Business Purpose Lending Will Unlock Affordable Housing Demand

Key Takeaways

• Direct control of loan origination and portfolio diversification enhance revenue stability, risk-adjusted returns, and positioning in growing rental and affordable housing markets.
  
• Improved liquidity, lower financing costs, and scalable origination capability support margin expansion, efficient capital deployment, and long-term earnings growth.
  
• Intensifying competition, rising leverage, and persistent book value declines are tightening margins, increasing risk, and threatening the long-term stability and profitability of the business.

Catalysts

Acquires, invests in, finances, and manages mortgage-related single-family and multi-family residential assets in the United States.

• The acquisition of Constructive, a leading originator of business purpose rental loans with a national footprint, gives NYMT direct origination control in a sector where investor and rental housing demand remain robust; this positions the company for increased origination volume, gain-on-sale income, and recurring fee income, supporting higher future revenue and more stable earnings.
  
• NYMT's expanding focus on business purpose rental loans and Agency RMBS aligns with the rising long-term demand for affordable and rental housing and the ongoing urbanization trend in under-supplied markets, providing a growing pool of high-yield, credit-sensitive assets that is expected to boost net interest income and margin expansion opportunities.
  
• The company reported improved access to liquidity and lowered financing costs (17bp decrease in average financing rates), aided by the recently secured amendment to more than double its recourse leverage and ongoing securitization efforts, enhancing its ability to scale revenue growth and optimize net margins as market opportunities arise.
  
• NYMT's technology integration and rotation into higher-credit-quality, diversified assets (e.g., focusing on strong DSCR, high FICO loans and exiting multifamily joint venture equity) increases portfolio resilience, improving risk-adjusted returns and long-term earnings stability even as the macro environment shifts.
  
• The institutionalization and increased liquidity of the mortgage credit market, coupled with NYMT's platform-scale origination and distribution capabilities (especially post-Constructive acquisition), creates a favorable backdrop for efficient asset monetization and capital recycling, which is expected to positively impact earnings and book value over time.

New York Mortgage Trust Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming New York Mortgage Trust's revenue will decrease by 0.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.5% today to 59.9% in 3 years time.
• Analysts expect earnings to reach $123.7 million (and earnings per share of $0.99) by about August 2028, up from $17.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, down from 35.5x today. This future PE is lower than the current PE for the US Mortgage REITs industry at 13.6x.
• Analysts expect the number of shares outstanding to decline by 0.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

New York Mortgage Trust Future Earnings Per Share Growth

Risks

• Rising competition in business purpose loan (BPL) bridge lending, driven by broader investor access to competitive financing and rated securitizations, is tightening pass-through yields and pressuring returns; this industry trend could compress margins and limit future revenue growth from this asset class.
  
• Declining U.S. homeownership rates, now at 65% and resembling 1980s levels, may be a symptom of persistent housing affordability challenges and shifting demographic preferences, leading to sustained lower mortgage origination volumes over time and limiting NYMT's long-term asset acquisition and revenue streams.
  
• Elevated and increasing leverage, evidenced by the rise in recourse leverage ratios to fund Agency RMBS acquisitions and the bond amendment allowing leverage up to 8x, exposes NYMT to refinancing, interest rate, and liquidity risks in volatile market environments, potentially eroding net interest margins, book value, or causing forced asset sales during adverse conditions.
  
• Recent declines in GAAP and adjusted book value per share (2.8% and 1.6%, respectively) and modest declines post-quarter end indicate ongoing book value erosion, which, if persistent, could undermine investor confidence, limit capital-raising ability, and pressure per-share earnings over the long term.
  
• Constructive's acquisition, while adding fee and origination income, also increases NYMT's general and administrative expense ratio (from 3.4% to 6.2–6.4%) and recourse leverage ratio, amplifying operating risk; failure to scale origination volume or margin as expected could dilute earnings growth and weigh on long-term profitability.

Valuation

• The analysts have a consensus price target of $10.458 for New York Mortgage Trust based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $24.0, and the most bearish reporting a price target of just $6.75.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $206.4 million, earnings will come to $123.7 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 12.3%.
• Given the current share price of $6.83, the analyst price target of $10.46 is 34.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.