Home Point Capital produced origination gains in the first quarter, but competitive market pricing put downward pressure on its net income.
The company recorded $149 million in earnings during the period, down from $184.5 million in the fourth quarter of 2020 but up compared to a loss of $10.6 million in the first three months of 2020. Mortgages produced by the Homepoint lending unit totaled $29.4 billion, up from nearly $24 billion in the final quarter of last year and almost $8.2 billion in the first quarter of 2020.
The company’s results suggest its mortgage broker recruitment strategy has been effective in generating loan production gains, but the price war being waged by two large competitors in the wholesale channel is challenging its profitability, at least temporarily.
“A unique set of competitor dynamics in the wholesale channel have created a challenging near-term operating environment and put pressure on our margins. However, we believe this presents us with an opportunity,” said CEO Willie Newman.
He reiterated
The company is also working on accelerating productivity and efficiency initiatives involving a mix of off-the-shelf and proprietary technology to offset the impact of thinner origination margins, Newman said. In addition, in line with a typical mortgage industry strategy, it has a growing servicing portfolio designed to rise in value in line with rates, offsetting corresponding decreases in origination volume and profits.
Overall, Home Point generated a gain-on-sale margin of 128 basis points for all loan channels in the first three months of this year, down from 200 the previous quarter but up from 97 during the same period a year ago. The wholesale channel’s margin for the first quarter was 152 basis points, down from 234 during the previous three months but up from 187 a year ago.
Home Point’s origination unit primarily relies on the wholesale channel, but also operates correspondent and direct-to-consumer mortgage divisions. The price dislocation in the wholesale channel is unlikely to be sustainable, but it’s unclear when it will end, Newman said.
That pricing is having some impact on the direct-to-consumer channel, which had a 362 basis-point margin in the first quarter, compared to 399 in the previous fiscal period and 187 a year ago. Home Point executives indicated the company has chosen to offer pricing that is somewhat competitive with its wholesale channel’s through its direct-to-consumer division.
The company’s stock shortly before 3:30 in the Eastern time zone was trading at around $7.59 and was down roughly 19% from its opening price of $9.48.
