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loanDepot, the California-based lender targeting profitability next year, delivered its sixth consecutive quarterly loss in the third quarter of 2023, according to documents filed with the Securities and Exchange Commission (SEC) on Tuesday.
Total revenue declined as a result of lower origination volume. Still, there were financial improvements. Higher margins aided by an aggressive cost-cutting strategy shrunk expenses, narrowing loanDepot’s losses in the period. And more cost reductions are expected in the coming quarters.
The lender recorded a loss of $26.8 million in non-GAAP adjusted net income from July to September, compared to a $34.3 million loss in the previous quarter. By GAAP accounting standards, net loss in the third quarter was $34.2 million.
In a recent interview with HousingWire, CEO Frank Martell said the most likely period for a trajectory to profitability “is the spring selling season, as we get into next year and the market provides some lift. Right now, it’s ultra-low.”
To analysts, Martell confirmed profitability is expected as we get “into the second and third quarters of next year.”
The company’s total revenues decreased to $265.7 million in the third quarter, down from $271.8 million in the previous quarter. loanDepot had “lower pull through weighted lock volume partially offset by higher pull through weighted gain-on-sale margin.”
Meanwhile, total expenses decreased faster than revenues to $305.1 million in Q3, down from $330.1 million in Q2. Quarterly non-volume expenses decreased $18.7 million since the second quarter due to lower salaries and benefits resulting from reduced headcount and legal expenses. Headcount declined to 4,532 in Q3 from 4,683 in Q2.
In the quarter, the company also accrued $2 million of legal expenses related to the expected settlement of outstanding litigation. In August, the company agreed to settle a securities class action lawsuit for $3.2 million.
“We continue to aggressively reset our cost structure to address the impact of generationally low unit volumes as we maintain our focused execution of Vision 2025,” Martell said in a statement.
loanDepot also announced a $120 million annualized cost reduction target, including $100 million in non-volume related expenses – for example, vendor contract termination and renegotiation, optimized marketing spending and corporate real estate cost reductions. The company expects to achieve most of the savings by the end of Q1 2024.
loanDepot’s loan origination volume came in at $6.1 billion in the third quarter, down from $6.2 billion in the second quarter of 2023. The pull-through gain-on-sale margin was 2.93% in the third quarter, better than the 2.85% registered in the previous quarter.
Regarding its products, purchase loans comprised 71% of the total, down from 73% in the previous quarter. loanDepot recently rolled out a new down payment assistance program for Federal Housing Administration loan borrowers that enables them to put zero money down upfront.
Company executives project the fourth quarter volume between $4 billion and $6 billion. The pull-through gain-on-sale margin is expected to be between 2.40% and 2.80%.
Servicing
loanDepot’s unpaid principal balance increased to $143.9 billion as of Sept. 30, 2023, from $142.5 billion as of June 30, 2023. Servicing fee income rose to $118.7 million in Q3 2023 from $117.7 million in the previous quarter.
CFO David Hayes said that in the quarter, the company sold excess agency mortgage servicing rights related to unpaid principal balances totaling $12 billion, resulting in a gain of $4 million.
“This transaction allows us to monetize a portion of the asset while maintaining our direct servicing relationship with those customers,” Hayes said.
The lender said it had $717 million in cash at the end of September, down from the previous quarter’s $719 million.
Hayes said in a statement the company’s liquidity is due to cost reduction, margin expansion and effective capital management, which made the company end the quarter with “essentially unchanged” cash balances.
“We remain laser-focused on maintaining significant levels of liquidity as we work toward run-rate profitability,” Hayes said.
loanDepot is looking for acquisition opportunities. In September, the company appointed Dan Hanson to the newly-created role of executive director of enterprise partnerships and acquisitions as the company seeks to invest in profitable growth-generating initiatives.
Looking forward, Martell said the market will remain substantially similar to 2023 levels in 2024. “We believe that the factors that have impacted the industry in 2023, including lack of housing stock for sale as well as record low affordability, will be with us during 2024,” Martell told analysts.
Jeff Walsh, loanDepot’s president, said that the market correction at this point is “still greater than the capacity reduction.” It means that with the “rates being higher-for-longer scenario, you likely need a bit more capacity reduction” in the mortgage industry.
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