LoanDepot gaining market share as profits narrow

"This is still very, very early in a baseball game of top of the second inning in this cycle," says CEO Anthony Hsieh

Retail powerhouse loanDepot continued to gain market share in the first quarter of 2021 despite tumbling profit margins. And its leadership believes that its scale will enable it to weather any storm better than its competitors as interest rates continue to rise.

Closed loan volume in the first quarter increased to $41.5 billion from $37.4 billion in the fourth quarter and $15.2 billion in Q1 2020, according to the lender’s quarterly earnings report. Net income was $427.9 million in the first quarter on revenue of $1.3 billion, which was a decline from the $547 million in income and $1.3 billion in revenue in the fourth quarter. Margins shrank to 2.71% in the first quarter, down 67 basis points from the fourth quarter. The shrinking margin in the first quarter was even lower than it was a year ago, when it was 2.99%.

“Across the country, the first quarter was marked by rising interest rates, as well as the continuing slowdown in refinance volumes,” loanDepot CEO Anthony Hsieh said in an earnings call. “Interest rates began to rise in late Q1, and there has been a corresponding reduction in market opportunities and gain on sale margins as a result. While we anticipated the rise in interest rates, the shift began earlier in 2021 than generally expected. Competitive pricing strategy pressure from other market participants also had a marketwide impact on margins. And finally, we continue to see strong demand for purchase transactions fueled by interest rates that, while rising, remained at historically low levels, coupled with continued constraints on supply.”

During the call, Hsieh spoke to the brand awareness effort the lender has embarked on. It’s spent heavily on television ads and sports naming rights – the Miami Marlins now play in loanDepot Park.

“Our dual focus on our retail and partner strategies enables us to raise awareness to generate leads, broadening our top-of-the-funnel consumer reach,” Hsieh said, noting that its “organic recapture rate” was 72%.

The decline in profit during the first quarter came partly as a result of the lender’s IPO, which resulted in $59 million in stock grants to its private equity backers and leadership. The additional increase is related to higher direct expenses from record loan originations, additional personnel expenses and marketing costs.

“As we focus on long-term growth trajectory and build on our momentum, we will continue to invest in brand, people, and technology,” said Pat Flanagan, loanDepot’s CFO. “Importantly, our disciplined and purposeful investments in loanDepot’s technology enabled a 2% decline in cost per loan for the first quarter of 2021 as compared to the fourth quarter of 2020. Complementing our origination strategy is our growing servicing portfolio, which ensures we can serve the customer through the entire mortgage life cycle. The unpaid principal balance of our servicing portfolio increased by 26% to $129.7 billion compared to the fourth quarter, driven by an increase in servicing retained loan sales. This also resulted in a 28% increase in servicing income quarter over quarter.”

According to its earnings statement, loanDepot originated $33.4 billion through its retail channel and $8 billion through its partnership channel. The company’s purchase volume fell to $7.9 billion in the first quarter from $9.8 billion in the fourth quarter. Analysts asked about how the company would fare as interest rates climbed in the months ahead.

Though margins and profits were down, Hsieh said they’re in a good place to capitalize. Competitors with less scale and less efficiency won’t be able to keep up, he said. They’ve built a top-10 wholesaler organically, are the largest joint venture new homebuilder lender in the country, and have top-class technology to land refi business, he said.

“Now the pressure to margins and earnings will be evident, and this teeter-totter has been the same exact way for the 36 years that I’ve been in this business,” he said. “The lower the margin, the higher the opportunity for market penetration and market share. We also need to understand that we are in a whole new world here post Countrywide of 2008 and 2009. That company [had] 22% market share. We are now top three overall as an 11-year-old company. And as the third [ranked] retail-focused originator in the country, we have less than 3% market share. This is still very, very early in a baseball game –  top of the second inning in this cycle.”

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