Within the time span of about 80 days two fairly large mortgage firms have filed registration statements with the SEC, signaling their intentions to go public. But will these deals get done at a price their owners can live with?
Better yet, do their owners really care or are they just trying to get back as much money from their investments as soon as possible?
Industry advisors and investment banking sources note that the mortgage market is hardly booming and now may not be an opportune time to test the IPO waters. Then again, there's a school of thought that says perhaps the industry's darkest days are behind it and maybe now is the time to sell.
Nationstar Mortgage Holdings, the nation's 19th largest servicer of residential loans—and a top subservicer for Fannie Mae—hopes to raise $400 million.
The privately held firm is owned by hedge fund manager Fortress Investments, whose CEO just so happens to be former Fannie Mae chairman and CEO Daniel Mudd. (This partly explains why Nationstar is one of Fannie's "Fabulous Five" servicers of high-touch product.)
But even if Fortress can get $400 million out of Nationstar it would be far short of the $575 million it paid to homebuilder Centex for the company back in 2006 when it was known as Centex Home Equity, a mortgage banker engaged in nonprime lending and servicing.
When the subprime and housing bubbles burst, Nationstar's future looked bleak—that is, until in transformed itself into a specialty servicer and "A" paper lender.
That transformation is why its IPO might actually come off at a decent price, said Interactive Mortgage Advisor managing member Tom Piercy. "It took two or three years but they changed their business model," said Piercy. "They took a floundering company and became known as a quality servicer that could handle high-touch product and perform loss mitigation services. Kudos to management for that."
Besides servicing $65 billion in mortgages for itself and others, Nationstar funded $2.8 billion in home mortgages last year, and ranks about 40th nationwide, according to figures compiled by National Mortgage News and the Quarterly Data Report.
The firm said in its S-1 filing with the SEC, "We intend to continue to utilize our established and scalable servicing platform to grow our servicing operations organically through our existing client base. We believe that we will continue to benefit from our strong relationships with the GSEs and other third-party investors, which we believe will enable us to acquire additional servicing rights and enter into additional subservicing contracts in order to grow our business."
The other company that hopes to go public this year is AllyFinancial, the bank holding company parent of Residential Capital Corp., which ranks fifth nationwide in both lending and servicing.
Ally, whose assets include the old GMAC mortgage franchise, has done a respectable job of cleaning up its toxic legacy assets, and is profitable once again. Of course, Ally has benefited from $17 billion in federal aid.
Its primary owner is the U.S. Treasury, which could raise upwards of $6 billion through an IPO, while still holding a significant stake in the company going forward.
Neither lender/servicer has scheduled an IPO date and as one investment banker told NMN: "Just because you file that doesn't mean it will come off as planned. There's been a few mortgage REITs that hoped to go public this year and those deals fell apart." He declined to name the REITs.
