Despite the ongoing pandemic, it’s turning out to be a very good time for companies to go public, especially mortgage lenders, which are seeing record volumes thanks to über-low mortgage rates.
The latest announcement comes from United Wholesale Mortgage, the largest wholesale mortgage lender in the country that works exclusively with mortgage brokers.
While they don’t offer home loans directly to the public, they still managed to crack the top-3 in terms of overall loan volume thanks to their legion of broker partners, who are client-facing.
United Wholesale Mortgage IPO
- Going public via a special purpose acquisition company (SPAC) transaction
- Will merge with Gores Holdings IV, sponsored by The Gores Group
- Combined company expected to have equity value worth $16.1 billion at closing
- Deal expected to close at some point in the fourth quarter of 2020
As opposed to a traditional initial public offering (IPO), the Pontiac, Michigan-based company is becoming a public company via a special purpose acquisition company (SPAC) transaction.
It will merge with already-public blank check company Gores Holdings IV, Inc., which is an affiliate of The Gores Group.
The deal is expected to close sometime in the fourth quarter of 2020, which is kind of fast-tracked to take advantage of the buzz in the mortgage space at the moment.
It’s the largest SPAC in history with a value of $16.1 billion, which is nearly 10x the company’s estimated 2021 adjusted net income of roughly $1.7 billion.
Like Rocket Companies Inc., parent of Quicken Loans, UWM appears to be cashing in on their hard work at an ideal time.
With mortgage rates breaking new records time and time again in 2020, homeowners are refinancing their mortgages in droves.
At the same time, home buying is also white-hot thanks to a lack of inventory and those low mortgage rates.
The result is fat profits for mortgage lenders, which makes these once-private companies look very attractive once they open their books.
Does a Mortgage Lender Make for a Good Stock Pick?
The big question mark is if they’ll be able to sustain such record profits if the mortgage biz proves to be cyclical.
For example, what happens when everyone has already refinanced their mortgage to a record low and they rise?
It’ll be difficult for mortgage lenders to continue to pump out new loans if homeowners have little incentive to tweak their existing home loans.
And home purchase lending won’t be able to pick up all that slack.
Conversely, these record low mortgage rates could be just the tip of the iceberg. Time and time again, mortgage rates have defied the odds and drifted lower.
In fact, last month UWM launched its popular Conquest loan program for 15-year fixed mortgages, offering a mortgage rate as low as 1.875%.
While that sounds too good to be true, it shows there’s still room for mortgage rates to go even lower over time.
If that’s the case, these red-hot mortgage lenders could be looking at several years of growth and record volume.
The mortgage market is also highly fragmented, with no one lender commanding a large amount of market share.
If UWM is able to keep growing, their stock might be attractive to investors, though unlike Rocket Companies, which likes to call itself a tech company, they seem to be more singularly focused.
Rocket Pro TPO vs. United Wholesale Mortgage
Speaking of Rocket Mortgage, the company also has a very large and growing wholesale division formerly known as Quicken Loans Mortgage Services (QLMS).
This week, it rebranded as “Rocket Pro TPO” to take advantage of the Rocket brand, which they refer to as “the most recognizable mortgage brand in the country.”
The company has spent billions of dollars to build out a brand-new white-labeled, “broker-branded origination hub” that features all the latest bells and whistles.
This includes e-signature technology and the ability for applicants to directly upload loan documents, along with tools for mortgage brokers.
Such as Guru, a search engine for mortgage origination, and The Answer, a tool powered by Google search that provides solutions to all mortgage questions.
So UWM certainly has its competition cut out for it, despite being the market leader today.
It should be interesting to see how it all plays out.