LoanDepot increases market share, but profits sink in Q2

Net income fell to $26.9 million and gain-on-sale margin to 2.28%

The purchase market reigned supreme in the second quarter of 2021, and multichannel lender loanDepot reported a 31% increase in purchase mortgage transactions from the prior quarter. But the lender’s gain-on-sale margin and net income fell significantly during the second quarter, a trend that is keeping executives and LOs up at night across the industry.

Buoyed by low-interest rates and strong interest from buyers, the Orange County, California-based mortgage shop originated $10.4 billion worth of purchase loans compared to $7.9 billion last quarter, loanDepot noted in its quarterly earnings on Tuesday. Refinance originations, however, declined to $24.1 billion in the second quarter from $33.56 billion in the previous quarter. Overall, loan origination volume came in at $34.5 billion, a $7 billion decline (17%) from the first quarter.

loanDepot said in their earnings report that the second quarter “represented a transitional quarter” with market conditions such as industry over-capacity and increased competitive pressure in the wholesale channel impacting their loan origination volume.

Despite the downturn in volume in recent months, LoanDepot said a strong investment in marketing and brand awareness increased the company’s market share from 2.3% during the second quarter of 2020 to 3.3% in the second quarter of 2021.

Overall, net income for the mortgage lender decreased all the way down to $26.3 million in Q2 2021, compared to $427.9 million the previous quarter. loanDepot notes that the quarter-over-quarter decrease was primarily driven by a decline in gain on sale margins – down to 2.28%, down from 2.98% in Q1 2021 and 5.39% a year ago – and an increase in servicing rights fair value losses.

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More than 13,273 loans – or $4359 billion in volume – were originated or refinanced in the past 12 months. That means millions of closings and new tax line set-ups, often done quickly, and, in many cases, while working remotely.

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Anthony Hsieh, founder and CEO of loanDepot, said in a statement that despite a decline in both total revenue ($779.9 million) and rate lock volume ($42.1 billion), the lender is confident that their “investments and commitment to [their] core business philosophy continue to fuel [their] momentum, especially as the industry becomes less fragmented and consumers rightfully demand more robust and integrated products and services from their lender.”

Hsieh also added that he expects to see industry consolidation “as some lenders may not be in a position to withstand headwinds, whereas [loanDepot is] confident and excited for the future.”

The lender’s earnings report shows that conventional conforming loans, as expected, made up the bulk of loanDepot’s business. The company originated $27.9 billion worth of conventional conforming loans, down from $35.17 billion in the previous quarter.

Loan origination of FHA/VA/USDA loans was the second-largest share of the pie. LoanDepot originated $4.2 billion government-insured loans in Q2 2021, down from $5.08 billion in the first quarter.

LoanDepot’s total expenses in the second quarter decreased by $120.5 million from the first quarter to $749.4 million, the lender said that this was primarily due to “lower variable expenses on loan origination volume and IPO related expenses incurred in the first quarter.”

It’s worth noting that personnel expenses declined dramatically to $470 million, down from $603.7 million in Q1. Whether this signifies that the lender decided to reduce the ranks remains to be seen, however, there have been rumors of layoffs for weeks.

LoanDepot noted on its quarterly earnings report that it “implemented cost cutting initiatives late in the second quarter and early in the third quarter, the results of which we expect to be primarily realized in the second half of 2021.”

More money was also pumped into marketing and advertising, with the company spending $114.13 million in the second quarter, compared to $109.63 million last quarter.

LoanDepot has made a fair bit of news in recent weeks. It recently appointed Pamela Hughes Patenaude, a former deputy secretary at HUD during the Trump administration, to its board of directors, as well as Mike Linton, a marketing expert who currently serves as chief revenue officer at genomics firm Ancestry.

LoanDepot’s real estate-agent-geared subsidiary, mellohome, last week announced the nationwide rollout of the “Grand Slam package,” in which it will offer cash rebates of up to $7,000 on bundled services when clients buy and sell with a mellohome-connected real estate agent, finance with loanDepot and use one of the company’s two title insurers.

The stock price of loanDepot on Tuesday at noon was trading around $9.09 a share, down dramatically from its high of $39.85 in February.

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