Rising interest rates aren’t stopping loanDepot from growing both its market share and profits, thanks to growing brand recognition and multiple channels for reaching homebuyers who now account for more than one-third of the company’s business.
The first year of a multi-year partnership with Major League Baseball helped boost brand awareness by 14 percent in just one quarter, with loanDepot’s sponsorship of the League Championship Series in October reaching millions of baseball fans, the company said.
LoanDepot now claims 3.5 percent market share, up 46 percent from a year ago, making it a top three retail mortgage lender that’s playing in the same league as Rocket Mortgage and Wells Fargo.
Despite plummeting refinancing volume — an issue facing the industry as a whole — loanDepot posted third quarter net income of $154.3 million, up from $26.3 million during the second quarter. Although total mortgage origination volume was down 7 percent quarter-over-quarter, to $31 billion, higher gain-on-sale margins made those loans more profitable.
Anthony Hsieh
“When increasing interest rates reduced the demand for rate-and-term refinances, we pivoted to emphasize the origination of less interest rate-sensitive loans such as purchase and cash-out refinances,” loanDepot CEO Anthony Hsieh said on a call with investment analysts. “Combined, these two categories of loans increased 13 percent over the last quarter.”
LoanDepot mortgage originations by purpose
Source: Data from loanDepot regulatory filings compiled by Inman
Even with the uptick in cash-out refis, at $21 billion total refinancing volume was down 37 percent from a first quarter peak of $33.65 billion. However, loanDepot managed to buck seasonal trends and grow its purchase loan business for the second quarter in a row.
At $11 billion, third quarter purchase loan volume was up 6 percent from quarter-to-quarter, and 29 percent from a year ago. Purchase loans represented a record 34 percent of total mortgage originations, up from 19 percent during the first three months of the year.
That’s a notable accomplishment for a company that does most of its business with existing homeowners who are seeking to refinance directly through loanDepot’s website.
The Foothill Ranch, Calif.-based lender has invested heavily in its end-to-end digital lending platform, mello, which generates rate quotes in seconds and provides a streamlined application process with little or no human intervention.
That’s been great for enabling refis, but loanDepot is also using mello as a selling point as it builds its purchase loan business through its partner channel, which includes joint ventures with homebuilders and referral relationships with real estate agents.
LoanDepot mortgage originations by channel
Source: Data from loanDepot regulatory filings compiled by Inman
During the third quarter, loanDepot’s partner channel accounted for $7 billion in loans, or about 22 percent of total originations. While that’s shy of the record $8.05 billion in partner channel originations seen during the first quarter of 2021, it represented 7 percent quarter-over-quarter growth and 30 percent annual growth.
On Oct. 1, LoanDepot and its agent matching subsidiary, mellohome, launched a “Grand Slam package” offering cash rebates of up to $7,000 on bundled services when clients buy and sell with a mellohome preferred real estate agent, finance with loanDepot, and choose the company’s title insurance services.
“Looking ahead, we believe our industry is moving towards consolidation of service providers for products and services for the homeowner and loanDepot is leading the way,” Hsieh said.
The loanDepot Grand Slam offer “is paving the way towards this consolidation with early success in the form of substantial increases in purchase lead volume, real estate agent introductions, and real estate listings,” Hsieh said. “We won’t stop there — we’re already planning to offer additional products and services for the benefit of our customers.”
All of which makes it sound like loanDepot is keeping a close eye on vertically-integrated lenders like Better, which not only provides bundled mortgage, title and closing services, but recently introduced a cash offer product to help buyers prevail in bidding wars.
Nor will it have escaped Hsieh’s notice that Rocket Homes — a sister company of loanDepot’s main rival, Rocket Mortgage — plans to boost its purchase loan business by hiring in-house agents and launching an iBuyer program to help existing homeowners make contingency-free offers on their next home.
Legal concerns
Real estate companies providing bundled services and referrals must tread carefully in order not to run afoul of anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA).
Rocket Mortgage’s parent company has disclosed that it is cooperating with a May, 2020, civil investigative demand from the Consumer Financial Protection Bureau “to determine if Rocket Homes conducted any activities in a manner that violated RESPA.”
LoanDepot is currently litigating several lawsuits unrelated to RESPA, including a suit by former Chief Operating Officer Tammy Richards alleging loan underwriting improprieties and employment law claims.
In a Sept. 21 complaint filed in Orange County, California Superior Court, Richards said she was forced out of her job after refusing to approve loans without documentation. Her complaint also alleged that top executives fostered a “misogynistic ‘frat house’ culture” in which women were subjected to “discriminatory and offensive practices.”
LoanDepot Chief Financial Officer Patrick Flanagan told investors the company also faces lawsuits filed during the second quarter by shareholders “motivated by the recent decline in our share price,” which it is contesting.
“Our procedures require all loans to be closed with proper documentation and subject to appropriate quality control. We intend to vigorously defend ourselves and are confident that we will prevail,” Flanagan said. “These lawsuits and their claims have not resulted in any material adverse impacts from our warehouse lenders to agencies or investors. We have not at this time recorded a liability related to these lawsuits.”
Since an initial public offering priced at $14 a share in February, shares in loanDepot have traded for as little as $5.95, and as much as $39.85. After Monday’s earnings announcement, shares in loanDepot spiked more by more than 20 percent to close at $8, before giving up some of those gains the next day.