As expected, California-based mortgage lender loanDepot reported another unprofitable period in the fourth quarter of 2022, its third consecutive quarterly loss.
The red ink resulted from declining mortgage production and came despite the company’s decision to exit the wholesale channel, trim its workforce, and invest in new products.
The rough Q4 underscores the fact that loanDepot’s “Vision 2025” plan, which includes rightsizing its operations, will take many quarters to improve financial performance and return the lender to profitability.
The company turned its $555.5 million in 2021 profits into a $475.8 adjusted million loss in 2022, according to documents filed with the Securities and Exchange Commission (SEC) on Wednesday. loanDepot’s GAAP net loss came in at $610.4 million in 2022.
The company delivered negative $110.7 million in non-GAAP adjusted net income from October to December, compared to a negative $116.8 million in the previous quarter. The GAAP net loss was $157.7 million.
Loan origination came in at $6.4 billion in the fourth quarter, down from $9.8 billion in the third quarter of 2022. Company executives projected fourth quarter volume to come in anywhere between $4 billion and $7 billion.
Few lenders fell as far as loanDepot in 2022. When refi business was strong in 2021, loanDepot produced $137 billion in loans. But in 2022, loanDepot managed to originate just $53.7 billion.
“2022 was a year of dramatic volatility and extreme challenge for the mortgage and broader housing markets,” Frank Martell, loanDepot’s president and CEO, said in a statement.
“Virtually no part of the housing ecosystem was left unaffected as participants in the housing market grappled with substantial and rapid increases in the cost of home loans, the cumulative impact of significant home price appreciation over the past four to five years driven by structural supply and demand imbalances, as well as the depressive impact of high inflation on available household incomes,” Martell added.
A smaller loanDepot
Total revenues declined to $169.6 million in the fourth quarter, down from $274 million in the previous quarter, “driven primarily by lower market activity due to increased interest rates and a seasonal slowdown in purchase volume,” the company told investors. Revenues dipped to $1.2 billion in 2022, down from $3.7 billion in 2021.
Total expenses dropped significantly in 2022. They fell to $1.9 billion, down from $3 billion in 2021.
Reductions in costs were related to lower staffing levels and marketing spending, the company said. Headcount at the end of 2022 was 5,200; it was 11,300 at the end of 2021.
“When we announced Vision 2025, we established a goal of reducing our expenses by an annualized $375 to $400 million. During the year, we exceeded the expense reduction goal by more than 25%,” Martell said.
(Vision 2025 initially projected loanDepot’s headcount to be 6,500 as 2022 came to a close.)
Tight margins
Despite major cost-cutting initiatives, loanDepot, like pretty much all competitors, is still struggling with tight margins.
The gain-on-sale margin came in at 2.21% in the fourth quarter, better than the 2.03% registered in the previous quarter. The expectation was that margins would be between 2.10% and 2.70%.
Regarding its servicing portfolio, the unpaid principal balance increased to $141 billion as of December 31, 2022 from $139.7 billion as of September 30, 2022.
Despite the headwinds, loanDepot still has money to throw at problems. The lender said it had $863.9 million in cash on hand at the end of 2022, down 24.5% from the third quarter but roughly double what it had at the end of 2021.
According to Martell, loanDepot will continue to reduce costs and improve its operations in 2023. “With a sizable cash balance, we believe we are positioned to continue to invest in our people and platforms as we benefit from ongoing industry consolidation,” he said.
Patrick Flanagan, loanDepot’s chief financial officer, told analysts the company will continue to reduce expenses, “with some additional headcount reductions primarily in the form of attrition and additional consolidation of redundant operational functions.” In addition, Flanagan said loanDepot will continue to reduce real estate costs and other third-party charges.
Total expenses for the first quarter of 2023 should continue to fall, marking the low point for 2023. “Looking forward past the first quarter, we expect increased expenses, primarily driven by higher volumes, related commissions, and other origination expenses, reflecting the traditional seasonal increase in home buying activity,” Flanagan said.
For the first quarter of 2023, the company expects origination volumes will be between $3 billion and $5 billion and a gain-on-sale margin between 180 and 220 basis points.
Battling at the board
On Feb. 8, loanDepot announced that its founder Anthony Hsieh stepped down as executive chairman due to a mutual agreement unanimously approved by the board. Later that day, Hsieh said he was voted out of the executive chairman position in a 5-2 vote. He remains chairman of the company’s board.
Hsieh was battling with the board, using his majority voting power to unilaterally nominate Williston Financial Group executive Steven Ozonian as a member via a proxy contest. Hsieh owns 40% of the economic interest and 57% of the combined voting power of the lender, according to SEC filings.
The new board composition will be decided at loanDepot’s 2023 annual stockholders’ meeting.
loanDepot’s stock closed at $1.89 on Wednesday, unchanged from the previous closing. Its share dropped 2.12% in the aftermarket to $1.85 following the earnings report.
