LOANDEPOT, INC. The following discussion provides an analysis of the Company's financial condition, cash flows and results of operations from management's perspective and should be read in conjunction with our consolidated financial statements and the accompanying notes included under Part I. Item 1 of this report. The results of operations described below are not necessarily indicative of the results to be expected for any future periods. This discussion includes forward-looking information that involves risks and assumptions which could cause actual results to differ materially from management's expectations. See our cautionary language at the beginning of this report under "Special Note Regarding Forward-Looking Statements" and for a more complete discussion of the factors that could affect our future results refer to Part II. "Item 1A. Risk Factors" and elsewhere in this Form 10-Q and Part I, Item 1A "Risk Factors" in our 2021 Form 10-K. Capitalized terms used but not otherwise defined herein have the meanings set forth in the our Form 10-K. Overview loanDepot is a customer-centric and technology-enabled residential mortgage platform. We launched our business in 2010 to provide mortgage loan solutions to consumers who were dissatisfied with the services offered by banks and other traditional market participants. Since our inception, we have significantly expanded our origination platform both in terms of size and capabilities. Our primary sources of revenue are derived from the origination of conventional and government mortgage loans, servicing conventional and government mortgage loans, and providing a growing suite of ancillary services.
The Company's common stock began trading on the
A summary of our critical accounting policies and estimates is included in Critical Accounting Policies and Estimates.
Key Factors Influencing Our Results of Operations
Market and Economic Environment
The consumer lending market and the associated loan origination volumes for mortgage loans are influenced by interest rates and economic conditions. While borrower demand for consumer credit has typically remained strong in most economic environments, general market conditions, including the interest rate environment, unemployment rates, home price appreciation and consumer confidence may affect borrower willingness to seek financing and investor desire and ability to invest in loans. For example, a significant interest rate increase or rise in unemployment could cause potential borrowers to defer seeking financing as they wait for interest rates to stabilize or the general economic environment to improve. Additionally, if the economy weakens and actual or expected default rates increase, loan investors may postpone or reduce their investments in loan products. The volume of mortgage loan originations associated with home purchases is generally affected by broader economic factors as well as the overall strength of the economy, housing prices, and interest rate fluctuations. Increases in interest rates may affect affordability and the ability for potential home buyers to qualify for a mortgage loan. Purchase mortgage loan origination volume can be subject to seasonal trends as home sales typically rise during the spring and summer seasons and decline in the fall and winter seasons. This is somewhat offset by purchase loan originations sourced from our joint ventures which experience their highest level of activity during November and December as home builders focus on completing and selling homes prior to year-end. Seasonality has less of an impact on mortgage loan refinancing volumes, which are primarily driven by fluctuations in mortgage loan interest rates.
Fluctuations in Interest Rates
Our mortgage loan refinancing volumes (and to a lesser degree, our purchase
volumes), balance sheets, and results of operations are influenced by changes in
interest rates and how we effectively manage the related interest rate risk. As
interest rates decline, mortgage loan refinance volumes tend to increase, while
an increasing interest rate environment may cause a decrease in refinance
volumes and purchase volumes. In addition, the majority of our assets are
subject to interest rate risk, including LHFS, which consist of mortgage loans
held on our consolidated balance sheets for a short period of time after
36
--------------------------------------------------------------------------------
origination until we are able to sell them, IRLCs, servicing rights and
mandatory trades, forward sales contracts, interest rate swap futures and put
options that we enter into to manage interest rate risk created by IRLCs and
uncommitted LHFS. We refer to such mandatory trades, forward sales contracts,
interest rate swap futures and put options collectively as "Hedging
Instruments." As interest rates increase, our LHFS and IRLCs generally decrease
in value while our Hedging Instruments utilized to hedge against interest rate
risk typically increase in value. Rising interest rates cause our expected
mortgage loan servicing revenues to increase due to a decline in mortgage loan
prepayments which extends the average life of our servicing portfolio and
increases the value of our servicing rights. Conversely, as interest rates
decline, our LHFS and IRLCs generally increase in value while our Hedging
Instruments decrease in value. In a declining interest rate environment,
borrowers tend to refinance their mortgage loans, which increases prepayment
speed and causes our expected mortgage loan servicing revenues to decrease,
which reduces the average life of our servicing portfolio and decreases the
value of our servicing rights. The changes in fair value of our servicing rights
are recorded as unrealized gains and losses in changes in fair value of
servicing rights, net, in our consolidated statements of operations.
When interest rates rise, rate and term refinancings become less attractive to
consumers after a historically long period of low interest rates. However,
rising interest rates are also indicative of overall economic growth that may
create more opportunities with respect to cash-out refinancings. In addition,
these periods of growth (leading to higher consumer confidence) typically should
generate more purchase-focused transactions requiring loans. Sustained periods
of home price appreciation should result in increasing opportunities for home
equity loans.
Current Market Conditions
According to the MBA's Mortgage Finance Forecast published July 18, 2022 , there
was approximately $13.0 trillion of residential mortgage debt outstanding in the
United States at June 30, 2022 which is forecasted to increase to $13.8 trillion
by June 30, 2023 . Annual one-to-four family residential mortgage origination
volumes are expected to decrease by 44% to $2.2 trillion by December 31, 2023 .
The primary driver of this decrease is refinance volume, which is expected to
decrease by $1.8 trillion , partially offset by a $58.0 billion expected increase
in purchase volume. The significant reductions in overall mortgage transaction
volumes and higher interest rates have resulted in and are expected to continue
to result in a significant decrease in our mortgage production activities,
which, as described below, has adversely impacted, and is expected to continue
to impact, our results of operations, liquidity and financial condition.
Due to current market conditions, we have implemented the Vision 2025 plan. The
plan's four primary elements are to: 1) Increase focus on purchase transactions
while serving increasingly diverse communities across the country, 2) Execute
previously announced growth-generating initiatives, 3) Centralize management of
loan originations and loan fulfillment to enhance quality and effectiveness, and
4) Right-size our cost structure.
As part of the plan, we have also made the determination to exit the wholesale
business. This will allow us to further reduce expenses, consolidate operations,
increase margins, and better meet our goals of becoming a purpose driven
organization with direct customer engagement throughout the entire lending
process.
Key Performance Indicators
We manage and assess the performance of our business by evaluating a variety of
metrics. Selected key performance metrics include loan originations and sales
and servicing metrics.
Loan Origination and Sales
Loan originations and sales by volume and units are a measure of how successful
we are at growing sales of mortgage loan products and a metric used by
management in an attempt to isolate how effectively we are performing. We
believe that originations and sales are an indicator of our market penetration
in mortgage loans and that this provides useful information because it allows
investors to better assess the strength of our core business. Loan originations
and sales include brokered loan originations not funded by us. We enter into
IRLCs to originate loans, at specified interest rates, with customers who have
applied for a mortgage and meet certain credit and underwriting criteria. We
believe the volume of our IRLCs is another measure of our overall market share.
Gain on sale margin represents the total of (i) gain on origination and sale of
loans, net, and (ii) origination income, net, divided by loan origination volume
during period. Gain on the origination and sale of loans, net was adjusted to
exclude the
37
-------------------------------------------------------------------------------- change in fair value of forward sale contracts, including pair-offs, hedging MSRs, which are now included in the change in fair value of servicing rights, net on the consolidated statements of operations. We determined that this change would more appropriately reflect the hedged item and better align with industry practices. Gain on origination and sale of loans, net and change in fair value of servicing rights, net, in the current and prior periods along with the related disclosures have been adjusted to reflect this reclassification. Pull through weighted gain on sale margin represents the total of (i) gain on origination and sale of loans, net, and (ii) origination income, net, divided by the pull through weighted rate lock volume. Pull through weighted rate lock volume is the unpaid principal balance of loans subject to interest rate lock commitments, net of a pull-through factor for the loan funding probability.
Servicing Metrics
Servicing metrics include the unpaid principal balance of our servicing
portfolio and servicing portfolio units, which represent the number of mortgage
loan customers we service. We believe that the net additions to our portfolio
and number of units are indicators of the growth of our mortgage loans serviced
and our servicing income, but may be offset by sales of servicing rights.
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2022 2021 2022 2021
Financial statement data
Total revenue $ 308,639 $ 779,914 $ 811,949 $ 2,095,922
Total expenses 560,657 749,405 1,166,913 1,619,283
Net (loss) income (223,822) 26,284 (315,141) 454,137
(Loss) earnings per share of Class A and
Class D common stock:
Basic $ (0.66) $ 0.07 $ (0.93) $ 0.42
Diluted $ (0.66) $ 0.07 $ (0.93) $ 0.42
Non-GAAP financial measures(1)
Adjusted total revenue $ 273,273 $
825,330
(167,855) 57,504 (249,587) 377,031
Adjusted (LBITDA) EBITDA (191,510) 109,264 (265,916) 567,361
Adjusted diluted (loss) earnings per
share N/A N/A N/A N/A
Loan origination and sales
Loan originations by channel:
Retail $ 10,877,875 $ 27,881,773 $ 27,357,265 $ 61,309,562
Partner 5,117,180 6,612,393 10,188,521 14,663,755
Total $ 15,995,055 $ 34,494,166 $ 37,545,786 $ 75,973,317
Loan originations by purpose:
Purchase $ 9,500,164 $ 10,382,964 $ 17,530,930 $ 18,299,476
Refinance 6,494,891 24,111,202 20,014,856 57,673,841
Total $ 15,995,055 $ 34,494,166 $ 37,545,786 $ 75,973,317
Loan originations (units) 47,311 100,153 112,262 211,553
38
--------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2022 2021 2022 2021
Licensed loan officers:
Retail 2,587 2,818 2,587 2,818
Partner 320 267 320 267
Total 2,907 3,085 2,907 3,085
Loans sold:
Servicing retained $ 10,568,649 $
30,981,299
7,342,889 3,309,151 13,088,211 5,802,037
Total $ 17,911,538 $
34,290,450
51,862 98,342 120,011 207,029
Gain on sale margin 1.16 % 2.28 % 1.62 % 2.66 %
Gain on sale margin - retail 1.03 2.50 1.76 2.91
Gain on sale margin - partner 1.45 1.32 1.26 1.61
Pull through weighted gain on sale
margin 1.50 2.64 1.89 3.19
IRLCs $ 19,596,763 $ 42,065,981 $ 49,588,215 $ 87,828,642
IRLCs (units) 58,855 130,894 149,875 262,445
Pull through weighted lock volume $ 12,412,894 $
29,787,081
Servicing metrics Total servicing portfolio (unpaid principal balance)$ 155,217,012 $
138,767,860
507,231 446,606 507,231 446,606
60+ days delinquent ($) $ 1,511,871 $
1,976,658
0.97 % 1.42 % 0.97 % 1.42 %
Servicing rights at fair value, net(2)
0.29 % 0.30 % 0.29 % 0.30 %
Multiple(3) (4) 5.1 4.5 5.1 4.5
(1)Refer to the section titled "Non-GAAP Financial Measures" for a discussion
and reconciliation of our Non-GAAP financial measures.
(2)Amount represents the fair value of servicing rights, net of servicing
liabilities, which are included in accounts payable, accrued expenses, and other
liabilities in the consolidated balance sheets.
(3)Agency only.
(4)Amounts represent the fair value of servicing rights, net, divided by the
weighted average annualized servicing fee.
Results of Operations
The following table sets forth our consolidated financial statement data for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . 39
--------------------------------------------------------------------------------
Three Months Ended
June 30, Change Change
(Dollars in thousands) 2022 2021 $ %
(Unaudited)
REVENUES:
Net interest income $ 22,799 $ 7,026 $ 15,773 224.5 %
Gain on origination and sale of loans,
net 146,562 692,479 (545,917) (78.8)
Origination income, net 39,108 92,624 (53,516) (57.8)
Servicing fee income 117,326 94,742 22,584 23.8
Change in fair value of servicing
rights, net (33,507) (145,098) 111,591 76.9
Other income 16,351 38,141 (21,790) (57.1)
Total net revenues 308,639 779,914 (471,275) (60.4)
EXPENSES:
Personnel expense 296,569 470,125 (173,556) (36.9)
Marketing and advertising expense 60,837 114,133 (53,296) (46.7)
Direct origination expense 33,996 50,017 (16,021) (32.0)
General and administrative expense 63,927 48,654 15,273 31.4
Occupancy expense 9,388 9,283 105 1.1
Depreciation and amortization 11,323 8,686 2,637 30.4
Servicing expense 10,741 27,241 (16,500) (60.6)
Other interest expense 33,140 21,266 11,874 55.8
Goodwill impairment 40,736 - 40,736 NM
Total expenses 560,657 749,405 (188,748) (25.2)
(Loss) income before income taxes (252,018) 30,509 (282,527) (926.0)
Income tax (benefit) expense (28,196) 4,225 (32,421) (767.4)
Net (loss) income (223,822) 26,284 (250,106) (951.6)
Net (loss) income attributable to
noncontrolling interests (122,894) 17,723 (140,617) (793.4)
Net (loss) income attributable to loanDepot, Inc.$ (100,928) $ 8,561 $ (109,489) (1,278.9) The results for the three months endedJune 30, 2022 reflected an increase in mortgage rates which resulted in a decrease in our profit margins. The decrease of$250.1 million , or 951.6% in net income is primarily from a$545.9 million decrease in gain on origination and sale of loans, net, partially offset by a$188.7 million decrease in total expenses. The increased interest rate environment resulted in a decrease in margins and volume of mortgage loan originations and IRLCs from the comparable 2021 period.
Revenues
Net Interest Income. Net interest income is earned on LHFS offset by interest expense on amounts borrowed under warehouse and other lines of credit to finance such loans until sold. The increase in net interest income reflected higher yields on LHFS, partially offset by a$3.0 billion decrease in the average balance of LHFS.
Gain on Origination and Sale of Loans, Net. Gain on origination and sale of loans, net, was comprised of the following components:
40
--------------------------------------------------------------------------------
Three Months Ended
June 30, Change Change
(Dollars in thousands) 2022 2021 $ %
(Discount) premium from loan sales $ (437,194) $ 407,314 $ (844,508) (207.3) %
Servicing rights 180,455 427,458 (247,003) (57.8)
Fair value gains on IRLC and LHFS 96,224 231,956 (135,732) (58.5)
Fair value gains (losses) from Hedging
Instruments 317,683 (346,179) 663,862 191.8
Discount points, rebates and lender paid
costs 71,767 (28,603) 100,370 350.9
(Provision for) recovery of loan loss
obligation for loans sold (82,373) 533 (82,906) (15,554.6)
Total gain on origination and sale of loans,
net $ 146,562 $ 692,479 $ (545,917) (78.8)
• (Discount) premium from loan sales represent the net premium or discount we
receive or pay in excess of the loan principal amount and certain fees charged
by investors upon sale of the loans. The decrease in premiums from loan sales
was a result of lower volume and margins due to increasing interest rates
subsequent to loan origination during the three months ended June 30, 2022
compared to decreasing rates during the three months ended June 30, 2021 .
• Servicing rights represent the fair value of servicing rights from loans sold
on a servicing-retained basis. The 57.8% decrease in servicing rights was driven
by the 65.9% decrease in volume of loans sold on a servicing-retained basis.
•Fair value gains on IRLC and LHFS decreased
• Fair value gains on Hedging Instruments represent the net unrealized gains or losses on mandatory trades, forward sales contracts, interest rate swap futures, and put options hedging IRLCs and LHFS as well as realized gains or losses from pair-off settlements. The increase of$663.9 million reflects changes in interest rates during the period. •Discount points, rebates, and lender paid costs represent discount points collected, rebates paid to borrowers, and lender paid costs for the origination of loans (including broker fee compensation paid to independent wholesale brokers and brokerage fees paid to our joint ventures for referred loans). The increase of$100.4 million or 350.9% was driven by an increase in discount points collected and a decrease in lender paid costs. •Provision for loan loss obligation related to loans sold represents the provision to establish our estimated liability for loan losses that we may experience as a result of a breach of representation or warranty provided to the purchasers or insurers of loans that we have sold. The increase of$82.9 million was driven by increased market rates which have reduced the fair value of loans subject to repurchase that were originated in prior periods at lower interest rates. Origination Income, Net. Origination income, net, reflects the fees that we earn, net of lender credits we pay, from originating loans. Origination income includes loan origination fees, processing fees, underwriting fees, and other fees collected from the borrower at the time of funding. Lender credits typically include rebates or concessions to borrowers for certain loan origination costs. The$53.5 million or 57.8% decrease in origination income was the result of a 53.6% decrease in loan origination volumes. Servicing Fee Income. Servicing fee income reflects contractual servicing fees and ancillary and other fees (including late charges) related to the servicing of mortgage loans. The increase of$22.6 million or 23.8% in servicing income was the result of an increase of$20.5 billion in the average UPB of our servicing portfolio due to an increase in servicing-retained loan sales. Change in Fair Value of Servicing Rights, Net. Change in fair value of servicing rights, net includes (i) fair value gains or losses net of Hedging Instrument gains or losses; (ii) collection/realization of cash flows, which includes principal amortization and prepayments; and (iii) realized gains or losses on the sales of servicing rights. Change in fair value of servicing rights, net 41
--------------------------------------------------------------------------------
was a loss of
Other Income. Other income includes our pro rata share of the net earnings from joint ventures and fee income from title, escrow and settlement services for mortgage loan transactions performed by LDSS, and fair value changes in our trading securities. The decrease of$21.8 million or 57.1% was primarily the result of a decrease of$18.4 million in escrow and title fee income due to decreased mortgage loan settlement services and fair value losses of$6.3 million on our trading securities due to the increasing rate environment.
Expenses
Personnel Expense. Personnel expense reflects employee compensation related to salaries, commissions, incentive compensation, benefits, and other employee costs. The$173.6 million or 36.9% decrease was the result of a decrease of$131.8 million in commissions due to the decreases in loan origination volumes and decreases in salaries and benefits expense of$41.7 million as a result of reduced headcount. As ofJune 30, 2022 , we had 8,540 employees compared to 11,572 employees as ofJune 30, 2021 , representing a decrease of 26.2%. Marketing and Advertising Expense. Marketing and advertising expense primarily reflects online advertising costs, including fees paid to search engines, television, print and radio, distribution partners, master service agreements with brokers, and desk rental agreements with realtors. The$53.3 million or 46.7% decrease in marketing expense was driven by a reduction in national television campaigns and purchased leads. Servicing Expense. Servicing expense reflects in-house servicing costs as well as amounts that we pay to our sub-servicers to service our mortgage loan servicing portfolio. The$16.5 million or 60.6% decrease in subservicing expense reflects our shift to in-house servicing. Other Interest Expense. The$11.9 million or 55.8% increase in other interest expense was the result of a$1.0 billion increase in average outstanding debt obligations primarily resulting from a$942.7 million increase in MSR facilities. Income Tax Expense (Benefit). Benefit for income taxes was$28.2 million for the three months endedJune 30, 2022 , as compared to expense of$4.2 million for the three months endedJune 30, 2021 reflects net losses, partially offset by non-deductible impairment of goodwill and other intangible assets for the three months endedJune 30, 2022 compared to net income for the three months endedJune 30, 2021 . 42
--------------------------------------------------------------------------------
Six Months Ended
Six Months Ended
June 30, Change Change
(Dollars in thousands) 2022 2021 $ %
(Unaudited)
REVENUES:
Net interest income $ 35,874 $ 8,259 $ 27,615 334.4 %
Gain on origination and sale of
loans, net 509,692 1,826,054 (1,316,362) (72.1)
Origination income, net 98,181 194,223 (96,042) (49.4)
Servicing fee income 228,385 177,309 51,076 28.8
Change in fair value of servicing
rights, net (101,890) (188,733) 86,843 46.0
Other income 41,707 78,810 (37,103) (47.1)
Total net revenues 811,949 2,095,922 (1,283,973) (61.3)
EXPENSES:
Personnel expense 642,563 1,073,861 (431,298) (40.2)
Marketing and advertising expense 162,350 223,759 (61,409) (27.4)
Direct origination expense 87,153 96,993 (9,840) (10.1)
General and administrative expense 113,675 99,972 13,703 13.7
Occupancy expense 18,784 19,270 (486) (2.5)
Depreciation and amortization 21,867 17,139 4,728 27.6
Servicing expense 32,252 53,851 (21,599) (40.1)
Other interest expense 47,533 34,438 13,095 38.0
Goodwill impairment 40,736 - 40,736 100.0
Total expenses 1,166,913 1,619,283 (452,370) (27.9)
(Loss) income before income taxes (354,964) 476,639 (831,603) (174.5)
Income tax (benefit) expense (39,823) 22,502 (62,325) (277.0)
Net (loss) income (315,141) 454,137 (769,278) (169.4)
Net (loss) income attributable to
noncontrolling interests (179,472) 400,701 (580,173) (144.8)
Net (loss) income attributable to loanDepot, Inc.$ (135,669) $ 53,436 $ (189,105) (353.9) Results for the six months endedJune 30, 2022 reflected a sharp increase in mortgage rates which resulted in a decrease to our profit margins. The decrease of$769.3 million , or 169.4% in net income is primarily from a$1.3 billion decrease in gain on origination and sale of loans, net, partially offset by a$452.4 million decrease in total expenses. The increased interest rate environment resulted in a decrease in margins and volume of mortgage loan originations and IRLCs from the comparable 2021 period.
Revenues
Net Interest Income. The increase in net interest income reflected higher yields
on LHFS, partially offset by a
Gain on Origination and Sale of Loans, Net. Gain on origination and sale of loans, net was comprised of the following components:
43
--------------------------------------------------------------------------------
Six Months Ended
June 30, Change Change
(Dollars in thousands) 2022 2021 $ %
(Discount) premium from loan sales $ (673,291) $ 877,887 $ (1,551,178) (176.7) %
Servicing rights 450,215 957,002 (506,787) (53.0)
Fair value losses on IRLC and LHFS (297,534) (347,155) 49,621 14.3
Fair value gains from Hedging Instruments 994,087 482,045 512,042 106.2
Discount points, rebates and lender paid
costs 131,834 (143,458) 275,292 191.9
Provision for loan loss obligation for
loans sold (95,619) (267) (95,352) (35,712.4)
$ 509,692 $ 1,826,054 $ (1,316,362) (72.1)
• Discounts on loan sales of
• The 53.0% decrease in servicing rights was driven by a decrease in volume of loans sold on a servicing-retained basis for the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 ; • The decrease of$49.6 million or 14.3% in fair value losses on IRLC and LHFS was due to changes in interest rates between periods as well as decreased volumes for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 ; • The increase of$512.0 million in fair value gains from Hedging Instruments reflects higher pair-off gains from the increase in interest rates during the six months endedJune 30, 2022 ; • The increase of$275.3 million or 191.9% in discount points, rebates and lender paid costs was driven by an increase in discount points collected and a decrease in lender paid costs. • The increase of$95.4 million in provision for loan loss obligations was driven by increased market rates which have reduced the fair value of loans subject to repurchase that were originated in prior periods at lower interest rates.
Origination Income, Net. The decrease in origination income, net, of
Servicing Fee Income. The
Change in Fair Value of Servicing Rights, Net. The decrease in net loss of
Other Income. The decrease of
Expenses
Personnel Expense. The decrease of
44
--------------------------------------------------------------------------------
Marketing and Advertising Expense. The decrease of
Servicing Expense. The decrease of
Other Interest Expense. The$13.1 million or 38.0% increase in other interest expense was the result of an increase in the average balance of our MSR facilities and Senior Notes, partially offset by a$10.5 million gain on extinguishment of debt from the repurchase of$97.5 million of the 2028 Senior Notes during the first quarter of 2022. Provision for Income Taxes. The benefit for income taxes of$39.8 million for the six months endedJune 30, 2022 , as compared to expense of$22.5 million for the six months endedJune 30, 2021 reflects net losses, partially offset by non-deductible impairment of goodwill and other intangible assets for the six months endedJune 30, 2022 compared to net income for the six months endedJune 30, 2021 . 45
--------------------------------------------------------------------------------
Balance Sheet Highlights
The following table sets forth our consolidated balance sheets as of the dates
indicated:
June 30, December 31, Change Change
(Dollars in thousands) 2022 2021 $ %
(Unaudited)© Edgar Online, source
