers and acquisitions activity, making deals around ancillary businesses. These are dynamics that just were not present before.”
Impac recently posted its latest quarterly financial results, which included $19 million in net income for the three months through September, a swing from a loss of $1.2 million in the same quarter last year.
Ashmore pointed to Impac’s efforts to branch out beyond the agency business—the Fannie Mae, Freddie Mac and Ginnie Mae products—to push forward with “non-QM” lending, which is a program to help serve borrowers who may have trouble finding financing options within the “Qualified Mortgage” rules.
“The non-QM part is not a big portion today, but we think it could be in 2016,” he said. “We’re evaluating doing some consumer lending. It makes a lot of sense … Consumer-facing mortgage is very highly prized if you do it well.”
CashCall
Impac’s financials were boosted in large part by the effects of its acquisition this year.
It kicked off 2015 with a buy of the mortgage unit of CashCall Inc., an Orange-based diversified lender that retained its portfolios of personal and small-business loans.
“CashCall took our volume … to $800 million a month,” or about $10 billion on an annual basis, Ashmore said. “We weren’t even close to that last year—we did maybe about $2.5 billion.”
He said Impac’s value as a publicly traded company also has been positively impacted since the CashCall acquisition.
It’s stock opened at just above $6 a share at the beginning of the year, and it’s now trading squarely in the $17-to-$20 range, with a recent market capitalization of about $188 million.
Greenlight Loans in Irvine was part of the mortgage sector consolidation trend when the industrywide move began to gain steam broadly after the fallout from the crisis. The company, which was known as Greenlight Financial Services Inc., was acquired in 2013 by Lewisville, Texas-based Nationstar Mortgage Holdings Inc. for $75 million. Nationstar kept Greenlight’s brand intact and its main offices here.
Joann Pham founded Greenlight in Irvine in 2001 and headed it through to the end of 2012, when David Norris took over as chief executive. Norris joined loanDepot in 2014 as chief operating officer and now is listed as the firm’s senior adviser.
Greenlight at the time of the deal had about 750 employees, with most of them in Orange County. Nationstar shortly after its strategic buy told the Business Journal that the Greenlight operations are expected to bring in about $8 billion in originations annually.
Nationstar’s third-quarter earnings report said the company funded $4.9 billion in the three-month period, with the consumer-direct channel, which includes Greenlight, accounting for about 60%.
There’s also room for financial buyers to make their play.
Santa Ana-based Stearns Holdings LLC, which has been in business since 1989, in August sold a majority stake to the private equity group of Blackstone Group LP, a New York-based global asset manager.
Financial terms and the percentage of ownership sold weren’t disclosed as the two companies closed the deal last week. Stearns executives declined to comment for this story.
An initial statement announcing the deal said the relationship would give Stearns “the necessary resources to accelerate its growth” and fuel efforts to get more market share.
Stearns has more than 1,700 employees and has been listed on the Inc. 5000 list of the fastest-growing companies in the U.S.
Organic Approach
New American Funding isn’t big on mergers and acquisitions, but “slow, organic” growth seems to be working for the Tustin-based company.
Chief Executive Rick Arvielo said a consistent credit policy and focusing on specific demographics have been key growth drivers as it weathered the recession.
“We’ve always been what I call a middle-of-the-road lender; we didn’t do subprime,” he said. “It’s a testament to my wife, who really is the credit policy person of the company. And since the fallout, I’d say we’ve done nothing but gain, simply because a lot of our competitors ceased to exist. Largely, what you’re left with are companies that do care, want to do what’s right, and follow rules.”
The company was founded in 2003 by Arvielo and his wife, Patty. It’s on pace to close about $10 billion in loans this year and has nearly 2,000 employees, up a hundredfold from what was a group of 20 at the “low point” in 2008.
New American’s specific focus on “helping the underserved market,” specifically Latino-Americans, has helped drive its growth, Arvielo said.
“My wife is Latina, and she’s familiar with what’s occurred in that segment of the business,” he said. “People don’t realize that those segments were disproportionately impacted by the meltdown. Most of their wealth was in housing, unlike people with more means, stocks, bonds, and different types of investments. Patty is passionate about doing whatever she can to provide opportunities to this demographic.”
Arvielo added that the company also “invests heavily” in marketing and technology to cater to the younger generation.
“When the millennials hit home-buying age, they’re not going to be willing to do things the way their parents and grandparents did,” he said. “That’s my bet anyway. They’re going to want a different experience, and we’re preparing for that. From the technology standpoint, it’s about real-time information. From the marketing standpoint, it’s social media.”
Hsieh’s Blog Post
It was through a social medium—a blog—that loanDepot’s chief executive, Anthony Hsieh, recently provided some explanation on the company’s pullback from the IPO.
The company, which is among the largest consumer nonbank lenders nationwide, expects to continue its growth, he said, whether as a public company or not.
“The pursuit of an IPO was one option to accelerate our plans for growth that were already in progress,” he said. “And while an IPO continues to be an option, perhaps one day in the future, it’s not a necessity.”
