Q1 2021 Loandepot Inc Earnings Call
Of our quarter as well as our financial and operational results and to answer your question we.
We are also joined by our Chief Capital Markets Officer, Jeff The Korean our teeth analytics Officer, John Lee, Our Chief revenue Officer, Jeff Walsh to help address any questions you might have after our prepared remarks.
And with that I'll turn things over to Anthony to get Us started Anthony.
Thank you Nicole and good morning, everyone.
The license began sort of highlighting aspects of our results from this past quarter.
And then I will address the evolving market conditions, we are seeing across the mortgage industry more broadly and how little people is uniquely positioned to thrive.
This quarter, we reported record loan originations of 41 5 billion and adjusted diluted earnings per share of 98 per share.
This was driven by an 11% increase in quarterly originations across our retail and partner channels.
Selecting the diversification and our strategy.
The strong consumer recognition of our brand.
And another signal of the overall strength of our business the performance and our commitment to our shareholders. We recently announced the special dividend of 61 per share.
Our continued success is due to the innovative and purposeful way in which we built our company. Thanks.
Thanks to our direct to consumer and market retail and partnership channels.
We are able to serve customers, where and how they want to be served and importantly, because of our unique scale model.
And the balance and diversification of the offers we are known to be incredibly nimble and strategic.
We are well positioned able to add new products and services and consider acquisitions no matter the market environment.
We're also known for our track record of creating strategically beneficial joint ventures.
In Q1 was no exception.
The only we entered into a partnership with shell for others.
Premier builder of energy efficient homes in Delaware and Virginia.
The new joint venture named Hamilton mortgage per shell brothers innovative highly personalized home launches with lung people's highly efficient robust lending platform.
Powered by our proprietary of metal technology ensure customers experiences are seamless and rewarding.
We take our responsibility to customers very seriously, which is why our middle of technology and data and the enrichment capabilities help set us apart.
Thanks to our proprietary tech innovations and our unique approach to the data we were able to quickly match our customers with the right loan officer in the right product at the right price and right time.
Ensuring our customers are being served how they wish to be.
This customer centric approach and technology, driven mindset has been honed over the past 11 years and has allowed our brand to become one of the most recognized in the industry today.
Non diebold delivers on the promise I mentioned, a few months ago.
The promise of the extremely satisfying the loan experience.
Our net promoter score remains well above the industry average in on par with nationally recognized the best in class consumer technology goods and service providers.
And that's something we are extremely proud of.
Our brand is special.
We consider it to be one of our company's most valuable and differentiated assets.
This quarter, we initiated a national partnerships with major League baseball.
In the Miami Marlins.
It was an exciting quarter for us the say the least.
Non depot became the presenting sponsor of the American and National The Championship series and the.
The official mortgage provider for both major League baseball.
And the Miami Marlins.
We are also available on the people part the home of the Miami Marlins and World Class special events.
In addition, we believe our position as the second most recognized mortgage brand grew even stronger this quarter through our ongoing national TV AD campaign.
Which has delivered one of the 12 billion household impressions since its launch in 2020.
Our extensive data analytics allows us to capitalize on the $1 8 million average monthly website visits and $582 million online media exposures during the first quarter of 2021.
That loan depot, we measure of engagement in multiple ways of course engagement is an important marketing metrics.
But for us engagement as the team and engagement within our communities is also extremely important.
It's one of the reasons, we are so passionate about contributing to the local communities, where our team members and customers the work.
This quarter, we announced several key initiatives that exemplify our strong commitment to the communities nationwide.
You may slow campaign, whereby alone people with the only $25 two of the boys and girls clubs of America for each RBI during the 2021 big the season.
We expect that this will generate a donation of more than $500000 to an organization.
The tremendous amount of the for children.
Please and communities nationwide.
Pivoting from our strong Q1 results I'd like to spend some time addressing the recent shifts in the mortgage market and further outline why we are confident and well positioned to further grow and succeed in the mortgage environment.
Across the country for the first quarter was marked by rising interest rates as well as the continuing slowdown in refinance volumes.
Interest rates begin to rise in late Q1, and there has been a corresponding reduction of market opportunities and gain on sale margins as a result.
While we anticipate of the rise in interest rates the shift began earlier in 2021, the generally expected.
Competitive pricing strategy pressure from other market participants also head of market wide impact of margin.
Finally, we continue to see strong demand for purchase transactions fueled by the interest rates.
That while rising remain at historically low levels, coupled with continued constraints on supply.
No the book differentiate the model and the diversified offerings built exactly for the shifting market conditions.
For more than 11 years, we have help customers achieve their home purchase and refinancing goals with solutions that fit their needs.
Our suite of products and services and powerful data and analytics capabilities.
Essentially construct as the account for changes.
For the market environment.
Our dual focus on our retail and partner strategy enables us to raise awareness of generate lead broadening our top of the funnel consumer reach <unk>.
<unk> position us to thrive despite changing break cycles. This is explained for.
Five by our industry, leading organic recapture rate that grew to 72% during the first quarter demonstrating that we have the right product for our customers that are able to offer it to them at the right time because of our powerful data and analytics.
Our technology enabled platform allows us the scale of our operations for changes in volume and the highly efficient manner. This platform coupled with our continuous focus on expenses. If we can continue to deliver value of while adjusting to a changing market.
And through our multiple sources of liquidity, including low loan funding warehouse facilities and the SAR facilities off balance sheet gestation facilities mellow securitizations of cash on hand.
We have established the sophisticated flexible financing approach allows the company of fun, it's one of the origination business and protect against foreseeable market risks.
We are well positioned to capitalize on what we believe will be a period of consolidation in the market.
And we have the capability to efficiently integrate teams and build on our existing business momentum.
I would now like to turn things over to our CFO, Pat Flanagan, who will take you through our financial results in more detail.
Thanks, Anthony and good morning, everyone. We spoke to all of you a few days after our IPO is lumpy bulk completed a significant milestone in its 11th year journey and successfully entered the public market. Since then thanks to the continuous hard work of teen Mom depot, we've achieved net.
As Anthony mentioned in the first quarter are strong financial performance was highlighted by record loan originations of $41 5 billion, representing an increase of $4 1 billion or 11% from the fourth quarter of 2020.
Our retail partner strategies delivered $7 9 billion of purchase loan origination and $33.
$6 billion of refinance loan originations during the first quarter.
Of similar significance of our retail channel accounted for 81% of our loan originations in our partner channel accounted for 19% of our total loan originations the increase in originations across both channels of our result of lung depots unique and diversified business strategy and strong brand recognition.
Within our partner channel our joint ventures contributed fee income of $2 2 million in the first quarter of 2021, reflecting the wide variety of industry partners, who worked with in fact, we entered into two new joint venture relationships with homebuilders and added one new joint venture relationship with the federally chartered say.
The bank offering banking and insurance services during the first quarter of 2021.
Our rate lock volume of $45 8 billion for the first quarter resulted in total revenue of $1 3 billion, which was an increase of 1% from the fourth quarter of 2020.
We reported adjusted EBITDA of $458 million and adjusted net income of $319 million as compared to $530 million and $376 million in the fourth quarter of 2020. The decrease is driven by the decline in gain on sale margins and increased variable expenses from higher loan.
Origination volume in the first quarter.
Our total expenses for the quarter increased by $119 million from the prior quarter, primarily due to IPO related expenses of 64 million of which $59 million related to the IPO stock Grant.
The Additionally increase in expenses is mainly related to higher direct expenses from record loan origination additional personnel expenses to support the growth in our business and marketing costs associated with expanding our national brand campaign.
As we focus on.
Long term growth trajectory and build on our momentum we will continue to invest in brand people and technology.
Importantly, our disciplined and purposeful investments in loan depots technology enabled a 2% decline in cost per loan for the first quarter of 2021 as compared to the fourth quarter of 2020.
Complementing our origination strategy is our growing servicing portfolio, which ensures we can serve the customer through the entire mortgage lifecycle the.
Paid principal balance of our servicing portfolio increased by 26% to $129 7 billion compared to the fourth quarter driven by an increase in servicing retained loan sales. It's also resulted in a 28% increase in servicing income quarter over quarter.
As of March 31, 2021, approximately one 4% of $1 9 billion of our servicing portfolio was an active forbearance.
This represents a decline from two 4% or $2 4 billion as of December 31, 2020, and as mentioned during our previous earnings call. We are optimistic about the improvement in these trends as we move further into 2021.
The fair value of mortgage servicing rights increased by $644 million during the first quarter to a record $1 8 billion.
This increase was driven by $530 million of new additions and the $231 million increase in fair value due to decrease in prepayment speeds and increased interest rates. During the first quarter of 2021. This was partially offset by runoff of $118 million.
We have established the fifth sophisticated and flexible financing approach that allows lung depot the fun.
And its loan origination business and protect against foreseeable market market risks, our total funding capacity with our lending partners increased to $10 3 billion at quarter end up from $8 1 billion at December 31, 2020. The increase was due to the addition of one new long term facility with the funding capacity.
We have $500 million as well as the increases to our existing facilities our available borrowing capacity was $2 billion at.
At March 31 2021.
We also completed an offering of $600 million of six 5% unsecured senior notes due 2028.
For the close of the quarter, the proceeds from which will be used for general corporate purposes, including to pay a special dividend and the reduce other debt positions.
As part of the S part of our capital allocation strategy, we make it a priority to return value to shareholders when appropriate for our leverage and liquidity levels, we declared a $200 million special cash dividend on our class a and class b common stock and the holders of Holdco units the special day.
<unk> will be paid on May eight 2021 to the company's stockholders and LD holdings members of record as of the close of business today. As we've previously stated we intend to begin paying a quarterly dividend after the completion of the second quarter.
And now let me turn it back over to Anthony for closing comments.
Thank you Matt I'll use this platform to reiterate what I have always said, Australia bleed gotten where we are today by thinking and doing differently.
In terms of our path forward, we are excited about the challenges and opportunities.
The shifting market conditions brings to our business.
And of the experience and are confident that our differentiated offerings and diversify operating model position us on the depot for success in any of the environment.
We are also extremely grateful for all of the hard work and relentless efforts of team home depot, and we will continue to make investments into our people brands and technology is weak for Japan.
With that we're ready to turn it back to the operator for Q&A operator.
At this time I would like to remind everyone in order to ask a question Thats Star then the level of one on the telephone keypad, we'll pause for just the Hamlin to compile the Q&A roster.
Your first question comes from the line of Ryan Nash with Goldman Sachs.
Hey, good morning, guys.
Alright.
[laughter].
Maybe we could just start off given the shifting market and to me, but maybe just a broad outlook about how to think about the remainder of 2021 and.
And can you maybe just talk about how gain on sale margins progressed by channel over the quarter and just given the backup in rates and increasing competition can you maybe just talk about what your expectations are for margins by channel. Thanks.
Brian Let me back up a little bit for for.
For everyone on this call and just remind everyone that.
The mortgage origination is volatile but predictable.
And during the times, whereas right the interest rate and decreasing volumes.
This is the best opportunity for companies of scale and with different yet differentiated assets.
The properly go through the pressure point and to increase market share.
This is where customer acquisition cost is key.
And your scale and efficient the.
We'll get you through this type of market condition.
[noise] competitiveness with the less scale and less efficiency.
Half of overwhelming higher cost to burden through the cycle.
So it's important for everybody to understand the more pressure.
As this market presents itself for the rest of the year the better it will be for of loan depot extend our reach and our market share and to flat our differentiated assets now.
Now.
The pressure at the margin and earnings will be evident in this teeter totter has been the same exact way for the 36 years that I've been in this business.
The lower the margin the <unk>.
Higher of the opportunity for market penetration of market share.
We also need to understand that we are in a whole new world here post countrywide of 2008 and 2009.
That company gave of 22% market share.
We are now half the re overall has 11 year old company.
And as third retail focus of originator in the country, we have less than 3% market share.
This is still very very early in the.
In a baseball game of top of the second any in the cycle. So we need to understand here that quarter over quarter month over month week over week.
Good company of good operating company will see Tac the pressure points and adjust accordingly.
The objective is to maximize and leverage market conditions.
Interest rates drop shouldn't do that we will continue the scale.
And maximize our profit profitability.
If the market continues to tighten up volumes decreased as higher interest rates are evidenced theres still plenty of the market share there are tons of opportunities for cash out refinances keep in mind that the second mortgage market.
Gone post Dodd Frank.
Americans are enjoying record low loan to value and high equity theres lots of consumption through all types of purchases as we all know in todays market. So we're seeing a tremendous demand and increase in cash out refinance and as you know purchases continues to be.
Very very healthy.
What do we expect keep in mind that we are only one month into Q2.
And one thing that I hesitate and what this market is going to do.
And be prepared for the pressures to come but those pressure points as an opportunity.
Because of the more of the pressure of the harder it is becomes for our competition.
Got it thanks for thanks for the color and if I could just throw in a follow up.
So you mentioned lower margins will create greater opportunity for penetration can you maybe just talk about some of the levers you have on the volume side to open up some of your funnel as you just talked about cash refi as an example, and then second you mentioned M&A several times in the prepared remarks I'm just curious what is your appetite.
To acquire now that you have the public currency and if we are to consider deals what would be the priority.
Yes, Brian so.
Okay understand we purposely built this organization to be the bodes well diversified originations model and contemporary times.
We have end market loan officers one of the only arguably to direct to consumer scale sophisticated technology platforms as well as develop the brand over the last 11 years. We also have an organically built.
10 wholesale lender within the loan depot and we are the largest joint venture of new homebuilder lender in the country.
All of these levers allows us sufficient different times as compared to a modern day competitors.
It's important for us the note that because out of the $11 million outstanding market.
We certainly have more hubs out there in the marketplace and it gives us tremendous opportunity for us.
Really pull on each one of these different levers as the market continues to change.
Got it thanks.
So net.
First of William Blair.
Thank you.
Good morning.
Yes.
Anthony where are.
Are you continuing to add in market loan officers and now moving into the.
The higher interest rate market.
The less refi volume expected are you.
Are you investing into that or.
Are you focused on.
Youre looking I know you.
Very clear on the opportunity to gain market share.
I mean are there areas, where youre, where youre pulling back or.
Where are you investing more aggressively.
We are.
Full of core products.
And the refinance market.
And I'll tell you why.
There is plenty of refinance volume to go around.
I understand even yet refinance volume gets haircut of about 20 or 30%. There is still 70% left whats going to Josh is that supply and demand curve in your capacity is going to reduce.
The capacity is going to reduce simply because of the two highest cough and of refinance transactions two of mortgage company is the cost to acquire that customer.
Many of them most of them do not have brand or the damage of data analytics the properly evaluate how to capture of customer at the top of the funnel and properly convert it.
Get the.
The ultimate leverage on your marketing investments.
As your labor cost, which is still significant and of mortgage so utilizing technology to drive efficiency the lower cost into the wholesale at scale. These two pressure points will be difficult for our competition.
This is why we were able to grow so much over the last 11 years.
Cause of these two.
Fundamentals that we look at it drives cost down.
As the mortgage market shrinks, we actually become more aggressive.
Because of the pressure points and this is where.
Sure.
Cost of rates market share now I also want to go back to the previous question of the biomass.
I apologize I forget the on M&A and that is we.
We are very active there and we are looking at both in and outside of the direct mortgage offering.
Within our brand and knowing that the.
Home purchase and refinance transaction is more than just the mortgage we continue to evaluate our opportunities and are currently very assets in that sector.
Thanks, maybe in line with that you talked about adding new products and services.
Which new products and services.
Likely to be developed.
Organically and what.
When you say outside of the mortgage market and you're talking about the personal loan market or what other products and services would you look at the two.
To acquire versus develop organically.
Yes, well, we're not prepared to discuss anything specific for obvious reasons, but what I will say is that.
As of the digital age continues to evolve and transition.
Adding adjacent products and services for bundling of service and understanding that the ultimate objective for our customer as the buy or sell the home into the financing.
And all of that becomes one outfit rather than singular pieces of clothing as we move forward.
As of branded organization and attract the brand that consumers.
Identify with it becomes of a bit easier and it becomes more opportunity opportunistic for us of add adjacent products as we move forward.
Because we have an embedded customer acquisition cost.
Yeah.
Yeah.
Thanks, maybe just last question.
Yes.
Just on your comments you would expect net.
Over the.
On a steady basis of where the.
The second quarter two this year next year, you would expect to see.
The steady market share gains and I hope you could quantify that at all in the mall.
I could share trend.
Yes.
In this industry you have to prepare yourself with differentiated assets and wait for the market to come to you.
The market is predictable in the sense that it's going to change.
And when it does you have the capitalize on it as we've seen with 2020.
And the scale of profitability among people, who was able to achieve price.
Prior to COVID-19 out of 2020.
You're seeing a company that started organically in 2010 of growth on the average 50 plus percent year over year and has become the top three retail.
Originator in the country.
So we continue to look at and be very focused and disciplined at is we don't lend for next quarter. We don't live for today, we live for the next a decade and Thats, how we have developed our assets throughout our 11 year cycle. This is why we are extremely bullish and excited about the pressure points that are coming up.
Great. Thank you.
Your next question comes from the line of Brock Vandervliet.
With UBS.
Good morning.
Thanks for taking my question.
Hi.
Wanted to kind of go back to Ryan's initial one.
Just.
As we.
As investors try to dimension the earnings profile here I think we're all.
Looking for is some time on the gain on sale margins the.
The volume seems to be holding in better.
Better than expected, we could have a record year for purchase volume all of that's good.
Just.
And can you give us anything really on gain on sale either partner or the retail channel.
<unk>.
Yeah.
Profit it's Anthony.
<unk>.
I understand of what you are asking but.
It's just not something that I think that number one we can predict.
We don't know where the price points of come in it depends it depends on.
The fragment the market that we're in and how much competition to the size of lower price of trying to.
Preserve its capacity.
Last year.
Obviously, everybody is still counting but we're looking at four trillion dollars of capacity last year and this year, we're looking at <unk> three trillion.
A trillion dollars of excess capacity that the industry needs of the shirt.
And everyone is always stubborn about shedding capacity until they understand the math the one capacity share margins return.
So it's hard it's hard to say we have of highly highly fragment. The market are number one competitors and us half a day.
12% of market share and the rest of it is highly highly fragmented.
Some of them some pricing wars between the top two wholesale lenders that are fueling mortgage brokers, which is now 15% 20% of market. So the interesting thing what type of pricing pressure that creates.
We just don't know we don't know what the pricing pressures is going to do the das but at the end of the day nobody can sell of dollar bill for 90% for long and this is where it's important for us all of the I understand that the pricing points and the pricing pressure is a dynamic.
Development and nobody can predict that's the mortgage business, but at the end of the day of you'll know that theres going to be of change there is going to be pressure points, but exactly how much cost is going to come down it is coming down why because we've seen the best off out of foreseeing. The 36 years last year. So is it going to remain a high I hope so.
Highly thought of it.
Regarding the.
You know that some of the price for you you mentioned.
Do you think there.
Is there any sort of the silver lining here in terms of that activity being able to pull forward. Some of this price erosion so that.
Not worrying about it for the next six quarters that it happens relatively quickly or just is it too soon to know at this point.
It's too soon to know and the good news is the longer the price of ore at last the harder it is from competition and the better it is for our market share gain.
So thats generally how it works.
It is.
It's pretty simple.
An example of that way, but it does it does create a lot of of earnings pressure.
So do I anticipate pricing worth the continue no but it generally happens at the start of the trend change is what we're seeing today you have too much capacity out there.
Last year, we are under capacity.
The originations were on fire.
Now I'll origination of started to taper off.
And the entire industry hired up and now you have excess capacity and that.
For the half of work its way through the system.
Got it okay I appreciate the candor.
The next question comes from the line of Kevin Barker with Piper Sandler.
Kevin Your line is open yes, thank you sorry about that.
Could you help us understand how you can transition towards focusing on the purchase origination market as it starts to dominate what sorts of becoming a purchase dominated market.
Rates were to continue to move higher.
You do have the distributed retail.
Average loan officers, which.
Appears to be an advantage, but you've been focused mostly on the refi opportunity. How do you get those loan officers to refocus on the purchase volume and go after that that part of the market as we transition here.
Great question again.
I don't want to monopolize.
Through the air Bud.
Okay.
This is the.
But this is naturally.
Naturally for me.
Yeah.
<unk> bin.
And in this market for a long time, so let me just say that we.
We look at the purchase and refinance markets almost as separate industries.
So when.
Wow.
Got my purchase of refi ratio, whereas I completely ignore that question because it's completely separate.
Penetration of the way I look at it.
The purchase market and we are one of the largest in market loan officer.
Platform today, and that is driven off of the brand and driven off the back of that.
It's the liberate through our proprietary technology. So the consumer has benefited from that we see tremendous momentum in this business. We made the decision to be for this business back in 2012.
When the world of thought that we were not Michael and back into what you want to perhaps call brick and mortar, but it's not these are the end market of loan officers that are remote.
That work.
And live in the communities that they serve.
We have tremendous momentum here with organic growth and we have.
Some conversations with potential of meaningful acquisition targets.
In addition.
We are one of the largest joint venture of homebuilder lenders in the country and we'll continue to have a healthy pipeline of.
The other.
Large institutions in the works.
Our direct lending platform is the manufacturing plant.
And the way that I like the folks to understand is this manufacturing plant. It is the hardest.
The bill in mortgage lending.
Do you believe theres only two at scale.
Ours, and our number one competitor.
The way to look at of direct lending operations.
And what type of raw materials, you feed at the top of the funnel and order for the manufacturing of gene and make a final widget at the bottom.
Where do we draw in the second mortgages personal loans cash out refis refinance their purchases becomes an opportunity for the organization as we evaluate the different types of financial return.
Refinances will continue to be very very attractive.
As I stated earlier, even if we haircut refinances by 30%, we're still looking at well over a trillion to true two trillion dollars of refinance opportunity.
As we continue to go through this trend change the.
The next 2345 months, we'll see pressure to margin.
As capacity gets squeezed and pushed out of the industry margins will return.
You have to remember that the industry is not here to sell of dollar Bill for 90.
Margins will return it always does.
When there is a change and there is overcapacity everyone starts to get aggressive because they don't want to share capacity. It happens every time.
As we look at purchase of Refis, we look at both of them separately, because they're really different opportunity.
And so if we look at your purchase originations now in the run rate you're at is that.
What we should expect to continue.
Potentially grow significantly.
Just given your focus on that and separating out between the refi and purchase.
Yes. This is Jeff Walsh.
We would anticipate that number of increasing.
We maintained a really strong focus on our purchase business through our end market.
The channel.
Through the first quarter of actually really aggressive the stepped up our our hiring of.
What we call qualified and market originators wishes specifically focused around.
The percentage of the percentage of purchased the business that they've historically done.
The first four months of the year we've added.
Over $4 billion of net origination.
Through higher organic higher of end market.
Originators and truthfully, even though of the highly robust.
The.
Refi.
Market last year, we always focus heavily on purchase in the retail channel because of those originators no end market retail channel because those are the there's no thats there long term.
Success of their of their businesses for maintain those referral relationships that drive that purchases.
It's April and traditionally we see the seasonality of the upswing of the purchase market.
And as we add that kind of critical mass of.
And market originators, we anticipate to get a larger market share of that.
As you mentioned very robust purchase market that we anticipate in 2021.
Okay.
Quick on the M&A opportunity.
What type of size are we.
Should we consider or what type of.
The size of organization would you consider bringing them in.
House.
We're looking at end of two different categories for the mortgage plays one of the rollout strategy, which are smaller tuck in.
For the M&A is concerned it has to be meaningful.
So it's.
It takes quite a bit too.
Integrate.
And the acquisitions and we've done a few of our organization that we've done one of 2013 and another one of 2015.
Yeah.
But what were the same thing is obviously with the margin coming in.
Sellers' expectations are a bit more realistic.
And number two.
The fact that we have a recognizable brand.
Becomes very attractive.
To those loan officers that may onboard to us all.
All through acquisitions or organic growth.
So we.
We are very active there and.
Our.
However, we are having lots of discussions.
Thanks for taking my questions.
And by the way.
Just the differentiate here.
Our number one competitor is not in this market, so again going back to.
Having different hooks in different parts of this is this is a different opportunity as compared to our primary competitor.
Thank you.
Your next question comes from the line of Ryan Carr with Jefferies.
Hi, Good morning, guys. Thanks for taking my question and Anthony of the first question here is for you.
Quickly on rate sensitivity of <unk>.
Of borrowers in this market in the purchase side.
I'm curious to see to hear what trends youre seeing with respect to that.
We saw in this quarter, especially rates rise significantly and that doesn't seem like the purchase demand has tapered off as much as one would think of in the normal market. So curious to hear your thoughts on that.
I'm sorry, Brian for your question is what happens to the consumers take on rates.
Questions.
Marsa like what trends, you're seeing specifically related to the rate changes and maybe harvest time may be different than the previous mortgage markets.
So Brian any time interest rates starts to move up consumers get a little sticker shock is kind of like you know when you are evaluating volume something that's on sale and all of the sudden the sales prices over.
That doesn't mean that it's not valuable today interest rates are still fantastic, but they started the shopping before rates went up.
They have a little bit of of sticker shock. So many consumers sit on the sidelines of especially of the rate of term because there is no sense of urgency for rate and term refi cash out refi, yes, youre waiting for it to take money out of your kind of.
Your house and your equity does remind of your kitchen, there's certainly a sense of urgency, but if youre looking at a rate and term if you're refinancing out of the arm or any other purpose you can wait a little bit.
Many many times in the past as the consumer away from the understand rates are not coming down.
Today's breaks are still extraordinarily attractive and the there's still a lot of mortgages that are in the money given rates where rates are today, but there's generally a little bit of a pause just because rates are non on sale of anymore, but.
Consumers, usually will come back around again going back to my original.
Comment earlier as well.
Whatever is the refinance market is whatever the volume of originations is for this year and next year capacity will adjust margins for.
For the right size. It just takes a while to get there and we just came off the largest arguably the largest mortgage volume market ever.
There was for.
For $2 million in 2003, so last year was the biggest year since 2003. So now the industry just has a ton of capacity to shed share.
Adding that capacity will take some time and as it as the capacity shed your margins will return because no one likes to sell of dollar Bill for 90 of them.
Thanks in the retail channel held up a lot better this quarter than they did in partner.
But curious to hear where your where you're adding capacity or you're trimming. It moving forward, just given where the the direction of the market.
Sure.
Ryan the path planning and so the the.
I think when you look at our partner channel.
The margin compression that you are referencing.
How much more concentrated in the broker channel of the JV channels that are primarily purchase business with with our joint ventures.
As was noted.
Theres been more theres been way less margin compression.
On the purchase side of the business overall, and so I think thats, what youre seeing is the effect of the price war on the.
On the broker channel.
Awesome and then just lastly, any view on that price of or any.
Directionally, where you see.
The things may be heading for the for at least the foreseeable future.
Yes.
It's hard for us to tell where that shakes out I agree with what Anthony said, which is that.
Selling products that you're selling at a loss doesn't last long generally in terms of capacity.
So.
Yes.
It's largely a question of the pain tolerance for how long do they want to they want to keep that.
That going on but Ah.
For us like we said, we're well positioned to continue to make body or other channels.
Haven't seen that level of price compression is wholesale where we will see if there is a contingent effect that the debt.
That bleeds over into the other parts of the business, but.
We're still seeing.
As you guys mentioned record.
Demand for purchases of the housing market is alive, and well, we're adding new joint ventures, and the partner side of which support higher margins.
There's still a tremendous refi opportunity and as we expand products.
And opportunities into the cash out and HELOC and and other products that the fill that demand even still think we're in great shape.
To continue to be profitable and take market share.
Thanks very much.
Your next question comes from the line Timothy Chiodo with credit Suisse.
Great. Thank you good morning, one of the change gears, a little bit and talk a little bit more about the combination of brand marketing and the performance of marketing in line of not only the MLB partnership that you've had but also of the recent stadium naming rights with the Marlins, maybe you could just briefly touch on some of the benefits you expect longer term from those.
The branding efforts and then also how that helps with your marketing efficiency on the performance side and then at the risk of asking a little the too much here. If you could just talk about how you expect that market marketing efficiency on the performance side.
To look sort of in the next few months or so and and how the branding might support that to an extent.
Yeah sure Great. Great question. So it is really a comprehensive strategy when it comes to.
The customer acquisition.
And for all.
Strategy.
I'll come back to how we view our performance marketing.
And building our brand.
And how we look at recapture as well as conversion in the second but.
I will comment on is building this brand over the last 11 years has been a key for.
<unk> for us.
And as we move into <unk>.
On the debt front.
First of all of it of origination platforms, such as the end market joint venture as well of wholesale.
One of the pricing benefit that we received is building the brand and how much of it has lifted our end market business.
Not only does the lift.
As our partners, whether it's the builder or a real estate institution as they introduced customers two loan depot the.
Brand being so well recognized really the myth and develops even a stronger relationship with us and our homebuilder in our real estate partners.
In addition allows us to.
<unk> recruit additional in market loan officers, because thats the differentiated asset for end market of loan officers that have typically either work for a bank or of work for another non bank.
With little or no brand. So the brand build has given us more lift than what we actually planned for the back.
Back to the direct lending and the the belief that we are currently producing.
We constantly.
Evaluate and monitor our brand momentum.
The brand is experiencing a day.
Ari attractive build over the last two years specifically.
We are now generating hundreds of thousands of digital mortgage needs on a monthly basis.
What that allows us to do through performance marketing is the recognizable brand and image that ultimately increases our opportunity of conversion and pull through.
Top of the funnel data analytics and John Lee, Our Chief Analytics Officer is on the phone and maybe he wants to chime in after.
I'm finished with my comments is a very sophisticated approach of how we look at the top of the funnel and.
And through.
Sophisticated algorithm and contact strategy of we're able to increase our conversion and ultimately drop the cost of customer acquisition. This is one of the primary difficulties of building out a direct lending platform and this is why after 25 years worth of arguably 30 years of direct.
The model innovation.
Arguably only to direct lending.
The models out there at scale, that's able to find the customers on offense of basis. Instead of just the portfolio defense Johnny if youre on the phone if you want to chime in please do so.
Yes, absolutely Anthony So I mean brand is very important especially.
The the refi of lead market gets more competitive.
Fill out the lead for them today or generate respond to an advertisement its likely youre going to get a lot of phone calls in this environment and brand helps to read out that noise for lot of depot and allows us to get a higher.
Really.
Contact rate and pull through on our lead.
So as the market gets much more competitive I see branding, becoming more and more important to the long depot the law.
How's us to get through the noise of the rest of the market and the very highly fragmented market with lots of lenders out there.
In addition.
Brad is going to play a role in helping us.
Drive demand so.
So as the market.
Transitions out of the rate and term refinance market into a more hybrid market with cash out and other opportunities.
Be able to help build some of that the man.
By educating borrowers.
On the product availability and then obviously the attacking the borrowers through high brand awareness and consideration.
It's a very simple strategy, but it's very effective as the market gets very competitive.
Okay.
Thank you for all of the context I appreciate it.
Yeah.
Your next question comes from the line of Mark the Breeze with Barclays.
Yes, Thanks, just kind.
The follow up question on the on that.
Topic.
You know your pull through rate.
It was already pretty high and but it was up pretty significantly this quarter.
How much of the do you attribute to all of the investments you've made in brand and could you also give us some context on the arc of the on your recapture rate over kind of the life or you're still kind of accelerating benefits.
Now as you as you put more and more into the brand.
Okay.
Yeah.
We can take that.
So the area.
Sure. This is Jeff the Gary.
The recapture rate has continued the trend.
Positively for US I think it's largely due the two reasons one is the brand spend that you've mentioned.
And the effect of.
Of the consumer coming back for another positive experience on the on another transaction.
And also the enhanced the surveillance of the portfolio that we put in place.
So really.
Monitored the consumer's activities and see where there's incremental opportunity to reach out for them.
To help them with.
The home purchase that the if theyre doing that for again with the cash out refinance if they have the appropriate amount of equity.
Got it.
Are you seeing benefits from just retaining more of your servicing also kind of halved.
Having the but looking at the end of your customers is that helping you.
The recapture as well.
Yes, I mean, we continue to look to add consumers where there is.
The equation, so to speak of or the consumer is likely to come back and then one of transact with non depot again. So we continue to tailor that that servicing portfolio really lend itself for future opportunities.
Okay got it and then just one last one.
A question on spend on brand how should we think about the being impacted if at all by by kind of recede in refinance activity and maybe a little of revenues.
So.
So the the brand and performance marketing as we get through this.
Of this change is actually going to improve now I know that sounds.
The logical but it actually does and I'll tell you why that is.
Yes.
The industry continues to share capacity.
One of the top of the funnel things that they've decided to do at first is the cut marketing.
So your supply and demand curve actually starts to get right at the top of the funnel first meaning that the industry is going to share marketing before of shed labor.
So just understanding that which means that if refinance market dropped by 30% and your marketing and the industry dropped by 30% or 40%.
If.
Youre playing part of it.
It doesn't change so.
We're going to start seeing that relatively soon and that youre going to see the labor shed some of it in the next 60% of 120 days the.
Generally the timing.
And that's what we're forecasting.
Got it thank you.
Yeah.
Your next question comes from the line of Trevor Cranston with JMP Securities.
Alright. Thanks.
Most of my questions have been asked and answered already.
I guess to add one more in.
You guys mentioned the opportunity for maybe increasing.
Cash out Refis.
We also saw the average IP announced the new.
Auction for lower income borrowers to be able to.
Take advantage of them.
The current strip market of last week.
I'm just curious of your thoughts.
New programs like that allowing people, who may not have been able to access the market, yet or likely to have a material impact and if you think there could be other sort.
Other programs or products that come out over the course of the year the notebook.
Yeah and maybe.
Keep refi demand a little bit of kind of harder of the world.
Alright.
No.
One of the reasons why we put our head down and created and filled several components to the mello.
Tech stack.
When it comes to our point of sale origination platform.
Our proprietary <unk>.
Reising component.
Our proprietary relative eligibility engine.
The program that you just mentioned allows us the program into our offering and have that available to over 2000 of our employee loan officers.
Without relying on outside third parties.
To input new programs and input new eligibility and input new guidelines.
This is one of the punch line that allows us to be agile, although were large we got to run around like a feed both and this is one of the things that we do and do well as we understand that when the market changes we have to be in control of that change.
Net programs such as this along with 20 other of our 25 other programs that's about to be an analyst day in a changing market.
All of those combined as an offering will have a material impact because it allows us of widen our funnel the offer more products and services for the consumer and we've worked very hard to get at the top of the funnel.
So what do we drive of 100000 leads or 200000 leads on a monthly basis, the more products, we produce kind of.
At a better branded opportunity gives us a higher percentage of conversion.
Got it that makes sense I appreciate the comment thank you.
Okay.
Your next question comes from the line of John Davis with Raymond James.
Hey, Good morning, guys. One for you Pat you mentioned.
You guys would we pay the dividend I'll go forward basis, just curious for you guys on a strategy of all the time and maybe the percentage of net income. That's how you think about dividends and kind of mixing them what the M&A strategy you talked of the Buildout.
Yeah.
Yes as we've.
As we've stated previously the recurring dividend. We're targeting currently has eight cents per share on a quarterly basis, starting out for the second quarters for us.
In the up to the pay additional special dividends in the future yes.
The primary.
We're primarily.
The focus on trying to grow the origination business.
And continue to gain market share.
So we look at the special dividend opportunities.
We have for excess cash buildup and can't deploy it in the way that.
We'll meet the returns that we want to provide to our shareholders that we always look at that as an option, but our first options to continue to grow the business on a go forward basis and then we'll we'll we'll look at at the.
Size of the quarterly dividend.
Probably after a year or so to see if it's appropriate to what we expect.
Would be.
The range kind of dividend yield.
Along with the total value of the company.
Okay. So theres, no declines X percent or not necessarily a quarter, but like a year basis, where you would expect to return a certain percentage point of the 30% of shareholders I'm just going to be honest one of the.
As needed go forward basis, depending on what the organic growth opportunities.
Well, yes.
I think that's a fair statement with regards to any kinds of special dividends on the going forward basis on the current dividend, we've sort of established what we think it should it should be for this year.
And what we think the nice enhancement to return capital along but we think we were compelling and our ability to build shareholder value through.
Growth in the franchise expansion.
The multiple as we continue the journey towards <unk>.
Kind of bundled services and other products and services to activate the consumer brand.
Okay, and then one quick.
Glenn for you Anthony.
We talked a lot about the near term pricing dynamics.
I've said many times, we've seen this movie before but just curious is there any do you see any sort of structural changes for the final got of the long enough time timeframe that there would be any material changes to what gain on sale would be over.
234 year period.
No. That's a great question and the simple answer is I don't know.
This market is truly unique because of the fact that.
The capacity.
With non banks specifically.
<unk> has been built up over the last 12 years post financial crisis.
And the frame so you have a highly highly fragmented market.
With lots of of tier two and tier three non banks out there today.
There's more there's more power and non banks today than any other previous market meaning.
Collectively because of the fragment in the market.
So I think that's unique I think it is also a unique coming off of a pandemic.
That's not something that.
One of us.
Has the witness before.
I think that we need to keep a close eye on the current administration.
And what happens to interest rates of inflation.
It's hard to determine but one thing I can tell you is that we've done the hard work to be prepared.
So and we continue to be very.
Very bullish and very confident about our positioning.
The 11 trillion dollar addressable market does not go away.
Pressure well.
We just need to have confidence that we felt the right company the.
Handled the pressure with grace and that during the pressure coming out of the pressure, we're going to win with additional market share.
Okay, great. Thanks, guys.
There are no further questions at this time I turn the call back over to you.
Thank you all again for the use of great questions and for joining US. We look forward to continue the ability of our relationship with all of you over the long term and are excited about where we go from here. Thank you again have a great rest of the day.
This concludes today's conference call you may now disconnect.
Okay.
Yes.
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