Velocity Financial, Inc.

What they do

Founded in 2004, Velocity originates investor loans secured by 1-4 unit residential rental properties and small commercial, multi-family and mixed-use properties, sourcing loans through independent mortgage brokers and direct borrower relationships. It funds the portfolio mainly through warehouse facilities and securitized debt, and has issued $10.6 billion in principal amount of securities across 46 securitizations from May 2011 through December 2025. It also holds an 80% interest in Century Health & Housing Capital, a Ginnie Mae issuer/servicer providing FHA-insured multifamily, senior housing and long-term care financing.

Revenue drivers

• Portfolio net interest income — Primary revenue source: interest earned on the loan portfolio less interest expense on warehouse and securitized debt. Portfolio-related net interest margin was 3.61% for 2025 and 3.66% in 2Q26; total portfolio yield was 9.45% for 2025.
• Investor 1-4 unit residential rental loans — Largest collateral category, representing 48.1% of the $6.5 billion UPB portfolio at December 31, 2025, with a weighted average origination LTV of 65.2% and average loan balance around $390-399 thousand.
• Securitization and noninterest income — Long-term non-recourse funding through term securitizations (VCC 2026-2 issued $398.5 million of securities; VCC 2026-MC2 generated $11.2 million of net proceeds) also drives gains and fee income.
• Century Ginnie Mae platform — Century earns origination fees on FHA-insured multifamily, senior housing and long-term care loans and servicing fees on its mortgage servicing rights portfolio; it is a consolidated subsidiary.

Recent performance

For 2Q26, Velocity reported pretax income of $35.2 million, up 3.9% from $33.9 million in 2Q25, while net income fell 3.2% to $25.2 million due mainly to a higher effective tax rate. Diluted EPS was $0.64 versus $0.69 a year earlier, and core net income was $27.9 million, up 1.4%, with core diluted EPS of $0.71. Loan production was $672.6 million, down from $725.4 million in 2Q25, though total unit production rose 3.3% with a lower average loan balance of $399 thousand. Portfolio net interest margin was 3.66%, down 16 bps from 3.82%, and nonperforming loans were 9.6% of held-for-investment loans, down from 10.3%. Full-year 2025 net income was $105.0 million, or $2.75 diluted EPS.

Strategy

Management's primary growth strategy is organic: serve and deepen loyalty within the existing mortgage broker network while adding new brokers through targeted marketing and brand awareness. The company also pursues opportunistic inorganic growth, including acquiring loan portfolios that meet its criteria and businesses aligned with its strategic vision. Velocity aims to maintain low-cost financing through the securitized debt market and has arranged a longer-term credit facility as a backstop if securitization markets tighten. It emphasizes rate discipline on new production, citing average loan coupons of 10.06% on loans produced over the last five quarters.

Risks

• Credit performance of the loan portfolio — Nonperforming loans were 9.6% of held-for-investment loans at June 30, 2026, so deterioration in borrower repayment or collateral values could raise credit losses.
• Dependence on securitization markets — Securitized debt is the primary source of long-term non-recourse funding, and adverse macroeconomic conditions could limit the company's ability to issue new securitizations.
• Fluctuating funding costs — All warehouse repurchase and revolving loan facilities have interest payment obligations tied to SOFR, exposing portfolio net interest margin to rate volatility.
• Intense competition — The investor real estate loan market is highly competitive, and some competitors may offer more favorable rates and terms or other services.

Outlook

CEO Chris Farrar said financing demand remained strong in the quarter across both traditional commercial and 1-4 family residential rental markets, with investors continuing to see value in smaller commercial properties. He stated confidence in Velocity's long-term growth prospects and its ability to sustain profitable market share growth. Management continues to monitor financing markets and maintain dialogue with investors and financial institutions as it evaluates funding sources and cost of funds.