April 4, 2022 | In this edition of The Institutional Risk Analyst, we list the top members of our surveillance group in the world of mortgage finance, this time by the value of their public equity. Some of these names are familiar to our readers, others are new. The fact that Fiserve (FISV) is the most valuable, followed by a number of service providers and vendors that support the mortgage ghetto, is no surprise. As the 30-year mortgage rate climbs and mortgage lending volumes fall, the market value of the seller/servicer community has declined sharply.
The monopoly provider of servicing software, Black Knight (BKI) and FISV appendage Sagent M&C are corporate orphans, spun out from higher multiple businesses that wanted to avoid the negative connotations associated with residential mortgages. BKI was separated from Fidelity National (FNF) in 2017. Sagent was partially spun out from FISV in 2018.
Indeed, some of the best quality names in the world of mortgage finance are trading at a steep discount as Q1 2022 ends, a bond market reality we discussed in our last comment ("Why the FOMC Cannot Sell its Mortgage Bonds"). Residential mortgage finance, lest we forget, is 100% correlated to interest rates and employment. The Residential Mortgage Finance Top 27 is shown below.
But the really big question facing the denizens of the mortgage ghetto this week: Who is going to acquire and restructure Blend Labs (BLND) before this newbie-fintech-something runs out of cash?
"Blend Labs, the mortgage processing cloud platform that went public last year, posted a hefty $73.1 million loss for the fourth quarter, warning of tougher times ahead for its bread-and-butter residential lending clients," reports Paul Muolo at Inside Mortgage Finance. "In 3Q21, the San Francisco-based tech firm lost $76.3 million. Companywide revenues fell to $80.9 million in 4Q from $89.6 million in 3Q21." Ouch!
Another similar situation faces Better.com, the five-year-old mortgage lender that prospered during the extraordinary period of QE, but now seems to be in trouble. The online lender was supposed to close an IPO via SPAC last year. Sponsor Softbank has been forced to inject capital into Better.com. It is unclear whether the transaction will ever close.
"In May 2021, the Softbank-backed Better.com disclosed that it had entered a deal to go public via a merger with special purpose acquisition company (SPAC) Aurora Acquisition," Forbes reported in March. "The companies are aiming to close the deal sometime before the end of the year." That is, 2022.
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