Even though financial losses narrowed, loanDepot’s third-quarter earnings are evidence that the company’s struggles are far from over.
The California-based mortgage lender on Tuesday reported its second consecutive quarterly loss in large part to plummeting mortgage production. And it expects production to fall sharply in the fourth quarter.
On the bright side, margins improved thanks to the lender’s exit from the wholesale channel as well as a series of cost-cutting initiatives.
The strategy to navigate the current landscape has been spelled out in the company’s so-called “Vision 2025” plan, which includes right-sizing the company’s staffing levels and boosting liquidity.
“We aggressively reduced our costs, exited the wholesale channel, and narrowed our losses during the third quarter in line with our previously announced targets,” Frank Martell, president and chief executive officer of loanDepot, said in a news release.
California-based loanDepot reported a $137.5 million loss in the third quarter, far lower than the $223.8 million loss recorded in the previous quarter. A year ago, it delivered a $154.3 million profit in the third quarter.
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As has been the case with other lenders, loan origination volume overall dropped at loanDepot, from $13.9 billion in the third quarter of 2021 to $12.4 billion in the second quarter of 2022, and all the way down to $9.8 billion in the third quarter of 2022.
Company executives believe there will be further production declines, with origination volume dropping to between $4 billion and $7 billion in the fourth quarter of 2022.
Revenues declined to $274.2 million in the third quarter, down 11% quarter-over-quarter and 70.7% year-over-year.
The gain-on-sale margin, however, inched up to 2.03% in the third quarter after bottoming out at 1.50% in the previous quarter. The expectation is that margins will rise again in the fourth quarter to a range between 2.10% and 2.70%.
The firm’s total expenses in the third quarter of 2022 fell 22% to $435 million from the previous quarter. Year over year, the expenses dropped 41.6% from $ 744.8 million in the same period of 2021.
loanDepot’s headcount has nearly halved from 11,300 at year-end 2021 to approximately 6,100 at the end of September 2022.
“We are firmly on pace to meet our expense reduction goal of an annualized $400 million for the second half of 2022,” Martell said. “Looking ahead, we have built our expense reduction plan to size the company appropriately for a mortgage market that we believe will total approximately $1.5 trillion in 2023.”
Chief Financial Officer Patrick Flanagan said loanDepot will achieve the cost-cutting goal through “headcount reductions, consolidating redundant operational functions and reducing marketing expenditures, real estate costs, and other third-party charges.”
Regarding revenues, the plan is to diversify products and access different group of homebuyers. “Our strategy to emphasize less interest rate sensitive mortgage products has resulted in an increase in the proportion of purchase transactions from 34% a year ago to 70% in the third quarter,” Flanagan told analysts during a conference call.
He also touted the roll out of the digital home equity line of credit (HELOC) product and the joint venture with National HomeCorp., a Georgia-based homebuilder specializing in affordable single-family homes, to create NHC Mortgage, with the goal to provide credit to underserved communities.
Despite the headwinds, loanDepot has a strong cash position. As of the end of the quarter, loanDepot had $1.14 billion in cash on hand, up 20% quarter-over-quarter and 125.8% year-over-year.
The unpaid principal balance of the servicing portfolio decreased 10% to $139.7 billion as of the third quarter this year, from $155.2 billion in the second quarter, due to sales of $18.6 billion in MSRs. Compared to the same period last year, it decreased by 4% from $145.3 billion.
During the quarter, the company said it substantially completed the transition of its servicing portfolio to an in-house platform. Martell told analysts this decision is “expected to drive higher levels of customer satisfaction and lower costs.”
loanDepot shares closed at $1.46 per share on Tuesday, dropping 12.05% from the previous closing. Its shares increased 12.33% in the after market to $1.64 after the earnings report.
