loanDepot, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. loanDepot originates, finances, sells and services residential mortgages and provides related title, escrow and settlement services. Comparisons are with Q1 2021 unless otherwise noted.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Total net revenue | $503.3 million | $1,316.0 million |
| Net loss | $91.3 million | Net income of $427.9 million |
| Net loss attributable to loanDepot, Inc. | $34.7 million; $0.25 loss per share | $44.9 million income; $0.36 earnings per share |
| Adjusted EBITDA (non-GAAP) | Loss of $74.4 million | Income of $458.1 million |
| Loan originations | $21.6 billion; 64,951 units | $41.5 billion; 111,400 units |
| Gain-on-sale margin | 1.96% | 2.98% |
| Operating cash flow | +$1,148.4 million | -$1,877.8 million |
| Cash and cash equivalents | $554.1 million | $419.6 million at Dec. 31, 2021 |
| Total equity | $1,511.2 million | $1,629.4 million at Dec. 31, 2021 |
Net revenue fell 61.8%. Gain on origination and sale of loans declined 68.0% to $363.1 million, while total expenses fell 30.3% to $606.3 million. Personnel expense decreased 42.7%, reflecting lower commissions and salaries; direct origination expense increased 13.2%. Net interest income improved to $13.1 million from $1.2 million.
Servicing fee income rose 34.5% to $111.1 million. The servicing portfolio was $153.4 billion of unpaid principal balance, up from $129.7 billion a year earlier; loans 60 or more days delinquent were 0.94% of the portfolio versus 1.64%. Servicing rights, net, were valued at $2.08 billion at March 31, 2022.
Cash provided by operations was $1.15 billion; investing activities provided $291.0 million, including $303.8 million of servicing-rights sale proceeds. Financing activities used $1.35 billion. Cash and restricted cash together ended the quarter at $707.8 million.
Material changes and balance sheet
- Management attributed weaker results principally to sharply higher mortgage rates, which reduced origination volume and production margins. Refinances fell to $13.5 billion from $33.6 billion; purchase originations were $8.0 billion versus $7.9 billion.
- Warehouse and other lines of credit totaled $5.81 billion, down from $7.46 billion at year-end. Separately, debt obligations, net, rose to $1.95 billion from $1.63 billion, including $421.3 million of new other secured financings. These financing balances have different purposes and collateral; warehouse lines fund mortgage inventory.
- At quarter-end the company reported $10.64 billion in total assets and $9.13 billion in total liabilities. Warehouse capacity was $10.85 billion, with $5.0 billion of additional availability reported by management.
- loanDepot repurchased $97.5 million principal amount of 2028 Senior Notes at an average 87.9% of par, recording a $10.5 million gain on extinguishment. Debt obligations included $989.7 million of senior notes, net.
- The company paid $30.2 million in dividends and distributions during the quarter. It stated that its regular quarterly dividend was suspended for Q1 2022 and for the foreseeable future.
Outlook, risks and unusual items
- Outlook: The filing gives no company-specific earnings or origination guidance. Citing the MBA forecast published April 13, 2022, management noted that U.S. annual one-to-four-family mortgage originations were forecast to decline 39% to $2.4 trillion by year-end 2023, driven mainly by lower refinance volume. The company said it believed liquidity was sufficient for the next 12 months, while noting that changed market conditions could affect financing access or loan-investor demand.
- Interest-rate and market exposure: Higher rates can pressure loan production and fair values of loans and rate locks, while potentially supporting servicing-rights values by slowing prepayments. The company relies on secondary-market loan sales and warehouse funding; $7.8 billion of its $10.85 billion warehouse capacity was uncommitted. Warehouse lines mature through 2024 and are subject to renewal and lender review.
- Liquidity and servicing risks: The company may need to advance payments on certain forborne loans. About 0.6% of the servicing portfolio, or $898.5 million UPB, was in active forbearance at March 31, 2022. Cash requirements could increase if forbearance or market stress rises.
- Valuation and credit contingencies: Fair-value estimates for servicing rights, loans and derivatives depend on assumptions and market inputs. The provision for losses on sold loans was $13.2 million in Q1; the related liability was $41.2 million at quarter-end. Servicing-rights sales and repurchase obligations also affect results and cash flows.
- Debt and unusual items: Variable-rate borrowings expose the company to rate changes. The Q1 securitization of mortgage loans was accounted for as a secured borrowing, adding $422.9 million of financing. Management reported compliance with warehouse, debt, regulatory capital and liquidity covenants at March 31.
- Legal matters: The company is involved in ordinary-course litigation and said it did not expect pending matters, individually or in aggregate, to have a material adverse effect. It cautioned that unfavorable resolutions could affect results. In one employment-related case, the court sustained the company’s demurrer in full on May 12, 2022, with the plaintiff given an opportunity to amend certain claims.
- Non-GAAP measures: Adjusted EBITDA and adjusted net income were losses of $74.4 million and $81.7 million, respectively. These measures exclude specified items and should not be treated as substitutes for GAAP results or cash available to meet obligations.
Important facts for investors to verify
- Whether origination volume and gain-on-sale margins stabilize as rates and refinancing demand change.
- How much warehouse capacity remains available, particularly uncommitted capacity, and whether upcoming facilities renew on acceptable terms.
- Whether servicing-rights valuations, sales, prepayments and forbearance-related advances affect earnings or liquidity materially.
- Trends in loan repurchase provisions, sold-servicing obligations and legal contingencies.
- The effect of the dividend suspension, debt maturities and variable-rate financing on capital and liquidity.
- How GAAP results compare with management’s non-GAAP measures and the assumptions used in fair-value estimates.