Home Point explores sale of Ginnie Mae servicing rights to reduce debt

Competitive pricing pressure in markets and agency fees contributed to a net quarterly loss at Home Point Capital (HMPT) and led the company to consider a partial mortgage-servicing portfolio sale to pay off debt.

For the second quarter, Home Point Capital, parent company of mortgage lender and servicer Homepoint Financial, posted a net loss of $73.2 million, compared to net income of $149 million the previous quarter and a gain of $169 million in the second quarter of 2020. Loss per share equaled $0.53. Per share earnings came in at $1.07 in the first quarter and $1.22 a year ago.

“We entered the second quarter faced with an historic pricing dislocation in our primary origination channel — wholesale. Revenue had compressed to levels not seen in at least the past eight years,” Willie Newman, Home Point Capital’s CEO and president, said during the company’s earnings call on Tuesday.

Total revenue dropped to $84.4 million, falling 76.3% from $422 million in the first quarter and 75.6% from $345 million year-over-year.

The originations segment at Homepoint’s lending unit brought in quarterly revenue of $117.2 million, while the gain-on-sale margin decreased to 58 basis points, down from $346.6 million and 147 bps in the first quarter. A year ago, originations generated $376.6 million in revenue with gain-on-sale of 280 bps.

Total funded volume of originations clocked in at $25.5 billion, dropping from $29.4 billion on a quarterly basis, but rose from $11.8 billion in the second quarter last year.

Newman pointed the finger at approximately $33 million in one-time fees imposed by government-sponsored enterprises for negatively impacting margins and the bottom line.

“The agencies issued new pricing — without protecting our pipeline — which is very atypical for what we've seen historically. And as a result there is kind of an incident markdown in the pipeline,” he said.

Homepoint’s servicing segment brought in revenue of $86.1 million for the quarter, up from $70.7 million in the first quarter and $45.3 million for the same period last year. The total of unpaid balances in Homepoint’s mortgage-servicing portfolio increased to $124.3 billion, up from $105.8 billion the prior quarter and $66.9 billion a year ago.

In an effort to make the Ann Arbor, Mich.-based company more efficient and provide liquidity to pay off debts associated with its MSR-debt facility, leaders mentioned that the sale of some mortgage-servicing rights was on the table. Unloading its Ginnie Mae loans, which accounts for about 20% of the company’s servicing portfolio, was singled out.

“We stepped back and said, “Where is the best opportunity for us to be extremely efficient and focus on that customer experience, understanding that there are larger services out there who may ascribe more value to certain of our assets?” said Newman. “And so, that's kind of ultimately how we got to the point where we said Ginnie Mae is a good opportunity for us to optimize what we're doing operationally.”

The company’s stock plunged initially after the earnings announcement, opening 9.1% lower at $4.79, after closing the previous day at $5.27. Its value tumbled even further to $4.53 in the first few minutes of trading but had risen back up to $4.71 by 12:30 p.m. Home Point Capital went public earlier this year.