Q3 2021 Loandepot Inc Earnings Call
Ladies and gentlemen, this is the operator, your call will begin momentarily. So that time your lines will again be placed on music. Hold. Thank you for your patience.
Good morning, and welcome everyone to loan. Depot's. Third quarter conference, call all lines have been placed on mute to prevent any background noise. If you would like to ask a question during the call Simply, press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I would now like to turn the call over to your heart or daily senior, vice president investor relations, please go ahead.
Good morning, everyone and thank you.
For joining our call. I'm Gerhard erdelji, investor relations officer here at loan Depot. Today. We will discuss loan deep post per quarter results. We are excited to share our financial results and other highlights of the quarter with you. Before we begin. I would like to remind everyone that this conference call may include forward-looking statements regarding the company's operating and financial performance. Major periods, all statements other than statements of historical fact, are statements. That could be deemed.
And forward-looking statements, including but not limited to guidance to our pull, through with a great lock, volume, origination volume, and pull three way to gain on sale. Margin. These statements are based on the company's current expectations and available information actual results for future periods. May differ materially from these forward-looking statements, due to risks or other factors that are described in the risk. Factors section of our filings with the SEC, a webcast and a transcript of this call.
Posted on the company's investor relations website at investors dot loan depot.com under the event and presentations tab. On today's call. We have loan deep, co-founder, chairman and CEO, Anthony Shea and our Chief Financial Officer. Patrick Flanagan to provide an overview of our quarter as well as our financial and operational results Outlook. And to answer your questions. We're also joined by our chief.
And our chief Revenue Officer, Jeff Walsh to help address any questions you might have after I prepared remarks. And with that. I'll turn things over to Anthony to get started. Anthony. Thank you. Dear heart. I'm pleased to be with all of you on the call today. Thank you for joining us. I look forward to sharing my perspective in answering your questions this morning.
The third quarter, prove to be another strong Milestone and market share growth according to the most recent data from the NBA, our market share increased by 46% from 2.4% 23.5 percent compared to the same quarter last year to put that increase into perspective. While the third quarter of 2020 was our most profitable quarter ever. Our largest annual increase in market share at came after that.
Demonstrating the resiliency and strength of our Diversified channel strategy. When you combine that strategy with our growth growing brand and proprietary mellow Tech stack, Zone Depot is the industry's only a scale model of this type and the hard work and enthusiasm of our talented employees delivered, those growth, our results, demonstrated the agility and operational. Flexibility of our multi-channel strategy, which enables us to succeed in any Market condition.
Including challenging ones, one competitive pressures and one channel. Compressed profit margins. We have the flexibility to focus on our other channels and still deliver on our strategic goals when increasing interest rates reduce the demand for rain term. Refinances, we pivoted to emphasize the origination of less interest rate sensitive blows such as purchase and Cash out. Refinance has combined these two categories of loans, increased 13% over the last quarter.
The result of the third quarter are only a preview.
What is to come in the future, as we continue to hire the best leverage, our growing brand, develop and apply, Innovative Technology Solutions, drive down cost and add more products and services to help our customers successfully navigate one of the most important Financial transactions of their lives.
Our marketing engine and customer acquisition abilities are one of the best in the business notably in October. We wrapped up the successful first year of our multi-year partnership with Major League Baseball by dominating media exposure. On one of the biggest stages in professional sports, The League Championship Series presented. By lone Depot, our brand reached millions of Baseball fans during ALCS and NLCS and was further supported.
Boarded, by the launch of a new National advertising campaign, portrait of a homeowner that shears, the benefits and unique feelings of owning a home Through The Eyes of real lone Depot customers.
Our market share increases a direct result of our growing investments in increasing marketing reach, as well as our technology, the matches customers the best loan officer for their needs across our multi-channel strategy. Our unique website visitors for the first nine months of 2021 are up over 16 percent compared to the same period in 2020. This was in the face of lower Market volume.
Well, the similar advertising spend from the second quarter. We achieved double-digit brand metric increases during the third quarter with consideration, increasing by 15% and awareness increasing by 14 percent during the third quarter alone. Depot's brand continues to gain momentum.
Looking ahead. The Real Estate Services industry are moving towards consolidation of products and services for the homeowner and Loan. Depot is leading. The way we are uniquely positioned with a brand technology and scale to invest in these additional products and services particularly with the loan Depot Grand Slam. Having announced this bundle of home buying Services early in the third quarter. We are already starting to achieve early, success, purchase lead, funding real estate agent introductions.
Real estate listings. All increase substantially. Since the first quarter of this year, this growth while impressive was primarily accomplished before we publicly announced our grand. Slam package in was internally driven. We expect even better results in the coming quarters. Growth rates your accelerate as direct-to-consumer marketing for Mellow home and Grand Slams gains traction, and we won't stop there. We're already planning to offer additional products and services for the benefit of our customers.
Today, loan Depot is more than a mortgage company where digital Commerce company committed to serving our customers throughout the home ownership Journey with a full Suite of products and services, that meet our customers needs. Along that Journey. We are uniquely positioned to provide exceptional value. And a reason to return to. As long, after the initial home, financing transaction is complete. There is an energy and enthusiasm alone, Depot. We're growing and remaining.
True to our public.
Statements about our intentions abilities and the ways in which we can do and will deliver for our customers. While we are proud of our progress, much of our energy is derived from the fact that we are just getting started. We are always looking for new opportunities to grow and further. Accelerate our long-term strategy. I am excited about what the future holds for our customers, our team, and ultimately our shareholders with that. I'll turn things over to our CFO.
Whoa, Pat Flanagan will walk you take you through our financial results in Greater detail. Pat. Thanks Anthony and good morning everyone. We're coming up on the six-month Mark since our IPO in February and I'm both excited and proud of what we've achieved during this short period of time as a public company. Thanks to the continuous hard work and commitment of Team loan Depot.
This quarter, we reported total revenue of 924 million, diluted earnings per share of 40 cents and adjusted diluted earnings per share 46 cents, reflecting higher loan, origination volumes and gain on sale margins as well as lower operating expenses in the third quarter loan origination volume. Was thirty two billion of decrease of 7% from the second quarter of 2021. This met the guidance that we issued last quarter of loan origination volume.
Between 30 million and 36 billion are retail and partner. Strategies, delivered, 11 billion of purchase loan. Originations and 21 billion of refinance loan. Origination is during the period.
Our retail Channel, accounted for 78% of our loan originations and our partner Channel, accounted for 22% of our loan originations, the consistent contributions across both channels signified, the strong customer and motor mortgage broker relationships. We have built over time as well as the effectiveness of our Innovative mellow technology platform to underwrite process, and fund, mortgage loans originated, both in-house and with our partners while delivering an exceptional customer experience.
A rate lock volume of 40 3.7 billion for the third quarter. Resulted in total and quarterly total revenue of 924 million which represented an increase of 18%. From the second quarter rate lock volume came in at the low end of the guidance. We issued last quarter of forty four billion to fifty four billion.
And the increase in revenues is a result of the higher rate, lock volume and gain on sale margins are gain on sale. Margin for the third quarter came in at two point eight, four percent of loan origination volume. This also met or guidance for gaming sale. Margin that we issued last quarter of between 245 and 295 basis points. Going forward. We will be expressing gain on sale. Margin as a percentage of boat of poultry, waited, rate lock volume, since this most closely aligns with the
Nation Revenue that we recognize in each period for comparative purposes. We have disclosed both gross and poultry waited rate lock volume in our earnings release this quarter.
Our total expenses for the third quarter of 2021 decreased by one percent from the second quarter of 2021, primarily due to lower variable expenses. On lower loan, origination volume offset somewhat by hire marketing expenses. As we continue to invest in our brand. During the second quarter. There were lawsuits filed against the company. These were comprised primarily of shareholder suits motivated by the recent decline in our share price. There was also a suit filed by a former executive alleging loan under
The improprieties and employment law claims given. These are in active litigation. My comments must remain somewhat limited. However loan Depot is committed to operating at all times. According to ethical, responsible and compliant business. Practices grounded in values of inclusivity and respect for our team members, customers and all of our stakeholders. Our procedures require all loans to be close with proper documentation and subject to appropriate quality control, we intend to vigorously.
Defend ourselves and are confident that we will prevail these lawsuits, and their claims have not resulted in any material adverse impacts from our warehouse lenders, the agencies or investors. We have, not at this time, recorded a liability related to these lawsuits.
A growing servicing portfolio perfectly complements our origination strategy and ensures. We can serve our customers through their entire mortgage Journey. The unpaid principal balance of are servicing portfolio, grew to a record level of 140 5.3 billion as of September 30 2021 compared to one hundred and thirty eight point. Eight billion in the second quarter. This growth was inclusive of a sale of Thirteen point five billion event. Paid principal balance completed during the quarter servicing fee in
Increase from 48 million in the third quarter of 2022, 102 million in the third quarter of this year.
We're well relatively low Market interest rates continue to result in Faster. Prepayment rates. We were able to retain many of these customers as preliminary organic refinance consumer direct recapture rate for the 12 months. Ended September thirtieth twenty Twenty-One increased to 71 percent as compared to 61% for the 12 months. Ended September 30th, 2020 highlighting the strength of our deepening customer relationships.
We are extremely proud of our progress because this growth was against the backdrop of growing, our servicing portfolio, in house and relying relatively Less on third-party sub servicing Partners. We have invested in our in-house servicing capabilities by growing the portfolio and bringing more servicing in-house. We leverage the infrastructure and create the scale to increase the earnings contribution from this recurring, counter cyclical, business line.
We adjust we reported adjusted ebitda of two hundred and thirty eight point three million and net income of one hundred and fifty four point three million as compared to 100 9.3 million and twenty six point three million for the second quarter of 2021. The quarter-over-quarter increase was primarily driven by the increase in net income as well as a smaller net loss, in the fair value of servicing rights.
as we look ahead to the fourth quarter and building on the growth strategies that and
He laid out and assuming no material changes in interest rates and competitive landscape the company expects, pull through weighted rate, lock volume of between 18 billion and Twenty Eight billion reflecting the recent increase in interest rates and seasonal slowdown in demand. We also expect loan origination volume between 26 billion and thirty 1 billion. And we expect fourth quarter, pull through awaited gain on sale margins of between 210 and 260.
Has points. Now, let me turn it back over to Anthony for some closing comments.
Thank you, Pat. I just wanted to take a moment and say that I'm proud of this team and our results as quarter. I'm also proud of the spirit of our company employees and those that we choose to partner with. We are a company that believes in supporting the communities in which we do business in the people that make our success possible as proud. As I am of all loan Depot has accomplished. We remain focused on our long-term strategy and vision, to become the most trusted homeowner Fulfillment company in the world.
Using our industry-leading position, the drive, the type of value and ease that today's customer expect and demand before we turn to questions. I want to re-emphasize. What many of you have heard me talk about many times before we are still very early in this mortgage Market cycle that started after the Great Recession of 2008, the productive capacity in the industry at that time was wiped out with most of the top lenders either.
Out of business or being severely disrupted. Since we become business in 2010, customer expectations and service level demands have changed significantly. The application of Technology have accelerated. Every aspect of our business from customer acquisition, the loan, processing underwriting, and closing. And to servicing. Well, we are very proud of our market, share grown 23.5%, loan Depot with it.
Digital assets, nationally recognized brand Cutting Edge, technology tools Relentless sales culture and diversify channel strategy is in a leadership position to aggressively attack. The remaining 96.5% of The Twelve trillion mortgage market and as we expand and mature are adjacent, real estate related service business, we can attack the broader, 34 trillion residential real estate market leading the consolidation of the market. That is like,
To occur loan Depot represents an incredible value. And we are confident. We will continue to accelerate. Our growth, increase our market share serve, our customers employees shareholders, and communities, while performing in the long term. We remain focused on our strategy. A serving our customers through every stage of their home ownership Journey with that. We are ready to turn it back to the operator for QA operator.
At this time, I would like to remind everyone in order to ask a question, press star. Then the number one on your telephone keypad will pause for just a moment to compile the Q&A roster. Your first question comes from the line of the Carter Credit. Suisse, your line is open.
Thanks.
The relative marketing spending was was higher. This quarter was just hoping you could talk about how you think about kind of balancing continuing to build out the brand, you know, making those marketing Investments versus, you know, maybe pulling back. Given that the size of the market is a little bit smaller today.
Good morning. This is John Lee. I'll take that question. So we're adapting to a changing demand profile in the refinance Market obviously and are data-driven multi-channel. Marketing strategy is working to drive, higher leads volume and dive deeper into the recent hands market during the quarter. We increase marketing spend fourteen percent, as you mentioned and grew leads 33 percent, which allowed us to expand market share 23.5%.
Are improving brand recognition and consideration is driving higher at awareness and larger growth in our organic lead channels, which is up 41 percent year-over-year and web Trek website. Traffic is also up 16 percent during the same period. Our overall lead generation is up a hundred eighteen percent year-over-year and our purchase lead activity is up 29% quarter over quarter and a hundred and forty-five percent year over year.
We believe this is a result of the incredible increase in brand awareness and consideration that's been driven by our increase in brand spent over the last 12 months. In terms of continued growth. We have a obviously, we're going to continue to expand into our multi-channel marketing strategy. We have very robust TV and digital assets, and we are continuing to grow social media.
And website advertising. Now, our Partnerships with the MLB and Marlins stadium. Have also increased our consideration in Awareness in the market. For example, for our MLB. We drove 595 million impressions since the launch of that partnership and relating to expansion of Partnerships. Yes. We are looking to grow our growth and brand awareness is driving more interest. In Partnerships across many.
Articles and we have an internal partnership team focused on growing relationships in the future.
Right, just just one follow-up. You know, I guess is there, is there any kind of seasonality to the marketing expense given the relationship with with major league baseball, and, and kind of The League Championship Series. That's a great question there is. And, you know, as we watch lead demand day over day quarter-over-quarter, will adjust both our brand spend and our Performance Marketing spend which
Pakistan lead generation.
To match that quarterly change in demand profile.
And Doug, it's Anthony. Should I just want to chime in with, with my remarks on building the brand? Just want to remind everyone arguably, what the only other non-bank brand in the market today brand matters. And, you know, as our number one competitor, who is I believe 25 years our senior and has I believe 425 x. Our current annual marketing spend.
That there is just a nice draft process that you know, and the terms of of auto racing. We're just being pulled by our number-one competitor far as industry consideration and the fact that you know, you can use your device to get get a mortgage in today's world. So building our brand investing our brand and looking at Marketing in terms of direct response.
Both digitally and offline is something that we track and Best in Class at. So tracking conversion cost of customer acquisition on a per funded basis, as well as building, long-term brand is sort of a balance that this company does. And we will continue to balance those two as we move forward, and capture additional market, share and to build a national brand.
Great. Thank you.
You're welcome.
Your next question comes from the line of Brock vandervliet with yes, your line is open.
Good morning. Thanks very much for the question. Just just stepping back on the gain on sale, you know, obviously last quarter felt like the world was coming to an end. I won't ask the Detroit question of what inning are we in? But can you kind of put in context where we are, in terms of gain on sale? And yeah, I've got to follow from that.
Sure rock. Thanks. It's it's past good question. So if the Dynamics and gain on sale continue to to evolve and and be volatile based on, you know, on demand in the market and where rates are and also, seasonally are, you know, so we think there's strength in our diversity, right? Origination channels. Because there's there's more, you know, as the market changes, we can emphasize one channel over the other which which which reduces the volatility. So,
currently based on seasonality and which which, you know, as see. Now the means he comes every year and the most recent rise in raised we're seeing gain on sale, margins tending, lower than where they were for the third quarter and and not altogether, unexpected for the fourth quarter as far as what anywhere in, you know, it's hard to tell, we were pretty confident in the guidance. We've given
Goth margin.
Pull through weighted lock adjustment basements of between 210 and 260 basis points for Q4.
Okay, and one thing I know and investors puzzle about a lot is just the the interconnection between different channels of origination and that you can on sale profile. It clearly seems like partner. You're seeing more that that's consistent or pressure less than retail, how I guess interconnected. Have you found the varying channels?
So far in the in the cycle.
Hey Brock, it's Anthony Shea, great question and and perhaps, you know, packing can can answer it after my comments on a more than mechanical answer. But, you know, keep in mind that in an adjusting Market, various channels will have different reactions to the pressure, But ultimately, as the pressure continues. It's all going to equalize.
Between different channels. I mean, the way that that, that Gauss is determined. It's a herd mentality. We are top three, retail lender in the country bank and non-bank, and we have three and a half percent market share. So the market as my comments is still very early since the 2008 financial crisis. So capacity is still spread out massively through the industry. So Goss is a
Herd mentality. Now some of the larger players can be front of the herd by placing more pressure, but the market follows the herd and ultimately the pressure is a good thing for operating companies that have a unique Advantage. So as the Innings go on or the games, go on the seasons, go on. The pressure is bad for earnings, but is great for Marcus year. And for Market.
Your name? So, this is where it's critically important for this organization to focus on the opportunities last year because of growing market and volume. We had a record-breaking earnings year Top by Q. Three. What we had record earnings for Q3. Now, we have record market, share for 423 this year. So we will win either direction and as the market continues to change because of this herd mentality, what?
What we can control is our cost structure, which we are leading the industry in so far as the exact sort of decoupling, or how the different channels is moving right now. Pat, if you have comments to that, that would be helpful Rock. Sure. I think, particularly in the, in the, in the partner Channel with your comment, it and there's, there's wide variation in Goss margin in are too kind of subcomponents of partnership channel. So our Builder joint, venture and Bank referral. And
Gain on sale, March has actually increased.
Quarter over quarter. And we saw continued pricing pressure in the wholesale Channel Through mortgage brokers where that side of them, of, of the business actually decreased quarter-over-quarter and we see the same thing happening in the retail side. There's been more resiliency and gain on sale. Margins in are in Market Channel, and they're more relationship-driven, and less price competitive or sensitive customers and increasing amount of competitiveness in the direct-to-consumer channel.
Got it. Okay. Thank you very much for the color.
Problem. Your next question comes from the line of Kevin and Barker with Piper Sandler, your line is open. Good morning. Thanks for taking my questions. All right, what the follow-up on your operating expenses may be some of the comments around marketing. We noticed that your operating expenses, you know, did come down slightly quarter over quarter and particular Personnel expense, which drops over 20 million dollars. Are you expecting the the those expenses to
A decline with production, volume declining in the fourth quarter. And then also do, you expect operating expenses as a percentage of origination is to continue to decline as we go into 2022?
Kevin. Yeah, this is Pat another good question. So the, the reductions that you saw quarter-over-quarter were based in large part due to initiatives that we began in the second quarter that focused around normalization where Workforce redesign of compensation expenses and reduction of over time, then they continue into the 4th quarter. In addition to that. There are additional cost savings initiatives that have just
Begun that we would continue into the 4th quarter and into 2022. And I think of note are actual savings exceeded our planned amount by 21% in the quarter. So we would expect those to continue declined going into next year. One, one part. That's a little bit confusing as we continue to grow and build our servicing and move servicing. In house. We we actually incur more Personnel expenses. We hire more folks in our in-house servicing platform that would
Have come through in sub servicing expense and previous quarters. So, the dynamic of that is going to change slightly as we continue that migration. So, would you expect your pre-tax margins to see quite a bit of seasonality as we go through the next couple of quarters just given seasonally lower volumes combined with the build-up of servicing personnel.
Yes, II do think? That's correct. And I would point you back to the areas of guidance that would gave with, you know, walk volume 18 to 28 billion and funded volume between 26 and 31 and then God's margins between 210 and 260 on a lock basis. And assume continued, you know, a little bit of a continued Improvement. We expect in expense margins.
So, with the expenses to Klein at a similar rate, or lesser rate than we saw, then we will see in Revenue just giving your guidance. We have, we haven't provided that level of expense guidance going forward. Okay, and then, can you give us just an any recent progress that you've made with grand slam or any statistics on how that's being, how that's how the rollouts going and any revenue generated from it. Yeah, this is Jeff.
I can talk about that a little bit. You know, we have
Strong top of the funnel momentum with with Mellow home. As digital mortgage purchase leads are up. We believe the consolidation of services and service offerings is going to continue to accelerate. LOL. Home allows us to not only provide the mortgage financing but also participate in the real estate service and real estate fee. And we're also able to offer other services such as title escrow closing in
Insurance and soon-to-be, you know, other services related to the home to home ownership. All of this is really designed to create a better less stressful, buying experience, especially for first-time homeowners. So Anthony had mentioned that the the overall funding from digital purchase leads was up to 704 million from 416 million in q1. Also introductions to real estate agents was significantly up.
From q1, where it was 596 for up a hundred and forty-two million up now to Q3 where it's thirteen hundred and five, four, four hundred and twelve million in real estate. Introductions. Also on the South Side Opportunities were up going from 7 million dollars in listings in q1 281 million, for the same period. So kind of the overall momentum and all of the metrics that kind of Drive Mellow home and Grand, Slam are all
To be positive heading in to the to the 4th quarter as well.
Thank you for taking my question.
The line of Bob Maple Leaves William Blair. Your line is open. Good morning. Thank you for the question. So Anthony you don't break out separately. But can you talk about the level of R&D spend where, what are the most important areas of investment? And what, you know, maybe, what kind of a product roadmap you?
Hi Bob, it's, you know, it's it's constantly boiling the ocean right far as the digital Journey. Just a few months ago. We made a significant higher in George Brady. I'm happy to report that George has caught great momentum here and has given me a digital roadmap.
That we are currently evaluating. There's lots of things to do because this industry is going to get a lot more complicated as as the desires of a customer is no longer about mortgage. It's about the entire home ownership Journey. So it's more than just the digital process and the
Ian, it's about building out additional products and services and all the adjacencies. A customer wants to be able to buy a home and move in. And the way that this country is set up over the course of the last century. It's the force. The customer to make multiple buying decisions on all of the appropriate decisions and different companies that must be involved. So, you know,
Answering your questions directly.
Klee, but from a very high level perspective. We are absolutely going to invest, invest heavily in almost double down on our digital in our tools going forward. This Market Bob, today is a market for us to attack and this is a lesson 12 year old company. We have risen to the top three retail lender in the country and we got here from making smart long-term.
Decisions. A Goss has really important. And we will absolutely leverage a maximize gauze and leveraging, our brand to lower customer acquisition cost. But Market, positioning and adding adjacent products and services to our core. Customers is sort of our long-term plan, but overall, the digital footprint of this organization remains very, very strong and George Brady will be leading that charge. Hey, Bob, this is Papa, can give you a, just a little
Numbers as well. So year to date, we've capitalized, 21 points, you million dollars for development, spend of develop and maintain the Mellow technology stack. So I'll give you a decent perspective on the size of that investment. Thank you. And they just a follow-up question, given with the Outlook Market Outlook, I guess over the next year. What are your thoughts around the market? Share market, share gains and how focused.
Just are you on increasing that market, share over the next year? If you would.
Ba-bye, I I typically don't call our market share gains Marcus. Here gain is a byproduct of competitive advantages that the company has built. So, you know, as we get into Q4 and q1 that are typically, thinner quarters for our industry.
We need to be very balanced between expense management and preserving our ability to scale. Should the market surprise us next year with greater volumes than what MBA or Fannie or Freddie is forecasting. Now, I will say being in this business as long as I have. I don't think those three institutions have been aggressive on their
Our year volume predictions. So I think we need to be sensitive to that. We also need to remember that were 30 year fixed. Interest rates am today and the outstanding twelve trillion dollars in outstanding mortgages, even a 10 or 15 percent turn on, refinance is still a one-and-a-half to two trillion dollar, refinance market and there's plenty of equity and cash outs.
I, I, we believe that next year is going to be.
A bit stronger and we certainly want to be in the position to capture that.
Thank you. Appreciate it. Sure.
Your next question comes from the line of Trevor Cranston with JMP Securities. Your line is open.
All right. Thanks a couple questions on the servicing side first. Can you give us an update in terms of where you are, in terms of transitioning, the portfolio and house and away from third-party sub-servicer. He's and then the second question you noted that you sold about 14 billion. During the third quarter was just curious. If you could comment on what was driving that and if you know you'd be
Thinking of any any additional bulk sales as we head into the fourth quarter horses. He's regaining everything. Thanks.
Hey Trevor, this is Jeff the Gary and I can, I can feel that for you in terms of the servicing transition and house. Everything is still going as planned right? Now. We are servicing all new GSE origination. I do right now is platform and we expect to be fully transitioned Office hub servicers by the middle of 2022.
And then, in terms of the sale on Q3, you know, we continue to look for ways to optimize the servicing asset on our balance sheets work for cross selves and other ancillary income opportunities. And so, we'll continue to do that. Going forward to match the size of the asset, the balance sheet, as well as again, trying to maximize every capture opportunities and other cross-sell.
Okay, that makes sense. Thank you. Welcome.
Our next question comes from the line of John Davis with Raymond, Jane, Doe and is open.
Morning, guys. I just wanted to get your thoughts on conforming loan, limits, likely going to go about 20 percent here. And what do you think the impact is on the refined Market may be for loan Depot, specifically, but also just the broader Market given, you know, how much home prices have been appreciated and you have you guys started raising your limits or any steps and preparing for that potential, refined them.
John, we certainly hope there's going to be a refi. Boom. The increase loan limits will no doubt broaden the audience, and broaden the available mortgages out there today, in terms of cash out. And to a lesser extent Reagan term. I think, more importantly, what we need to understand is, you know, when interest rate starts to move, it is a
Balancing Act between supply and demand. The mortgage industry is still heavily populated with lots of costs on the labor side. And until they labor gets equalized to the current demand of mortgage applications. You have pressure on Goss. So this usually will normalize one, two, three quarters. And once a normalizes, all of a sudden, the market is going to seem very very bullish. A trillion dollars to refinance is still a ton of business.
It just depends on how much labor.
Is chasing after that trillion dollars, so we're going through that adjustment period now and as I stated before the pressure is is good. It's good for Market, positioning is good for us to continue to focus on scale and efficiency and leveraging our technology, as well as are very valuable brand. So, the fact that agencies increasing their loan limits, no doubt is going
To help. But ultimately the labor in the industry has to be right size to match the current application demands.
Okay, that's all for today's quick. One on Goss. I think obviously I think it's really hard to say how long it's going to take to normalize the bigger picture. Is there anything that you see out there that may mean that the Gauss is going to be structurally, lower going forward than the wear it and wear it has historically been or is it is this more of just a tiny thing? We don't know how long until it normalizes, but we believe it will normalize.
Anything at all see structurally than maybe changes ghassan. Go for businesses.
Yeah, so so again, you know Goss is, is more of a herd mentality but there's two fundamental things driving Goss. John, you know, one is the overcapacity in the industry and everyone is chasing loan volume to keep their Workforce in task keeping their company busy. So that pressure, we have seen for the last four or five interest recycles spanning over.
The last 30 years. But in this cycle, you also have some leaders in the industry that want wants to add additional pressure by lowering price. So, you know, that is a strategic move. And that certainly is welcome because that puts additional pressure on the industry and washes out the weaker. Operational companies that are out there. So this is a cleansing of
The capacity side, the capacity was built up starting in 2008 until now and now the capacity will start to shrink and it has to because we just came off of a terrific year in 2020, but the volumes in 2021 and 2022 or still likely to be in the top five to ten in all time, mortgage lending, history. So still going to be very, very healthy. It's not a matter of how much volume is in the next one, two, three.
Here's, it's a matter of how much capacity is in the industry.
All right. Sure.
Again, if you would like to ask a question, press star and then number one on your telephone keypad.
Your next question comes from the line of James faucette, Morgan Stanley. Your line is open. Hey, thank you very much. And thanks for all your comments and colors on the industry. What you see excetera. I'm wondering if back to your point around market, share gains, but also the things that you've been doing to do to take on more servicing. How should we think about like how much servicing you to ultimately?
To do directly. And and how are you thinking about that as a path to Future share gains and and kind of retain that customer base through their their life cycles. Thanks. So let me, let me it's Anthony James. Let me answer a strategically and then perhaps patter Jeff and can come in and add some, some narrative and color. We are just now. Transitioning service.
I'm from third-party to our our own internal servicing it that decision was not made because we didn't want to control servicing and house. We, we've always wanted that but as a de novo startup, that started in January 2010, the prioritization of Building Technology and building assets of this organization Plus, in the first five years. We locked the scale in the ability to hold.
These assets on the balance sheets as we invested into origination and we've grown this organization 40-plus percent on the average year over year for the first 11 years. It wasn't it wasn't a lack of strategy of moving it internally with our servicing platform, but it was more of prioritization and the way that we look at holding servicing on a go-forward basis, the advantages of holding servicing for a model such as ours.
Is the recapture rate. So you're really holding on to the assets until you get the second bite of the apple. As our recapture rate is hovering around 60 to 70 percent, which is industry's best. So we're able to get a second refinance out of that customer and will have incurred a zero marketing cost. So that is a very, very attractive proposition for our company with a consumer direct or direct lending platform.
And far as the yield on, holding the the acetal, let Jeff or Pat, chimed in to that. But I wanted to, at least lay out the reasons of holding servicing strategically James had, let me give a little bit of context. So so as Anthony said, you know, we want to be a single provider for homeowners, for all of the products and needs that we can. And so we intend to keep as much of the servicing especially where we believe we have.
Have good customer Dynamics, to be able to serve that customer in the future, you know, subject to the constraints of our balance sheet. So a couple, a couple of things. So the amount of servicing we can keep is, is very correlated to what the overall gain on sale margins are and what the cash flow Dynamics look like and the governor for us ends up being leveraged on the balance sheet. So, you'll see us continue to operate. Keeping as much servicing asset as we can within. And
that the leverage at
Create levels for our for our company.
And I appreciate that and Anthony. I think the the Strategic benefits are pretty clearly stas. I'm wondering, you know, as you kind of go through the decision-making process of which ones you retain Etc. And and how you know, we should expect that to grow over time. Can he give a little bit of color what you're doing today? And what you would like to do in the future and not regard?
Jeff, would you mind taking this one from James? Sure, James got, you know, we're always looking at consumer Behavior. So it goes hand-in-hand with, you know, what's done by John Lee and his team on the analytic side. And so, as you know, Trends develop in our in our borrower base and the consumer data set, you know, will continue to tweak. You know, how we look at certain bar.
Is that are available to be available to be sold or retained and make that decision going forward again in the context of, you know, keeping within the limits of the balance sheet. So it's an ongoing process just optimization. That's great. Thank you very much.
You're welcome. You're welcome.
Bank of America. Your line is open. Good morning. Everyone, maybe Anthony or Patrick. Or are you starting to see signs that some of these small smaller subscale resonators are willing to partner with stronger. Corporates that have the capacity to excuse me. That are due to the over capacity issues that were kind of raised earlier. And then also,
What are your thoughts on stock stock BuyBacks?
I'll take the Saint, Anthony Derek. I'll take the first question and then I'll have Pat chime in on the stock buyback question. Yes, as, as pressure continues to mount, you're going to see lots more opportunities that the challenge here is, you know, do we want to take 10 small bites or you want to go after one, big bite? So, integration onboarding is a significant challenge in the mortgage industry.
So, you know, we we have to look at onboarding and Acquisitions very, very carefully and we've done. And, and just just to remind everybody, we've done two larger Acquisitions in our history, and have successfully integrated both of those organizations onto our platform in the middle of tech stack. So we're constantly evaluating we're looking for Quality companies that have a culture match and as this pressure.
Continues to mount the targets will get cheaper. So we're very, very patient and keep in mind that this business at scale, has a tremendous barrier to entry, tremendous barrier, to entry to have loan Depot at our current scale and muscle and positioning with healthy liquidity. And the most Diversified originator and contemporary times. We are patient. The market is 12 trillion dollars.
we're, we're just going to
Ten you to look for opportunities to be remain. Very very, very patient. I'll let patter or Jeff or other chime in on the stock buyback question. Sure. Thanks Anthony. So our number one Focus. Here is growing and creating shareholder value and we have a lot of tools at our disposal to do that and that the primary use of excess capital in our minds right now would in the most place where will grow the best shareholder values? Continue to invest in the origination and servicing franchises, but
We do have other options to return, shareholder value that we've used in the past. We have been paying a regular dividend and time to time. We paid special dividend. We would consider stock stock repurchases. But one of the things that we believe is is potentially constraining, our stock prices, the limited amount of float in the market. And so, it's a less attractive alternative for us to return shareholder value at this time because it would compound that that problem force on a go-forward basis.
Thank you. You're welcome.
At this time. I'll turn the call back over to you. Well, thank you. All again for joining us and for your questions. We look forward to continuing to build our relationship with each and all of you over the long term. Thank you again and have a great rest of the day.
This concludes today's conference call may now disconnect.