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loanDepot narrows losses in Q2 as margins improve

Origination volume increased to $6.3 billion in the second quarter

loanDepot delivered its fifth consecutive quarterly loss in the second quarter of 2023, a period marked by a leadership shake-up and a business lines consolidation, according to documents filed with the Securities and Exchange Commission (SEC) on Tuesday.

But the company’s financials are improving. The California-based mortgage lender had its second consecutive double-digit revenue gain amid increasing origination volumes and margins. And despite higher expenses, it significantly narrowed its losses from April to June. 

The lender recorded a loss of $34.3 million in non-GAAP adjusted net income in the second quarter of 2023, compared to a $60.2 million loss in the previous quarter. The GAAP net loss in the second quarter was $49.7 million.

“We delivered our second successive quarter of strong top-line growth and margin expansion on a sequential basis, and at the same time, continued to drive cost productivity and operating leverage,” Frank Martell, loanDepot’s president and CEO, said in a statement. “Importantly, we reduced our sequential quarterly net loss by $66 million in the first quarter of 2023 and by $42 million in the second quarter.”  

In April, loanDepot announced a resolution to infighting between founder and chairman Anthony Hsieh and the board of directors. A few months later, the company said four top executives would depart, including CFO Patrick Flanagan, Chief Accounting Officer Nicole Carrillo, Chief Human Resources Officer Kevin Tackaberry and LDI Digital President Zeenat Sidi. 

Changes in leadership came with the decision to consolidate LDI Digital, including mellohome, into its existing production channels, under the direction of LDI Mortgage President Jeff Walsh. 

Total revenues increased to $271.8 million in the second quarter, up from $207.9 million in the previous quarter, “primarily driven by higher pull through weighted lock volume and gain on sale margin,” the company told investors. 

Meanwhile, total expenses increased to $330.1 million in Q2 2023, up 5% from $314.5 million in Q1 2023. The company said the increase is due to the Vision 2025 plan and higher direct costs attributable to increased origination volumes, which was partially offset by cost productivity. 

“While we continue the work of resetting our cost structure to align with generationally low unit volumes, we are also focused on the other pillars of Vision 2025, including capturing opportunities inherent in our strategy to expand purpose-driven lending that supports first-time homebuyers and diverse communities,” Martell said. 

In a call with analysts, executives said the company had a $8 million cost related to the “settlement of legacy litigation” during the second quarter of 2023.

“Excluding volume-related expenses, Vision 2025 related charges and the litigation settlement accrual, our adjusting operating expenses decreased by $10 million compared to the previous quarter, reflecting the ongoing benefits of our efficient improvements,” David Hayes, loanDepot’s Chief Financial Officer, told analysts.

loanDepot’s loan origination volume came in at $6.3 billion in the second quarter, up from $4.9 billion in the first quarter of 2023. Purchase loans comprised 73% of the total. The gain-on-sale margin came in at 2.85% in the second quarter, better than the 2.26% registered in the previous quarter.

“Our higher gain-on-sale margin was primarily due to wider profit margins on our production, a shift in next favoring more profitable FHA loan, and a lower provision for loan losses,” Hayes said during the call.

Company executives project the third quarter volume to be anywhere between $5 billion and $7 billion. The company forecasts a reduction in its gain-on-sale margin for the third quarter of 2023, primarily reflecting increasing interest rates subsequent to the end of the second quarter. In addition, Martell expects loanDepot to continue to reduce its headcount given the market uncertainty.

Regarding its servicing portfolio, the unpaid principal balance increased to $142.5 billion as of June 30, 2023, from $141.6 billion as of March 31, 2023. Servicing fee income declined to $117.7 million in Q2 2023 from $118.9 million in the previous quarter.

Executives said that during the quarter that the company sold excess agency servicing rights related to unpaid principal balances totaling $14 billion, resulting in a gain of $7.7 million. The transaction allows loanDepot to monetize a portion of the asset while maintaining its direct servicing relationship with those customers, they said.

Martell said that loanDepot has “not been in the market selling a lot of” MSRs. “If we do contemplate that, it will be more targeted and opportunistic.”

The lender said it had $719 million in cash balance at the end of June, down 9.9% from the previous quarter. loanDepot aims to maintain at least 5% of its assets as liquidity. However, it expects to keep excess liquidity in the balance sheet for now. 

“As we move forward in the second half of 2023, we plan to continue maintaining a strong liquidity position and aggressively reduce our costs,” Hayes said in a statement. “Importantly, we are also investing in critical operating platforms, which we expect will deliver higher levels of automation and operating leverage and position us for additional growth and margin expansion in 2024.”

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