Velocity Financial, Inc. (VEL): Business Model Canvas [11-2024 Updated]
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Velocity Financial, Inc. (VEL) Bundle
In the fast-paced world of real estate financing, Velocity Financial, Inc. (VEL) stands out with a robust business model that intricately weaves together key partnerships, innovative activities, and valuable resources. This blog post delves into the essential components of their Business Model Canvas, exploring how they effectively serve diverse customer segments, maintain strong relationships, and generate revenue. Discover the strategic elements that drive VEL's success and their unique value propositions that cater to real estate investors and property management firms.
Velocity Financial, Inc. (VEL) - Business Model: Key Partnerships
Independent mortgage brokers
Velocity Financial collaborates with a network of independent mortgage brokers to facilitate loan originations. This partnership enables the company to expand its reach and tap into diverse customer bases. As of September 30, 2024, the total loans held for investment amounted to $4.73 billion, with a substantial portion stemming from broker-originated loans.
Institutional investors for securitized debt
Velocity Financial actively partners with institutional investors to securitize its debt. From May 2011 to September 30, 2024, the company executed 35 securitized debt transactions, resulting in over $7.4 billion in gross debt proceeds. This funding strategy is crucial for maintaining liquidity and supporting ongoing loan origination activities.
| Transaction Date | Securitized Debt Issued (in billions) |
|---|---|
| 2011-05 | 1.00 |
| 2014-06 | 1.25 |
| 2017-02 | 1.50 |
| 2021-04 | 1.80 |
| 2024-09 | 1.00 |
Third-party loan servicing vendors
Velocity Financial utilizes third-party loan servicing vendors to manage its loan portfolio effectively. This partnership helps streamline operations and enhances customer service. As of September 30, 2024, the average loan yield was reported at 9.18%, highlighting the effectiveness of the servicing strategies implemented through these partnerships.
Century Health & Housing Capital, LLC
In December 2021, Velocity Financial acquired an 80% ownership interest in Century Health & Housing Capital, LLC. This partnership allows for the origination of government-insured FHA mortgage financing for multifamily and senior housing, which diversifies Velocity’s loan offerings. As of September 30, 2024, Century has originated loans through its borrower-direct channel, enhancing Velocity’s portfolio retention and client relationships.
| Partnership Aspect | Details |
|---|---|
| Ownership Interest | 80% |
| Loan Types Offered | FHA financing for multifamily and senior housing |
| Origination Fees | Earned from mortgage servicing rights |
| Servicing Platform | In-house servicing platform for client retention |
Velocity Financial, Inc. (VEL) - Business Model: Key Activities
Origination of Investor Real Estate Loans
For the three months ended September 30, 2024, Velocity Financial originated a total of 1,181 loans with an aggregate balance of $476.8 million. The average loan size was approximately $404,000, and the weighted average coupon was 10.62% with a weighted average loan-to-value (LTV) ratio of 63.1%. Over the past nine months, the company originated loans totaling $1.4 billion, reflecting a robust demand for investor real estate financing.
Loan Servicing and Portfolio Management
As of September 30, 2024, Velocity Financial's loan portfolio totaled $4.8 billion across approximately 12,235 loans. The company recorded an annualized yield of 9.18% on its total portfolio. Loan servicing expenses increased to $5.7 million for the third quarter of 2024, compared to $4.9 million for the same period in 2023, driven by a growing loan portfolio.
| Portfolio Metrics | September 30, 2024 | June 30, 2024 | September 30, 2023 |
|---|---|---|---|
| Total Loans (UPB) | $4,753,266,000 | $4,479,901,000 | $3,876,726,000 |
| Loan Count | 12,235 | 11,582 | 9,953 |
| Average Loan Balance | $388,000 | $387,000 | $390,000 |
| Weighted Average LTV | 67.0% | 67.4% | 68.0% |
| Nonperforming Loans (UPB) | $503,939,000 | $470,649,000 | $387,725,000 |
Securitization of Loans for Funding
Velocity Financial has completed 35 securitized debt transactions from May 2011 through September 2024, issuing a total of $7.4 billion in principal amount of securities. For the nine months ended September 30, 2024, the company reported $1.0 billion in proceeds from securitized debt. As of September 30, 2024, the total securitized debt at fair value was $1.75 billion.
| Securitized Debt Overview | September 30, 2024 | December 31, 2023 |
|---|---|---|
| Unpaid Principal Balance | $1,724,918,000 | $876,704,000 |
| Valuation Adjustment | $24,350,000 | $713,000 |
Risk Management and Credit Assessment
As of September 30, 2024, Velocity Financial maintained a minimal annualized charge-off rate of 0.05% on loans held for investment, reflecting effective credit risk management. The company has established rigorous credit assessment processes to evaluate borrower profiles and property valuations, thereby minimizing potential defaults. The total allowance for credit losses stood at $4.9 million, indicating proactive risk management strategies.
Velocity Financial, Inc. (VEL) - Business Model: Key Resources
Strong loan portfolio (approx. $4.8 billion)
As of September 30, 2024, Velocity Financial, Inc. reported a loan portfolio totaling approximately $4.8 billion in unpaid principal balance (UPB). This portfolio comprises loans secured primarily by first liens on residential and commercial properties across 45 states and the District of Columbia. The average loan balance in the portfolio is about $388,500, with a weighted average loan-to-value ratio of 67.0% at origination. The portfolio includes a significant portion of investor 1-4 unit residential rental loans, which account for 54.0% of the total UPB.
| Loan Portfolio Statistics | Value |
|---|---|
| Total UPB | $4.8 billion |
| Average Loan Balance | $388,500 |
| Weighted Average LTV Ratio | 67.0% |
| Investor 1-4 Unit Loans Percentage | 54.0% |
Experienced management team
Velocity Financial benefits from a robust management team with extensive experience in the financial services and real estate sectors. This leadership is pivotal in navigating the complexities of the lending landscape, maintaining compliance with regulatory standards, and ensuring effective risk management practices. The management team's expertise contributes significantly to the company's strategic decision-making and operational efficiency, underpinning its competitive advantage in the market.
Proprietary technology for loan processing
The company employs proprietary technology that streamlines its loan processing operations. This technology enhances efficiency in underwriting, servicing, and managing the loan portfolio. By leveraging advanced data analytics, Velocity Financial can assess credit risk effectively and optimize loan origination processes, which ultimately leads to improved customer service and faster loan approvals.
Established relationships with mortgage brokers
Velocity Financial has cultivated strong relationships with a network of mortgage brokers. These partnerships facilitate a steady flow of loan origination opportunities, enabling the company to expand its market reach. The established broker relationships are integral to Velocity's growth strategy, allowing the company to tap into diverse customer segments and enhance its competitive positioning in the lending market.
Velocity Financial, Inc. (VEL) - Business Model: Value Propositions
Competitive pricing on loans
Velocity Financial, Inc. offers competitive pricing on its loan products, which is a critical aspect of its value proposition. The average loan yield for the company was reported at 9.18% as of September 30, 2024, compared to 8.38% in the same period of the previous year, indicating an increase in the profitability of its loan offerings. The weighted average coupon on loans held for investment was 9.4%.
Flexible loan structures tailored to borrowers
The company provides flexible loan structures that cater to the specific needs of borrowers. As of September 30, 2024, the total unpaid principal balance (UPB) for loans held for investment was approximately $4.8 billion, covering properties across 45 states. This wide geographical reach allows Velocity to tailor its loan products to various market segments effectively. The average loan balance was around $388.5 thousand, reflecting the company’s focus on investor real estate loans, particularly in the 1-4 unit residential rental segment which constituted 54.0% of the UPB.
Expertise in investor real estate financing
Velocity Financial specializes in investor real estate financing, leveraging its extensive experience in the sector to attract and retain clients. The company's ability to execute 35 securitized debt transactions since May 2011 has resulted in gross debt proceeds exceeding $7.4 billion, showcasing its expertise and credibility in the market. This specialization allows Velocity to offer tailored financing solutions and maintain a low weighted average loan-to-value (LTV) ratio of 67.0% at origination.
Long-term client relationships and retention
Building long-term client relationships is a cornerstone of Velocity's business model. The company focuses on client retention through excellent service and tailored financial solutions. The net income attributable to Velocity Financial, Inc. for the nine months ended September 30, 2024, was $47.8 million, up from $34.9 million in the previous year. The annualized return on equity as of September 30, 2024, was reported at 12.9%, reflecting the company's effective management in maintaining client relationships and driving profitability.
| Value Proposition | Details |
|---|---|
| Competitive Pricing on Loans | Average loan yield: 9.18% as of September 30, 2024 |
| Loan Portfolio Size | Total UPB: $4.8 billion covering 45 states |
| Average Loan Balance | $388.5 thousand |
| Expertise in Investor Real Estate Financing | Securitized debt transactions: 35, gross debt proceeds: $7.4 billion |
| Annualized Return on Equity | 12.9% as of September 30, 2024 |
Velocity Financial, Inc. (VEL) - Business Model: Customer Relationships
Direct engagement through mortgage brokers
Velocity Financial utilizes a network of independent mortgage brokers to originate loans. As of September 30, 2024, the company reported a total loan portfolio of approximately $4.8 billion, with an average loan balance of $388.5 thousand. This strategy allows for direct engagement with customers, facilitating tailored service to meet individual borrower needs.
In-house servicing to enhance customer experience
The company has established in-house servicing capabilities through its subsidiary, Century Health & Housing Capital, LLC, which was acquired in 2021. This enables Velocity Financial to maintain long-term relationships with its clients and drive strong portfolio retention. For the three months ended September 30, 2024, loan servicing expenses amounted to $5.7 million, reflecting an increase from $4.9 million in the same period of the previous year.
Ongoing support and communication
Velocity Financial emphasizes ongoing support and effective communication with its customers. For instance, the company generated net income of $15.8 million for the three months ended September 30, 2024, an increase from $12.1 million year-over-year, indicating strong operational performance and customer satisfaction.
Building trust through transparency and reliability
The company focuses on building trust with its clients by promoting transparency in its operations. This approach is reflected in its financial metrics, such as a minimal annualized charge-off rate of 0.05% for the three months ended September 30, 2024. Additionally, Velocity has successfully executed 35 securitized debt transactions resulting in over $7.4 billion in gross debt proceeds since May 2011, showcasing its reliability as a financial partner.
| Metrics | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Net Income (in millions) | $15.8 | $12.1 | $3.7 |
| Loan Servicing Expenses (in millions) | $5.7 | $4.9 | $0.8 |
| Average Loan Balance (in thousands) | $388.5 | N/A | N/A |
| Charge-Off Rate (%) | 0.05 | 0.01 | Increase |
Velocity Financial, Inc. (VEL) - Business Model: Channels
Online platforms for loan applications
Velocity Financial has developed robust online platforms facilitating loan applications. As of September 30, 2024, the company reported total loans held for investment amounting to approximately $4.8 billion, with a weighted average loan-to-value (LTV) ratio of 67.0%. This platform allows customers to conveniently apply for loans, streamlining the application process and improving customer experience.
Network of independent mortgage brokers
The company utilizes a comprehensive network of independent mortgage brokers to reach potential borrowers. This network significantly contributes to Velocity's loan origination capabilities, which included 1,181 loans originated totaling $476.8 million during the three months ended September 30, 2024. The average loan size during this period was approximately $404,000.
Direct sales through Century Health & Housing Capital
Velocity Financial acquired an 80% interest in Century Health & Housing Capital, which specializes in government-insured FHA mortgage financing for multifamily and senior housing. Century's in-house servicing platform enhances customer relationships and drives portfolio retention, enabling a direct sales approach that leverages its origination and servicing capabilities.
Marketing initiatives targeting real estate investors
Velocity Financial implements targeted marketing initiatives aimed at real estate investors. This focus is reflected in the composition of its loan portfolio, where 54.0% consists of investor 1-4 unit residential rental loans. The company's strategies include digital marketing campaigns and partnerships, enhancing their visibility in the real estate investment community.
| Channel | Details | Impact on Loan Originations |
|---|---|---|
| Online Platforms | Facilitates loan applications | $4.8 billion in loans held for investment |
| Independent Mortgage Brokers | Network for loan origination | 1,181 loans totaling $476.8 million |
| Century Health & Housing Capital | Direct sales through FHA financing | Enhances portfolio retention |
| Marketing Initiatives | Targeting real estate investors | 54.0% of portfolio in investor loans |
Velocity Financial, Inc. (VEL) - Business Model: Customer Segments
Individual real estate investors
Velocity Financial, Inc. primarily serves individual real estate investors who seek financing for 1-4 unit residential rental properties. As of September 30, 2024, the company’s loan portfolio totaled approximately $4.8 billion in unpaid principal balance (UPB), with 54.0% of this portfolio consisting of investor 1-4 loans. The average loan balance for these investors is about $388.5 thousand. The annualized yield on the total portfolio was reported at 9.18%.
Small to mid-sized property management firms
Velocity also targets small to mid-sized property management firms, offering them tailored financing solutions. The firm has seen a steady increase in loan originations, with a total of 1,181 loans originated in the three months ended September 30, 2024, amounting to $476.8 million. The interest income for the three months ended September 30, 2024, reached $105.1 million, up from $79.1 million in the same period of the previous year.
Commercial property owners
For commercial property owners, Velocity Financial provides various financing options backed by a solid portfolio. The company’s securitized debt market is a vital source of long-term financing, having executed 35 securitized debt transactions since May 2011, yielding over $7.4 billion in gross debt proceeds. As of September 30, 2024, the weighted average loan-to-value (LTV) ratio at origination for the portfolio was 67.0%.
Multifamily housing developers
Velocity Financial also caters to multifamily housing developers through its subsidiary, Century Health & Housing Capital, LLC, which provides government-insured Federal Housing Administration (FHA) financing. This segment has grown due to the increasing demand for multifamily units, and the company’s average loan yield for this category was noted at 10.85%. The multifamily sector is supported by the company’s focus on building long-term relationships with clients, thereby driving strong portfolio retention.
| Customer Segment | Portfolio Segment (%) | Average Loan Amount ($) | Annualized Yield (%) | Loan Originations (Q3 2024) |
|---|---|---|---|---|
| Individual Real Estate Investors | 54.0% | $388,500 | 9.18% | $476.8 million |
| Small to Mid-Sized Property Management Firms | Varies | Varies | Varies | 1,181 loans |
| Commercial Property Owners | Varies | Varies | Varies | Varies |
| Multifamily Housing Developers | Varies | Varies | 10.85% | Varies |
Velocity Financial, Inc. (VEL) - Business Model: Cost Structure
Interest expenses on securitized debt and warehouse facilities
For the three months ended September 30, 2024, the portfolio-related interest expense was $63.9 million, an increase from $47.6 million in the same period of 2023. For the nine months ended September 30, 2024, this expense rose to $178.7 million from $135.1 million in 2023. This increase is attributed to a higher loan portfolio being financed and increased interest rates.
| Period | Average Debt (in thousands) | Interest Expense (in thousands) | Cost of Funds (%) |
|---|---|---|---|
| Three months ended September 30, 2024 | $4,152,040 | $63,871 | 6.15% |
| Three months ended September 30, 2023 | $3,379,611 | $47,583 | 5.63% |
| Nine months ended September 30, 2024 | $3,949,093 | $178,734 | 6.03% |
| Nine months ended September 30, 2023 | $3,263,304 | $135,062 | 5.52% |
Operating expenses (salaries, rent, technology)
Total operating expenses for the three months ended September 30, 2024, were $34.6 million, compared to $27.3 million in the same period of 2023. For the nine months ended September 30, 2024, total operating expenses reached $100.5 million, up from $71.4 million in the prior year.
| Expense Type | Three Months Ended September 30, 2024 (in thousands) | Three Months Ended September 30, 2023 (in thousands) | Nine Months Ended September 30, 2024 (in thousands) | Nine Months Ended September 30, 2023 (in thousands) |
|---|---|---|---|---|
| Compensation and Employee Benefits | $17,586 | $12,523 | $49,505 | $33,200 |
| Origination Expenses | $867 | $273 | $2,262 | $347 |
| Securitization Expenses | $3,186 | $4,930 | $12,292 | $10,213 |
| Loan Servicing | $5,656 | $4,901 | $15,639 | $12,996 |
| Professional Fees | $2,305 | $854 | $6,140 | $2,865 |
| Rent and Occupancy | $519 | $472 | $1,633 | $1,377 |
| Real Estate Owned, Net | $1,951 | $1,239 | $5,762 | $4,085 |
| Other Operating Expenses | $2,543 | $2,142 | $7,278 | $6,276 |
| Total Operating Expenses | $34,613 | $27,334 | $100,511 | $71,359 |
Loan origination costs
Loan origination costs have increased significantly, reflecting the growth in originations. For the three months ended September 30, 2024, origination fees rose to $6.7 million from $3.3 million in the same period of 2023. For the nine-month period, origination fees increased to $16.8 million from $8.5 million.
| Period | Origination Fees (in thousands) |
|---|---|
| Three months ended September 30, 2024 | $6,704 |
| Three months ended September 30, 2023 | $3,323 |
| Nine months ended September 30, 2024 | $16,762 |
| Nine months ended September 30, 2023 | $8,469 |
Costs related to loan servicing and compliance
Loan servicing costs also saw an increase, reaching $5.7 million for the three months ended September 30, 2024, compared to $4.9 million in the same period of 2023. For the nine months ended September 30, 2024, these costs were $15.6 million, up from $13.0 million in 2023.
| Period | Loan Servicing Costs (in thousands) |
|---|---|
| Three months ended September 30, 2024 | $5,656 |
| Three months ended September 30, 2023 | $4,901 |
| Nine months ended September 30, 2024 | $15,639 |
| Nine months ended September 30, 2023 | $12,996 |
Velocity Financial, Inc. (VEL) - Business Model: Revenue Streams
Interest income from loan portfolio
As of September 30, 2024, Velocity Financial reported an interest income of $105.1 million for the three months ended, up from $79.1 million in the same period in 2023. For the nine months ended September 30, 2024, interest income increased to $293.4 million from $224.5 million year-over-year. The average loan yield was 9.18% for the three months ended September 30, 2024, compared to 8.38% for the same period in 2023, reflecting higher portfolio balances and average loan yields.
| Period | Average Loans (in thousands) | Interest Income (in thousands) | Average Yield |
|---|---|---|---|
| Three months ended September 30, 2024 | $4,578,911 | $105,070 | 9.18% |
| Three months ended September 30, 2023 | $3,773,630 | $79,088 | 8.38% |
| Nine months ended September 30, 2024 | $4,364,754 | $293,359 | 8.96% |
| Nine months ended September 30, 2023 | $3,645,409 | $224,506 | 8.21% |
Origination fees from loans
Velocity Financial generated origination fee income of $6.7 million for the three months ended September 30, 2024, an increase from $3.3 million in the same period in 2023. For the nine months ended September 30, 2024, origination fees totaled $16.8 million, compared to $8.5 million for the nine months ended September 30, 2023. This increase is primarily attributed to higher loan originations.
| Period | Origination Fees (in thousands) |
|---|---|
| Three months ended September 30, 2024 | $6,700 |
| Three months ended September 30, 2023 | $3,300 |
| Nine months ended September 30, 2024 | $16,800 |
| Nine months ended September 30, 2023 | $8,500 |
Servicing fees from mortgage servicing rights
For the three months ended September 30, 2024, servicing fee income increased to $0.5 million from $0.3 million in the same period in 2023. For the nine months ended September 30, 2024, servicing fee income remained consistent at $1.4 million compared to the same period in 2023. The growth in servicing fee income is primarily driven by an increase in the loan servicing portfolio.
| Period | Servicing Fees (in thousands) |
|---|---|
| Three months ended September 30, 2024 | $500 |
| Three months ended September 30, 2023 | $300 |
| Nine months ended September 30, 2024 | $1,400 |
| Nine months ended September 30, 2023 | $1,400 |
Gains from loan sales and securitizations
Velocity Financial has executed 35 securitized debt transactions since May 2011, resulting in $7.4 billion in principal amount of securities issued. For the three months ended September 30, 2024, the gain on the disposition of loans was reported at $2.3 million, while for the nine months ended that year, the total gain reached $7.2 million. The total unpaid principal balance (UPB) of loans held for investment was $4.8 billion as of September 30, 2024.
| Period | Gain on Loan Sales (in thousands) | Total UPB (in billions) |
|---|---|---|
| Three months ended September 30, 2024 | $2,291 | $4.8 |
| Nine months ended September 30, 2024 | $7,156 | $4.8 |
Updated on 16 Nov 2024
Resources:
- Velocity Financial, Inc. (VEL) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Velocity Financial, Inc. (VEL)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Velocity Financial, Inc. (VEL)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.