Asked for details on $222 million in loan sales, assuming it was separate from NPL securitization.

Mark Szczepaniak clarified that the $222 million included loans sold into the 2026-MC2 trust ($136 million) and held-for-sale loans from the Century deal ($80 million) sold to Ginnie. He explained the MC2 securitization was structured as a true sale, unlike other REMIC securitizations. “The MC2 security was structured such a way where we are not the primary beneficiary of that 2026-MC2 trust. So the loans that were transferred to the trust come off our books. They're actually sold into the trust.”

Asked to quantify the expected faster loan growth in the second half of the year.

Chris Farrar stated they don't give formal forward guidance but noted July was their best month for submissions and that the second half is typically strong. He expects to beat last year's volumes but did not provide a specific number. “I can say that July was best month we've had in terms of submissions. So, we've seen volume really pick up just recently in the last 45 days.”

Inquired about the ability to grow the balance sheet and be more efficient with current capital.

Chris Farrar explained that growth depends on capital retention and market access. They have a forward plan and access to both equity and debt markets. He noted they aim not to exceed 10x leverage, which would be a governor for future capital raises. “We won't get much more than 10x leverage. We are a levered finance company, but don't want to really exceed that. So, that will probably be somewhat of a governor in terms of whether we raise equity or debt.”

VEL

Velocity Financial (VEL) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Financials· Aug 5, 2026

Source: earnings call transcript

Executive summary

Velocity Financial Q2 FY26 — Strong Loan Portfolio Growth and NPL Resolution Gains

Velocity Financial delivered a solid second quarter, marked by robust loan portfolio growth and effective non-performing loan resolution, driving a significant increase in book value per share. While GAAP net income saw a modest decline due to tax rate impacts, underlying business performance remained strong with healthy origination volumes and a diverse funding base. The company anticipates continued growth in origination volumes and earnings for the remainder of the year, supported by a stable credit environment and supportive capital markets.

Highlights

Core net income increased 1.4% to $27.9 million.
Diluted book value per share grew to $18.43, up $2.81 year-over-year.
Non-performing loans (NPLs) fell to 9.6% of held-for-investment loans, down from 10.3% a year ago.
Resolved $90.5 million of NPLs with net gains of 102.7% and total recoveries of 107.7%.
Total loan portfolio grew to $7 billion in UPB, up 19% year-over-year.
Q2 loan production was $672.6 million, up 5.2% over Q1's $639 million.
Portfolio net interest margin (NIM) was 3.66%, above the targeted 3.5%.
Ended the period with $240 million of liquidity and $662 million of available warehouse capacity.

Concerns

GAAP net income decreased 3.2% to $25.2 million, primarily due to a higher effective tax rate.
Q2 loan production was slightly down from $725 million a year ago, despite unit production being up 3.3%.
Net gain on overall REO activities was $2.4 million, down from $5.7 million for Q2 FY25.

Guidance & targets

Category	Target	Timeline	Confidence
Portfolio Net Interest Margin (NIM)	above 3.5% high materiality	Rest of FY26 and into FY27 · FY26, FY27	High
Origination Volumes	increase medium materiality	Rest of FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Century Health & Housing division This division produces HUD multi-family loans, which are large and lumpy. Volumes had slowed due to rate volatility but have stabilized, leading to a strong Q2. Management expects this trend to continue. Originations: jumped in the quarterPipeline: very robustExpected volumes: similar to Q2 going forward	—	—	—	—

Deals & partnerships

Fixed income markets Issuance of securities $398 million

One of two securitizations completed in Q2 FY26, specifically the 2026-2 security.

Fixed income markets Securitization of non-performing loans (NPLs) $136 million

The 2026-MC2 security was structured as a true sale where loans came off the books. Velocity retained a $30 million trust certificate of the CMBS security.

Risks & headwinds

Higher effective tax rate Q2 FY26

Caused GAAP net income to decrease 3.2% year-over-year.

Mitigation:Management noted it was the primary driver of GAAP net income dip, implying underlying business strength was unaffected.

Potential need for additional capital for aggressive growth Going forward, as growth continues.

Balance sheet leverage not to exceed 10x.

Mitigation:Access to both equity and debt markets; forward plan for capital raises.

What to watch in Q3 FY26

Origination Volumes

H2 FY26

Current $672.6 million (Q2 FY26)

Target Increase over Q2 FY26 volumes, beating last year's volumes.

Why it matters

Indicates continued demand for Velocity's products and ability to grow the loan portfolio.

The pipeline is robust, and we expect origination volumes to increase for the rest of this year.

Find out whether VEL delivers this. Inve re-checks your case every morning.

Q&A highlights

Inquired about the product and whether the Q2 jump was an outlier or a new trend for the Century Health & Housing division.

Chris Farrar explained that this division produces HUD multi-family loans, which are large and lumpy. Volumes had slowed due to rate volatility but are now stabilizing. He expects similar robust levels going forward, indicating it's not an outlier.

“I don't think it's necessarily an outlier. I think it would be something similar to that on a go-forward basis.”

asked by Chris Muller · answered by Christopher Farrar

2 min read 5 chapters

Detailed narrative

Credit Performance and NPL Resolution

Velocity Financial demonstrated strong credit discipline, with non-performing loans (NPLs) decreasing to 9.6% of held-for-investment loans, down 70 basis points year-over-year. The special servicing team successfully resolved $90.5 million in NPLs, achieving net gains of 102.7% and total recoveries of 107.7%, underscoring the company's focus on asset valuation over volume. Charge-offs were notably low at $700,000, remaining below the five-quarter trailing average.

Loan Origination and Portfolio Growth

Despite a slight dollar decline in Q2 loan production to $672.6 million compared to the prior year's $725 million, unit production increased by 3.3%, reflecting a lower average loan size rather than softer demand. The total loan portfolio expanded by 19% year-over-year to $7 billion in UPB, with healthy growth across all collateral types.

A robust pipeline indicates expectations for continued volume increases in the second half of the year.

Funding and Liquidity Position

The company maintained a strong financial position, completing two securitizations in Q2, including the 2026-MC2 security which improved capital efficiency by unlocking capital tied up in NPLs. Velocity ended the quarter with $240 million in liquidity, comprising $76 million in cash and $164 million in available liquidity on unfinanced loan collateral, and $662 million in available warehouse capacity, providing flexibility for future origination opportunities without balance sheet strain.

Net Interest Margin and Yield Stability

The portfolio net interest margin (NIM) for Q2 was 366 basis points, exceeding the targeted 3.5% and showing a 10 basis point increase over Q1's 356 basis points. This was supported by a stable weighted average coupon of 10% on new held-for-investment originations and a consistent 9.7% yield on the total portfolio, reflecting healthy yields at tight credit levels.

The portfolio cost of funds remained constant quarter-over-quarter and decreased by 15 basis points year-over-year.

Century Health & Housing Division Performance

The Century Health & Housing division, which originates HUD multi-family loans, saw a significant jump in originations during the quarter. Management expects this trend to continue, with a robust pipeline for these large, lumpy loans, indicating a stabilization in market rate expectations and improved traction for this product. These loans contributed to the overall loan sales for the quarter.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.