Home Point cuts IPO price, goes public, closes down 13% on first day
After slashing the number of shares it would sell and decreasing its initial offer price to $13, Ann Arbor-based Home Point Capital Inc.'s stock on Friday still closed down almost 13% on its first day of trading.
Shares closed at $11.32, a 12.92% decline, on the Nasdaq as major market indexes fell roughly 2%. The more than $94 million valuation at $13 per share already was well shy of the $237.5 million offering the mortgage lender had proposed earlier this month.
Still, the company itself won't see any of the raised capital, as the offering is being made by current investors of Home Point. But the IPO is a foundation to introduce the company to the investor community in the hopes of eventually tapping it for funds, said Maria Fregosi, Home Point's chief investment officer.
"Given the market conditions, it was a good point to go public and get the story out to the investor community," Fregosi said. "When we want to raise growth capital, we will already have a currency to do that."
Home Point is one of a slew of mortgage lenders experiencing robust growth and going public amid low interest rates and high housing demand as people work from home during the COVID-19 pandemic. Pontiac's United Wholesale Mortgage Holdings Corp. officially became public last week, and Detroit-based Rocket Companies Inc. offered its IPO in August. Both trade on the New York Stock Exchange.
UWM's shares last Friday had closed down 1.65% on its first day of trading and have continued to fall almost 13% since then. Its stock was down 0.5% to $9.91 Friday. Rocket is up almost 19% from its $18 IPO and closed up slightly Friday at $21.36.
Home Point is offering 7.25 million shares under the ticker "HMPT" mostly from an affiliate of Connecticut-based private equity firm Stone Point Capital LLC. That's down from the 12.5 million it last week had planned to offer at $19 to $21 per share. The offering is expected to close on Tuesday.
"It was really a supply and demand issue," Fregosi said of the decrease in offer price ahead of the opening bell. "It's very important for us to take this first step and have a successful offering. This allowed us to achieve our main goal, which was to get into the public market."
The $13 price tag is less than Rocket's $18 IPO last year, which had decreased from a range of $20 to $22 originally proposed following a roadshow with investors. Rocket raised $1.8 billion from the transactions. Rocket is the country's largest mortgage lender with $323 billion in loan volume, according to industry news site Inside Mortgage Finance.
Home Point was No. 15. It is looking to place among the top 10, Fregosi said. Increasing its loan volume 178.5% year-over-year in 2020 to $62 billion, Home Point was the fastest growing of the top 35 companies.
Like United Wholesale Mortgage, Home Point originates loans through mortgage brokers. They typically are local shops that help homeowners and buyers find the best rates. Home Point has more than 5,500 brokers on its platform that it supports by processing, underwriting, closing and funding the loans. Home Point is No. 3 in the wholesale channel. UWM is No. 1.
"It's a very scalable way for us to continue to grow our platform," Fregosi said. "Buying a house is usually a person's largest financial transaction, so it's helpful to deal with somebody locally."
The growing wholesale channel represents more than 20% of all mortgage volume. By expanding the number of brokers in its network and increasing the number of loans it makes with its brokers, Home Point hopes it can continue its growth trajectory, especially as originations are expected mark a record-breaking $4 trillion this year. The company employs 3,600 people.
Home Point does sell most of its loans to government-sponsored entities like Fannie Mae, Freddie Mac and Ginnie Mae. But unlike many of its customers, it retains the servicing of the principal and interest of most of its loans. That includes approximately 300,000 customers and offers a source of income even when interest rates rise.
"It's an important way to connect with the home buyer," Fregosi said, "and make sure they have the appropriate tools to manage their home loan and hopefully work with us for a lifetime."