sincerely hope IPO buyers dont expect origination economics to be anything like may 2020 to april 2021 or TTM when they do list, this has been an unusually favorable period for originators and its not likely to repeat for a loooong time imho.

when a loan originator originates a new loan, their profit is roughly a difference between the price of the loan (par, at issuance) and how much a GSE (fannie, freddie—ginnie is diff) will pay for it plus the MSR (mortgage servicing right) is valued at, minus operational expenses

if you write a new loan, you make both sides of the profit, if you refinance a loan you extinguish an MSR but get a new one, usually with a higher price, especially if the new loan is bigger than the old one (cash-out refi). if you lose a loan to a new lender your MSR goes to 0.

in a market where UPB (unpaid principal balance) is growing due to growing housing stock or reductions in borrower equity (from cash-out from appreciation or change in ownership composition) the pie gets bigger and its easier for everyone to benefit

markets where average loan balances grow are good for the MSR business because the cost of servicing is a function of loan count and the revenue is a function of UPB. 100 $100k loans are much lower profit than 10 $1mm loans. there is economies of scale in the business.

the sharp increase in home prices, turnover from people moving, and low rates have led to triple windfalls: higher UPBs, lots of new purchase origination, and lots of refis which lead to improved MSR pricing respectively. this is very hard to sustain.

as loans age, value of the MSR declines for 2 reasons:
1) the revenue declines as the loan is paid down and the cost of servicing goes up with wage inflation
2) in a positively sloped yield curve + env of wage increases, a loan shortens & a borrower can refi into a shorter loan.

the peak economics are always at origination. pricing an origination business to the profits they have in periods of very high origination will lead to disappointment. especially as originators mature from growing market share profits to stable market share profits. end thread.