Q1 2022 Loandepot Inc Earnings Call
[music].
Good morning, welcome every once in a while he post first quarter 2022 conference call.
<unk> have been placed on mute to prevent any background noise and if you would like to ask a question during the call simply press star one on your telephone keypad.
I would like to withdraw your question. Please press star one again.
I would now like to turn the call over to Airborne and Daily Senior Vice President Investor Relations. Please go ahead.
Good morning, everyone and thank you for joining our call I'm Gearhart or daily Investor Relations Officer here at loan depot.
Today, we will discuss loan depots first quarter 2022 results before we begin I would like to remind everyone that this conference call may include forward looking statements regarding the Companys operating and financial performance and future periods.
All statements other than statements of historical fact are statements that could be deemed forward looking statements, including but not limited to guidance to our pull through rate if rate lock volume origination volume pull through we had a gain on sale margin and expenses.
These statements are based on the company's current expectations at 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 transcript of this call will be posted on the company's Investor Relations website at investors <unk> loan depot dot com under the events and presentations tab.
On today's call, we have loan depot, founder and executive Chairman, Anthony Shea, President and Chief Executive Officer, Frank Martell, and 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 question. We're also joined by our chief by our Chief <unk>.
Capital Markets Officer, Jeff <unk>, and 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 Gary and good morning, 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 and answering your questions.
The results for the first quarter, reflecting an environment that may turn out to be one of the most challenging that our industry has ever experienced the increase in mortgage rates during the quarter happened much more quickly and sharply than anyone anticipated when the quarter began and resulted in a significant and rapid decreases and profit margins.
Environments such as these are why we built more depot the way we did our diversified channel strategy scale balance sheet strength and ample liquidity allows us to be nimble and adapt to changing market conditions.
We have pivoted our business to generate more purchase volume and are adding new products and services to meet the financial needs of our customers in today's market.
Intense competition lower volumes and decreasing profit margins are putting pressure on the entire industry, which I believe creates long term opportunities where loan depot outperformed less efficient and less diversified competitors to accelerate execution on that goal. We recently announced a major addition to our executive management team.
Going forward I will assume the role of executive chairman overseeing the company's strategy.
Martel has joined US as President and Chief Executive Officer of loan Depot, Frank has over 30 years of executive leadership experience. Most recently as CEO of Corelogic.
It has also served on the board of directors of the mortgage Bankers Association.
Frank will drive daily operations of the company's executive management team reporting to him.
Along with George <unk>, our Chief Digital officer, driving technology and innovation as the net city President and CMO of our operating units no. Frank continues the enhancement of our C. Suite. The addition of these industry leaders will allow us to accelerate on executing the strategies for the next stage of the company's journey to innovate in this.
Throughout the mortgage industry to serve our customers and their homeownership journey integrate long term shareholder value.
I am excited for the opportunity both personally and for the company with that let me introduce Frank Martell, low depots, President and CEO Brian .
Thank you Anthony before I begin on a personal note I'd like to thank you and the rest of team long depot for a very warm welcome.
I am excited about the opportunities ahead of us to drive significant employee customer and shareholder value creation in the medium to longer term.
Since its founding 12 years ago long depot has grown rapidly by employing diverse origination strategies innovative and proprietary technologies that drive customer acquisition service and satisfaction and introducing exciting new products and services that meet the evolving needs of the marketplace.
Our growing service business and diversified multichannel origination strategy as well as our nationwide marketing reach is unique within the industry.
Under Anthony's leadership team low depot has become the scale leader, which provides the company with a durable platform to bolt on profitable solutions, and Adjacencies, which over time can drive further scale and help reduce cyclicality.
Along these lines last week, we announced the third quarter launch of our mellow HELOC solution.
This all digital HELOC will let homeowners quickly and efficiently access record levels of home equity, while preserving the historically low interest rates of their first mortgages.
While we remained focused on profitable growth opportunities. The recent sharp downturn in refinancing volumes requires a very aggressive focus on cost levels as well as productivity.
In a few minutes Pat will provide some detail around our progress resetting the cost structure during the first quarter.
As we move forward this year in line with our goal of achieving a profitable run rate exiting 2022, we will redouble our efforts to rightsize our cost in line with market conditions.
Ultimately leveraging our operating scale and aggressively driving quality and cost productivity will help us expand margins and importantly provide us with opportunities to participate in data and tech driven initiatives designed to transform the homeownership and housing finance experience.
Despite its current challenges residential housing is a 34 trillion dollar asset class in the U S with enormous opportunities for innovative customer focused firms such as loan depot I believe loan depot is poised to succeed through leveraging and expanding its unique lending and servicing solutions driving cross productivity.
<unk> and process efficiency and harnessing the collective energy and innovative spirit of the company's dedicated team.
With that I will now turn the call over to Pat Flanagan, who will take us through our financial results in more detail.
Thanks, Frank and good morning, everyone. During the first quarter loan origination volume was 22 billion a decrease of 26% from the fourth quarter of 2021. This was within the guidance, we issued last quarter of between 19% and $24 billion or retail and partner strategies delivered 8 billion to purchase loan originations.
And $14 billion of refinance loan originations during that period.
Our multichannel origination strategy has allowed us to successfully pivot our production to less interest rate sensitive purchase in cash out refinance transactions. This was partly driven by our ongoing investment in our in market retail channel retail loan officers increased by 9% year over year. These ongoing investments allowed us to increase the proportion.
<unk> of our purchase transactions from 19% a year ago to 37% in the first quarter as well as increasing both cash out and purchase transactions from 43% to 83% during the same period.
Our pull through weighted rate lock volume of 20 billion for the first quarter resulted in quarterly total revenue of 503 million, which represented a decrease of 29% from the fourth quarter rate lock volume came in at the low end of the guidance, we issued last quarter of 19 to 29 billion.
The decrease in revenues as a result of lower rate lock volume and gain on sale margins are pull through weighted gain on sale margin for the first quarter came in at 213 basis points. This also came in at the low end of our guidance for gain on sale margin that we issued last quarter of between 202 hundred 50 basis points and was down from the two.
<unk> hundred 81 basis points in the fourth quarter rapidly rising interest rates and shrinking overall market size has caused significant margin compression as the industry accelerates shedding excess capacity.
Our servicing portfolio complements our origination strategy and ensures that we can serve customers through the entire mortgage journey customer retention is one of our primary focuses in this channel.
By controlling the entire customer experience and retaining all of their data in our in house platform, we improve our operating efficiency by capturing additional revenue opportunities and leveraging our marketing and customer acquisition expenses across multiple products and services. This is reflected by our preliminary organic recapture rate which increased.
To 72% for the 12 months ended March 31, 2022 compared to the final recapture rate of 67% for the same period ended March 31, 21 2021.
The unpaid principal balance of our servicing portfolio decreased to 153 billion as of March 31, 2022, compared to 162 billion as of December 31, 2021. This reduction was primarily due to the sale of 24 billion of unpaid balance during the quarter, we're particularly pleased.
Just to note that the prices of these sales exceeded the fair value Mark of the assets at the time of sale.
Reflecting these sales servicing fee income decreased from $114 million in the fourth quarter of 2000 $21 million to $111 million in the first quarter of 2020 to bear in mind that we hedge our servicing portfolio. So we do not record the full impact of the increase in fair value in a rising interest rate environment and the results of our operations.
We believe this strategy is designed to protect against volatility in our earnings and liquidity our strategy of hedging the servicing portfolio is dynamic and we adjust our hedge positions in reaction to changing interest rate environment.
We have invested in our in house servicing capabilities and by growing the portfolio and bringing more servicing in house, including our recently announced Ginnie Mae servicing we leveraged the infrastructure and create the scale to increase the earnings contribution from this recurring countercyclical business line.
As of the first quarter, we serviced 67% of our portfolio in house compared to 44% at the end of the fourth quarter of 2021. This increase was primarily due to the transfer of approximately 33 billion in unpaid balances from our sub servicer to in house, resulting in $2 4 million of the boarding expenses.
During the first quarter.
As part of our balance sheet capital management strategy, we repurchased $98 million of our senior notes due 2028 at an average purchase price of 88% of par. These transactions resulted in a $10 $5 million gain on the extinguishment of debt and will result in annual interest savings of $6 million.
During our call with you last quarter, we discussed our outlook for the market this year being between two five and three trillion.
Now, we expect that market will be equal to or less than $2 five trillion, which means we need to further reduce our expense base to align with those lower expectations and accelerate our pace of reduction.
Looking ahead to the second quarter, and assuming no material changes in interest rates or the competitive landscape, we expect pull through weighted rate lock volume of between 12, and 22 billion, reflecting the recent increase in interest rates weighing on demand. We also expect loan origination volume between 13 and $18 billion.
We expect second quarter pull through weighted gain on sale margins of between 160, and 210 basis points, reflecting the significantly higher competitive pressure.
Our total expenses for the first quarter of 2022 decreased by $88 million or 13% from the prior quarter due primarily to lower variable expenses on lower loan origination volume and lower marketing expenses, we are aggressively managing our cost structure to return to profitability by the end of the year, we expect.
To achieve this goal by further reducing marketing expenses and personnel expenses through the addition of head count reductions. Despite these further expense reductions given our expectations for decreasing market volumes and the competitive pressures on margins, we do not expect to be profitable for the fiscal year ending 2022.
Given our expectations for lower volumes and gain on sale margins the lagging nature of our expense reductions and as part of our balance sheet and capital management strategy. The board has decided to suspend payment of the regular dividend for the foreseeable future. The board will consider resuming the dividend in the future once net income becomes consistent but in the mean.
Time, we believe retaining cash on the balance sheet is a better use for the long term benefit of our investors with that we're ready to turn it back to the operator for questions and answers operator.
And at this time I would like to remind everyone asked a question. Please press star one I will pause for a moment to compile the Q&A roster.
And our first question will come from Doug, Doug Harter with credit Suisse.
Please go ahead.
Thanks, you talked a little bit about the expense reduction.
Being tied to more variable in the first quarter.
How should we think about you know what the fixed costs can come down and how we should think about kind of what your expense level as a percentage of volume.
Can be kind of over the intermediate term.
Sure Doug.
Thanks for the question. So I think when you think about our.
Our fixed expenses the vast majority of our expenses are people related and commission and add volume dependent and so we will continue to work primarily on.
Scaling those selected the current operating environment, we haven't and we.
We don't intend to provide specific guidance towards the level of expenses on a go forward basis, but what would point you back to our comments, where we talked about the goal of returning to monthly profitability before before the end of the year.
Great.
I appreciate that and then how are you thinking about the correct size or.
The MSR portfolio.
How much more sales do you think you would do you have the benefit of that selling for liquidity versus kind of retaining an increase in your monthly cash flow.
Sure.
And that's a great question and we look at the balance sheet in three primary when it comes to our MSR book and in a couple of combinations of liquidity and leverage and then a ratio of the MSR as to our tangible net worth and as I. Previously stated, yes, we like to manage the company with.
Total non funding debt, which is exclusive of our warehouse financing to tangible net worth in the range of one to one and a quarter to one.
And we also like to manage our liquidity. So that we have cash on hand, and immediately available borrowings on our short term MSR lines equal to at least.
5% to 7% of total assets.
You'll see at the end of the first quarter, we had substantially higher levels of liquidity than that and in times of disruption we tend to build more liquidity.
And Dara that.
We have a couple of levers to pull so we can both decrease the level of MSR that we book on a monthly basis.
And that is one of the strategies that we employ to maintain liquidity and we can access the bulk sale market from time to time and wed like to stay active in both of those so I think if you think about our balance sheet going forward within the constraints of those those ratios that's that's.
Primarily.
We think what will land and again I want to focus on that we believe the right thing to do.
In times of disruptive markets and tighter margins is to maintain a very healthy amount of liquidity and moderate leverage on balance sheet.
I appreciate that thank you.
Okay.
Our next question will come from Kevin Barker with Piper Sandler.
Please go ahead. Thank you for taking my questions.
So you are proactive in selling msr's.
You know it seems like there is still a pretty robust market for those and then Youre. Your debt continues to trade at a fairly sizable discount to par.
Could it be possible to accelerate potential sales of msr's in order to reduce that debt amount and potentially increase cash.
Would you consider going down that route.
Hi, Kevin Thanks for the question and as I said I think if you look at the strength of the balance sheet at the end of the first quarter, we had very substantial amounts of liquidity and by managing the amount of MSR that we sell on a monthly basis.
We can we can offset operating losses and b.
And maintain adequate liquidity in the market, we will and continue to look.
At the at the bulk sale MSR market from time to time, we've consistently done that throughout the years and we think it is important to be.
To be actively in that market. So we'll look at what's the right combination is of co issue deals and whole loan sales versus selling a books.
And we're comfortable with the leverage of where we are as I said non non funding debt to tangible net worth of one to one and a quarter to one when we start to exceed one in a quarter and getting your one five to one that's when we usually access asset sales to kind of delever.
And then how much of your marketing spend is contractual in nature.
Versus variable or discretionary.
And then could you also give us a view on what production volume you've done quarter to date relative to your guide.
Okay.
So I think with that one.
Kevin.
In terms of marketing.
What I like to highlight is.
And upward interest rate environment Youre right in terms of refinances.
Display disappear.
Our cash out refinances.
Start to.
More of the dominant percentage of folks that are acquiring refinances.
This is the first time I think it's important for everyone to.
To notice that this is the first time post Dodd, Frank where the non banks and the banking sector.
<unk> second mortgage.
Because of some of the laws that were implemented post financial crisis in post Dodd Frank.
So the marketing flow and the lead flow generated by.
Our brand and our performance marketing machine is still very prevalent however, the purpose and the motivation of the customers have changed because of rising interest rate environment.
I think this is important for <unk>.
For us too.
Explain that the fact that we have differentiated assets and we believe along with this change and consumer motivation that behavior is still the same there is still spending money.
And the fact that we announced a digital HELOC. The first of his time at a scale player is really going to allow us to monetize that lead flow and for us to continue to leverage our brand. This is part of the benefit for operating a multichannel strategy and for us.
To make the necessary investments so that we can control.
Not only the design product and utilizing technology, where the digital HELOC is not a traditional HELOC. It's a digital pay off we expect to close these loans on average at seven to eight days. So we are adjusting to the market change, which everybody knows it's a.
Rapid change is the most substantial violent change I encountered in my 36 years, So we're adjusting to that and that marketing spend.
Will change quite dramatically because our leverage on that marketing investment is going to change as our conversion changes as we add.
Additional products so.
The punch line to your question on do we how do we control the marketing costs, it's highly variable and it's also highly dependent on the additional products that we add.
Alright.
Add on to what Anthony said, just more directly most of our marketing spend is highly variable.
And only about 5% of our quarterly run rate in marketing expand as long term and fixed in nature.
Okay. So when I think about the operating expenses and your ability to reduce those expenses given the current state of the market what percent of your.
Operating expenses in the first quarter.
Would you consider variable in nature and how many of those would you be consider fix.
Obviously, I would think youre looking at it from a holistic perspective, but just.
If we hone into that maybe we can get an idea of like.
How much you can really bring down those expenses relative to.
Some of the headwinds we're seeing our growth of the market. Thank you.
So again the three the three major sort of categories of spend that we have high degrees of variability around our people related expenses, It's primarily commission and that lags revenue by by a month or so.
And its marketing and we need to adjust our marketing to the return profiles on those marketing dollars that are spent.
In relation to what.
The market conditions are and then how much we have or how much we choose to invest in our technology platform and then the rest of it is we are aggressively.
Managing.
Expenses down and we are prioritizing our strategic initiatives for the quarter and for the rest of the year.
And again, it's important to note, especially in in fast moving markets that expenses do lag revenues by a significant portion.
Okay. Thank you for taking my questions.
Okay.
And our next question will come from Trevor Cranston with JMP Securities.
Please go ahead.
Alright, thanks, good morning.
Question on the MSR.
So obviously in the first quarter.
The hedges basically offset the increase in fair value.
Can you talk about.
How you've approached hedging it in the second quarter.
How hedges have performed versus fair value increases.
On the MSR book, so far into Q.
And kind of what your general approaches is going to be the hedging the MSR position given the rate outlook today. Thanks.
Yes.
Jeff <unk>, our chief capital markets or markets officers online, Jeff do you want to take that one.
Sure. Thanks, Trevor Thanks.
Thanks for the question.
As Pat mentioned in the opening statement, we're going to adjust.
The hedge on the MSR book to be at the appropriate level, given the interest rate market.
<unk>.
Where.
Rates are now at the present time so.
We're going to continue to hedge the portfolio.
To lineup with whatever the risk profile and that is at any given time and so in general.
The hedging levels have been reduced just because of the change in the asset profile here.
Yes.
Q2.
Okay.
So are you <unk>.
<unk> trying to offset.
The entirety of a fair value change.
Even despite the fact that.
Higher rates seem sort of.
The incremental negative impact on <unk>.
Stability of the operating side of the business.
We're looking to preserve.
The value and liquidity.
That we see that we need to and the overall view.
Hedging strategy.
So it is.
It is going to continue to be reevaluated.
As time goes up.
Okay got you. Thanks, Tricia just add in that.
Yes, a significant portion of our MSR financing as short term revolving in nature that subject to mark to market margin calls and one of the one of the primary reasons besides value preservation for hedging the MSR book is that.
Limit the amount of potential cash drains due to margin calls and kind of circles back to my earlier comments.
During prepared remarks about the need and our and.
An hour.
Desire to continue to protect the levels of liquidity for the company.
Yes that makes sense okay. Thank you.
And our next question will come from Bob Napoli with William Blair.
Thank you very much I appreciate it.
Having I know you guys have all been through many of these cycles.
How do you feel this cycle compares I mean, I know you said, it's the most difficult but.
How quickly is capacity.
In your view draining out of the industry, how long does it take do you think before gain on sale before gas starts to normalize towards long term historical levels.
Hey, Bob.
Anthony Shang.
Look we were predicting.
Along with MBA, Fannie and Freddie everyone's predicting.
I'll use this year with a two in front of it it could be as low as two it could be mid twos in any other year that would be a healthy market.
And there should be.
A decent amount of profitability as a result of that type of volume.
When you're coming off of a two giant years of.
<unk> 2000, 22021, and mortgage lending is still very much.
Inefficient this is where the disruption and the future of five to 10 years is going to become substantial and there is a tremendous opportunity for the leaders in the space.
Now with all the barriers to entry to so many different components that takes.
Our company to a level of scale, so youre adjusting down from four plus trillion to two and a half or less in the matter of seven or eight or nine months. So that is a tremendous and very very violent change and the fact that.
Most of the.
The transaction the transaction on the refinanced market side now because of the substantial high quality of credit that homeowners.
Half today.
They are enjoying interest rates that they do not want to pay off so.
But commerce and Theyre still theres lots of purchasing power.
Lots of need for home improvements.
Particularly we are seeing the lack of inventory on the resale side lots of <unk>.
Homeowners are adding on improving and we see this this home equity market has very long legs and.
It's an area that we're very excited about but it's going to take a little bit of time to adjust.
How long will this take I think it will take until the rest of the year and my previous.
In our previous earnings calls, we talked about four to six quarters and I remain.
Pretty consistent with that.
The pressure be getting any worse, possibly but I don't think so I think we're when the trough at this point, we're heading into the right time of the season and.
I think that the pressure is as good anytime.
Josh what's happened.
Great.
We're a market consolidation.
With us moving forward and frankly here, allowing myself to focus a bit more on the company and with Frank.
And Pat and Jeff and the rest of the team focusing on the inside the organization, creating operational leverage I think we're excited about the future.
Alright, Thank you and then just.
The mortgage market.
The thing about a refi Boston higher interest rates as it's headsets of next refi wave.
It may be down the road.
A bit.
The product set for the mortgage industry has changed radically over the last decade or so are there.
<unk> I know, we've seen a number of.
Subprime.
The expansion.
Are there opportunities for higher margin products and I guess, maybe HELOC sorry are one of those to expand our <unk> think that the there is no.
Interest from.
Political side to expand the.
The base of types of borrowers and the navy could be more profitable for the mortgage industry.
This is one of our greatest Differentiators.
Why we work so hard to build assets that allows us to do exactly that to build the brand to build a performance marketing machine. It have sophisticated capital markets executions. This is why just to remind everyone back in 2015 to 16.
Sure.
The first mortgage company to develop and introduce a personal loan product into the marketplace and exited at that space only when the capital markets and the liquidity.
Or disrupted through.
In 2018.
No.
This market post Dodd Frank is uniquely different from any other market example, the last market, 60% of loan originations were non Fannie Freddie FHA VA, so 60% of those.
Funding.
And the mortgage industry or sort of nongovernment product or GSE product today.
Today, we're looking at 12 13 years post Dodd Frank we're still looking at 90% of the fundings today pretty much FHA VA, Fannie and Freddie So the industry must look at.
New product opportunities to add Ed that delights, our customers and help us lift marketing conversion, having the assets to drive leads at the top of the funnel and that the AD products and our product mix along with adding other services is one of the key differentiators of this organization.
And going forward. So as we look at the digital HELOC. We also are looking at personal loans looking at other types of products and services that ultimately allows us to increase.
The ability to capture and convert higher so that we can.
Italy lever our marketing investments.
Okay. Thank you I appreciate the answers.
Of course.
Our next question will come from Aaron.
<unk> with Citi.
Please go ahead hi, thanks, Thank you.
I was curious as to what your view of the mix of purchase and refi, which I would assume is probably most of the cash out refi.
In the second quarter.
Let me take that.
Sure.
It's Anthony sure so.
Okay.
Yes.
There is one other dynamic that is happening.
That I would like to note in that is.
The non bank the non bank market share in the last 10 years has increased significantly at a historical high.
Based on the different reports that you read it.
It's well above 50% as a non bank market share now as compared to previous cycles.
As interest rates rise.
There are.
There are a few things that.
That makes.
Makes a non bank.
For a more sort of headwinds one obviously is the reduction in the overall volume, particularly around refinances and then of course the pressure on costs overall, the industry, but once once where interest rates rise hybrid arms return because.
<unk>, one a lower interest rate because sticker shock.
5% interest rates still very attractive historically, but coming off of 2% handle at just eight 910 months ago.
As consumers are looking into hybrids seven year arms tenure arms and that typically is a bank credit Union product. So I think the non banks will lose some share.
<unk> bank, just because of our capital cost and the way that we originate products.
So it's not just a purchase versus refinance ratio going forward, it's really how to increase product. So that the customer has an opportunity to buy from you.
We are in a significantly different market today than I ever have witnessed in my in my career a lot of this is a combination of the pandemic.
This is the rising.
Depreciation and real estate in the last couple of years and the fact that the non bank market share along with bank market share has changed significantly and non banks are at a disadvantage because of the cost of capital. So we're going to have to be very creative.
For loan depots perspective, and we believe that we have a tremendous strategy going into the rest of the year understanding the current environment.
And let me give you just a couple numbers.
So purchase for the first quarter was about 37% of total originations and for the second and third quarter typically we would see a slight increase and it's a lot of us just due to the seasonality that second and third quarters tend to be purchase season, and I think you'll see that our percentage of purchase.
Growth has grown over time as we continue and we're adding more.
Our loan officers and our end market retail channel today than we are in our direct to consumer channel.
Our retail sites and that they typically do more purchase production.
So.
As the market dynamics change, we continue to pivot towards purchase.
Okay. That's helpful. Thank you and then the.
The other question I had was on.
I think you made a comment that you should you expect to get back to profitability by year end.
Is that an assumption that.
Gain on sale margins will increase by year end or is that an assumption that youll be able to lower your costs to what is closer to what's being produced in the second quarter.
So there's a combination of factors at work in there. So we will continue to be aggressively managing our cost structure down to match the market size and the market conditions. There is a lagging effect.
The revenues recognized on at the time of lock and we incur a significant amount of expenses and trailing months. If you think about us as a manufacturing business that work in process take 30% to 45 days to complete.
Yes, there's always a lag in how our how fast you can cut expenses in our mortgage origination business.
We also are assuming some contribution from our new HELOC product and continue pivoting.
More cash.
Cash out and adding and adding a little bit of additional margin through through new products going forward.
And we expect as I mentioned to do a little higher percentage of purchase business and our purchase business has been carrying slightly higher margins than the refinance business, but that also will change as the product mix goes forward. So most of it's on the backs of <unk>.
Aggressively managing expenses.
Okay and then.
Lastly.
The board decided to cut the dividend your stock is at very depressed levels.
Have you were engaged with the board or the board engaged in looking at any kind of strategic review of.
The company's future.
I think the short answer is no at this point now.
Okay. Thank you.
Our next question will come from the line of Courtney <unk> with Barclays.
Please go ahead, yeah, Hey team. Thanks, so much for the time and Frank Congrats on the new role just a really quick couple from me on the balance sheet.
I know that you guys bought back about $98 million of the 28 in the quarter, but your total debt balance went up.
Thank you we're at like one six at the end of the fourth quarter and now you're at about $1 9 billion at the end of this quarter.
The 10-Q hasn't been posted yet, but I'm, assuming that's because you guys tapped. The third facility that are 300 million secured facility you entered in December of last year did you guys utilize that in the quarter.
And if so what's the total balance outstanding between that facility and the <unk>.
The $268 million facility that was drawn last quarter end.
Where does that leave you in terms of unencumbered or I'm pledge msr's.
So I'll, let me catch up and do some quick math here for you.
Yeah take your time actually.
Why don't we why don't we circle back after the call so that we.
We make sure and give you an accurate number yes.
Yes, that'd be great. Thank you.
Also just one more.
With regards to the funding capacity. It seems like you guys had decreases on two of your existing facilities in the quarter. In addition to the payoff of the one.
Just curious if you could provide any color here has there been any additional pullbacks post quarter end.
<unk>.
I know you guys had about $5 billion and available borrowing capacity at the end of the first quarter.
Any decreases to that.
So we it was by our election to reduce the size of warehouse lines just to meet the current demand levels. So it's cheaper for us and reduces the amount of non usage fees that we pay so we remained.
And full compliance and with very good relationship with all of our financing partners and we have added additional financing partners.
Our lineup throughout this year.
Okay, Great. That's very helpful. I'll follow up with you guys offline. Thanks, so much for the time.
And our next question will come from James Faucette with Morgan Stanley .
Please go ahead.
Hi, This is Blake matter on the line for James.
Want to follow up on the capital markets topic.
Fedex factor to taper and Megan its balance sheet runoff. This year can you walk us through how forces within the MBS market have impacted.
And your capital markets capital markets execution.
How are those dynamics contemplated within your guidance.
Sure.
Jeff do you want to take that one.
Hey, Blake.
So.
Like.
In terms of the overall hedging strategy I think youre asking here is an interest in terms of.
Execution into the capital markets.
Okay.
More of execution in the capital markets.
If you look to sell your new originations into the secondary market.
Yes, I think.
We continue to be nimble to look for opportunities where.
We can sell loans to help drive.
Either increased revenue for the company.
Or better efficiency in the sale process.
That's just an ongoing process that we go through them.
All the time.
Okay, that's useful and then switching gears to another topic.
Noticed that you see that some market share in <unk>.
Was that the result of aiming to protect your margins and maybe sacrificing a little volume there.
And if so how long do you think this might last.
For a six quarter timeframe that you mentioned earlier, the flatter part of Arizona.
Sure.
A good question and as we've stated previously on prior quarterly calls.
We are focused on profitable market share growth so in the near term while we.
Continue to be aggressive in managing our cost structure down.
We are fine and kind of treading water or even after a slight decrease in market share during the near term, but we believe that that upon the completion of sizing our organization correctly that the investments we've made previously and brand and infrastructure will allow us to again take.
Market share in a profitable manner going forward.
And as capacity shed from the market.
Over the next few quarters, we would expect that.
Later in the year that we might be in position to continue that that that mission.
That's helpful and thank you for taking my questions.
And again that is star one if you would like to ask the question. Our next question will come from Derek Hewett with Bank of America.
Please go ahead.
Good morning, everyone. So given the challenging environment, we have already started to see head count rationalization, but when do you think we're going to see potential industry consolidation.
Hey, Derek it's Anthony.
The industry is.
This is fairly early.
And the cycle so.
Yes, 10 year yield continues to rise or stabilize.
I fully expect.
This pressure is going to force some additional consolidations.
There is lots of firsts.
In this particular cycle that is new to the industry post Dodd Frank.
No.
Lots of variables are unknown.
It's harder to predict this cycle.
Than previous cycles because of regulatory changes.
Lots of changes between different models lots of changes in consumer behavior. We also have a digital disruption going on.
We have real estate services disruptions happening as well, which is our same core customer.
Real estate buying or selling services and real estate finance should be the same company. So I think youre going to see that come closer together in this in the cycle.
As well.
I think revenue additional revenue opportunity outside of what we're talking about now in the two to two five trillion between your your traditional refinance market purchase market.
In non QM and second mortgage and HELOC is going to start building some momentum.
We are very bullish on new revenue opportunities.
But certainly companies without the resources to add these products and have marketing control is going to feel much much more of this pressure.
Personally I believe the longer this pressure period lasts the better it is for loan depot.
Because it allows us to really strategize and.
Continue to invest into our diversified strategy.
So the consolidation is starting and it will continue on for at least the next four quarters.
Okay. Thank you and then with the new consumer loans with those.
New products reside on balance sheet or are you going to find a partner.
Are you going to partner up with another entity.
I can comment to that end of <unk> or anyone else wants to add.
As my my my remarks.
We are going to.
Sell these assets.
We plan.
To retain the servicing.
As we believe that any one of these he logs that we put on our servicing book is.
He is willing to be refinanced.
When the 10 year yield drops and.
As long as high as the 10 year yield kind of go up it's come to a point, where it's going to drop and when it drops and we have that HELOC on.
On our servicing bucket becomes.
Our refinance at that point, where the customer will consolidate their second mortgage which is on the HELOC and their first.
And currently.
Just just to share with the marketplace, because we are such such velocity marketers, 40% of our customers that are inbound today is asking for HELOC by name.
Despite the fact that there has been very very little marketing to the society.
Customers are very savvy and starting to ask for HELOC by name certainly because they don't want to touch the two to two 5%.
Historical low 30, you're interested interest rate that they obtained over the last one to two years.
Okay, great. Thank you.
And that will conclude today's question and answer session. Frank Martell, I will turn the call back over to you.
Okay. Thank you operator, and again, thanks to everybody for joining.
The call today and for your for your robust and comprehensive questioning we appreciate that very much.
Look on behalf of Anthony myself, Pat and the rest of the loan depot team.
We remain laser focused on driving profitable growth factors.
Sizing and optimizing our cost structure in line with first quartile performance indicators, but also importantly, as we as we've discussed on this call market realities at this point in time.
I think these focus areas are the right ones and together.
The unrelenting focus of a very talented team, we believe will be critical to driving shareholder value.
And then medium to longer term, we are targeting to return to a profitable run rate as we exited the year.
And that will involve both both growth and.
Focusing on profitability, but also on our cost structure, our productivity, our quality and our customer delivery.
We appreciate and look forward to continuing to build our relationship with all of you.
And our investors and we thank you for your time today and wish you all a great day.
And that concludes today's conference call you may now disconnect.
Okay.
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