California-based mortgage lender loanDepot is shutting down its wholesale division amid plummeting origination volumes and widening financial losses in the second quarter.
The decision to close the channel also reflects fierce competition from its peers in the broker space, primarily from United Wholesale Mortgage (UWM).
The announcement on Tuesday came alongside a $223.8 million loss in the second quarter of 2022, more than double the $91.3 million loss in the first quarter of 2022. A year ago, the company delivered a $26.2 million profit in Q2.
“We are exiting our wholesale channel consistent with our strategy of becoming a more purpose-driven organization with direct customer engagement throughout the entire lending process,” Frank Martell, president and chief executive officer of loanDepot, said in a news release. “Our exit from wholesale will also enable us to direct resources to other origination channels, reduce operational complexities and increase margins.”
In a conference call with analysts, loanDepot executives said the company plans to fund the remaining wholesale pipeline of approximately $1 billion in loans by the end of October. The executives clarified the company is exiting the wholesale and non-delegated correspondent channels but will maintain joint ventures with homebuilders and depositaries.
Rate lock volume in the second quarter of 2022 dropped to $19.5 billion, down 35% from $30 billion in the previous quarter. The gain-on-sale margin also nosedived to 1.16% in the second quarter, down from 1.96% in the previous quarter.
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As has been the case with other lenders, loan origination volume overall dropped at loanDepot. Total volume fell to $16 billion from the previous quarter, a sequential decline of 26%. That leaves loanDepot’s market share down to 2.4%.
“We are not going to chase market share,” Martell told analysts.
Retail channel originations dropped from $16.5 billion in the first quarter to $10.8 billion in the second quarter. Meanwhile, the partner channel, which represents brokers and exclusive joint ventures with homebuilders and depositaries, increased marginally from $5 billion in the first quarter to $5.1 billion.
“Our second quarter results reflect the extremely challenging market environment that continues in our industry, which led to ongoing declines in our mortgage volumes and profit margins,” said Martell, who formerly ran CoreLogic and is known in the industry for cost-cutting. “We have already made significant progress by consolidating management spans to create operating efficiencies.”
The firm’s total expenses in the second quarter of 2022 fell 7.5% to $560.6 million from the previous quarter. Year over year, expenses dropped 75% from $749 million in the same period in 2021.
loanDepot’s headcount has shrunk from 11,300 at year-end 2021, to approximately 8,500 at the end of June 2022, to around 7,400 at the beginning of August 2022. The year-end goal is 6,500 employees.
Martell told analysts the company is focused on reducing costs to achieve “run-rate profitability by year-end 2022.” loanDepot expects to save between $375 million and $400 million during the second half of 2022.
According to Patrick Flanagan, chief financial officer, the annual savings will be achieved by “consolidating redundant operational functions, reducing marketing expenditures, real estate costs and other third-party charges.”
The contribution from the digital home equity line of credit (HELOC) to increase revenues in 2022 will be “modest,” as it will be launched by the fourth quarter, Martell said.
The unpaid principal balance of the servicing portfolio increased 1.2% to $155.2 billion as of the second quarter this year, from $153 billion in the first quarter. Compared to the same period last year, it increased 12% from $138.7 billion.
loanDepot told investors on Tuesday that origination volumes would fall further in the third quarter. loanDepot projects origination volume of between $5.5 billion and $10.5 billion, with a gain on sale margin of between 175 basis points and 225 basis points.
Despite the headwinds, loanDepot has a strong cash position. As of June 30, loanDepot had $954.9M in cash on hand.
loanDepot shares closed at $1.84 per share on Tuesday, dropping 4.66% from the previous closing. The firm went public in 2021 at $14 a share.