Q4 2020 Home Point Capital Inc Earnings Call
Greetings and welcome to the home point capital fourth quarter and full year 'twenty 'twenty financial results Conference call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation, if anyone should require operator assistance. So in todays conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn this conference over to your host Mr. Gary Stein head of Investor Relations. Please go ahead Sir.
You may begin thank you operator, welcome to our fourth quarter 2020 earnings call. Joining me. This morning are Willy Newman, President and Chief Executive Officer, and Mark L Baum Chief Financial Officer.
During our prepared remarks, we will be referring to a slide presentation, which is available on the events section of the home point Investor Relations website.
Before we begin I'd like to remind you. This call may include forward looking statements, which do not guarantee future events or performance.
Please refer to home Point's, most recent SEC filings, including the company's registration statement on form S. One which was declared effective on January 28, 2021 for risk factors related to these statements.
You may be discussing certain non-GAAP measures on this call, which management believes are relevant in assessing the financial performance of the business.
Non-GAAP measures are reconciled to the nearest GAAP figures at one point your earnings release, which is available on the company's website.
I'd now like to turn the call over to Willie Newman, President and Chief Executive Officer.
Thanks, Gary and good morning, everyone I'd like to thank all of you for joining us for our first public Investor calls since we completed our IPO last month during our prepared remarks, I'm going to touch on a few highlights regarding our performance and then I'll discuss the key elements of our differentiated business model.
Then turn the call over to Mark to provide more details on our fourth quarter and full year 2020 results. After that we'll open up the call to take your questions.
First I'd like to thank our outstanding team of nearly 4000 home point associates for their extremely hard work and dedication, particularly during the last 12 months and a uniquely challenging environment.
With other extraordinary associates, we would not be where we are today as a company and I know I speak for the entire leadership team when I say, how incredibly proud and grateful I am for your tireless commitment to home point mission of creating financially healthy happy home owners.
I'd also like to thank our nearly 6000 partners and 360000 customers who put their trust in US every day and have enabled home point to become one of the country's leading residential mortgage originators and servicers.
Turning briefly to our results for the fourth quarter and full year of 2020, we generated record origination volume of 62 billion for the year, which is nearly three times our volume in 2019 and.
In the fourth quarter alone, we generated 24 billion originations.
And our primary growth engine wholesale home point to market share doubled in 2022, 7% and for the fourth quarter of 2020, our wholesale channel share reached eight 2% according to inside mortgage finance.
Also in the fourth quarter, we ranked as the seventh largest non bank originator, which is a significant leap forward from our ranking number 14 in the fourth quarter of 2019.
Looking at our mortgage servicing portfolio. We ended the year, serving nearly 360000 customers, which grew by more than 50% compared to 2019.
I'll talk more about the strategic importance of our servicing platform in a few minutes.
From a financial perspective, our performance in 2020 was outstanding we generated revenue of more than 1.4 billion for the year, including $455 million in the fourth quarter.
Due to the strength of our business model scale and operating leverage we produced net income of more than $600 million in 2020, which translates into a net margin of 44%.
The positive momentum we generated in 2020 has enabled us to enter 2021 in a position of strength and we have already achieved several important milestones. So far this year. Most importantly, we completed our initial public offering at the beginning of February.
Our IPO marks an important milestone in the evolution of our company and we believe our presence in the public markets will serve us well as we execute our long term growth strategy.
In January we also completed our first senior unsecured notes offering raising $550 million to further strengthen our balance sheet.
In addition, we recently announced plans to pay a regular quarterly cash dividend beginning with the second quarter of 2021, and we expect the initial dividend will be paid during the third quarter of 2021.
We believe our dividend policy is a testament to the earnings power of our business model.
This is our first opportunity to speak with the public Investor community. Following our recent IPO.
To take a few minutes to provide you with a quick overview of home point and our differentiated business model, which is outlined on slides four and five of our earnings presentation.
But everything in perspective ever since we launched home point, our goal has been to build an industry leading platform that is both sustainable and opportunistic I bet in the mortgage business for more than 30 years and during that time I've built three businesses. In addition, our highly talented leadership team each have several decades of directly relevant.
Collectively we are leveraging everything we have learned in our careers across multiple cycles to build an industry leader that is focused on where the industry is going rather than where it has been historically.
At the core upon point business as our origination platform, which has been designed to capitalize on the large and growing wholesale channel in a way that leverages scale and optimizes returns with lower fixed costs.
We believe we have established a solid leadership position as a wholesale lender as evidenced by the fact, we were able to double our market share in 2020 during a year when the market also doubled in size.
One of the cornerstones of our business model is our use of in market highly experienced sales executives to acquire and build relationships with broker partners across the country.
Through this approach, we were able to optimize the efficiency and productivity of our broker partners, while ensuring the end customer has the best possible experience.
In addition to our leading presence in the wholesale channel we participated in the corresponding indirect channels, which share common characteristics of being low fixed cost and highly scalable.
The corresponding channel provides us with a flexible alternative to acquire customers at low cost and high velocity.
Our presence in the direct channel exclusively focused on addressing the preferences of our servicing customers, while mitigating potential conflicts of interest that could arise between participants and the direct and wholesale channels.
Our connected approach, which includes our in house servicing platform enables us to operate a business model that is balanced and capital efficient and leaves us well positioned to deliver consistent growth and strong returns through a variety of interest rate environments.
From a process technology perspective, we have built a flexible infrastructure that is highly component types integrating both best in class third party and proprietary solutions to maximize our flexibility and efficiency, while optimizing partner and customer satisfaction.
By using this approach we can leverage the latest technological innovations and avoid the burdens of being saddled with legacy systems.
The lines of code.
And how servicing which we currently provide to more than 360000 customers is also a key component of our origination growth strategy.
Riding a critical link between us our customers and our broker partners.
Our objective is to deliver the best possible experience for our customers throughout the homeownership lifecycle.
We view servicing as the gateway to establishing a robust two way dialogue that supports lasting customer relationships and our customer for life approach.
Another critical component that drives home point success every day, it's the culture, we cultivate which serves as the foundation for the sustainability and growth of our business.
We operate with a simple philosophy in mind, we care and this is rooted in everything we do.
First and foremost this is a people business and we care about all of our stakeholders, including our customers our associates, our partners, our shareholders and the people and the communities in which we serve.
We also continue to attract tremendous talent to our leadership team and I'm pleased to note that John four lines joined US This month as our chief risk Officer.
John spent more than three decades of Fannie Mae serving most recently as chief risk Officer, and we are thrilled. He is now serving in a similar capacity for home point.
Tying it all together home point is built on a platform centered around growth opportunity and sustainability, we source all of our customers through a large and growing network of partners in the wholesale and correspondent channels.
This provides us with the best opportunity to leverage scale, while operating with a low fixed cost profile.
Our in house servicing platform enables us to control the customer experience during the lifecycle of alone we.
We support that relationship through our direct channel, which is focused solely on retention and our wholesale channel, where we partner with brokers in order to keep customers within the home point ecosystem for life.
As I have noted our results for the fourth quarter and full year of 2020 demonstrate the strength of our differentiated model.
Our origination volume and market share of an increasing we have been expanding our broker relationships and our servicing portfolio has been growing and provides a natural hedge in the current rising rate environment.
With that I'd like to turn the call over to Mark Mark.
Thank you Willy and good morning, everybody.
I'd like to spend a few minutes reviewing our financial results for the fourth quarter and full year of 2020.
Starting with slide seven of the earnings presentation, 2020 was an outstanding year for home point, which resulted in record performance across a number of operating and financial metrics.
I won't go through each of these metrics in detail, but you can see we delivered significant growth in our origination and servicing businesses, which drove our strong financial performance and profitability.
Turning to slide eight we've provided a summary of our quarterly and annual financial results.
Total revenue for the fourth quarter of 455 million more than quadrupled from $97 million in the fourth quarter of 2019, driven by increased origination volumes and a higher gain on sale margin.
And declined 11% from $510 million in the third quarter of 2020, primarily due to a lower gain on sale margin.
Total annual revenue for 2020 up nearly 1.4 billion increased significantly from $200 million in 2019, primarily as a result of record origination volume during the year.
Net income of $185 million in the fourth quarter of 2020 was up from 16 million in the fourth quarter of 2019 and down from 264 million in the third quarter of 2020, driven by a decline in gain on loans and increased expenses from higher loan origination volumes.
Net income for 2020 of $607 million was up significantly compared to a $29 million net loss in 2019 and highlights the substantial operating leverage of our business model that Willie discussed.
On slide nine we have included a quarterly breakdown of our origination volume by channel for the last five quarters.
In aggregate, we generated $24 billion of volume in the fourth quarter of 2020 and $62 billion for the full year.
Consistent with our overall strategy. The wholesale channel was the primary driver of our record origination volume, which enabled us to double our wholesale market share during 2022, 7% and for the fourth quarter of 2020, our wholesale channel share climbed to 8.2%.
Slide 10 includes a snapshot of our origination segments results.
Origination segment revenue of $456 million in the fourth quarter of 2020 increased nearly six fold versus $77 million year over year and declined 14% from 532 million in the third quarter of 2020.
Primary driver of these changes was the gain on sale margin, which was 176 basis points in the fourth quarter of 2020 up from 77 basis points from the year ago period.
And down from 278 basis points in the third quarter of 2020.
Total originations segment revenue of 2020 of nearly 1.5 billion increase from 235 million in the prior year driven by volume growth across all channels and an increase in the gain on sale margin from 90 basis points in 2019 to 223 basis points in 2020.
The contribution margin of 302 million in the fourth quarter of 2020 compared to $29 million in the fourth quarter of 2019 and $425 million in the third quarter of 2020.
The contribution margin of 1.1 billion in 2020 increased more than tenfold from 90 million in the prior year.
During 2020, we significantly broadened our third party relationships by 74%, adding 2000 to 354, new relationships during the year, bringing that total to nearly 6000 at year end.
On slide 11, we've provided a snapshot of our servicing segment results.
The number of customers in our servicing portfolio reached nearly 360000 at the end of 2020.
52% from the end of 2019 and up 17% from the third quarter of 2020.
The servicing portfolio U P. B of 91 billion at the end of 2020 increased 74% versus the prior year and grew 24% compared to the third quarter of 2020.
Loan servicing fees of 56 million in the fourth quarter of 2020 grew 37% from the year ago period, and 15% from the third quarter of 2020.
For the year ended 2020 loan servicing fees of $192 million increased 32% from the prior year.
The servicing segment contribution margins for the fourth quarter and full year of 2020 were negative $34 million and negative $66 million, respectively, driven by a change in the fair value of Msr's, which more than offset the loan servicing fees we earned.
The decline in the fair value of Msr's, a $55 million in the fourth quarter and $285 million for 2020 were due to higher prepayments, partially offset by gains from hedging.
Turning to slide 12, we have included a summary balance sheet, which highlights our capitalization and liquidity profile.
At the end of 2020, we had $281 million of liquidity, including $165 million of cash and cash equivalents.
Our total assets reached seven 4 billion at year end up two and a half times from 2019, and our book value increased more than 125% year over year to $928 million.
In order to support our rapid growth, we've been focused on expanding our MSR financing and warehouse lines.
At the end of 2020, our total warehouse capacity was $4 $2 billion up from $1.7 billion at the end of 2019.
And as Willie mentioned in January we completed our inaugural senior unsecured note offering of $550 million.
We used a portion of the proceeds to reduce amounts outstanding under our MSR line and therefore increased our available liquidity.
That concludes our prepared remarks for this morning, and we're now ready to turn the call back to the operator to take your questions operator.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker.
Or equipment it may be necessary for you to pick up your handset before pressing the star keys.
Please limit yourself to one question and one follow up one moment, while we poll for questions.
Our first question comes from the line of Doug Harter with Credit Suisse. You May proceed with your question.
Thanks.
I was hoping you could talk a little bit you know kind of about the dynamic the current dynamics in the wholesale market.
You know one of your competitors one of your competitors kind of made a big announcement of a week or two ago and just kind of wondering what you're hearing from brokers and kind of what your outlook is for yeah.
For that to change.
Change into market share outlook.
Mark and Gary your lines are alive.
Julie are you when you really.
Yeah.
Larry there.
[noise] Willey your line is live.
Hello can you hear me now.
Yes, yes, loud and clear.
I don't know what happened there so.
Anyway, good morning, Doug.
So I'm not going to comment on what others are doing.
Focused on our strategy.
Since.
At the beginning we really set ourselves up to be about differentiated from our competitors and aligned with the entire broker community and specifically our broker partners.
That really starts with our end market account executives, which differentiate us from our primary competitors. They really are best in class.
They have local knowledge and they build strong relationships with our with our broker partners, we align our operations teams with our broker partners. So there's a relationship developed from that perspective as well yeah of course, we retain all of our servicing we have our own platform and we partner with our broker partners in order to create customers for life.
What we've seen in the last week is that we've had significant inbound inquiry from a new relationship standpoint.
And we're excited about that we think that.
It definitely is a testament to the strategy that we've developed and how we've differentiated ourselves.
From our primary competitors.
And then I guess just on that if you could walk through what what's kind of the the onboarding process for a new relationship.
What's the typical timeframe to kind of get someone on board and delivering loans sure.
Sure so.
The actual approval processes is fairly quick within a week, we can we can improve.
With your partner and optimally within 30 days, so I'll start submitting loans to us.
You know that that has a range associated with it but yes.
Certainly one of the areas in which we have.
Over the last 12 months as we've ramped up.
Or approval.
The velocity of our approvals is is getting engaged sooner with our with the potential partners and getting them active so within 30 days, we would expect the first transaction I come across.
Our next question comes from the line of.
Don Vendetti with Wells Fargo. You May proceed with your question.
Hi, Good morning, everyone can you talk a little bit about Q1 guidance for gain on sale and originations.
Good morning, Dan So we are not giving guidance on the first quarter.
I will tell you that in January and February.
We had record funding volumes each month.
The broker approvals continued at a strong pace consistent with our with where we ended up in 2020, obviously, we continue to grow servicing customers and.
E P B, which is.
It provides us a natural hedge in rising rate environment, and certainly with rising rates and with.
Some of the actions of the competitive set you know there is pressure on margins, but in January February they were above normalized levels.
Okay.
Is that going to be your policy going forward, where you're not providing guidance for the next quarter.
At this time it is yes.
We will continue why is that.
We'll continue to evaluate.
Okay.
And then my last question relates to I know there was some talk at some point.
One two.
Sort of work with your correspondent originations are third party funds, where are you guys on that.
Sure so that so that we are active.
At this point, we are acquiring third party servicing are the primary source of that is our corresponded partners. We are acquiring mist in the servicing through Fannie Mae and Freddie Mac servicing.
Servicing exchanges, but at this point, we're really kind of getting to kind of get into plumbing, making sure. The plumbing works I'm getting a limited level of velocity into the into the fund or into the vehicle rather and yeah.
Getting active in the market, but certainly month over month, we're seeing.
Standard interest yeah, albeit on a limited rollout basis.
Our next question comes from the line of Kevin Barker with Piper Sandler You May proceed with your question. Good morning could you talk about the operating expense line I mean, we saw that increase significantly and obviously origination volume plays a big part in that but was there any one off items that you would like to point out in the.
Within operating expenses and then talk about you know maybe the trajectory of operating expenses just given your lock volume continues to accelerate in the first couple months of 2021.
Sure, Kevin So I'll pass it over to Mark.
Great. Thanks, William Thanks, Kevin for your question.
So yes, the fourth quarter, we did see an increase in expenses and Theres a few things behind that number one we were having a pretty impressive financial results and don't see a second, especially the third quarter and the company made a decision to invest some of those results into growing and evolving the company into what we view to be very exciting next phase for <unk>.
Yourself. So that includes investments in I describe it as two broad categories, enabling continued growth and then building capabilities and under enabling continued growth. It's a matter of building that additional capacity, that's going to be necessary to find out the additional volume that is coming our way as a result of the market share gains.
So that includes things like investing in.
Underwriting capacity through our futures program process improvement technology to enable the futures program to be effective and just building up that capacity. So there was a step function of sorts in the fourth quarter as we were building that up.
Under the capabilities category, there was a number of corporate types of needs as a previously we were not a public company nor did we have public debt and now we are a public company, we have public shareholders and public debt and there was a number of capabilities that we thought it was important for us to build and so we started that ramp in the fourth quarter and even a little bit into the first.
<unk>.
As far as the trajectory going forward I would say that the fourth quarter gives you a pretty good snapshot of where things are now and that we would be able to start seeing the benefit of scale off of that rough.
Roughly a third of our expenses are variable so to the extent we are doing more volume you'll see an increase in terms of absolute expenses, but we do expect to start seeing the benefit of scale as we move forward.
Oh go ahead, Martin head right now.
One thing I would add is that as a yes, obviously certainly in reflection of the environment. We are starting to accelerate some of the efficiencies that we had anticipated achieving in the second half of the year and we expect that we'll start to achieve some of those efficiencies in the second quarter of this year. So certainly Kevin as you might imagine.
Being very cognizant of what the environment is presenting to us.
Okay, and then the follow up on some of the broker comments.
Your growth in the amount of partners that you've signed up and this past year. It's been tremendous you know and I'm, assuming that a large portion of them have not are not as productive as they could be on a run rate basis.
When you think about the competitive dynamic and the potential for Refis too slow in 2020 one would.
Would you expect your broker partners to be more productive or basically in line with what you saw in 2020, just given the seasoning of the brokers on your platform combined with decreasing refinance demand.
I think at this point, we would we would expect that to kind of be a push so we believe that we are better or better able and we demonstrated that in 2020 better able to ramp up.
The velocity with our newer broker partners more quickly that side, we would expect that if and as the market tails off and origination standpoint that there there may be some kind of decline per partner in the addressable market. So I think at this point, we would expect those two to kind of be a push but but but as I mentioned, we do believe that.
There is an opportunity to ramp broker partners, especially based on the last few weeks or less inbound inquiry over the last week, there could be an opportunity to ramp up.
Okay.
More than what we had in 2020.
Yeah.
Our next question comes from the line of Brock Vandervliet with UBS. You May proceed with your question.
Hey, good morning.
I'm honestly really surprised.
<unk>.
About the guidance or lack of it it is.
It's march 11th and.
And this is the first quarter following the IPO.
There was very.
Deep guidance, given as part of that and I'm really surprised that there's no guidance on the two metrics that really matter here cannot sell in volume.
Can you comment on that.
Well I think you know.
Having been in this business for a long time Brock.
There are changes that can take place nearly daily and so I think at this point.
That is the appropriate policy for us I.
I did mention that we had record volumes in January and February so.
We'll continue to evaluate the policy going forward.
Well I think one of the.
The things that investors struggle with most.
Because of the volume guidance there their various sources you can consult on on volume and get a sense of that.
Yeah.
Yes.
I mean should we use for example, the level of gain on sale in 2019 as kind of a lighthouse of where where things could go.
Okay.
Hum.
I'm going to turn it over to Mark.
Yeah. So I believe Willy also when he was describing the margin outlook. She he did give guidance that suggests that margins were compressing, but even in the first and second months of the year they were still above normalized levels.
Not describe 2019 as normalized levels I think those were below normalized levels. So so it's not I don't think that's something that's where we're going so so we're above normalized levels for the first two first two months and that's where we think we're going to end up in the first quarter.
I hope that's helpful.
Okay, well, we'll see where normalized puts us okay. Thanks for the question.
Yes.
Our next question comes from the line.
Here Bhatia with Bank of America, You May proceed with your question.
Hi, Good morning, and thank you for taking my questions. The first question I wanted to ask I wanted to go back.
Do the.
Sure.
Stinker right at the start about the noise in the broker channel currently understand you're more focused on your business in building a differentiated platform, but maybe you can tell us just what you heard from brokers over the last week.
And what Youre seeing in the market in terms of margins right.
Frankly, the news reports are not very encouraging in terms of what that means for margins from that channel. So I am curious on what you're actually seeing and to the extent I understand you don't want to give guidance, but at least Directionally and just you know maybe help us out with what Youre seeing in March.
Sure I appreciate the question so.
What we're basically hearing from the broker.
Broker cohort is that.
By and large they're looking for another large source I think that we've definitely seen as I mentioned and an increase in inbound and theres.
There's a lot of concern about not.
Not having the level of choice that they've come to appreciate I guess prior to the announcement of last week. So I think for US that certainly is a positive we don't feel like we're very well positioned to be that that next choice. If it does turn out that they only have one of the two largest other.
Other lenders to work with.
I think from a from a again a sale perspective as I mentioned, certainly the rising rate environment puts up puts pressure on margins and the competitive environment.
At least temporarily put additional pressure on margins, but.
We continued to navigate through the environment effectively.
Understood. Thank you for that one other question for me in terms of the Opex.
Just you mentioned you talked about.
<unk> function and what I was curious and accelerating the.
Synergies are that you are thinking of maybe can you just talk a little bit more about that like what's.
What level of pseudo genes are you thinking about like you'd be able to get them, but just the scale advantage that you would have just any kind of additional quantitative guidance you can provide home. That's that's all from me. Thank you.
So again, we're not we're not going to provide forward guidance from.
A numbers perspective the.
I don't know if there's anything you want to add there.
Yeah, so well we yeah. So some of the things that we had built and included dips.
Deployment of technology that would improve productivity. It included acceleration of getting productivity up in terms of our futures program. It included items, such as making our aes more productive so that on a per unit basis, they could be doing well on a on a lower per unit cost basis. So those are some of the things that were built into.
The scale model that we expect it to enable us to improve our productivity over time, and then as far as the step function that I had mentioned in terms of IPO readiness I feel like we're where we need to be now so I would look to see the corporate expense line start to moderate a little bit after the first quarter end and that becomes on a per unit base.
There is more favorable to us over time, as we build up our capacity and scale and volume.
Yeah.
Our next question comes from the line of Steve Delaney with JMP Securities. You May proceed with your question.
Morning, Willy Mark Mark first thing for you could you comment on obviously this was a year in the IPO, but looking forward to first quarter and it had sort of what the how many weeks. It's you expect it will take you to be ready to report court alert quarterly earnings after the first quarter.
A sense of timing for model updates.
Sure absolutely Gerry do you mind, taking that and give a sense of what we're looking at as far as our calendar going forward.
Yeah for for the upcoming quarters, we would expect to be reporting.
Yeah essentially.
Upcoming quarter for the first week of May and then for the quarter after that the the first week of August.
And then the first week of November that's the current time, great. So about about five weeks two to something that quarter end, okay great.
And Mark heard you loud and clear on guidance in this whole issue and.
I do want to Echo, what I think Brock said and that is fit.
Volume is going to be what it's going to be right and there's macro issues, there and rates and everything else I do think investors are focused on margins.
Obviously the models are incredibly sensitive there.
And I appreciate the fact that that's going to be quarter to quarter. You will report it as it occurs but just if you would comment on this you've got 30 years in the business three built three companies over.
<unk>.
Tom the wholesale channel specifically I'm looking at can you comment on sort of what's at the bottom of the cycle when business is at its worst kind of how the low end of the cycle looks like clearly 2020 was was the opposite of that but I was just wondering if you could give us any sense of the.
The width of that band of where we're at it maybe the downside scenario is in terms of margin.
Not including like events like last March et cetera.
Sure. So wow, that's a lot that's all long history, so well.
Yeah.
I think gain on sale margins get.
Below a 100 basis points and peering at periods of time, and I think that one of the challenges is that you know from day to day and week to week, you can literally see yeah pretty meaningful swings, but over time, we feel like that kind of around 100 is where where it typically hits at flowers and then obviously you said you saw you saw the.
Upside so.
That doesn't mean it couldn't go below that that doesn't mean volatility doesn't have a play a role in that.
Where they go but generally in my career that has kind of been that's been around the lower end lower bounds.
Yeah.
Yeah, the only thing I wanted to mention is that.
I know, we're focused on originations but.
The business model does include our servicing.
Imagine the asset and we have positioned ourselves from a hedging standpoint, such that you tend to mute the impact of.
The swings in the value of servicing whether you know whether rates down and rates up that said with rates up certainly a servicing portfolio is.
Buttressed at some of the some of the pressures that we might see on the origination side.
Our next question comes from the line of the home.
Coffee with Wedbush you May proceed with your question.
Yes, good morning, everyone and thanks for taking our questions and disperse the opening discussion has been interesting.
When you know when you were contemplating. This IPO then you know I'm assuming that was back in kind of November based on the filing of the initial S. One so when when you were talking about this with bankers and analysts.
We were looking at a mortgage market of two and a half to maybe three trillion dollars in 2021.
No I mean, even with rates up and all the the Crosswinds.
We're probably talking about something like three to three and a half you've got an 8% market share in the wholesale channel.
You kind of just step back and talk about what what does this bigger market mean for 'twenty 'twenty. One what are your thoughts on you know, obviously, you're going to be gaining share in the wholesale channel.
It could go to 10% 12%.
What are your long term thoughts on what 'twenty 'twenty, one could look like and what market share could look like and then I have a follow up question.
Sure. Good morning, Henry So, we certainly anticipate gaining market share in wholesale and as I sat with January and February in the books, we would anticipate we would have a meaningful increase in share of wholesale share in the first quarter and obviously that would drive our all our overall share from a non bank standpoint.
Oh, good we've seen multiple forecasts.
If you look at even as you mentioned, even with a three in a quarter 30 year, the addressable market for refinance a beneficial refinance as significant a recent one number that I saw was over 60%. So so we do believe that it will continue to be a robust market.
Frankly, one of the reasons why.
Providing forward guidance is somewhat challenging is that there may be temporary.
<unk>.
Movements based on various elements of what's going on in the market whether it's competitive.
Kind of a competitive.
Changes or adjustments or what's going on on a more macro basis, but we do still believe that the market will be strong in 2021.
And then a gain on sale by channel can you give us some sense of of what that looked like in the fourth quarter.
Obviously, where we're focused mainly on the wholesale channel here.
But can you give us some sense you know in the fourth quarter, where you saw it changes.
By channel.
I'll turn it over to Mark.
Sure. So so we've not been reporting specifically.
Our margins by channel and then there's a.
A few reasons for that Oh my point.
Which is that's when we aggregate all of our volume together it becomes hard to allocate back out to the various channels, but having said that we saw the largest decrease in gain on sale margins in the correspondent channel, where you would expect it to.
To a lesser extent, we saw it in either in the wholesale channel and then the the direct channel held up pretty well, but we won't be cool or or we will not be at least in the near term reporting our margins by channel.
Our next question comes from the line of Rick Shane with J P. Morgan you May proceed with your question.
Hey, guys good morning, and thanks for taking my questions.
Look I I.
I think that the issue on guidance is interesting and I'm trying to understand.
Hum.
Potentially drives that so when we think about gain on sale, we think of it as a function of your locked volume.
With your pipeline hedges.
And so given where we are in the quarter, presumably you have an enormous amount of data.
In terms of you know you have 80% of the data for the quarter I'm curious if there's something that we're misunderstanding in terms of.
The locks or the hedges or if you are right now seeing something extremely unusual with pipeline fallout are that's causing you to.
Not be able to sort of translate that data into a quarterly guide.
Hi, good morning, Rick.
Again.
If you look step back and look at even the last time since the beginning of February has been significant adjustments in the market, whether it's rates up whether it's some of the competitive announcements whether it's some of the day to day variability, which is increased and I think to us it's not as much about what happened in the last 40 days, but it's indicative of.
The fact that things can change rapidly in the mortgage market. So there's there's really nothing from that perspective that I would say that we would point to and say Theres. A reason why we're not doing it doing it now it's more a function of our experience in the mortgage market and the fact that the company is still growing and evolving where yeah.
There may be a point at which where we say okay. It starts to make sense to provide some level of guidance, but right now, especially with the variability that we've experienced in the market. We don't think that's pertinent data.
Got it so but I just wanted to make sure I understand this I mean again given that the gain on sale margin is a function of locked volume and you know what the locked volume is it am I correct in saying that at this moment in time.
You have 80% to 85% of the data that will contribute to <unk>.
First quarter gain on sale, so you're describing that there's so much uncertainty related to the remaining 15% to 20% or am I thinking about this wrong do we not actually have.
That much information on what's happened through March.
Yeah.
I think.
Again, the fact that that were 80% through the mine doesn't necessarily mean, we're at 80% through what will happen during our during the quarter rather doesn't mean, we're through 80% of what might happen during the quarter from a market standpoint, and so mark I don't know if you want to add to that but yeah. Let me let me Yeah, Let me just.
So first of all you know I'm hearing loud and clear a hunger for guidance I'm not surprised by that and I think it's something we do need to take under consideration the issue I'm, having with it is that well we do have two months plus that we know about there's other dynamics in our overall business and to give guidance on a single metric.
Right.
Guidance on the entirety of.
The other business, including things like how the MSR is performing I, just think it potentially risks not really giving a complete picture. So we've opted to not give guidance at all.
And I do hear you that we need to reconsider that but it's hard to just focus on a single metric and call that guidance. So that that's that's kind of where I'm coming down on it. We've made the decision for this quarter not to give guidance, that's something we'll oh, we're going to be.
Reconsider and think about.
Okay fair enough I I I again I.
I understand why people are interested in guidance I'm also trying to understand what the dynamics that drive that are and it sounds like you just don't want to provide that single that narrow slice because it doesn't feel like it provides the overall context as opposed to lack of visibility.
<unk> on that particular metric.
Oh, that's that's yes I agree.
Okay. Thank you.
Yeah.
Our next question comes from the line of James Fawcett with Morgan Stanley You May proceed with your question.
Great. Thank you very much wanted to ask a couple of questions. You guys had on let me say congratulations for becoming making into the public but wanted to ask a couple of other.
Industry and and environmental questions first.
What are you seeing or what were you seeing in the December quarter in terms of ability of the industry in particular your competitors versus you to process. The loan demand volume. It seemed like the fourth quarter was there was a massive amount of Av applications et cetera, and how did you have.
All that that surge in your ability to service the capacity to service that demand versus competitors in the market at least from your perspective.
Sure. Good morning, James So, yes, we would agree I think that definitely the accumulation of of really three quarters of significant growth kind of kind of all kind of you kind of came to bear in the fourth quarter and I'd say traditionally the fourth quarter is more challenging because of the holidays and especially when you have a year.
When you were running when the industry is running really really hard so we.
And we certainly saw pressure from an industry standpoint on.
Kind of turn it turn times in gestation for four pipelines we also.
Also experienced some of that in the fourth quarter.
<unk> kind of that those consistent reasons I think for us we've been able to we've been able to recover from that really well and in January and February as evidenced by the fact the throughput.
But we do still think the industry. There are certain there are certain participants in the industry have done pretty well with capacity and there are others, who are challenged by it and we do think that scale is a really important variable there so but I would agree that generally in the fourth quarter things got backed up a bit and they seem to be clearing out in the first quarter.
And then.
If I take kind of what you're saying and I assume it sounds like you feel like you did better than at least some in terms of your ability to address and service the demand.
How do you think about like.
What happens competitively on a on a go forward basis, and what you have to do to retain that share versus as we come back down to maybe a more manner.
Manageable level on do you think that you can retain a share again versus those that that were unable to process. The the demand that they had and and benefited you or do you. There is there is some ebb and flow there and more specifically what can you do to make sure you retain that sure.
Sure no.
Definitely always on our mind and it is really what Mark had mentioned, which is all the things that we're doing from a technology process standpoint to ensure that we continue to evolve both our service levels are the gestation of our pipeline the experience that our partners and customers have so I think to us.
That's the way to build a sustainable advantage as to kind of take that experience, we've invested in especially in the third and fourth quarter invested downlink capacity buying capabilities as mark talked about and so that's the way in which we'll continue to stay ahead of them and we do believe that scale also gives us an advantage and generally yet to the point it really.
Why is that and by and large subscale participants that were more challenged by our by the flaws.
Yeah.
Our last question comes from the line of Ryan Nash with Goldman Sachs. You May proceed with your question.
Hey, good morning, everyone.
So.
Well I think you mentioned regarding the first quarter that you expect to have.
Significant market share gains can.
Can you maybe just help US understand you know what yeah. It would be realistic goals for the organization in terms of market share gains over the.
Medium to intermediate timeframe.
So well again not no I don't want to put specific center, I and but I think what you've seen kind of from a growth standpoint. In 2020, you know kind of that pace. Obviously, we were working for them at a lower denominator to start 2020, but we do think that pace.
Potentially hires achievable during 'twenty one.
And then I guess, just a follow up to some of the questions that had been asked earlier, there's there's clearly.
You know a significant change in the competitive dynamic in the channel can you maybe just talk about strategically what you guys are actually doing to capitalize on this clearly there's a lot of dislocation right now.
Within the broker population. So I'm curious what do you guys actually doing to drive market share in your direction and and.
And you know what do you think this could mean for market share over time.
Yeah, I think so I think that it may sound, a little strange, but where we're what we're doing is I'll say nothing but really it's to maintain a consistent profile. So as I mentioned, we really have designed our strategy to be differentiated and aligned with both the broker community at large and our broker partners in particular, and so it's really a matter of continuing to.
Execute on that but also reminding our broker, especially our broker partners that this is where we're positioned we're not deviating from that you know based on what somebody else does or what somebody else says.
And I think one of the data points I think that is strongly supportive is that on the retention side, our broker a retention of loans that are in our service portfolio that were originally provided by brokers that retention number is at an all time high. So I think that also kind of points to the fact that we're continuing to execute on the strategy that we've established in it.
Being out there and and reminding our broker partners and the broker community that we built this to be aligned with them is really the way in which were.
Driving both awareness and then as I said, we're seeing an increase in inbound from a from an approval standpoint.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back to Mr. Gary Stein for closing comments.
Yeah.
Great. Thanks, operator, thanks, everyone for joining us. This morning, we appreciate you taking the time to ask too to participate with us.
Please feel free to contact me directly if you have any follow up questions and well look forward to speaking to you again next quarter. Thank you.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your day.
[music].
Yeah.
[music].