Zacks Industry Outlook highlights Velocity Financial, Onity Group, and PennyMac Financial Services

For immediate release

Chicago, IL – September 27, 2024 – Today, Zacks Equity Research discusses Velocity Financial Inc. VEL, Onity Group Inc. ONIT and PennyMac Financial Services, Inc. PFSI.

Industry: Mortgage loans and related services

Link: https://www.zacks.com/stock/news/2342042/lower-mortgage-rates-driving-refinancing-activities-three-stocks-to-buy

The mortgage and related services industry is gaining momentum as mortgage rates decline amid optimism around Federal Reserve rate cuts. Falling interest rates increase demand for lending and refinancing, resulting in a comparable reduction in borrowing costs.

With such positive developments, investors may consider purchasing stocks such as Velocity Financial Inc., Onity Group Inc. AND Financial Services PennyMac, Inc. for long-term profits.

A positive trend in the mortgage loan and related services industry

Optimism over a long-awaited interest rate cut at the Fed’s policy meeting caused long-term bond yields to decline, leading to a decline in mortgage rates. During the FOMC meeting on September 17-18, the Fed lowered the interest rate by 50 basis points after more than four years. Currently, Fed funds rates are in the range of 4.75-5%.

The interest rate on the most popular home loan in the U.S. has fallen to its lowest level in about two years. According to a report from the Mortgage Bankers Association (MBA), the average interest rate on a 30-year fixed-rate mortgage fell to 6.13% for the week ended last Friday from 6.15% the previous week. 30-year mortgage rates have hovered around 7% for most of the year, but have begun to cool and have fallen since late July. The latest decline marks the eighth consecutive week of falling interest rates.

Housing affordability challenges are decreasing as mortgage rates decline. Therefore, refinancing activity shows a positive trend. This will reduce operational and financial challenges for companies and increase profit margins on sales and new investment activities.

Refinancing activity showing an upward trend

As mortgage rates fall, mortgage refinance applications are on the rise as more people take advantage of lower borrowing costs within two years.

In the week ended September 20, the refinance rate increased 20.3% to the highest level since April 2022, according to the MBA report. Mortgage loan applications increased to the highest level since July 2022, led by an increase in applications for refinancing by 20%. As a result of lower interest rates, weekly yields for both conventional and government refinance applications have skyrocketed.

The share of mortgage business refinancing increased to 55.7% of total applications from 51.2% in the previous week.

Falling mortgage rates increase the purchasing power of potential homebuyers and also allow existing home owners to refinance. Increasing refinancing activity will support the growth of revenues of industry entities.

3 Mortgage and Related Services Stocks to Bet on

Financial Speed: Headquartered in Westlake Village, California, the company is a vertically integrated real estate financing company that offers and manages investor loans for 1-4 unit rental and small commercial properties. VEL originates loans throughout the United States through its extensive network of independent mortgage brokers.

For the second quarter of 2024, VEL’s underlying earnings per share of 45 cents exceeded the Zacks Consensus Estimate of 43 cents based on strong net interest income. Book value per share of $14.52 at the end of Q2 2024 increased 15.5% year over year. Additionally, the total loan portfolio increased by 20% to $4.5 billion as of June 30, 2024.

The portfolio’s strong performance and recent levels of initial volume are expected to continue in the near term. This, combined with favorable book value growth prospects and built-in gains in the investment portfolio, is positive.

The Zacks Consensus Estimate for VEL’s 2024 earnings is estimated at 1.91 per share, which would represent 24% year-over-year growth. The company currently boasts a Zacks Rank of 1 (Strong Buy). You can see complete list of today’s Zacks #1 ranked stocks here.Over the past year, the company’s stock has increased by 72.7%.

Onity Group: Headquartered in West Palm Beach, Florida, the company operates in the United States, the U.S. Virgin Islands, India and the Philippines. It is a non-bank mortgage servicing company and originator providing solutions through its primary brands, PHH Mortgage and Liberty Reverse Mortgage.

For the second quarter of 2024, ONIT’s earnings adjusted for non-recurring costs were $4.07 per share, topping the Zacks Consensus Estimate of $1.37. Moreover, book value per share of $56.8 at the end of Q2 2024 increased 9% year-over-year. $7 billion in issuance volume increased 51% sequentially.

Higher adjusted return on equity and higher book value per share, coupled with improved debt-to-equity ratio, are expected to benefit the company in the coming period.

The Zacks Consensus Estimate estimates ONIT’s fiscal 2024 earnings at 10.21 per share. This represents an increase of 59% compared to the previous year’s data. The company also currently has a Zacks Rank of 1. Shares of the company have gained 12.3% over the past year.

PennyMac, Inc. Financial Services: The company is a specialty financial services company with a comprehensive mortgage lending platform and an integrated business focused on mortgage origination, servicing, and investment management related to the U.S. mortgage market. The company is headquartered in Moorpark, California.

For the second quarter of 2024, the company reported earnings of $2.67 per share, beating the Zacks Consensus Estimate of $2.65 per share. Book value per share increased to $71.76 as of June 30, 2024 from $70.13 as of March 31, 2024.

PFSI’s multi-channel approach to lending provides a strong competitive advantage over peers.

The Zacks Consensus Estimate calls for PFSI’s fiscal 2024 earnings of 10.61 per share, up 102.5% from the prior-year level. PFSI is currently sporting a Zacks Rank of #2 (Buy). Over the past year, the company’s stock has increased by 73.1%.

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