Guild reports loss in 2023, but market share growth was a silver lining

San Diego-based lender Guild Mortgage lost money in 2023 but grew its market share through a focus on purchase mortgage originations, it reported in an earnings call on Tuesday.

Similar to other major lenders, the purchase-focused Guild — which operates via a distributed retail model — reported a net loss of $39.1 million in 2023, compared to net income of $328.6 million in 2022. 

In the fourth quarter of last year, Guild reported a net loss of $93.1 million, compared to net income of $54.2 million in the previous quarter. The adjusted net income was $12.5 million, down from $29 million in Q3 2023.

Market conditions were challenging throughout 2023 due to higher interest rates and limited housing inventory, Guild Holdings CEO Terry Schmidt told analysts.

“Despite this backdrop, we continued to grow our market share,” Schmidt said. “Today, more than ever, we are confident in our model and the platform that we have established. This includes our focus on purchase mortgage originations as well as our strategy of retaining our servicing, allowing us to generate more reliable cash flow, maintaining our customer relationships that support our customer for life philosophy.” 

Guild posted origination volume of $15 billion in 2023, including $3.5 billion in the fourth quarter. About 93% of its closed volume in Q4 came from purchase business, higher than the industry average of 81% for the same period, according to Guild.

In the originations segment, Guild reported a net loss of $73.7 million in 2023 — including a net loss of $26.8 million in the fourth quarter.

The net loss in originations was primarily driven by lower volume tied to low for-sale supply and purchase seasonality coupled with prolonged higher interest rates, Guild noted.

Gain-on-sale margins on originations declined to 330 basis points in the fourth quarter, down 47 bps from the third quarter.

“By being disciplined and focusing on maintaining a robust capital position, we have effectively pursued complementary and compelling acquisitions and team additions to position us for growth when the cycle turns,” Schmidt said.

Growth strategy

Guild announced the acquisition of Academy Mortgage Corp. in February as part of the lender’s move to expand its presence in Western states.

With the acquisition, Guild became the eighth largest nonbank retail mortgage lender and increased its origination volume by 25% based on third-quarter 2023 data, according to Inside Mortgage Finance.

Guild expects to see a profit from the acquisition of Guild within 12 months, although this would be longer than with previous deals due to thinner margins. 

Guild aggressively acquired other lenders in 2023, including First Centennial Mortgage, a privately held Illinois-based lender; Colorado-based Cherry Creek Mortgage; and New Mexico-headquartered Legacy Mortgage. 

There are still opportunities for organic growth, as well as other mergers and acquisitions, Schmidt noted.

“There are owners that are looking for another home with a company that’s a little bit larger that can offer more to their employees,” Schmidt said. “And the same thing with loan originators; they’re looking for stability and a company that’s growing and investing in their future.”

Financial details

The company’s net revenues declined 78% to $57.2 million in Q4 2023, down from $257.3 million in the prior quarter. Total expenses dropped 4% to $176.5 million, down from $183.7 million in Q3 2023.

For all of 2023, the company posted a net revenue of $700 million, down from $1.2 billion in 2022. Total expenses in 2023 dropped to $701.3 million, a 6% decline from the previous year’s $744.8 million.

Servicing segment net loss was $72.1 million in the fourth quarter compared to net income of $84 million in the previous quarter. 

In Q4 2023, Guild’s purchase recapture rate was 25%, and the company retained servicing rights for 77% of all loans sold in 2023.

Guild’s servicing portfolio balance grew to $85 billion as of Dec. 31, up 2% compared to $83.7 billion as of Sept. 30, 2023.

“Our servicing portfolio continues to be a valuable source for ongoing cash flow and future opportunities for loan recapture, and it reinforces our customer-for-life strategy,” chief financial officer Amber Kramer said. “Our balance sheet remains strong and provides us with the flexibility to continue to invest in our growth.”

In terms of liquidity, Guild has cash and cash equivalents of $120.3 million as of Dec. 31. At year’s end, its unutilized loan funding capacity was $1 billion, while its unutilized mortgage servicing rights (MSR) lines of credit totaled $336.2 million, based on total committed amounts and borrowing base limitations. 

Guild didn’t provide guidance going forward and noted current headwinds will continue through much of 2024. 

“We anticipate continued pressure on origination volume and gain-on-sale margin; however, we remain confident in our balanced business model, which we believe results in more durable and sustainable performance across market cycles,” Kramer said.