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loanDepot sells MSRs, improves margins in Q2

loanDepot reported a non-GAAP adjusted net loss of $16 million from April to June

California-based mortgage lender loanDepot reduced its financial loss in the second quarter of 2024 while still feeling the impacts of a January cyberattack. During the three-month period, the company increased its volumes and margins while implementing an efficiency program and selling mortgage servicing rights (MSRs).

On Tuesday, loanDepot reported a non-GAAP adjusted net loss of $16 million from April to June, compared to a $39.5 million loss in the previous quarter and a $36 million loss in the same period in 2023. By GAAP accounting standards, the net loss in Q2 2024 was $65.8 million, per filings with the Securities and Exchange Commission (SEC). 

President and CEO Frank Martell said in a call with analysts that in the second quarter, the company delivered its “strongest operational result since the beginning of the market downturn that began in the first quarter of 2022.” Martell was referring to the pretax earnings of $34.5 million in Q2 2024. 

In the second quarter, loanDepot’s expenses were $342.5 million, up 11% quarter over quarter and up 3.75% year over year. The company had a nonoperational charge of $27 million related to the cyberattack in the previous quarter, including accrual associated with the settlement of a class-action lawsuit. 

“We are presently negotiating the terms of a settlement agreement, and plaintiffs will likely submit it for court approval later in the third quarter. We believe the settlement will remove significant uncertainty for our stakeholders going forward,” chief financial officer David Hayes said in a statement. 

During the second quarter, the company also extended about $500 million in debt due in 2025, which reduced its outstanding corporate debt by $137 million. loanDepot reported a $6 million loss “on the extinguishment of debt related to the successful tender exchange.”

loanDepot delivered a $120 million benefit targeted by its supplemental productivity program. According to Martell, initiatives include revamping its compensation program and reducing organizational management layers. 

Meanwhile, the company’s total revenues reached $265.4 million, an increase of 19% compared to the previous quarter but a decline of 2.3% compared to Q2 2023. The company said that revenues were partially offset by a negative change in the fair value of servicing rights. loanDepot reported a cash balance of $533 million at the end of the quarter.

Operational highlights

loanDepot’s origination volume was at $6 billion from April to June, up from $4.5 billion in the previous quarter and below the $6.3 billion figure in Q2 2023. Its pull-through gain-on-sale margin was 3.22% in Q2 2024, compared to 2.74% in Q1 2024 and 2.85% in Q2 2023. 

Hayes told analysts that the “higher gain-on-sale margin benefited from the reversal of the loss provision, reflecting the strong credit performance of our historical production vintages, as well as growing contributions of higher-margin home equity products.”

Purchase loans comprised 72% of loanDepot’s total volume in Q2 2024. Meanwhile, the company’s organic refinance consumer-direct recapture rate was 70% from April to June, up from 68% in Q2 2023.   

Regarding loanDepot’s servicing portfolio, the unpaid principal balance (UPB) decreased to $114 billion on June 30 compared to $142 billion on March 31, resulting mainly from MSR sales of low-coupon originations from the 2020 and 2021 vintages.

Servicing fee income increased to $125 million in Q2 2024, compared to $124 million in the previous quarter. Hayes said the company hedges its portfolio, which protects against volatility. 

“We opportunistically took advantage of strong market conditions and monetized approximately $29 billion of unpaid principal balance of our mortgage servicing rights. As a result of the smaller portfolio, we expect servicing revenue to decrease somewhat going forward,” Hayes said.  

Looking forward, executives said that loanDepot has gradually increased its number of loan officers and operational capabilities to take advantage of a lower mortgage rate environment. 

Company executives project a third-quarter 2024 origination volume of $5 billion to $7 billion. The pull-through gain-on-sale margin is expected to be between 2.8% and 3%. In the third quarter, the company will announce a new strategic plan to replace Vision 2025. 

After the earnings release, loanDepot stock was trading at $2.15, up 3.86% in the after market.

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