Home Point has agreed to a $5 million settlement with investors who allege the mortgage lender made inflated claims about its ability to manage costs before its early 2021 public debut. The resolution was filed in a Michigan federal court on Friday.
Investors who acquired stock from Home Point Capital Inc. during its January 2021 IPO and the subsequent months can submit claims, pending judicial approval.
The accusation asserts that Home Point and its top executives gave misleading information regarding their cost efficiency and resilience against rising interest rates, leading to an artificially high stock price in its early trading days. The company's declarations, including a "highly leverageable cost structure" and a promising gain-on-sale margin, are highlighted in the complaint.
However, by May 2021, Home Point's quarterly expenses had risen from $84 million in 2020 to $227 million in 2021, while its gain-on-sale margins dipped. Investors argue this indicates deceptive claims about the company's cost-containment capabilities and market resilience.
Following these revelations, Home Point's stock declined by 17.7%, closing at $7.72, a significant drop from its $13 IPO price.
The proposed settlement dictates that eligible claimants are those who bought stock after the IPO and up until June 21, 2021.
The company's impending acquisition by Mr. Cooper Group, valued at $324 million, influenced the settlement negotiations. Following the completion of this transaction, Mr. Cooper plans to phase out Home Point's operations.
The potential class of investors acknowledged the risks of prolonged litigation, and the uncertainty surrounding Home Point's ability to fully fund any future settlement.
In a prior ruling, a judge had dismissed claims suggesting Home Point's dishonesty regarding the influence of interest rates on its profits. However, the lender was mandated to address allegations about deceptive cost statements.
Despite the settlement, Home Point and its executives refute any wrongdoing, asserting their adherence to all relevant federal securities regulations.
