With soaring loan volumes, are mortgage stocks a good buy?

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Several leading mortgage companies have recently gone public, and the timing certainly makes sense. With record interest rates, the volume of refinances and purchase loans has been outsized, and the growth figures for these companies look fantastic. However, is now a good time to add mortgage stocks to your portfolio? In this Motley fool live Video clip, recorded on June 28, Fool.com contributors Matt Frankel, CFP and Lou Whiteman discuss how they are approaching the mortgage industry right now.

Matt Frankel: Ra, said, I don’t know if it’s Ra or RA. Let’s say RA. “Hello, can I have your opinion on UWM Holdings Corp (NYSE: UWMC), UWMC? This is a recent SPAC in the wholesale mortgage market and paying a dividend. Do you like the current price and what growth do you see next? “I hesitate to get into any of those mortgage lenders that recently went public even though I think UWM is a great company. I’ll tell you why. You I’ve seen a wave of mortgage lenders go public. Rocket (NYSE: RKT) went public last year. UWM, they were two or three more. Better is on the verge of going public through a PSPC merger. There is a reason for this. Mortgage volumes have exploded, so the numbers are fantastic. Better reported that its lending volume is up 490% year over year. It’s not just because they are doing a great job growing the business, it’s because literally everyone is refinancing in the past year or so. It is a lender specializing in refinancing. I know people who have refinanced twice in the past year. I take the recent numbers with a big grain of salt and I’m on a wait-and-see basis with all of these mortgage lenders. It is only me. I don’t care about you, Lou.

Lou Whiteman: It’s not going to get any better than that, is it?

Frankel: Right.

White: You are paying this premium right now. It’s a very neat business. It is also the market that has recognized it. Whether the review is bad or not, it’s definitely not that you are getting value. I’m a fan of wholesale because compared to what Rocket or some of the aggregators do, how do you think the difference between these is, and do you have a preference with one model or another?

Frankel: I like direct to consumer a bit more, to be honest with you. I am a big fan of Better. If I were to buy one today, I said I would go for Better just because that’s what I use for my refinance. I had a great customer experience. They really live up to the demands they make. With all the after-sales services made public, many figures seem to be made up when they make complaints. “We will cut the closing time in half. You can lock in your rate within 15 minutes of visiting the site.” With Better, it’s true. In fact, they live up to their claims. Over the course of my life, I’ve probably got about ten mortgages if you include investment properties. I like the wholesale model, but I think there are a lot of opportunities in the direct-to-consumer space when it comes to efficiency and things like that.

White: Yeah, I think you’re right. I like the basis of the wholesale model. Some of those guys that they are can just go out there, and especially in the good times, I think. It’s really good to have this flood happening. It must be a crazy time for these guys as long as that picket is open.

Frankel: Like I said, I am in standby mode. There is no such thing as a normal real estate market. Let’s put that aside. But in a somewhat normal mortgage market, refinances could stay high for some time. Even for people who have refinanced, if your home is worth 20% more, it gives you a reason to refinance that they are cashing out. This could stay high for the foreseeable future as long as the housing market stays on the sidelines. I know you are in Atlanta and your home has probably increased in value by 20% or more in the past year or so.

White: Funny, I’m a Quicken junkie. I can tell you on what basis I spent January 1, 1994. One of the things Quicken now has a partnership with, I think is Zillow (NASDAQ: ZG) (NASDAQ: Z), where they automatically update your home ownership. This is silly stuff. Every time I update the stock prices, the value of my home increases by $ 7,000.

Frankel: You can’t sell it, it saves paper. We would have to buy another swollen house.

White: It feels good.

Frankel: In real money, this gives people that equity to tap into, which could really fuel the refinance market for the next couple of years. When everyone refinances, every mortgage company looks like a genius.

White: Yes.

Frankel: I want to see what they look like when refinancing when things get a bit cooler which might take a while. I’m going on standby, but I don’t think you’ll go wrong with UWM or Better, or Rocket or whatever. I think these are good companies. But I’m just in standby mode for the whole industry.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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