Home Point, following 4Q loss, eyes profitability in late 2023

Home Point Capital will be cash-flow positive in a few months and profitable by the second half of the year after significant cuts, executives said following a report of a fourth quarter loss.

The parent of wholesale lender Homepoint recorded a $36.8 million loss in the fourth quarter and funded origination volume down nearly 60% from the prior quarter, it said Thursday morning. Layoffs impacting over 1,000 workers in recent months will help the company realize approximately $80 million in annualized cost savings, said Mark Elbaum, chief financial officer, in a conference call.

"While we think second quarter production will be higher than first quarter production, it's still going to be relatively low and consequently it burns a lot less cash," he said. "Couple that with the expense reduction moves that we make that we fully baked in, by the time we get to the second quarter, that's going to lead to cash flow positivity."

The firm's earnings off of its servicing portfolio will also outweigh the volume expected to reach a nadir in the first quarter, he added. Home Point continued to sell its Ginnie Mae servicing rights, netting $87.8 million off the sale of approximately $6 billion of the Ginnie Mae unpaid balance. Its servicing portfolio unpaid balance was $88.7 billion at the end of the year, down 5.8% from the prior quarter and 30.9% from the same time last year. 

The net loss to close 2022 was less severe than the $93.4 million hit the company took in the third quarter, although still a long way from the $19.3 million it made in the fourth quarter last year. Over 2022, the Ann Arbor, Michigan-based firm reported a $163.7 million loss, in contrast to its $166.3 million profit it saw in 2021.

Origination activity slid to $1.7 billion in the fourth quarter from $4.1 billion in the prior three months, with both far below the $20.5 billion in volume Home Point recorded at the same time last year. The lender reported $27.7 billion in origination volume in 2022, a 71% freefall from the $96.2 billion in production the year prior.

The firm's gain on sale margin saw a bump to 22 basis points from the 4 bps in the third quarter. That figure was also halved year-to-year, from 90 bps in 2021 to 43 bps last year. 

Approximately 970 Home Point employees were terminated during the fourth quarter, executives said, leaving the end-of-year headcount around 830 workers. The company Thursday didn't reveal the extent of its latest cuts, and executives didn't rule out the possibility of further layoffs. 

"It's going to be smaller scope likely than what we've done previously," said Willie Newman, president and CEO. "We're not wholly dependent on that focus in order to get to operational profitability."

Expenses dropped to $63.1 million in the fourth quarter, down from the third quarter's $115.7 million mark and the $152.2 million bill in the fourth quarter of 2021. Home Point's costs also fell 42% annually to $434.9 million in 2022, from $752.6 million the year prior. 

The wholesale player also reduced its warehouse capacity to $2.8 billion from $3.2 billion in the third quarter, but is still touting its bona fides in the competitive lending space. It counted 9,259 broker partners to close 2022, soaring above its count of 1,247 broker partners to wrap the previous year.

Home Point's stock opened Thursday at $1.90 per share an hour after earnings were released, and was largely stagnant at $1.91 per share by midmorning. The stock opened at $11.32 per share at Home Point's initial public offering in January 2021 and peaked at $4.54 last June before the mortgage market's decline.

The firm is also seeking a new chief financial officer after Elbaum submitted his resignation two weeks ago, effective April 3. The CFO, who aided the company's IPO, is not departing over the company's performance nor because of any disagreements with Home Point, according to a Securities and Exchange Commission filing.