November 13, 2015

Aborted LoanDepot IPO a Blip or Harbinger?

SMITH BRAIN TRUST -- Nonbank mortgage lender LoanDepot cited "market conditions" for postponing an initial public offering of as much as $540 million of stock. "It begs the question of whether this a rewind to the (2008 subprime mortgage) precrisis period," says finance professor Cliff Rossi at the University of Maryland’s Robert H. Smith School of Business.

Rossi, a former senior executive in risk management at several of the largest financial services companies, said in a Wall Street Journal report that there are counterweights -- "crucial differences" now, including oversight by the Consumer Financial Protection Bureau, an agency created by the Dodd-Frank financial-overhaul law after the crisis, and tougher mortgage standards nearly across the board applied by banks, other lenders and investors. 

How does LoanDepot’s move reflect on its peers that market themselves as more efficient and consumer-sensitive than big banks? "Outside of technology (e.g. using software to convert leads to potential borrowers), I don’t see that (nonbank mortgage lenders) have an appreciably new business model that makes them more sustainable over the long run," Rossi told WSJ. LoanDepot said in its IPO prospectus that "almost all of our home loan products require income and asset verification" and require appraisals in compliance with regulations set forth by the CFPB.

A related potential trend to watch for, according to Forbes, is a slowdown of capital funds to alternative lenders. With such underwriters as Goldman Sachs and Barclays, LoanDepot’s anticipated value at IPO would have been $2.4 billion to $2.6 billion.

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About the University of Maryland's Robert H. Smith School of Business

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.

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