Orange County mortgage lender LoanDepot is the latest company to delay an initial public offering, pulling its IPO Thursday afternoon.
LoanDepot’s shares had been set to begin trading Friday on the New York Stock Exchange, but the company halted the offering, citing market conditions. Major stock indices were down sharply Thursday, which could have made it more difficult for LoanDepot to reach its target price of $16 to $18 per share.
A cooling IPO market and volatile trading on Wall Street have pushed other firms to shelve planned offerings. Luxury retailer Neiman Marcus and grocer Albertsons were both set to go public earlier this year and both pulled their offerings. It’s not clear when either of those firms, or LoanDepot, will try again.
Even without Thursday’s market performance, pricing shares in LoanDepot’s expected range might have been a challenge. At the midpoint of that range, the public offering would have raised more than $500 million, valuing the company at $2.5 billion.
But to get that price, investors would have had to buy shares valued at 30 times LoanDepot’s annual earnings per share, based on figures through the first half of this year released in the company’s filings. That kind of valuation is more in line with tech stocks than mortgage lenders, many of which have been losing money and face a lending market that is expected to retract as interest rates rise.
Even Moorpark lender PennyMac Financial Services, which is one of the best-performing mortgage firms, reporting growing profit through the first three quarters of the year, has seen its shares fall nearly 6% this year.
“The market doesn’t value these businesses, at the moment at least, very highly,” said Bose George, an analyst at investment bank Keefe Bruyette and Woods who follows several publicly traded mortgage lenders.
Indeed, Loan Depot is pitching itself to investors not as a mortgage lender but, borrowing the language of Silicon Valley, as “a leading technology-enabled U.S. consumer lending platform” that can “disrupt the market” by taking advantage of “dissatisfaction with banks and traditional lenders.”
Kathleen Smith, principal of Renaissance Capital, a firm that researches IPOs and manages funds that invest in newly public companies, said LoanDepot is asking a lot because it is focusing on its potential.
“This company is growing fast -- that’s their headline,” Smith said.
Founded not quite six years ago, the firm has become one of the biggest mortgage lenders in the country. Through the first nine months of this year, it originated $21.6 billion in mortgages, a figure topped by only 10 lenders nationwide, including banking giants Wells Fargo, Bank of America, JPMorgan Chase and Citi.
It’s one of several nonbank mortgage lenders that have seen their business surge over the last few years. Unlike banks funded by deposits, the lenders make their loans using borrowed money.
The companies have picked up market share in areas where banks have been less willing to lend, including riskier loans backed by the Federal Housing Administration. Those loans typically go to first-time borrowers who don’t have the savings for a large down payment or who have lower credit scores.
But keeping up its rapid growth could be tough for LoanDepot.
Mortgage originations are expected to be up this year because lower interest rates pushed many homeowners to refinance old loans. But with rates near historic lows and expected to rise, refinancing activity is expected to slide over the next three years -- and even an increase in mortgages for new home purchases probably won’t make up the difference.
The Mortgage Bankers Assn. trade group estimates that the total volume of mortgage loans will fall about 11% over the next three years.
Seeking growth, LoanDepot has branched out into other types of loans, specifically unsecured personal loans -- the kind that borrowers might otherwise get from online lenders Lending Club or Prosper. But those loans for now make up a tiny fraction of LoanDepot’s business.