True to its word, Homepoint gets smaller. Much smaller

The company reported only $8.3 million in revenues in the quarter and $4 billion in origination volume

Home Point Capital, the parent company of wholesale lender Homepoint, posted another fat loss in the third quarter of 2022, even after hitting the “reset button” and cutting 3,000 employees

The company reported Thursday morning that reduced origination volumes – down to $4 billion – and depressed revenues resulted in a loss as it attempts to navigate a landscape of surging rates and a price war. According to executives, the focus remains on improving margins and maintaining liquidity. 

“In the third quarter, we made considerable progress in boosting our liquidity profile and reducing expenses, positioning our company to create long-term value even in a reduced-volume environment,” Willie Newman, president and CEO, said in a statement.  

The wholesale lender suffered a $94.3 million loss from July to September, more than double the $44.4 million loss in the second quarter of 2022. It was also much worse than the $71.5 million profit in the third quarter of 2021.

Homepoint, which during the third quarter launched a program to reduce prices for borrowers with lower income, reported only $8.3 million in revenues in the third quarter, compared to $70 million in Q2 2022 and $117 million in Q3 2021. 

Regarding the origination business, revenues came in at only $1.7 million in the third quarter, compared to $37.2 million in the previous quarter and $184 million in Q3 2021. 

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Meanwhile, amid cost-cutting initiatives that brought the workforce from around 4,000 to 1,000 employees, expenses totaled $116 million from July to September, down only 3% quarter-over-quarter but 34% lower year-over-year. 

In a competitive landscape, Homepoint’s total funded originations fell to $4 billion in the third quarter, down 57% from $9.3 billion in the second quarter 2022 and 80.7% from $20.8 billion in the third quarter of 2021. 

“We are building liquidity and focusing on margins over loan volume. We communicated on our last earnings call that we weren’t afraid to get smaller,” Newman told analysts. “During the third quarter, we took actions to reduce our expense base by over $100 million annually. We have been ahead of the industry curve in this respect, and we’ll continue to calibrate our cost to the environment.”

According to Newman, the objective is to return to operational profitability in 2023. 

The company’s gain-on-sale margin attributable to correspondent and wholesale channels, before the impact of capital markets and other activity, was 51 basis points in the third quarter of 2022, compared to 60 bps in the previous quarter and 73 bps in the same quarter in 2021. 

“In the full quarter, we ended at 51 basis points, but we started at 35. And then for October, we are somewhere at 72 basis points,” Mark Elbaum, chief financial officer, told analysts. “As we look at the fourth quarter of 2022, we see a slight easing of margin pressure, but do not expect to see them back at normalized levels.” 

One of the company’s strategies is to reduce its servicing portfolio by selling mortgage servicing rights (MSRs) to bring more liquidity, which will be done “opportunistically,” according to the executives. 

Homepoint’s servicing portfolio totaled $94 billion in unpaid principal balance as of September 30, 2022, down 3.9% quarter-over-quarter and 25.2% year-over-year.  

Regarding its liquidity, the company had $130.3 million in cash and cash equivalents as of September 30, 2022, and a total available liquidity of $438.7 million. 

“We took steps to optimize our financing facilities by proactively terminating warehouse lines of credit with two lenders and allowing a third to mature without renewal as origination volumes necessitated,” Newman said. “During the third quarter, we maintained a strong liquidity position, completing divestment from non-core operations and assets.”

Homepoint’s share was trading at $1.52 on Thursday around 11:00 AM EST, up 0.7% from the previous close. 

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