Hot Summer for Mortgages Picks Up Velocity

Velocity Financial Inc. just finished a strong third quarter by breaking some records in loan originations for the July through September period as well as for the number of loan applications in the month of October. 

Christopher Farrar, chief executive of the Westlake Village alternative lender for small apartment and commercial properties, said during a conference call with analysts to discuss third-quarter results that the company funded just more than $340 million in new loans during the quarter, beating the old record of $321 million, funded in the fourth quarter of 2019. 

“Our investments in automation and systems have empowered us to become more efficient than ever before, and the momentum is building,” Farrar said. 

The company is pleased to report that its new applications continue to increase even with a lot of news stories about rising mortgage rates, he added. 

The dollar amount was more than $410 million of new loan applications coming through its broker portal last month, breaking the previous record of $316 million set in October 2019, Farrar said. 

“Our goal for 2021 was to fund $1 billion in new loans and I’m excited that we will pass that goal by next week,” Farrar said during the Nov. 3 conference call.

Velocity reported on Nov. 3 net income of $8 million (23 cents a share) for the quarter ending Sept. 30, compared with net income of $3.5 million (11 cents) in the same period a year earlier. Revenue increased 31 percent to $22 million. 

The company’s stock value has increased by nearly 150 percent over the last 52-week period, closing at $13.07 on Nov. 10. The share price closed at $13.01 on Nov. 17. 

Analysts with Wells Fargo Securities LLC and Raymond James & Associates Inc. rated the stock as a “buy.”

Stephen Laws, equity analyst with Raymond James, said in a research note that Velocity had a strong third quarter with the core earnings, beating the firm’s estimation by 2 cents, and that loan originations exceeded expectations. 

“We expect origination volumes to remain strong given high demand for investor property loans and expect continued growth in short-term loan product originations after being reintroduced in the second quarter,” Laws said in the note. 

Additionally, the firm was increasing its earnings estimates for Velocity “to reflect the strong origination volume, improving credit performance and expectation of lower financing costs over time,” he added.

The estimates are going to increase for the core earnings from 2021 calendar year to 91 cents a share from 88 cents a share, and for the full 2022 calendar year to $1.14 a share from $1.08 a share.

Core earnings is a non-GAAP measure which excludes non-recurring and/or unusual activities from GAAP net income.

Cost of funds

Donald Fandetti, senior equity analyst with Wells Fargo, said in a research report that the core earnings for the quarter beat the firm’s estimate by 3 cents.

“The company is benefiting from strong demand for its loan products as well as favorable securitization financing which is driving down its cost of funds,” Fandetti said in the note. 

Looking ahead, the momentum for Velocity seems to be building into the fourth quarter as the October loan originations hit their record level, Fandetti continued in the report. 

“Velocity is unique among mortgage originators as its products resonate with its mortgage broker clients who are looking to make up revenue shortfalls from dampened conventional mortgage refinancings as interest rates rise,” he added. “We like the positive progress being made, and we believe that Velocity continues to benefit from the strength in the residential housing market.”

During the conference call, Fandetti asked about what kind of marketing Velocity was doing to bring in larger originations over the next year. 

Farrar responded by saying that there were several different stratgies the company was doing to get its name out there and expand its reach. 

“We’re doing virtual presentations, we’re doing trade shows,” Farrar said. “We’re also adding account executives and trying to expand in markets where we have less penetrations. So, all those things combined, are obviously working and showing up in our results. And we think that will continue next year as well.”