Nonbank heavyweight loanDepot reported an unprofitable quarter largely due to a steep decline in origination volume and expense reductions that did not keep up with the rapidly changing environment. The firm said it doesn’t expect to have a profitable fiscal year, citing pressures on margins and lower market volume.
The California-based company reported a net loss of $91.3 million in the first quarter, compared to a net income of $14.7 million from the previous quarter. A year ago, loanDepot made $427.9 million in profit.
“The increase in mortgage rates during the quarter happened much more quickly and sharply than anyone anticipated when the quarter began and resulted in significant and rapid decreases in profit margins,” said Anthony Hsieh, loanDepot’s founder and executive chairman, to analysts.
Hsieh noted the environment of shrinking market size and surging mortgage rates “may turn out to be one of the most challenging” that the industry experienced, which were reflected in the firm’s first-quarter earnings.
The decrease in rate lock volume and gain on sale margin were responsible for the massive quarter-over-quarter decline, according to loanDepot.
Rate lock volume in the first three months of 2022 dropped 13.7% to $30 billion from $34.8 billion in the previous quarter. Gain-on-sale margin was down to 1.96% in the first quarter from 2.23% in the previous quarter.
With production volumes flattening out and non-QM originations increasing, the need for originators to focus resources and cost on the front end of the business could lead to more subservicing opportunities.
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Loan origination volume dropped 26% to $21.6 billion from the previous quarter, bringing the company’s market share down to 3.1%.
The firm’s total expenses in the first quarter of 2022 fell 13% to $606.3 million from the previous quarter. Year over year, expenses dropped 30% from $869.9 million from the same period in 2021.
“We are aggressively managing our cost structure to return to profitability by the end of the year,” said Patrick Flanagan, loanDepot’s chief financial officer. “We expect to achieve this goal by further reducing marketing expenses and personnel expenses through the addition of headcount reductions,” Flanagan added without offering details of potential layoffs.
In April, former chief executive officer of CoreLogic Frank Martell was appointed as loanDepot’s new president and CEO, a newly created role within the firm. Hsieh, founder and the firm’s main shareholder, is now the executive chairman and no longer leads daily operations.
While loanDepot doesn’t expect to be profitable this year, the firm plans to generate more purchase volume, hedge its servicing portfolio, and add new products and services.
The unpaid principal balance of the servicing portfolio dropped to $153 billion as of the first quarter this year from $162 billion in the last quarter 2021. While loanDepot reported a net loss of $68.4 million on the change in the fair value of its servicing rights in the first three months of this year, the figure is an improvement from the previous quarter when the firm reported a $118.7 million net loss on the value of its servicing rights.
The multichannel lender’s cash-out refinance and purchase volume rose to 83% of total production in the first quarter of 2022 from 75% in the last three months of 2021.
loanDepot announced in January that it is bringing the servicing of the Federal Housing Administration, Department of Veterans’ Affairs, and United States Department of Agriculture-funded Ginnie Mae loans in-house. The move leverages “ongoing investment in the firm’s servicing platform, allowing the company to scale for operational efficiency and enhanced customer service,” loanDepot said at the time of launch.
The company also aims to capitalize on its new home equity line of credit [HELOC] product, which it plans to roll out in the third quarter of this year. The first offering of a mello business unit, which launched in 2017 and operates side-by-side with loanDepot’s mortgage origination and servicing division, will be a digital-first product where consumers can apply for and get approved in as few as seven days.
The lender expects loan origination volume to post between $13 billion and $18 billion in the second quarter of this year. A pull-through weighted rate lock volume was forecast between $12 billion and $22 billion dollars, reflecting the recent increase in interest rates weighing on demand.
loanDepot shares tumbled to a 52-week low of $2 per share on Tuesday morning, dropping more than 25% since market close on Monday. The firm went public in 2021 at $14 a share.