Thursday, October 3, 2024

After cutting Q3 losses, loanDepot has sights set on breaking even

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The troubled lender has shed 5,200 workers through layoffs and attrition and is instituting other cost-cutting measures aimed at trimming $400 million in annual expenses by the end of the year.

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LoanDepot executives say they’re closer to getting the company back to breakeven after shedding 5,200 workers through layoffs and attrition and instituting other cost-cutting measures aimed at trimming $400 million in annual expenses by the end of the year.

While loanDepot reported a $137.5 million third-quarter net loss Tuesday, that’s down 39 percent from the second quarter, when the Foothill Ranch, California-based lender finished $223.8 million in the red.

Shares in loanDepot, which over the last year have traded for as little as $1.25 and as much as $7.49, were up 8 percent in after hours trading Tuesday following the earnings release.

Most of the improvement was the result of cost cutting, however, as loanDepot’s revenue from mortgage originations and other businesses was down 11 from the second quarter and 70 percent from a year ago, to $274.2 million.

Losses for the first nine months of the year now total $452.6 million, compared to $608.4 million in profits over the same stretch of 2021.

LoanDepot CEO Frank Martell, who took took the CEO reins from company founder Anthony Hsieh in April, highlighted bright spots including the company’s $1.14 billion cash balance and the rollout of a digital home equity line of credit product the company says can close in as little as seven days.

Frank Martell

“We aggressively reduced our costs, exited the wholesale channel, and narrowed our losses during the third quarter in line with our previously announced targets,” Martell said, in a statement. “We are firmly on pace to meet our expense reduction goal of an annualized $400 million for the second half of 2022, and at the same time, we have substantially increased our cash position. Looking ahead, we have built our expense reduction plan to size the company appropriately for a mortgage market that we believe will total approximately $1.5 trillion in 2023.”

That’s even more pessimistic than the most recent forecast from economists at Fannie Mae, who said last month they expect mortgage originations to fall 25 percent next year, to $1.73 trillion. The rapid runup in mortgage rates this year has had a huge impact on refinancings, which Fannie Mae expects will account for just 23 percent of 2023 mortgage funding.

LoanDepot, which started the year with 11,300 employees, said it cut personnel expenses by $77.6 million during the third quarter, to $218.8 million, as it reduced the payroll by 2,400 employees. That’s on top of 1,800 employees the company shed in the first half of the year through layoffs and attrition. The company also slashed marketing and advertising expenses by $17.9 million, to $42.9 million.

LoanDepot mortgage originations by purpose

Source: LoanDepot regulatory filings.

LoanDepot refinanced $2.91 billion in mortgages during the third quarter, less than one tenth of the $33.56 billion in home loans it refinanced during the first quarter of 2021, when mortgage rates hit record lows. Providing purchase loans to homebuyers now accounts for more than 70 percent of loanDepot’s business, up from 19 percent during the first quarter of 2021.

At $9.85 billion, loanDepot’s total third quarter mortgage production was down 38 percent from the second quarter, and 69 percent from a year ago. Purchase loan production fell 27 percent from quarter-to-quarter and 37 percent from a year ago, to $6.94 billion, while refinancing was down 55 percent from the second quarter and 86 percent from a year ago.

LoanDepot mortgage originations by channel

Source: LoanDepot regulatory filings.

One strategy loanDepot has pursued to build its purchase loan business in the past is to partner with mortgage brokers, Realtors and other referral partners.

Although loanDepot announced in August that it was getting out of the wholesale mortgage business and will no longer partner with mortgage brokers, it continues to originate loans through joint ventures with homebuilders including LGI Homes, Schell Brothers, and Brookfield Residential.

Last week loanDepot announced a new joint venture with homebuilder National HomeCorp. The joint venture, NHC Mortgage, will initially offer home loans in Florida, Iowa and North Carolina, and expand to Kentucky, Arizona, Virginia, Texas, Alabama, Missouri, Georgia, Tennessee and South Carolina next year.

During the third quarter, loanDepot’s partner channel accounted for nearly 36 percent of loanDepot’s originations, an all-time high in records dating to 2019.

LoanDepot’s retail channel, which is more dependent on refinancing, saw originations fall 41 percent from the second quarter and 75 percent from a year ago, to $6.33 billion. The partner channel fared somewhat better, falling 31 percent from the second quarter and 50 percent from a year ago.

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