Weekly Real Estate News
Summary
loanDepot reported a $29 million third-quarter net loss, down 12% sequentially in origination volume to $7.05 billion, and a higher 399-basis-point gain-on-sale margin as home-equity lending grew. It also sold $10 billion of agency servicing rights and closed a separate $9 billion government servicing-rights sale in October.
loanDepot reported a wider third-quarter loss Monday even as its shift toward home-equity lending lifted its gain-on-sale margin and the company sold a substantial block of mortgage servicing rights.
The Irvine, California-based lender posted a $29 million net loss for the quarter ended Sept. 30, compared with a $7 million loss in the preceding quarter, according to its Nov. 9 earnings release filed with the Securities and Exchange Commission. Revenue fell 9% sequentially to $307 million. Adjusted revenue, a non-GAAP measure, declined 2% to $302 million.
Smaller volume, stronger margin
Origination volume totaled $7.05 billion, down 12% from the second quarter, although loanDepot said its unit volume rose 7% as it expanded home-equity products. Its pull-through weighted gain-on-sale margin increased 54 basis points to 399 basis points. Management attributed the improvement to a greater concentration of higher-margin home-equity loans.
Those figures point to a business changing its mix rather than simply recovering through more first-lien mortgage production. Home-equity loans can generate different economics from traditional purchase and refinance mortgages, so the higher reported margin should not be read as evidence that margins on every loan category improved.
The company said expenses fell faster than adjusted revenue and increased its expected annualized savings from previously announced productivity initiatives to $25 million, from $12 million. Nevertheless, adjusted net loss widened to $31 million from $29 million in the prior quarter. Adjusted EBITDA was $17 million, down from $20 million.
Servicing sales and the balance sheet
loanDepot completed the sale of approximately $10 billion of agency mortgage servicing rights during the quarter and agreed to sell another $9 billion of government servicing rights; that second transaction closed in October, the company said. Servicing-rights sales can release capital and change a lender’s exposure to future servicing income. The unpaid principal balances cited for the portfolios are not equivalent to sale proceeds.
The lender also repurchased $87 million in senior notes at an average price of 88 cents on the dollar. Debt repurchases below par can reduce outstanding obligations, although their ultimate effect on liquidity and earnings depends on transaction costs and accounting treatment.
Founder and CEO Anthony Hsieh described the quarter as part of a longer restructuring. In its year-over-year comparisons, loanDepot said origination volume rose 8%, unit volume climbed 33% and purchase volume increased 10%. Those improvements coexist with the quarter-over-quarter revenue decline and larger net loss; neither comparison should be substituted for the other.
What to watch
The next tests are whether higher-margin home-equity production can offset weaker mortgage volume, whether operating savings materialize as expected and how servicing-asset sales affect recurring earnings and capital needs. Investors should also distinguish the company’s adjusted measures from its reported GAAP net loss.
For mortgage originators, loanDepot’s results offer a concrete example of how lenders are seeking revenue outside the traditional first-lien market while managing costs and servicing assets. The company has not yet demonstrated a return to quarterly GAAP profitability.
