VEL Velocity Financial, Inc.

Risks

• 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.
• 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.
• 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.
• 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.
• If we fail to develop, enhance and implement strategies to adapt to changing conditions in the real estate and capital markets, our business, results of operations and financial condition may be materially and adversely affected.
• 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.
• Loans on properties in transition will involve a greater risk of loss than traditional investment-grade mortgage loans with fully insured borrowers.
• 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.
• Some of the mortgage loans we originate or acquire are loans made to self-employed borrowers who may have a higher risk of delinquency and default, which could have a material and adverse effect on our business, results of operations and financial condition.
• 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.
• 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 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.
• 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.
• The terms of our outstanding Series A Convertible Preferred Stock and Warrants may adversely affect the rights of the holders of our common stock.
• 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 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 mismatches between our loans and our borrowings used to fund our portfolio may reduce our income during periods of changing 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.
• Uncertainty about the future of LIBOR could negatively impact our cost of funds, net interest income, cash flows and financial performance.
• 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.
• The securitization process is subject to an evolving regulatory environment that may affect certain aspects of our current business.
• Maintenance of our Investment Company Act exclusion imposes limits on our operations, which may adversely affect our operations.
• 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.
• Future sales of shares of our common stock, including by our existing stockholders, could depress the market price of our shares.
• 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.