loanDepot delivers another loss in Q1 but shows signs of improvement

Company narrowed losses to $60.2M from January to March, with margin and revenue increases 

California-based lender loanDepot was in the red again in the first quarter of 2023. However, margins and revenues improved in the period, according to documents filed with the Securities and Exchange Commission on Tuesday.

The lender recorded a loss of $60.2 million in non-GAAP adjusted net income from January to March, compared to a negative $110.7 million in the previous quarter. The GAAP net loss in the first quarter was $91.7 million.

It was loanDepot’s fourth consecutive quarterly loss and comes on the heels of a resolution to protracted infighting between founder and chairman Anthony Hsieh and the board of directors.

“The first quarter of this year remained challenging for the housing market as virtually all participants grappled with the impacts of ongoing volatility in mortgage interest rates, persistent cost inflation and the lack of available homes for sale,” Frank Martell, loanDepot’s president and CEO, said in a statement. 

“Profitable revenue growth and a reset of our cost structure were the key drivers behind the substantial narrowing operating losses quarter over quarter,” Martell told analysts. 

Total revenues increased to $207.9 million in the first quarter, up from $169.6 million in the previous quarter, “primarily driven by higher pull through weighted lock volume and servicing fee income,” the company told investors. Total expenses dropped to $314.4 million in Q1 2023, down from $343.7 million in Q4 2022.

Loan origination volume came in at $4.9 billion in the first quarter, down from $6.3 billion in the fourth quarter of 2022. Purchase loans comprised 71% of the total. Company executives project the second quarter volume to be anywhere between $4.5 billion and $6.5 billion.

“Although the affordability and availability of new and existing home sales remain challenging for the industry overall, we expect to continue to benefit from seasonally higher revenues and our ongoing cost reduction program,” Martell said. “Assuming the expected benefits of continuing seasonal volume increases and cost productivity, we expect to deliver improving financial results over the course of the second and third quarters of 2023.”  

loanDepot has started to display margin improvement, but they remain tight. These improvements followed major cost-cutting initiatives that reduced company headcount to roughly 4,800 from 10,000 at the end of the first quarter 2022.  

The gain-on-sale margin came in at 2.26% in the first quarter, better than the 2.21% registered in the previous quarter. 

According to Patrick Flanagan, loanDepot’s CFO, the higher gain-on-sale margin was primarily “due to a reduction in our repurchase provision,” as repurchase activity and discounts decreased substantially. Executives expect margins will be between 2.40% and 2.80% in the second quarter.

Flanagan told analysts that expenses during the second quarter may increase, reflecting seasonally higher loan origination volume. However, higher production and a further reduction in controllable expenses will help the company to narrow losses in the second quarter.

According to Martell, loanDepot is “well positioned with the originators that we have today to manage” higher volumes.  

Regarding its servicing portfolio, the unpaid principal balance increased to $141.6 billion as of March 31, 2023, from $141.1 billion as of December 31, 2022. Servicing fee income rose to $118.9 million in Q1 2023 from $107.2 million in the previous quarter.

loanDepot still has money to throw at problems. The lender said it had $798.1 million in cash balance at the end of March, down 7.6% from the fourth quarter.

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