Velocity's MC2 Securitization Unlocks NPL Capital in a Quietly Strong Quarter
New CMBS-style trust sale marks a strategic shift in how Velocity converts non-performing loans into liquidity, while HUD multifamily origination picks up the slack.
VEL · Earnings Call · 2026-08-05
Quiet quarter, loud signal
Velocity delivered another steady quarter, but the real news is the MC2 security – a new CMBS-style securitization that for the first time moves non-performing loans off the balance sheet in a non-consolidating trust. Unlike prior REMIC deals that stayed consolidated, this structure is treated as a true sale. As CFO Mark Szczepaniak explained on the call:
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.
That accounting distinction unlocks something valuable: $11 million in net proceeds while trimming the nonperforming loans rate by 70 basis points year-over-year, to 9.6%. Management was explicit about the strategic intent: “the MC2 securitization that we did continues to help us improve our capital efficiency, unlocking some capital that was tied up in non-performing loans.” — Christopher Farrar, President and Chief Executive Officer · 2026-08-05 This is a departure from the prior "we optimize for asset valuation, not volume" stance – they've found a market for NPLs that doesn't require a discount.
Signals from earlier calls
This isn't a bolt from the blue. In the Q3 2025 call, Farrar mentioned receiving reverse inquiries from private credit: “We have looked at whole loans in the past. I don't expect that, that will be a big source for us. But I do think that maybe there's some private structures that might work that could help us expand another leg of the stool, if you will.” — Christopher D. Farrar, President and Chief Executive Officer · 2025-08-09 The MC2 trust is exactly that private structure, now realized. It also answers an earlier analyst question from a prior call about whether loan sales could become routine – the answer appears to be yes, at least for NPLs.
A second fresh thread: HUD multifamily
The other surprise was the jump in government-insured multifamily originations. The Century Health & Housing division produces HUD loans with large average balances and lumpy volumes. Farrar said the market has "normalized" and the pipeline is "very robust": “Things have kind of stabilized there and normalized, I would say, in terms of market rate expectations. And so now we're starting to see better traction. And so it was a nice quarter for them, but their pipeline looks very robust and we expect to see levels kind of like this going forward.” — Christopher Farrar, President and Chief Executive Officer · 2026-08-05 That adds a new origination channel to the usual 1-4 family and small commercial mix.
Credit stays the backbone
At the core, the credit story remains strong. NPL resolutions recovered 107.7% of UPB including contractual interest, charge-offs were tiny at “just $700,000, below our 5-quarter trailing average” — Christopher Farrar, President and Chief Executive Officer · 2026-08-05 – the call transcript actually has that number in the prepared remarks, and later they note net gains of 102.7%. Book value per share grew to $18.43.
The portfolio NIM of 3.66% is above the 3.5% target. Management dismissed the year-over-year dip as an artifact of prior-period cash collections on NPLs, a recurring theme – in the Q4 2025 call, Szczepaniak called timing "the main thing" in REO activity: “It is really a timing item. The main thing to look at is the NPL resolution table, the final resolutions.” — Mark Szczepaniak, Chief Financial Officer · 2025-11-07
Numbers back the story
The loan book grew from $3.5B at end of 2023 to $4.4B in Q1 2026, a 20% YoY increase, and common equity rose 23% YoY. The MC2 trust will help manage the leverage, which sits high but stable at ~91% liabilities-to-assets. With CMBS security retained, Velocity keeps some upside from the NPL recoveries.
The stock, though, is unexciting: it's down 4.2% in the last 90 days, with the full history still 11.7% off its December 2024 peak. The market hasn't rewarded the new structure much yet, but the call suggests a cleaner path to capital-efficient growth. If the HUD channel continues and MC2 becomes a repeatable funding tool, the modest valuation (P/B at ~1.0x) could be an entry point.
Overall, this is a company that found a new gear without changing its credit discipline – and that's the kind of quiet evolution that often gets repriced first.