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Catch earnings growth from the housing market’s rise through mortgage lenders

The race is on to get positioned for the real estate market’s recent revival. The banks are wanting to take in as much of the new loan business as possible, and mortgage broking companies are hiring more staff to handle the expected workload.

Look at these mortgage-related companies, and see what might fit well in your portfolio.

Mortgage broker Mortgage Choice (ASX: MOC) offers a website that allows customers to do loan searches according to their personal criteria. It saw an earnings peak in 2011, but has since started to recover in 2013 with net profit after tax (NPAT) of $18.7 million on revenue of $156 million. It will also benefit from current home owners who are looking to lock in a fixed rate to take advantage of extremely low rates.

One of most famous loan broking companies is Aussie Home Loans, but since it isn’t a listed company, you would have to buy shares in Commonwealth Bank (ASX: CBA), which owns an 80% stake in the company. Commonwealth holds the largest amount of home loans of all the major banks, so this bank’s stock would be a way to cover a general rise in the mortgage market.

Similarly, if you like Rams Home Loans, then you might buy shares in Westpac  (ASX: WBC), the sole owner of the mortgage broker.

One independent mortgage broker that also offers financial planning services is Yellow Brick Road (ASX: YBR). Its founder, Mark Bouris, is known for starting Wizard Home Loans, and building it into a household name. The company listed in 2008, and is now being financially backed by Macquarie Holdings (ASX: MQG), the holding company of Macquarie Bank. The investment bank wants more exposure to the residential loan market now that the property market is showing sustained signs of growth.

Foolish takeaway

More home sales means more loans, and with rising housing prices, those loans pay a larger amount of annual earnings. The mortgage market will see more competition from domestic and even international lenders, so it won’t be an easy business.

That means you have to concentrate on the lenders and brokers with the biggest profit margins that can take a hit, and still outperform the rest.

Does this dividend star merit a place in your portfolio?

Another great earnings growth story is Telstra. With its legendary, fully franked 28 cent dividend, Telstra is the darling of Aussie investors. But with its share price skyrocketing over the past year, is Telstra past its prime? Click here for our brand-new report: "Is It Time to Sell Telstra?"

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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