Describing it as “significant progress,” loanDepot Inc. reduced its net loss by 39% in the third quarter as it continued “right-sizing” the company — including by cutting nearly 5,000 employees this year.
The nation’s second-largest retail mortgage lender on Tuesday reported a net loss of $137.5 million, or 37 cents per diluted share, down 38.6% from a net loss of nearly $234 million, or 66 cents per diluted share, in the second quarter.
The third-quarter results beat analysts expectations of 27 cents per share, according to SeekingAlpha.com.
Total revenue in the third quarter was $274.2 million, down 11.2% from $308.6 million in the previous quarter. Total expenses decreased by $125.5 million, or 22%, from the previous quarter, primarily due to lower personnel, marketing, and volume-related expenses, the company said.
Vision 2025
During a conference call with analysts, loanDepot President & CEO Frank Martell praised the company’s Vision 2025 plan, which was announced in July and called for saving $375 million to $400 million on an annualized basis, mostly through staff reductions.
Chief Financial Officer Patrick Flanagan provided an update on the progress of downsizing the company, stating during the conference call that loanDepot began 2022 with 11,000 employees and had reduced that to 6,100 by the end of the third quarter — a reduction of 4,900 employees, or nearly 45% of its staff.
The 6,100 total is 400 fewer than the company had set as a target when it announced the Vision 2025 plan.
"loanDepot made significant progress on our previously announced goals for Vision 2025, including right-sizing the company for current and expected market conditions, launching our digital HELOC solution, and significantly enhancing our liquidity position," Martell said. "We aggressively reduced our costs, exited the wholesale channel, and narrowed our losses during the third quarter in line with our previously announced targets.”
The company announced its “strategic decision” to exit the wholesale channel in August, when it reported its second-quarter earnings. “Our exit from wholesale will also enable us to direct resources to other origination channels, reduce operational complexities, and increase margins,” Martell had said at the time.
He added that the company is “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.”
loanDepot reported a cash balance of $1.14 billion at the end of the third quarter.
Loan Originations Down
In addition to reducing jobs and exiting the wholesale channel, loanDepot also “substantially completed” its plan to bring all of its mortgage servicing in-house. The company held $2.7 billion in loans for sale at the end of the third quarter, down 42.6% from $4.7 billion in the second quarter. Its mortgage servicing rights (MSR) totaled $2.03 billion in the quarter, down 7.7% from the second quarter.
Loan origination volume in the third quarter was $9.8 billion, a decrease of $6.1 billion, or 38, from the previous quarter. Purchase volume increased to 70% of that total, up from 59% in the second quarter, which the company attributed to its “progress in executing a purpose-driven lending strategy of assisting our customers in buying a home.”
The company said it expects origination volume in the fourth quarter to be between $4 billion and $7 billion.
Of the loans originated in the quarter, $6.3 billion were from the retail channel, down 42% from $10.9 billion in the second quarter, and down nearly 75% from nearly $25 billion in the third quarter of last year.
loanDepot also has a partner channel, which originates loans through a network of approved mortgage brokers, as well as a series of exclusive joint ventures. The partners originated $3.5 billion in loans in the third quarter, down 31.2% from the second quarter and down nearly 51% from a year earlier.
loanDepot said the decrease in volume in its partner channel “primarily reflects our decision to exit the wholesale origination business.”
loanDepot significantly reduced its capacity for funding loans during the quarter. It reported that its total funding capacity with its lending partners decreased to $5.7 billion as of Sept. 30 from $9.9 billion as of June 30. "The decrease of $4.2 billion was primarily due to our decision to reduce our borrowing capacity, reflecting lower volume expectations. Available borrowing capacity was $3.1 billion at September 30, 2022."
The company entered a new partnership during the quarter with National HomeCorp, a Georgia-based homebuilder specializing in affordable single-family homes. The two companies formed NHC Mortgage, "a new joint venture partnership advancing our goal of purpose-driven lending and providing credit to underserved communities," loanDepot said.
Martell said the company also has big expectations for its new digital HELOC (home equity line of credit).
"We are excited about the launch of our digital HELOC, which we expect will be a meaningful contributor to revenues in 2023,” he said. “This unique digital solution has been launched in several markets and provides our customers with an attractive option to access their home equity. With the value of home equity at an all-time high, many homeowners would greatly benefit from an easy and fast way to access cash while preserving their historically low-interest-rate first mortgage.”
He added that the HELOC launch “is an important step in advancing our goal of adding more products and services that will benefit our customers, diversify our revenues, and generate profitable growth.”
In wrapping up the conference call, Martell provided an optimistic outlook for the company.
“Our Vision 2025 plan is having its intended effect,” he said. “We’ve made progress, and our goal is to continue to narrow our operating losses through narrowing our expenses, but also through our diversification strategies. … We will continue to drive the company forward and leverage our financial strength. We have plenty of cash to see us through the next troubling period.”
