3 mortgage broking stocks to gain from the ongoing housing boom

Low interest rates and a rising property market open opportunities in financial services.

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Considering mortgage and finance company stocks for investment when the housing market is growing may be a good way to take advantage of an economic upturn. There could be a number of years remaining in housing finance and new home construction growth before it runs its cyclical course.

The Big Four banks control about 85%-90% of the residential home loan market, but there are mortgage companies still operating successfully in the remaining niche.

Mystate Limited (ASX: MYS) offers financial products and services and has two banking businesses, Mystate Financial and The Rock Building Society Limited. The Rock became a subsidiary in December 2011. Its Tasmanian Perpetual Trustees subsidiary offers trustee services.

Its net interest income has grown steadily in the past three years. During that time net profit rose from $17 million to $28 million. Its interim result was a net profit a little more that its FY2013 first-half result. The company expects at least the same NPAT for H2 FY2014 as in the first half.

It offers a 6.4% dividend yield.

Mortgage broking company Mortgage Choice Limited (ASX: MOC) has risen steadily in share price in the past two years. Its PE is 18.5, a little higher than the sector average.

In the first half of FY2014, it had a record result for brokerage. Group net profit after tax was up 28.5%. The company expects the number of loan settlements to be even higher over the second half. Low interest rates make market conditions good for further progress. The company is also increasing the size of its financial planning segment.

Its dividend yield is 5.0%.

Wealth management service and mortgage broker Yellow Brick Road Holdings Ltd (ASX: YBR) achieved 59% growth in revenue and a 4% net profit rise in the first half of FY2014. It is still growing its network, yet achieved $740 million in loan settlements in the interim period.

Its founder and executive chairman, Mr. Mark Bouris, has a lot of experience with financial services. He founded Wizard Home Loans, a successful mortgage broking business which he sold in 2004.

It works together with Macquarie Group Ltd (ASX: MQG), which is one of its major shareholders, to grow its loan book. Macquarie Bank residential loans are offered through its network, as well as products from other lenders.

Foolish takeaway

As you assess and compare lending businesses, estimate the market share they have and see what ways a lending business can differentiate itself with other complementary services. Lending finance can be very competitive, so successful companies need to make themselves stand out from the crowd.

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