Over the past six months, mergers and acquisitions, huge financing rounds and public offerings have dominated headlines across the real estate and housing finance sector. This level of action is keeping finance executives like Jeremy Collett, Executive Director, Capital Markets at Guaranteed Rate busier than ever.
“This is such an interesting topic right now,” said Collett. “Not only are lenders coming off the best year ever in terms of fundamentals, with record margins, revenue, volume, etc., lenders are also finding themselves with excess cash for the first time I can remember.”
It’s finance leaders like Collett who inspired HousingWire’s latest HW Finance Leaders award program, which recognizes top executives who are driving financial performance, expanding margins, improving liquidity and helping their businesses access the capital markets.
HousingWire reached out to Collett to hear more about the current market and what to expect for interest rates and loan volumes in 2021.
HousingWire: As you think about your career, what moments and experiences really prepared you for this current market?
Jeremy Collett: The obvious answer here is the financial crisis, but I like to look at managing capital markets in terms of modes; you can’t get locked in to one particular strategy. All mortgage companies that have ever failed, have one thing in common: they ran out of cash. In my opinion, the biggest responsibility of a nonbank lender’s trading and finance executive team is to ensure the business has adequate cash to manage and fund the pipeline while also being able to cope with any unforeseen circumstances like a sudden change in Fed monetary policy or some other risk. From that perspective, the post-housing crisis QE era really helped me in 2020. Specifically, in 2012 we quickly pivoted away from a loan sale strategy built purely on best execution, to one built on fast execution. Additionally, we spent the last ten years at Guaranteed Rate building our digital mortgage platform and it was a huge part of our success in 2020. We’re really fortunate to work with the best sales, tech, and ops professionals in the industry.
HW: With the recent M&A deals and public offerings we’ve seen in recent months, what dynamics are dueling investor interest in the housing space? Why or why not is now the right time for mortgage and real estate companies to raise capital or pursue other strategic transactions?
JC: This is such an interesting topic right now. Not only are lenders coming off the best year ever in terms of fundamentals, with record margins, revenue, volume, etc., lenders are also finding themselves with excess cash for the first time I can remember. There are effectively two options with what to do with that, dividend it out to shareholders or deploy it in growth and become more dominant in the industry. In terms of raising capital, it makes a lot of sense given the enormous E in the industry right now; originators are entertaining valuations of four to eight times earnings, numbers we only dreamed of over the past 10 years. This is obviously very attractive for an industry historically plagued by volatile earnings. The prospects of quantum growth is also extremely exciting since nonbank lenders have basically dominated the development of tech and the digitization of mortgage. By winning over customer loyalty through digital mortgage, nonbank lenders are starting to play a massive role in the distribution of other financial products like credit card and wealth management. This is all happening at a time when home prices are soaring, interest rates are at all-time lows, and millennials are moving out of cities and buying homes in the burbs.
HW: If 2020 is defined by COVID-19, low interest rates and insane volume, how do you predict 2021 will be defined?
JC: While the industry probably won’t have to scramble to solve for obtaining appraisals, dealing with forbearance, or coming up with massive amounts of cash to handle margin calls on hedges, 2021 will likely look a lot like 2020. The Fed has effectively signaled to the markets that they will hold the target rate near zero for the foreseeable future, certainly through 2021 and beyond. The asset purchase program, which includes at least $40B of agency MBS, will also continue as the Fed uses all of its tools to stabilize the economy as it recovers from COVID. Fundamentally, rates should remain low this year with perhaps some upward pressure from increased Treasury issuance as the new administration takes the reins. If there’s one piece of insight to live by over the past ten years, it’s “don’t fade the Fed.”
Nominations for HW Finance Leaders will run until the end of today, January 29, 2021 with a late submission period through early next week.
