Canadian mortgage broker lists on U.S. exchange

Toronto-based mortgage broker Pineapple Financial is listing on the NYSE American exchange, because its management sees growth potential, not just in its home country, but across borders, including the United States, as well.

"We took all that into consideration," said its CEO Shubha Dasgupta. "We really looked at what would be the optimal exchange that would provide us with the requirements that we needed, as well as the visibility and the NYSE [American] checked all the boxes on that."

The company priced the IPO at U.S.$4 per share. But once trading commenced on Nov. 1, the shares started falling — a factor with several of the U.S. mortgage company offerings as well — to a low of $2.67 per share before regaining ground to $3.30 per share by noon.

That growth potential is through its technology. Pineapple's roadmap calls for others to utilize and deploy its software and platforms, Dasgupta said, although things could change given the fluid nature of the mortgage business.

Besides the expansion of its business, the aggregate gross proceeds of U.S.$3.5 million are to be used for improving technology; developing Pineapple Insurance; along with giving Pineapple working capital and other general corporate purposes.

But the same high interest rate environment affecting the U.S. mortgage industry is an overhang on Canada as well. Loans in that nation are for far shorter terms than their southern counterparts, at three-to-five years. Approximately 57% of those loans are set to mature in 2025 and 2026, Dasgupta said. But a Bloomberg article noted unless rates come down, those renewing borrowers could see payment shock according to Royal Bank of Canada.

However, Dasgupta noted that Canadian mortgages are originated using a stress test scenario, at rates "significantly higher" than what the application calls for. Canadian homeowners are "well prepared" for that higher rate scenario. Also, like in the U.S., defaults are at record low numbers.

"More specifically to Pineapple, how this benefits us is that those Canadians are going to need our services more than ever, and this is going to really be able to drive a lot of demand and a lot of business for organizations like ours," Dasgupta said.

Approximately 7 million mortgages are outstanding in Canada, with a total outstanding loan value of C$1.95 trillion (U.S.$1.41 trillion), according to the Canada Housing and Mortgage Corp.

As in the U.S., origination volume has been on the downswing. The market peaked in the second quarter of 2021, at C$239.8 billion (U.S.$173.2 billion).

The most recent CHMC data is for the first quarter, when C$110.9 billion (U.S.$80.1 billion) was produced.

By units over the same timeframe, volume has slipped to 395,073 in the first quarter of this year from the peak of 774,909 in the second quarter of 2021.

Meanwhile, of the six most recent IPOs of mortgage banking companies that are still trading, all are well below their initial price.

Better, whose long-delayed special purpose acquisition company merger finally closed on Aug. 24 and ended that day at $1.15 per share, was trading at 47 cents a share as of noon on Nov. 1.

Rocket Cos. priced at $18 per share in August 2020, was at $7.40 per share.

Loandepot priced at $14 per share; one board versus founder proxy fight later, it was at $1.25 per share at noon on Nov. 1.

UWM Holdings, among the first companies that went public in the SPAC craze, opened at $11.95 per share in January 2021. It traded at $4.97 per share on Wednesday.

Finance of America also went public via a SPAC deal, but the company has undertaken a massive business shift, exiting all channels except reverse mortgages. It started trading at $9.50 per share but is now at $1.05 per share.

Guild's stock was not trading on Tuesday morning. A call left with the company's public relations firm has not yet been returned. The San Diego-based company's October 2020 IPO priced at $15; it closed on Oct. 31 at $10.53.