A new reality in market valuation
Just when everyone thought that they had a chicken that would lay golden eggs forever, the chicken died (I know, I know. It’s supposed to be the Golden Goose. It’s my story, and in my story, it’s a chicken!) . I know companies that made $10 million to $100 million in the most recent re-fi boomlet. They believed–or at least, behaved as if–it would go on forever, but it didn’t. Suddenly these companies had to lay off valued employees and change the direction of their shops. Right now, businesses that are geared solely to be re-fi shops are in real trouble. Many might do well to consider hanging it up or merging with a company that has a large servicing portfolio as well as a strong purchase loan department.
Companies who thought that their shops were worth tens of millions are finding out that the new formula for success includes the following: (1) Cash in the bank, (2) value of servicing and (3) pipeline. Forget about multiples -they do not exist anymore. Companies are facing a new reality: the new market valuation is simply getting their money back. I know companies that have $600-800 Million of servicing. Because of the new servicing prices, many of them will realize the American dream and hang it up comfortably.
But what of those companies that have a few billion dollars of servicing and are cash short? What should they do if they want to stay in business ? The answer is the new reality of the market place . They can borrow on their servicing holdings as much as 90% of the value. This is a wonderful alternative to taking in a partner to infuse capital into the company.
The Business Loan Connection is currently introducing its clients to wonderful sources which will buy servicing as well as make substantial loans to qualified mortgage bankers who have meaningful servicing holdings.
Hold on tight because things may get rocky. Nonetheless, I can assure you that it will be interesting and meaningful for those companies that are able to think outside of the box.