Home Point Financial, the parent company of wholesale lender Homepoint, joined the growing ranks of nonbank mortgage lenders listed on the public markets.
As HousingWire first reported Thursday night, the company plans to raise $94.25 million on the NASDAQ Stock Exchange in its debut.
The IPO is a secondary offering, meaning the company itself isn’t selling shares and will not receive proceeds. Shareholders from its private equity backer Stone Point Capital initially had hoped to raise $250 million by pricing 12.5 million shares between $19 and $21. Instead, the IPO was downsized, with shareholders selling 5.3 million fewer common stock shares.
HousingWire caught up with Homepoint’s Chief Investment Officer Maria Fregosi to talk about the lender’s debut, its long-term goals, the investor appetite for the wholesale market, the position of its private equity backer Stone Point Capital, what the appointment of former Fannie Mae executive Andrew Bon Salle as chairman signifies for the company, and much more.
The interview has been lightly edited for length and clarity.
HousingWire: Congrats on the debut, Maria. Can you clarify the terms of the offering? It looks like $94 million is being raised, with 7.25 million shares priced at $13.00?
Maria Fregosi: Yeah, there’s an additional optional 1.875 million, so it could be as much as 108.
HW: Home Point Capital downsized the IPO. Can you talk about the thought process behind that?
MF: We felt it was very important for us and, really, for the mortgage industry, that Homepoint take this first step to go public. We wanted to make sure that we had a successful offering, so we adjusted the offering size to a level that made sense and allowed us to achieve our main goal of getting into the public market.
HW: Do you know at this point what that puts your market cap at?
MF: It’s going to be around $2 billion-ish. Around there.
HW: Can you talk about how the proceeds are used?
MF: This is a secondary offering, so this is really a repayment to our original shareholders. We were funded by Stone Point Capital, through their Trident Funds. It’s a repayment of liquidity for them. They’re selling less than 5% of their shares.
HW: What I find interesting about Homepoint is you guys were servicing your loans before it was cool. So you’ve retained servicing rights and don’t have any MSR revenue. Will that change now that you’re going public?
MF: It’s really important to retain the servicing, and we felt that for a number of reasons. Number one, it’s definitely the best way for us to control the customer experience. We do our own servicing, we don’t use a subservicer. We know the customers are going to be treated with our “We-Care” attitude. Number two, this is a cyclical business so certainly if rates start to go up, it’s good to have the MSR asset, which helps you to be able to perform no matter what the scenario.
HW: Let’s talk a little about dedicated wholesalers in the public markets. For now, it’s just you and United Wholesale Mortgage. UWM debuted last week. Could you share your thoughts on the public markets’ reaction to wholesalers?
MF: I think it’s a little early to tell. We’re excited, along with UWM, to tell that story on why we think the broker market is a really emerging part of the market and continues to be very successful. No matter what the rate environment is, they continue to increase their share. And we’re happy to be able to partner up.
HW: You mentioned that it’s a cyclical business, and you’re right, of course. How will public investors respond to lower origination volume if refis fall as most people expect in Q3, Q4?
MF: Right now it’s hard to say if this is the year refis fall. You could see Fannie come out and say they’re expecting a $4 trillion market this year and they’ve continually, month over month updated that figure. So it may last longer into 21 and potentially 22. In the event market values change and rates start to go up, we do feel we’re well positioned with our broker partners to be able to take advantage of a purchase market. The brokers tend to do quite well in a purchase market. They are local, on the ground and have very strong relationships with the Realtors, so we would expect to be able to take advantage of that, as well as having the servicing asset.
HW: What kind of projections do you have for the wholesale channel’s market share over the next few years? And Homepoint’s as well?
MF: Broadly, if we look at the wholesale market, it’s somewhere around 20% of the market. We think it could easily double to 40% of the market within the next couple of years, depending on the right environment. We expect to be able to continue to grow our market share. In our five-year period, we’ve had 15X market share growth. We expect to increase our share overall.
HW: What are the biggest challenges you face right now? What are you doing to mitigate some of those threats?
MF: The model is always, how are you able to scale up right now. And I think that we’ve very much been able to prove we can do that. Who would have forecast that this year would have played out like it did. And yet we were able to fund a record $62 billion this year, with 90% of our workforce working from home. We also feel that it’s important to have a very leverageable and scalable platform. We’ve been able to prove that this year, so making sure we’re keeping our costs per loan in check, and making sure we can grow with those costs in line.
HW: You’ve made some changes to the leadership structure. Are there any other updates we can expect?
MF: So we added Andrew Bon Salle as chairman. It’s a really exciting add for us. Obviously we know him quite well from his role at Fannie Mae. To be able to pull him in front of the Homepoint team was very exciting for the management team. He’s been a great addition already, and we’re looking forward to his continued involvement. We also have two new independent board directors – Laurie Goodman, who’s very well known in the mortgage space, will be one of our independent directors. She comes with a wealth of knowledge, and she does some really interesting and exciting research, so we’re excited to have her expertise. We also recently added a CFO, so I transitioned from CFO to chief investment officer. We knew that being a public company that we would need to add breadth and depth to our team, so we added Mark Elbaum.
HW: What has Andrew done so far?
MF: He’s providing oversight for our board of directors and taking on a really hands-on role there. He’s also been very involved in the roadshow, so going out and talking to the investor community about Homepoint. He’s served as an advisory role to Willie Newman, our CEO and president.
HW: One thing that’s stood out to me with all the IMBs going public is that in the financial disclosures, you see historically when mortgage lenders made money and lost money. And it’s fairly consistent. So when Rocket, for example, lost money, pretty much everyone else did too. And when they’re making record profits, so is everyone else. What does the cyclicality mean for investors? Why invest in Homepoint over UWM or loanDepot or Rocket, etc.?
MF: I do think it’s important to look at the details around the various companies. Despite the fact that we’re still in the same space, we do run slightly different models. If you dig into the details in the S-1, it is interesting to see the differences in the models. We do the business-do-business model, going through the broker community. We’re also keeping servicing. Not only that, but we also disclose in the S-1 that we hedge the servicing asset. So that also makes us a little bit unique amongst our peers. I think it’s important for investors, as they’re deciding which company to invest in, to make sure they really understand the various models and how companies are going to perform during various sectors. Through the roadshow process we had a lot of investors ask us those types of questions and still decided to invest in HomePoint.
James Kleimann is the Managing Editor of HousingWire. You can reach him at [email protected].
