loanDepot narrows losses in 2023, expects tough first quarter due to cyberattack

loanDepot greatly reduced its costs in 2023 while revenues were in free fall amid a contracting market. It wasn’t enough to bring the California-based lender company profitability, but it narrowed its losses. 

Operationally, loanDepot entered 2024 by dealing with a cyberattack that brought its systems down and a forecast for market conditions to improve. 

loanDepot recorded a non-GAAP adjusted net loss of $142.4 million in 2023, compared to a $457.6 million loss in 2022. By GAAP accounting standards, the net loss last year was $235.5 million, per filings with the Securities and Exchange Commission (SEC) on Tuesday. 

In 2023, a year marked by lower volume throughout the market, loanDepot’s revenues decreased 22% to $974 million. The reduction was impacted by its exit of the wholesale channel in 2022, and it was partially offset by growth in servicing income and home equity lines of credit (HELOCs), as well as higher margins.

Expenses, meanwhile, decreased by 36% to $1.25 billion in 2023. But this cutback could have been even larger if loanDepot hadn’t had a $27 million expense related to restructuring charges, impairments and accruals related to the expected settlement of outstanding litigation.  

President and CEO Frank Martell said in a prepared statement that the company made progress last year by “significantly resetting its cost structure and making critical investments in our technology platforms and business processes.” 

According to Martell, the company entered 2024 with a more “durable revenue model built around a strong multi-channel origination business and a low cost, high-quality servicing platform.” The company will “continue to aggressively pursue automation and productivity programs,” he added.  

In the fourth quarter of 2023, when it was the target of a cyberattack, the company reached $229 million in revenues, up 35% year over year but down 14% quarter over quarter due to seasonality. 

Expenses were $303 million in the fourth quarter, a year-over-year decline of 12% and 1% less than the previous quarter. loanDepot accrued $3.7 million in legal expenses regarding the expected settlement of outstanding litigation, compared to $2 million in Q3 2023.

The company’s non-GAAP net loss was $26.6 million in Q4 2023, compared to $25.4 million in the previous quarter. The GAAP net loss was $59.7 million in the final three months of last year. 

In Q4 2023, the company announced an additional $120 million of annualized productivity improvements expected for 2024. 

Through Feb. 29, the lender said it had achieved nearly 86% of this goal, which comes primarily from lower third-party expenses, organizational efficiencies and lower real estate expenses, executives told analysts during a call on Tuesday. 

loanDepot chief financial officcer David Hayes said in a statement that the company reduced its cost structure by $693 million in 2023, which “has allowed us to maintain a strong liquidity position and at the same time support reinvestment in critical platforms and programs.”  

The company reported a cash balance of $661 million at the end of 2023.  

Operations data

loanDepot’s origination volume ended 2023 at $22.6 billion, down from $53.7 billion in the previous year. But its pull-through gain-on-sale margin was 2.75% last year, better than the 1.94% registered in 2022. Executives said during the call with analysts that margins are also improving due to competitors exiting the market. 

In the fourth quarter, the company produced $5.3 billion in mortgages, compared to $6 billion in the previous quarter and $6.3 billion in the same period of 2022. Margins ended Q4 at 2.96%. Purchase loans comprised 76% of the total.  

Hayes told analysts that fourth-quarter margins came in “above our guidance of 245 to 285 basis points,” mainly due to “an increase in volume and profit margins of our HELOC product, and wider profit margins on our conforming and FHA production, offset somewhat of a seasonally larger proportional contribution from our joint venture channel.”

Company executives project first-quarter 2024 volume of $3.5 billion to $5.5 billion. The pull-through gain-on-sale margin is expected to be between 2.7% and 3%.

According to Martell, the recent cyberattack will have an impact on the company’s first-quarter financial results, “but is not expected to have a material impact from a full year perspective.”

“The challenges presented by the increasing sophistication of the perpetrators of cyber attacks requires unprecedented focus and close coordination between the public and private sectors to ensure the private sector’s ability to prevent these types of intrusions of the future,” Martell said, adding that loanDepot executives would not take analyst questions related to the matter due to its “sensitive nature.”

Hayes added that the guidance for volumes reflects the seasonal decrease in homebuying activity in the first quarter, as well as the impact of the January cyber event, which will also bring an additional $12 million to $17 million in expenses. 

loanDepot’s unpaid principal balance in its servicing portfolio increased to $145 billion as of Dec. 31, up from $143.9 billion as of Sept. 30, 2023. Servicing fee income rose to $132.5 million in Q4 2023, compared to $120.9 million in the previous quarter.

“In 2023, we successfully brought half a million customer servicing portfolio in-house,” Martell said. “Despite all the challenges that were presented by the market in 2023, we prioritized growing our assets under management, which ended the year at $145 billion.”

Looking forward, Martell said he expects market volumes will improve from 2023 levels. “Most recently published forecasts from the Mortgage Bankers Association call for a boost in 2024 for mortgage unit volumes of approximately 17%,” Martell said. 

After the earnings release, loanDepot stock was trading at $2.44, down 3.6% in the after market.