VEL Velocity Financial, Inc.

Risks

• The outbreak of the recent coronavirus, COVID-19, or an outbreak of another highly infectious or contagious disease, could adversely affect our business, financial condition, results of operations and cash flow, and limit our ability to obtain additional financing.
• We are dependent upon the success of the investor real estate market and conditions that negatively impact this market may reduce demand for our loans and adversely impact our business, results of operations and financial condition.
• Difficult conditions in the real estate markets, the financial markets and the economy generally may adversely impact our business, results of operations and financial condition.
• We operate in a competitive market for loan origination and acquisition opportunities and competition may limit our ability to originate and acquire loans, which could adversely affect our ability to execute our business strategy.
• Loans to small businesses involve a high degree of business and financial risk, which can result in substantial losses that would adversely affect our business, results of operation and financial condition.
• We have a short operating history as a publicly traded company, and our inexperience could materially and adversely affect us.
• The failure of a third-party servicer or the failure of our own internal servicing system to effectively service our portfolio of mortgage loans may adversely impact our business, results of operations and financial condition.
• We are dependent on certain of our key personnel for our future success, and their continued service to us is not guaranteed.
• Our growth strategy relies upon our ability to hire and retain qualified account executives, and if we are unable to do so, our growth could be limited.
• Inaccurate or incomplete information received from potential borrowers, guarantors and sellers involved in the sale of pools of loans could have a negative impact on our results of operation.
• Deficiencies in appraisal quality in the mortgage loan origination process may result in increased principal loss severity.
• We use leverage in executing our business strategy, which may adversely affect the return on our assets, as well as increase losses when economic conditions are unfavorable.
• Our underwriting guidelines in the mortgage loan origination process may result in increased delinquencies and defaults.
• We may change our strategy or underwriting guidelines without notice or stockholder consent, which may result in changes to our risk profile and net income.
• Our inability to manage future growth effectively could have an adverse impact on our business, results of operations and financial condition.
• Operational risks, including the risk of cyberattacks, could disrupt our business and materially and adversely affect our business, results of operations and financial condition.
• Any disruption in the availability or functionality of our technology infrastructure and systems could have a material adverse effect on our business.
• A significant portion of our loan portfolio is in the form of investor real estate loans which are subject to increased risks.
• Any costs or delays involved in the completion of a foreclosure or liquidation of the underlying property may further reduce proceeds from the property and may increase the loss.
• Insurance on collateral underlying mortgage loans and real estate securities may not cover all losses.
• We may be subject to lender liability claims, and if we are held liable under such claims, we could be subject to losses.
• Our portfolio of assets may at times be concentrated in certain property types or secured by properties concentrated in a limited number of geographic areas, which increases our exposure to economic downturn and natural disasters with respect to those property types or geographic locations.
• The investor real estate loans we originate or acquire are dependent on the ability of the property owner to generate net income from operating the property, which may result in the inability of such property owner to repay a loan, as well as the risk of foreclosure.
• We may be exposed to environmental liabilities with respect to properties to which we take title, which may in turn decrease the value of the underlying properties.
• We will utilize analytical models and data in connection with the projections for our loan portfolio, and any incorrect, misleading or incomplete information used in connection therewith would subject us to potential risks.
• We may be required to repurchase or substitute mortgage loans or indemnify investors if we breach representations and warranties, which could harm our business, cash flow, results of operations and financial condition.
• Some of our portfolio assets may be recorded at fair value as estimated by management and may not reflect the price we could realize upon disposal.
• Our certificate of incorporation provides that our directors who are affiliates of Snow Phipps and TOBI may engage in similar activities and lines of business as us, which may result in competition between us and such stockholders or another portfolio company of such stockholders for certain corporate opportunities.
• Some provisions of Delaware law and our organizational documents may deter third parties from acquiring us and may diminish the value of our common stock.
• Failure to comply with requirements to design, implement and maintain effective internal controls, as well as a failure to remediate any identified weaknesses in our internal controls, could have a material adverse effect on our reputation, business and stock price.
• Our certificate of incorporation provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the sole and exclusive forums for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
• Our board of directors is authorized to issue and designate shares of our preferred stock in additional series without stockholder approval.
• We may not be able to successfully complete additional securitization transactions on attractive terms or at all, which could limit potential future sources of financing and could inhibit the growth of our business.
• If one or more of our warehouse repurchase facilities, on which we are dependent, are terminated, we may be unable to find replacement financing on favorable terms on a timely basis, or at all, which would have a material adverse effect on our business, results of operations and financial condition.
• We may be required to maintain certain levels of collateral or provide additional collateral under our warehouse repurchase facilities, which may restrict us from leveraging our assets as fully as desired or forcing us to sell assets under adverse market conditions, resulting in potentially lower returns.
• If a counterparty to our repurchase transactions defaults on its obligation to resell the underlying asset back to us at the end of the transaction term, or if the value of the underlying asset has declined as of the end of that term, or if we default on our obligations under the repurchase agreement, we will lose money on our repurchase transactions.
• Interest rate fluctuations could negatively impact our net interest income, cash flows and the market value of our investments.
• Interest rate caps on our ARMs may reduce our income or cause us to suffer a loss during periods of rising interest rates.
• Our existing and future financing arrangements and any debt securities we may issue could restrict our operations and expose us to additional risk.
• We may use derivative instruments, which could subject us to increased risk of loss.
• The increasing number of proposed United States federal, state and local laws may affect certain mortgage-related assets in which we intend to invest and could materially increase our cost of doing business.
• We are subject to state licensing and operational requirements in certain states that may result in substantial compliance costs.
• Maintenance of our Investment Company Act exclusion imposes limits on our operations, which may adversely affect our operations.
• If we fail to comply with laws, regulations and market standards regarding the privacy, use, and security of customer information, or if we are the target of a successful cyber-attack, we may be subject to legal and regulatory actions and our reputation would be harmed.
• We may be subject to liability for potential violations of predatory lending laws, which could adversely impact our business, results of operations and financial condition.
• The trading and price of our common stock has been and may continue to be volatile, which could result in substantial losses for purchasers of our common stock.
• We have incurred increased costs as a result of being a public company.
• Future offerings of debt securities, which would rank senior to our common stock upon our liquidation, and future offerings of equity securities, which would dilute our existing stockholders and may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock.
• You should not rely on lock-up agreements in connection with our IPO to limit the amount of common stock sold into the market.
• We have not historically paid dividends on our common stock and, as a result, your only opportunity to achieve a return on your investment may be if the price of our common stock appreciates.
• If securities analysts do not publish research or reports about our business or if they downgrade our stock or our core market, our stock price and trading volume could decline.