Velocity Financial announced the sale of $133.2 million of its non‑performing loan portfolio to an undisclosed buyer, with the transaction expected to close before the end of 2025. The sale was conducted at a significant premium to the loans’ current book value, allowing the company to remove distressed assets from its balance sheet while generating a fee‑based revenue stream through a newly established third‑party servicing arrangement.
The deal is a key component of Velocity’s strategy to optimize its earning asset base and free up capital for future originations. By divesting a sizable portion of its non‑performing loans, the company reduces credit risk exposure and improves its loan‑to‑value ratios, positioning it to pursue its goal of a $5 billion loan portfolio by the end of 2025. The capital relief also lowers the company’s debt‑to‑equity ratio, which stood at 9.7, and supports a more favorable risk profile for investors and lenders.
Prior to the sale, Velocity’s loan portfolio had grown to $3.5 billion, with non‑performing loans representing 4.2% of the total. The company’s net interest margin expanded to 3.52% in Q4 2023 from 3.34% in Q3 2023, reflecting disciplined underwriting and a favorable mix of business‑purpose loans secured by residential rentals and small commercial properties. Revenue growth of 38.8% over three years and a net margin of 32.33% underscore the firm’s ability to generate strong returns while managing leverage.
The third‑party servicing partnership is described as a capital‑light, fee‑based arrangement that will generate recurring revenue without the need for additional balance‑sheet capacity. EVP of Capital Markets Jeff Taylor noted that the partnership “enables us to maximize profitability and releases capital to drive continued portfolio growth and enhanced return on equity.” While the exact fee structure and projected revenue are not disclosed, the partnership is expected to contribute positively to operating income as the company scales its servicing operations.
The transaction’s immediate impact is twofold: it removes a significant amount of distressed assets, improving asset quality, and it unlocks capital that can be deployed into new originations. Management has signaled confidence that the freed capacity will accelerate loan production, with Q3 2025 loan production already reaching a record $739 million. The sale also positions Velocity to better weather potential market headwinds, such as rising interest rates, by maintaining a leaner balance sheet and a stronger equity base.
In summary, Velocity Financial’s sale of $133.2 million in non‑performing loans and the launch of a third‑party servicing partnership represent a strategic move to strengthen its balance sheet, enhance profitability, and support aggressive growth targets. The transaction aligns with the company’s broader objective of optimizing its earning asset base and delivering sustainable returns to shareholders.
The content on BeyondSPX is for informational purposes only and should not be construed as financial or investment advice. We are not financial advisors. Consult with a qualified professional before making any investment decisions. Any actions you take based on information from this site are solely at your own risk.