TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/1345021
M R EP O RT | 17 FEATURE forecast is reasonably accurate, consumer demand may fall below origination capacity at some point over the next one to two years," Graham said. "We all learned during 2018 that excess capacity compresses profit margins, result- ing in downward pressure on en- terprise valuations. So, the timing is right to explore your options if you want your mortgage story to have a happy ending." Wood noted that the pricing for the IPO is determined by earnings. "The more business you can pump through, the better," Wood continued. "The higher the earnings, the higher price you can command for the IPO." He explained that many companies have driven down their costs by outsourcing compliance and other parts of the business. "The ones that are able to lend more ef- ficiently and derive more revenue are going for higher [IPO] prices." Not All Upside D espite the benefits, there are some challenges and disad- vantages involved in going public for mortgage companies. "The periodic filings of 10Qs and 10Ks require a significant internal effort," Wood said. "Then you need to deal with the rigors of SOX (Sarbanes Oxley), which is another big challenge." Sarbanes Oxley, initially passed in 2002, imposed a number of reporting, accounting, and data- retention requirements for publicly traded companies and some larger private firms. Public company accounting standards are also more rigorous than those for private companies, Wood says. Camerieri, Graham, and Wood all cited the pressures of meeting quarterly earnings expectations, which can cause the stock of a mortgage lender or other company to rise and fall. Even if a mortgage lender's stock has had a historically strong performance, the price can suffer if the trend changes, Camerieri added. He pointed to the strong performance of Rocket Mortgage over the last couple of years but noted that it would be difficult for the company to maintain the same pace. For example, due to the cyclical nature of the mortgage market, Graham noted that a mortgage lender could have a terrible first quarter followed by its best-ever quarter in June, but without any change in the underlying business's strength. Nevertheless, for those pursuing IPOs and others who may in the future, the advantages outweigh the disadvantages, particularly under current market conditions, experts agreed. "I would be surprised if mortgage IPOs didn't continue into this year, Wood said. "The mortgage market is hot. Private investors will never be able to make as much money as they can today. Folks recognize the cyclical nature of the business." . PHIL BRITT started covering mortgages and other financial services matters for a suburban Chicago newspaper in the mid-1980s before joining Savings Institutions magazine in 1992. When the publication moved its offices to Washington, D.C., in 1993, he started his own editorial services room and continued to cover mortgages, other financial services subjects, and technology for a variety of websites and publications. management team, Guzzo said. "Strategic buyers often look to round-out their product suite, add customers and market share, and add senior talent." The SitusAMC acquisitions check all of those boxes, and help the company provide new or more in-depth services, Franco says. "We are excited to gain not only the deep mortgage domain services professionals from Assimilate but also to add a strong bench of information technology outsourcing solutions for our clients, so we can help them imple- ment transformative solutions for their busi- ness, including those technologies offered by SitusAMC," SitusAMC CEO Michael Franco said of the latest acquisition. "This acquisi- tion provides us with an optimized business model leveraging a combination of onshore and offshore staff that can support our clients' licensed and nonlicensed activity needs in a nimble, technology-enabled environment, which will drive better outcomes for everyone we serve." Franco said each of the deals was designed to expand the company's offerings to make it a "one-stop shop" for mortgage support services. He added that the company wasn't simply seek- ing to add additional services, but also "best-in- class" services so that residential and commer- cial lenders wouldn't have to choose between a single provider and a best-in-class provider. "We're looking to build out a full-service platform," Franco said, adding that the services of SitusAMC (including those of the acquired companies) are in high demand now due to the high levels of market activity and lower margins that put speed and the reduced cost of automated solutions at a premium. He expects those market factors to continue this year and into the future. "We try to infuse efficiency into the market and let [customers] have complete transpar- ency," Franaco said. "We provide the services so that [lenders] can focus more on execution and marketing." Though no immediate deals are on the ho- rizon, Franco said the company will continue to look for opportunities to further expand or add additional depth to its services. Beyond SitusAMC, Guzzon sees the further consolidation among credit reporting agencies, appraisal management companies, and title agencies. M R EP O RT | 17 "You need to have resources that aren't dependent on people." —Joe Camerieri, EVP, Mortgage Cadence