California-based mortgage lender loanDepot is shutting down its wholesale division amid plummeting origination volumes and widening financial losses in the second quarter.
The decision to close the channel also reflects fierce competition from its peers in the broker space, primarily from United Wholesale Mortgage (UWM).
The nonbank lender’s announcement comes on Tuesday was announced after the company reported a $223.8 million loss in the second quarter of 2022, more than double the $91.3 million loss in the first quarter of 2022. A year ago, the company delivered a $26.2 million profit in Q2.
“We are exiting our wholesale channel consistent with our strategy of becoming a more purpose-driven organization with direct customer engagement throughout the entire lending process,” said Frank Martell, president and chief executive officer, in a news release. “Our exit from wholesale will also enable us to direct resources to other origination channels, reduce operational complexities and increase margins.”
Rate lock volume in the second quarter of 2022 dropped 35% to $19.5 billion from $30 billion in the previous quarter. The gain-on-sale margin was down to 1.16% in the second quarter from 1.96% in the previous quarter.
Loan origination volume overall dropped 26% to $16 billion from the previous quarter, bringing the company’s market share down to 2.4%.
Retail channel originations dropped from $16.5 billion in the first quarter to $10.8 billion in the second quarter. Meanwhile, the partner channel, which represents brokers, and exclusive joint ventures with homebuilders and depositaries, increased marginally from $5 billion in the first quarter to $5.1 billion.
“Our second quarter results reflect the extremely challenging market environment that continues in our industry, which led to ongoing declines in our mortgage volumes and profit margins,” said Martell, who formerly ran CoreLogic and is known in the industry for cost-cutting. “We have already made significant progress by consolidating management spans to create operating efficiencies.”
The firm’s total expenses in the second quarter of 2022 fell 7.5% to $560.6 million from the previous quarter. Year over year, expenses dropped 75% from $749 million in the same period in 2021.
loanDepot’s headcount has shrunk from 11,300 at year-end 2021, to approximately 8,500 at the end of June 2022, to around 7,400 at the beginning of August 2022. The year-end goal is 6,500 employees.
The unpaid principal balance of the servicing portfolio increased 1.2% to $155.2 billion as of the second quarter this year, from $153 billion in the first quarter. Compared to the same period last year, it increased 12% from $138.7 billion.
loanDepot told investors on Tuesday that origination volumes would fall further in the third quarter. The lender projects origination volume of between $5.5 billion and $10.5 billion, with a gain on sale margin of between 175 basis points and 225 basis points.
Despite the headwinds, loanDepot has a strong cash position. As of June 30, loanDepot had $954.9M in cash on hand.
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