Is Blend really worth 10X its book value?
[Editor’s Note: Rise&Shred, the ONLY daily diary of the mortgage industry,will not publish on Monday, July the 5th. See everyone back at work on Tuesday morning!]
Late last month Rise&Shred reported an article titled: Blend IPO will make Nima Ghamsari billion$$$, if all goes well.
However, a new research note in the Blend IPO, written by Institutional Risk Analyst founder and author Christopher Whalen, is raising concerns about whether or not the Blend IPO will go well. (Link, serious subscribers only.)
Not that IPOs are ever perfect, but Whalen is right to sound the alarm on concerns that Blend (BLND) is really worth 10X its book value.
One issue Whalen raises is that Blend purchased Title365 from Mr. Cooper on Mar 15, 2021 for $422 million. For 2019 and 2020, Title365 revenue was $105.3 million and $212.1 million, respectively. Was this purchase overly strategic considering the financials at Blend?
“BLND has been losing money steadily and it is not clear that this model will grow its way to profitability given the low margins for such services,” Whalen writes. “Also, buying a title company at this stage of the game, funded with debt and right before an IPO really begs the question about the whole business model. If the software and ecosystem created by BLND is so valuable and has such leverage, then why are we buying a title insurance underwriter?”
In the IPO frenzy, the personality of Ghamsari is going a long way. Senior leadership at the company is also mortgage-buzz-worthy. However, equity investors may not like what they find when they dig deeper.
“Bottom line is that operations professionals in the industry tend to like BLND CEO Ghamsari on a personal basis, but have little good to say about the product offering,” Whalen notes.
“As with other new era lending and mortgage servicing platforms we have examined over the past several years, BLND seems to be heavy on promises and techno babble, but relatively light when it comes to delivering operational and financial benefit in an industry where expense management is always Job 1,” he concludes.
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Former Zillow execs launch mortgage fintech
A new real estate startup led by former Zillow executives Greg Schwartz and Carey Armstrong officially launched this week in Seattle, Dallas, and Houston.
Tomo also announced an additional $30 million as part of a giant $70 million seed round — one of the largest ever for a real estate company.
GeekWire initially reported on the company in October. But how does it work?
The startup offers a price match if homebuyers find better mortgage rates. It also discounts interest rates by 0.125% if customers use a Tomo Brokerage Partner Agent.
The company partnered with real estate coach Tom Ferry to build out a network of agents.
Tomo is entering into a crowded field and faces competition from traditional mortgage providers and also more similar tech-fueled startups such as Accept, Lower, Maxwell, Lenda, SoFi, and others aiming to digitize real estate processes and give buyers an edge. That group includes companies like Seattle-based Flyhomes, which enables all-cash offers for buyers.
calm, carry on.
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Another Federal Reserve President is concerned about housing
Last month, Federal Reserve officials were not on the same page for the future of bond purchases to support housing. This month, they’re beginning to synch up a little more.
Boston Federal Reserve President Eric Rosengren is the latest official at the central bank to warn about potential damage from surging house prices as its purchases of mortgage-backed securities come under scrutiny.
“You don’t want too much exuberance in the housing market,” Rosengren said, according to a Financial Times article published Sunday. A “boom and bust” cycle could lead to concerns regarding financial stability, he said.
“I’m not predicting that we’ll necessarily have a bust,” Rosengren told the newspaper.“But I do think it’s worth paying close attention to what’s happening in the housing market.”
For much of the past year, the U.S. housing market has been particularly hot. Although conditions cooled off in May, the seasonally-adjusted annual rate of existing home sales was 44.6% higher than in the same month in 2020 and 7.2% higher than in May 2019. Few homes are available relative to demand, and the median sales price for May was 23.6% higher than the year prior, according to data from the National Association of Realtors.
James Bullard, president of the Federal Reserve Bank of St. Louis, said earlier this month that the central bank’s continued purchase of mortgage-backed securities could be unnecessary.
“I’m leaning a little bit toward the idea that maybe we don’t need to be in mortgage-backed securities with a booming housing market and even a threatening housing bubble here, according to some people,” said Bullard, according to The Wall Street Journal. “We don’t want to get back in the housing bubble game that cost us a lot of distress in the 2000s.”
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