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Velocity Financial, Inc. (VEL): A Bull Case Theory

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We came across a bullish thesis on Velocity Financial, Inc. (VEL) on Substack by Shareholdersunite. In this article, we will summarize the bulls’ thesis on VEL. Velocity Financial, Inc. (VEL)'s share was trading at $19.78 as of March 10th. VEL’s trailing P/E was 10.36 according to Yahoo Finance.

The Best Mortgage Lender in America
The Best Mortgage Lender in America

A portfolio of mortgage-backed securities with a magnifying glass, emphasizing the detail of credit risk management.

Velocity Financial (VEL) is a vertically integrated real estate finance company specializing in originating, securitizing, and managing loans backed by 1-4 unit residential rental and small commercial properties. Unlike traditional mortgage lenders, Velocity focuses on serving real estate investors who prioritize certainty of execution over interest rate sensitivity. This allows the company to maintain strong demand even in fluctuating interest rate environments. Operating through a network of independent mortgage brokers and direct borrower relationships, Velocity has built a scalable loan origination platform while ensuring disciplined underwriting standards. Its loan portfolio now exceeds $5 billion in unpaid principal balance, and given its focus on low loan-to-value ratios and consistent credit quality, the company is positioned for continued growth.

Velocity’s revenue model is highly diversified, encompassing net interest income, loan origination fees, gains on loan sales, loan servicing income, and fair value adjustments. A key advantage of its business model is its reliance on securitizations, specifically Real Estate Mortgage Investment Conduits (REMICs), which provide long-term financing stability. By pooling loans and selling bonds to institutional investors, Velocity efficiently recycles capital to fuel new originations. The company also utilizes warehouse lines for short-term funding, but since most of its loans and securitizations are fixed rate, its exposure to interest rate fluctuations remains minimal. This asset-liability matching strategy allows Velocity to operate with a stable cost of capital, insulating it from the volatility that often plagues traditional mortgage lenders.

A crucial strength of Velocity’s business model is its ability to maintain a strong net interest margin. By originating high-yielding loans while keeping funding costs low, the company consistently generates attractive profitability. Additionally, Velocity has a well-established framework for managing non-performing loans (NPLs), an area where it has outperformed many of its peers. Rather than selling delinquent loans to distressed debt buyers at a discount, Velocity works directly with borrowers to resolve issues, ensuring maximum recovery value. The company has demonstrated a strong track record of turning distressed assets into profitable outcomes, which further strengthens its earnings stability. With 90% of non-performing cases in Q4/24 resolved directly with borrowers, Velocity continues to prove its expertise in risk mitigation and asset management.