Home Point slips into the red as price war intensifies

Home Point Capital on Thursday recorded a second-quarter loss as it struggled with a challenging origination market that was particularly competitive in the growing loan broker channel.

The company's net loss of $44 million followed a profitable first quarter in which it earned $11.9 million. Over the second quarter last year, it recorded a $73 million net loss. The most recent quarter's loss per share, $0.32, was below consensus but its adjusted loss per share of $0.05 roughly matched analyst expectations.

Losses mounted at the company due to higher rates, competitive wholesale pricing and the sale of its stake in Longbridge Financial, outweighing an increase in broker partners and savings from efficiency initiatives like the pending outsourcing of its servicing operations to ServiceMac.

"Our financial performance was impacted by several non-recurring items, driven by volatility in the financial markets," President and CEO Willie Newman said during an earnings call. "Operationally, we continue to make progress on costs as well as improving our liquidity and leverage positions through divestiture of non-strategic assets and business lines. However, the revenue opportunity continues to be challenged both in production and margin levels."

Credit: Home Point

HPC's board suspended its quarterly dividend for the time being to preserve its financial resources given the uncertainty in the market.

Savings are set to be realized soon from the completion of the outsourcing effort, Chief Financial Officer Mark Elbaum said during the call.

"The transition of our in-house servicing platform to ServiceMac is almost complete and will be finalized in the third quarter. This move will convert a fixed cost into a lower variable cost and enhance our ability to manage the MSR asset," Elbaum said.

Although the company is outsourcing management of loan payments, it plans to generally retain the mortgage servicing rights on its loans, he added in response to an analyst's question.

"We did execute some MSR sales here in the second quarter, and we'll continue to look at the MSR market, our liquidity needs," said Elbaum. "The default is always to retain MSR and that's what we do, and then we'll opportunistically sell. Right now, our leverage is in a reasonably good place."

The price war in the broker channel that's been ongoing for more than a year has posed a significant challenge to the company's production. Competitor United Wholesale Mortgage said in an earnings call Wednesday it will continue to escalate its efforts to undercut its peers. 

Home Point's response to those market conditions evolves day-to-day, "but at this point we're biased more toward margin, less toward production," Newman said.

When analysts asked about loanDepot's recently announced plan to depart wholesale, executives said it would not do much to alleviate competition but felt it supported their own conclusion that focusing on a multichannel strategy would have been challenging.

Home Point plans to use service levels to woo a mortgage broker network it sees as ripe for growth. 

"The migration from retail to broker is accelerating," said Newman. "In 2021, 6,353 loan originators migrated from retail to broker, or 529 per month. Year-to-date in 2022, the average is over 800, with July being the highest month so far as 1,022 loan originators migrated from retail to broker."

Although challenges related to margins exist in the loan broker channel relative to lender margins, those numbers give it relative advantages, Newman added.

"We obviously believe wholesale is the right channel to be in," he said. "All the data point to that."