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LoanDepot forms JV with homebuilder LGI Homes

Builder expects to close on nearly 10,000 homes in 2021

Top retail mortgage lender loanDepot has formed yet another strategic joint-venture with a fast-growing homebuilder.

California-based loanDepot has formed a JV partnership with LGI Homes, called LGI Mortgage Solutions, the companies announced on Thursday.

“Having been a preferred lender with LGI Homes since 2015, we have been extremely impressed by each other’s ability to scale while still delivering industry-leading customer service,” said Dan Peña, executive vice president of national joint ventures for loanDepot.

Headquartered in The Woodlands, Texas, LGI Homes offers entry-level homes and move-up homes under the LGI Homes brand name, and luxury series homes under the Terrata Homes brand. As of December 31, 2020, it owned 113 communities across the South, Southwest, Mid-Atlantic and West.

Founded in 2003, LGI closed 3,408 homes in the fourth quarter of 2020, more than they closed in all of 2015. In all, the homebuilder closed 9,339 homes in 2020, making it a top-10 homebuilder in the country in terms of units. Its top five markets in 2020 were Dallas-Fort Worth, Phoenix, Austin, Texas, Houston and Seattle.

Increasing Lending and Servicing Capacity – Regardless of Rates

The low-rate environment won’t last forever, and both lenders and servicers need to be able to keep their costs down while managing volume fluctuations once things start to normalize.

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In 2020, LGI generated $2.4 billion in home sales revenue, a 29% increase over the prior year. And like other homebuilders, its margins were fat in 2020 and likely to be even wider in 2021, even with higher land acquisition and materials costs. LGI said its pretax net income margins were a record 18.6% in the fourth quarter and 15.5% for the year 2020. Net income more than doubled in the fourth quarter, partly due to an average sales price of $263,321, a 9.3% increase year over year.

“Higher average sales prices were primarily driven by a favorable demand environment that supported price increases ahead of rising input costs in all of our markets, higher price points in certain markets and closeouts and transitions to new communities at higher price points,” Charles Merdian, the company CFO, said on an earnings call in late February, prior to the loanDepot deal.

LoanDepot’s Kirk Hudson will serve as the president of LGI Mortgage Solutions, which will operate in Alabama, Arizona, California, Colorado, Florida, Georgia, Maryland, Minnesota, Nevada, New Mexico, North Carolina, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia, Washington, and Washington, D.C.

LGI expects to close between 9,200 and 9,800 homes in 2021 across roughly 120 active communities.

“During 2021, we will be expanding within our existing geographic footprint and in new markets, such as suburban Baltimore, Maryland and Norfolk, Virginia,” said CEO Eric Lipar. “Our average sales price is expected to be in the range of $260,000 to $270,000. We expect gross margin will be between 24% and 26%, and adjusted gross margin between 26% and 28%.”

LoanDepot, which made its public debut earlier this year and is private equity backed, is quite comfortable with mortgage joint-ventures with homebuilders. Just a month ago, it struck up a partnership with Delaware-based homebuilder Schell Properties, which predominantly builds beachfront communities.

In 2018, loanDepot partnered with AV Homes for a similar JV. It also has JVs with homebuilders Meritage HomesMichael Saunders & CoTripointe HomesPolygon Northwest HomesLGI Homes and Brookfield Residential.

Like most lenders, loanDepot, led by Anthony Hsieh, had its best year ever in 2020. It originated over $100 billion and grew revenue to $4.3 billion. But rising rates are sapping the strength of the refi market, and loanDepot has reported narrowing margins. As of Thursday, loanDepot had a market cap of $6.35 billion. It will deliver its first-quarter earnings on May 3.

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