Velocity Financial, Inc.

Current report

Risks Related to Mergers, Acquisitions and Strategic Investments

Current report

We may be unable to successfully identify, complete, integrate or realize the anticipated benefits of mergers, acquisitions, strategic investments, joint ventures or other business combinations, which could adversely affect our business, financial condition and results of operations.

Current report

From time to time, we may pursue acquisitions, strategic investments, joint ventures, minority investments, asset purchases or other business combinations that we believe will complement or expand our business. There can be no assurance that we will be able to identify suitable opportunities, negotiate acceptable terms, obtain required financing, secure necessary regulatory or third-party approvals, or otherwise complete transactions on favorable terms or at all.

Current report

Even if completed, acquisitions and other strategic transactions involve numerous risks and uncertainties, including difficulties in integrating operations, technologies, products, controls, personnel and corporate cultures; diversion of management's attention from existing business operations; challenges in retaining key employees, customers, counterparties and business relationships; failure to achieve anticipated synergies, cost savings, growth opportunities or other expected benefits; assumption of unknown, contingent or unexpected liabilities; increased legal, regulatory, compliance and operational risks; and potential impairment charges related to goodwill, intangible assets or other acquired assets.

Current report

In addition, acquired businesses may have liabilities, deficiencies, cybersecurity vulnerabilities, compliance issues or other risks that were not identified during the due diligence process or that exceed our estimates. Any such issues could result in increased costs, litigation, regulatory scrutiny, reputational harm or operational disruptions. If we are unable to successfully integrate acquired businesses or realize the anticipated benefits of a transaction within the expected timeframe, or at all, our business strategy, results of operations, financial condition, cash flows and stock price could be materially and adversely affected.

Current report

Furthermore, acquisitions and strategic transactions may require the use of substantial cash resources, the incurrence of indebtedness, the issuance of equity securities or other financing arrangements, which could dilute existing stockholders, increase our leverage, restrict operational flexibility or otherwise adversely affect our financial condition. As a result, any future merger, acquisition or strategic investment may not contribute positively to our results and could have a material adverse effect on our business, financial condition and results of operations.

Current report

Risks Related to Retained Securities

Current report

Our retained interests in securitization trusts are subject to valuation, credit, and liquidity risks that could adversely affect our financial condition and results of operations.

Current report

As part of our loan securitization program, we transfer commercial real estate and residential mortgage loans to securitization trusts and retain interests in those trusts, including subordinate certificates, interest-only strips, and other residual interests. We record these retained interests at fair value, which requires management to make significant estimates and assumptions regarding, among other things, prepayment speeds, default and loss severity rates, discount rates, and the timing and amount of expected future cash flows. These assumptions are inherently subjective and subject to change based on economic conditions, borrower behavior, and performance of the underlying collateral. If actual performance of the securitized loans differs materially from our assumptions, or if market conditions affecting the assumptions used by market participants to value similar instruments change, we may be required to record other-than-temporary impairments or fair value adjustments that could materially and adversely affect our earnings and financial condition in the periods in which they occur.

Current report

Our retained interests are subordinate to the interests of senior certificate holders in the related trusts. As a result, we bear a disproportionate share of the credit risk associated with the underlying loan pools, and we would generally not receive any distributions on our retained interests until the senior classes have been paid the amounts to which they are entitled. An increase in delinquencies, defaults, or loss severities on the underlying loans—whether due to weakening economic conditions, declines in commercial or residential real estate values, borrower-specific factors, or other causes—could reduce or eliminate the value of our retained interests and reduce or delay the cash flows we expect to receive.

Current report

Our ability to continue to securitize loans and retain interests on terms favorable to us also depends on conditions in the capital markets that are outside of our control, including investor demand for asset-backed securities, prevailing interest rates, credit spreads, and regulatory requirements applicable to securitization transactions (including risk retention rules). Adverse changes in any of these factors could reduce the value of, or our ability to monetize, our retained interests, could require us to hold a greater proportion of credit risk on our balance sheet than we currently anticipate, and could adversely affect our liquidity, financial condition, and results of operations.