It seems as though throughout the last market cycle which began in 2008 after the housing market collapse to the now 2020-2021 low rate market liquidity frenzy, some of the largest lenders timed the market perfectly. For what would be called mortgage “specialists” such as: Rocket Mortgage & Loan Depot — they certainly did their part when it came to maximizing profits for their organization(s).
In 2008, there weren’t many mortgage companies that were trading publicly in the NYSE or any exchange for that matter. As the markets recovered and mortgage specialists came out of the woodworks and benefited from historically low rates for almost a decade — the decision to go public made perfect sense.
Specialists regained market share from what used to be less than 10% of total mortgage GDP to at its peak 70% market share over the last decade.
Firms such as Rocket Mortgage and Loan Depot are some of the larger names that made their IPO Debut in the 2020-2021 time frame. For analysts speculating on the market at the time and even now, it would seem to be a gutsy investment for investors to purchase a mortgage company on future earnings in any market, good or bad.
This has much to do with the fact that the mortgage industry is quite cyclical with the economy and value of homes. Mortgage lenders package their gross and net income on the volume or principal price of a home loan. If the market goes up, so do their profits. Unlike most other industries, that at least have other ways to hedge their revenue vertical risk with other services — the Mortgage industry is unfortunately more vulnerable to future earnings not meeting expectations.
With interest rates rising at incredibly high rates thanks to record breaking inflationary pressure, It seems as if lending giants like Loan Depot & Rocket Mortgage may have timed their organizations perfectly for max profit. With future earnings looking more and more bearish, experts wonder if these lenders and others will remain public or go back to the private sector.
This post is based on the opinion of writers at Real Estate Today.