Loandepot predicts profitability by spring given Q3's results

Loandepot closed the summer with another quarterly loss but enjoyed higher margins from home equity lending and better repurchase performance.

The leading lender and servicer endured a seventh consecutive quarter in the red, with a $34.3 million net loss in the third quarter. The result however was a 31% improvement from the prior period as the industry giant continued to shave costs as part of its major Vision 2025 restructuring.

Company leaders in an earnings call Tuesday projected profitability in the second and third quarters next year, and attributed slightly higher gain-on-sale margins to a few factors, including increased profit margins on its year old home equity line of credit product.

"Thanks to the work of the team, we've substantially enhanced our quality, and as a result, there's been a significant decrease in the amount of loans that we've been asked to repurchase," said David Hayes, chief financial officer, in Tuesday's call.

Loandepot recorded $6.1 billion in origination volume between July and September, of which $4.3 billion was purchase volume and $1.8 billion in largely cash-out refinances. Its pull-through weighted gain-on-sale margin was 293 basis points, up from 285 bps in the last quarter. That was a marked increase from the 203 bps at the same time last year, and well above a recent low of just 150 bps in the second quarter of 2022. 

Revenues fell 2% quarterly to $265.7 million ending September, a decline executives pinned on lofty mortgage rates. As the market began its steep dive last year, Loandepot posted $274.2 million in net revenue over that third quarter. 

The company cut its expenses by $25 million, or 8% to $305 million in the third quarter, also down from the $435 million in expenses it recorded at the same time last year. Vision 2025 efforts have shaved quarterly expenses by 45% since last summer, according to Tuesday's report. A company headcount once over 11,000 sat at 4,532 at the end of the recent quarter.

Executives suggested an upcoming additional $120 million of annualized expense reductions, including $100 million of "non-volume" related reductions. Most of those savings should be accomplished by the end of next March.

"The market correction at this point is still greater than the capacity reduction," said Jeff Walsh, president of LDI Mortgage. "So with the rates being higher for longer scenario, we likely need a bit more capacity reduction, and we're seeing that as really kind of forming up as an opportunity for us if that happens."

Loandepot holds significant cash and cash equivalents at $717 million, but that's $426 million less than at the end of last September. Its warehouse and other lines of credit remained steady at $1.9 billion.

The firm's servicing portfolio is up 3% annually at $143 billion, while its servicing fee income was also relatively flat at $119 million. The business over the third quarter sold servicing rights with an unpaid balance of $12 billion for a $4 million gain, Hayes said.

Citing today's challenging lack of affordability, Loandepot put its fourth quarter origination outlook between $4 to $6 billion, with a pull-through weighted GOS margin between 240 to 280 bps.

Executives Tuesday also mentioned $2 million in legal expenses in the quarter tied to settlement of unspecified legacy litigation. The company remains locked in federal lawsuits including poaching battles with rival CrossCountry Mortgage and two California complaints involving its former chief operating officer.