Is the Mortgage IPO Market On Fire?

Suddenly, it appears that mortgage banking is hot. Okay, maybe hot is not the best word, but in the past few weeks two residential-related IPOs have hit the market: Nationstar Mortgage, and Home Loan Servicing Solutions. Both are specialty servicers (of sorts), though the latter is really just a shell corporation created to unlock MSR value for Ocwen Financial Corp. (Or maybe I'm being too critical?) Nationstar, of course, is owned by Fortress Investment Group, an already publicly traded company. Nationstar raised $218 million, HLSS a bit less. But what does this activity tell us? Answer: Wall Street believes that after years of horrible headlines there is some good news for mortgage banking – but only if you happen to be in the “clean up” side of the business, dealing with problem loans. Nationstar, though, is also a lender so it's already thinking about a time when mortgage 'garbage men' won't be needed as much. Mortgage related REITs seem to be holding their own lately and there could be a huge upside potential for Redwood Trust should the jumbo MBS market ever take off. But predicting 'when' the worm will turn is another matter entirely.