In an exclusive interview, IPO Edge Multimedia Editor Hope King sat down with Finance of America Companies Chief Executive Officer patti cook to discuss taking her company public and doubling down on lending during the global pandemic.
The consumer-lending platform is set to go public with a valuation of $1.9 billion by merging with a SPAC called Replay Acquisition Corp. (nyse: RPLA). Institutional investors will also make a private investment of $250 million in the company.
The volume of new mortgages this year is set to exceed last year's total by 37%, according to the Mortgage Bankers Association. Homeowners are taking advantage of record-low interest rates and buyers want more space amid the pandemic. Watch highlights in the clip below or click here for the full interview.
“The dynamic is like something I've never seen before,” Ms. Cook said. “You've got the combination of incredibly low rates, you've got a very supportive Fed, they're buying mortgages, and this has led to a tremendous supply of refis (refinancings).”
Finance of America's services include traditional mortgages, reverse mortgages, commercial-real-estate loans and fixed-income investing.
Ms. Cook said the company had been considering a traditional IPO, but when influential spac sponsors Edmond Safra, Lance West and Chinh Chu came calling with Replay Acquisition, it was a no brainer.
“It was the unique partnership with them that was so appealing,” she said. “We think… one of them will be on the board, but the advice and the opportunity they presented to us was particularly compelling.”
SPACs have raised more than $60 billion in initial public offerings to search for targets, according to data compiled by Bloomberg. Becoming a publicly-traded company will allow the consumer-lending platform to raise additional capital more easily going forward, Ms. Cook said.
“We can grow organically, which we've done, and innovate and create new products on our own,” she said. “You also can grow and innovate through acquisitions. So, if we see a company with a particular product or that's in a particular line of business that we think would be a creative to the platform and continue to support that mantra of cycle-resistant earnings, then yes, we can use the capital to do both.”
The new listings come as the mortgage market has held up surprisingly well in the face of the coronavirus pandemic. Demand for credit has swamped lenders, enabling them to charge relatively high prices. It hasn't been this profitable to issue a mortgage in at least 20 years, according to data from the Urban Institute, a Washington-based policy and advocacy nonprofit.
The average for a 30-year, fixed loan dropped to 2.78%, the lowest in data going back to 1971, Freddie Mac said this month. It was the 12th record low this year.
The decline in borrowing costs that began in March, as the coronavirus roiled financial markets, shows no signs of stopping. Cheap loans have powered a housing rally that has bolstered the pandemic economy. Purchases have soared and millions of current homeowners have been able to save money by refinancing.
Ms. Cook believes Finance of America's structure is built to thrive beyond a supportive Fed and the pandemic.
“We're not just a mortgage company,” Ms. Cook said. “We're built for the long term, for stability, and to generate cycle-resistant earnings to our three lending segments and our two other businesses that augment them.”
For the full interview replay, please click here.