loanDepot sells MSRs and improves margins in the second quarter
California-based mortgage lender loanDepot has reduced its financial losses in the second quarter of 2024, while still feeling the effects of a cyber attack in January. During the three-month period, the company increased its volumes and margins while implementing an efficiency program and selling mortgage servicing rights (MSRs).
On Tuesday, LoanDepot reported a non-GAAP adjusted net loss of $16 million from April to June, compared with a loss of $39.5 million in the prior quarter and a loss of $36 million in the same period in 2023. Under GAAP accounting standards, the net loss in the second quarter of 2024 was $65.8 million, per filing with the Securities and Exchange Commission (SEC).
President and CEO Frank Martell said in a call with analysts that the company delivered its “strongest operating result in the second quarter since the onset of the market decline that began in the first quarter of 2022.” Martell was referring to pre-tax profits of $34.5 million in the second quarter of 2024.
In the second quarter, LoanDepot’s costs were $342.5 million, up 11% quarter-over-quarter and up 3.75% year-over-year. The company had a non-operating charge of $27 million related to the cyberattack in the previous quarter, including costs related to the settlement of a class action lawsuit.
“We are currently negotiating the terms of a settlement agreement, and plaintiffs will likely submit it to the court for approval later in the third quarter. We believe the settlement will remove significant uncertainty for our stakeholders going forward,” Chief Financial Officer David Hayes said in a statement.
During the second quarter, the company also extended approximately $500 million of debt maturing in 2025, reducing outstanding corporate debt by $137 million. LoanDepot reported a $6 million loss “on the cancellation of debt related to the successful tender exchange.”
LoanDepot delivered a $120 million benefit focused on the additional productivity program. According to Martell, the initiatives include revamping the compensation program and reducing management layers in the organization.
Meanwhile, the company’s total revenues reached $265.4 million, up 19% from the previous quarter but down 2.3% compared to the second quarter of 2023. The company said revenues were partially offset by a negative change in the fair value of maintenance rights. LoanDepot reported a cash balance of $533 million at the end of the quarter.
Operational highlights
LoanDepot’s production volume was $6 billion between April and June, up from $4.5 billion in the previous quarter and below $6.3 billion in the second quarter of 2023. Profit on sales margin was 3.22% in the second quarter of 2024, compared to 2.74%. % in Q1 2024 and 2.85% in Q2 2023.
Hayes told analysts that the “higher profit-on-sales margin benefited from the reversal of the loss provision, reflecting the strong credit performance of our historical production years, as well as growing contributions from higher-margin home equity products.”
Purchase loans represented 72% of LoanDepot’s total volume in Q2 2024. Meanwhile, the organic refinance rate for direct consumer refinancing from April to June was 70%, compared to 68% in Q2 2023.
For LoanDepot’s servicing portfolio, unpaid principal balance (UPB) decreased to $114 billion at June 30, compared to $142 billion at March 31, primarily due to MSR sales of low-coupon products from the 2020 and 2021 vintages.
Service fee revenues increased to $125 million in the second quarter of 2024, compared to $124 million in the previous quarter. Hayes said the company hedges its portfolio, which provides protection against volatility.
“We have opportunistically taken advantage of strong market conditions and liquidated approximately $29 billion of unpaid principal on our mortgage servicing rights. As a result of the smaller portfolio, we expect service revenue to decline somewhat in the future,” said Hayes.
Looking ahead, executives say LoanDepot has gradually expanded its number of loan officers and operational capabilities to take advantage of a lower mortgage rate environment.
Company executives forecast production volume of $5 billion to $7 billion for the third quarter of 2024. The profit on sales margin is expected to be between 2.8% and 3%. In the third quarter, the company will announce a new strategic plan to replace Vision 2025.
After the earnings announcement, loanDepot stock was trading at $2.15, up 3.86% in the aftermarket.
