Homepoint takes $44M loss in Q2 amid price war

Company executives said they are focused on margins and are "not afraid to get smaller as an organization"  

Home Point Capital, the parent company of wholesale lender Homepoint, took a loss in the second quarter of 2022, even after reducing costs and selling mortgage servicing rights. 

The company reported reduced volume and lower margins caused by surging rates and an aggressive pricing strategy from its rival United Wholesale Mortgage (UWM). 

Homepoint, however, said it will not engage in a price war. 

“Our bias right now is towards more margins and less volume – that said, obviously, the volume opportunity on a macro basis is relatively limited,” Willie Newman, Home Point Capital CEO, told analysts during a conference call. “We’re not afraid to get smaller as an organization.” 

The wholesale lender reported on Thursday morning it suffered a $44.4 million loss from April to June, a decline from the $11.9 million profit in the first quarter of 2022, but better than the $73.2 million loss in the second quarter of 2021.

Homepoint’s total funded originations fell to $9.3 billion in the second quarter, down from $12.5 billion in Q1 2022 and $25.5 billion in Q2 2021. 

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The gain-on-sale margin attributable to correspondent and wholesale channels declined to 60 basis points in the second quarter of 2022, down from 74 bps in the same quarter in 2021 and 61 bps in the prior quarter. Homepoint’s gain on sale margin in wholesale was 64 basis points, while the overall gain-on-sale margin was 42 basis points.

Company executives said they expect more margin pressure in the year’s second half due to the competitive landscape, even with some competitors deciding to exit the wholesale channel, such as loanDepot.

Homepoint’s revenue fell to $70 million in the second quarter, declining from $158.2 million in the prior quarter and $84.4 million a year ago. Meanwhile, expenses came in at $119.4 million in the second quarter of 2022, down from $136.7 million in the previous quarter and $198 million in the same period of 2021. 

“The reduction in total expenses was primarily driven by a 17% quarter-over-quarter reduction in expenses in the origination segment,” Mark Elbaum, chief financial officer, told analysts. “Additionally, we executed cost management initiatives in the second quarter that are expected to provide savings of $31 million on an annualized basis.” 

In a February cost-cutting move, the wholesaler migrated its mortgage servicing processing work to ServiceMac, a First American company. By doing so, Homepoint transferred about 300 employees to ServiceMac. In April, the company announced the exit of the correspondent channel by selling its division to Planet Home Lending for $2.5 million.

One of the company’s strategies is to reduce its servicing portfolio. During the first quarter, Homepoint completed mortgage servicing rights (MSRs) sales of single-family mortgage loans worth $257.3 million.

Consequently, the servicing portfolio totaled $90.5 billion in unpaid principal balance as of June 30, 2022, down 11.2% quarter-over-quarter and 27.2% year-over-year.  

Regarding its liquidity, the company had $135.8 million in cash and cash equivalents as of June 30, 2022, and a total available liquidity of $632.3 million. Homepoint’s board of directors decided not to declare a dividend for the second quarter to maintain a strong liquidity position. 

According to Newman, the company did not provide guidance for the third quarter origination volume to have “flexibility” with its strategy. Homepoint will continue to cut costs, improve liquidity, and sell MSRs when it sees opportunities, he said. 

“We’ve been laying the conditions for when things get back to normal. We’re going to be able to compete very effectively from a service delivery perspective,” Newman told analysts.  

Homepoint’s share was trading at $3.80 on Thursday around 12:00 PM EST, up 2.7% from the previous close. 

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