Wall Street is looking favorably at Freedom Mortgage Corporation's first half of the year, and at least one bond rating company is changing its outlook from negative to stable.
Kroll Bond Rating Agency (KBRA) analysts said the company has favorable operating cash flow due mostly to strong servicing revenues and a meaningful reduction in operating expenses.
In the first half of 2023, "operating performance, which has incorporated very limited production levels and a focus on efficiently servicing its low coupon [mortgage servicing rights] MSR portfolio, has been better than most industry participants. While the potential for some modest increase in Freedom’s core leverage exists, we currently consider that likelihood somewhat lower than during 2022," Kroll analysts wrote.
KBRA analysts added that Freedom has over 30 years of operating history and has "managed well through challenging mortgage business environments, with the current cyclical origination downturn no different, as the company has reduced operating costs efficiently and significantly, mostly through sharp staff reductions."
The rating also considers Freedom’s predominantly short-to-intermediate term, market-funded business model, one that is similar to most mortgage banking peers.
However, analysts also warned that "Freedom’s strategic decision not to at least partially hedge its substantial MSR investment with financial instruments is considered less favorably; acknowledging that the company’s call center origination capacity in robust refinance markets has done well providing an 'operational,' and in turn, financial performance hedge."