- Earnings call transcript Q3 2022

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Operator

Greetings and welcome to the Home Point Capital Third Quarter 2022 Financial Results Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lesley Alli. Please go ahead.

Lesley Alli

Thank you, operator. third earnings Point’s Home to quarter call. XXXX Welcome

Willie and Chief Chief me Officer. this Officer President are morning Elbaum, Joining Executive Newman, and Financial Mark

During the Home a Investor referring Relations available our will Point the presentation, in of which is prepared to section Events website. we remarks, slide be

company’s call filings, Home guarantee for report results to we website. Point’s of or future March annual Before this earnings performance. I’d including These GAAP on non-GAAP which Point’s statements, certain call, which forward-looking management Home discussing differ Please on believes cause to like include begin, to available the to figures most factors actual company’s events SEC measures recent are which the in you refer are XX-K, the maybe filed business. Form reconciled assessing remind may materially the performance do these We could relevant on nearest which not release, was XXXX measures financial this statements. non-GAAP is on in which from the XX,

President to like Newman, to Willie Chief Executive call Officer. over I’d turn the Now and

Willie Newman

Lesley, morning, and Thanks, everyone. good

to the fourth long-term third I’ll to quarter. for year of impacted results mortgage discuss to our increasingly the channel. wholesale remarks, volatility will becoming last the more in severe environment, At interest in taken been as company to the to over focusing into The is quarter how sustainability Mark proactive to open Home crisis. intensified environment since provide We’ll for challenged. long-term to your financial then the steps we by result well over third communicated initial building action markets afraid that overcapacity, During the the both Home through is details the has significantly call the our industry margin that position expenses, rate challenges which and on have Point, our success questions. volatility some movements liquidity and take and earnings still challenging current prepared as smaller. we reducing most is the We insight market from on course market discuss significantly the origination those best call our in get the support an going I’m industry weren’t to continue capital Point’s take and volume. also sustainability loan quarter After that, we

expense During annually. quarter, our base the million to third took over we action $XXX reduce by

calibrate environment. of We industry curve to this cost to have continue in ahead the and been our the we’ll respect

is objective the as wholesale. back profitability operational get in quickly to Our to as possible upside preserving while opportunity

add In in of will addition, non-core additional $XXX continued sale to notably, Ginnie sell we substantially creating Mae a our liquidity. servicing. divesting progress and This making liquidity signed commitment Most of in businesses. all million we over

our a In provides liquidity historic less a continuing models annualized rate X% X% in seeing our origination October. than of addition, added experienced stake September, lows strength to balance a non-core completed consolidations are in we a in portfolio. trend. Industry a prepayment against liquidity, we floor available established prepayments downward with servicing In environment. challenge This prepayment. annual at in support This, in the in and we our has enhancing early to addition sale perspective, ownership in divestitures, resulted operational position. Longbridge prior sales MSR sheet From Financial our

originators to originators On raised loan access Since movement, joined into $X,XXX loan added our as we XX,XXX the originators mortgage Based creates wholesale. almost focus XXXX, nationwide. point our Simple, especially partners will confident XX,XXX data, over which broker into working decision remain partners. our migration with an the see X,XXX available brokerages. Home broker we over process, originators, the see In our third had of benefit Why opportunity broker loan alone, quarter provided the broker which expect for broker. over on rapid expanding migration on accelerating? support consumers This continue of to XXXX front, elevated, we for rates and loan to January With we sustainable Point. this the continuing to all the future, to continue to origination are foreseeable share the that an is advantage wholesale to market in per are to grow. efficiencies built consumers for continue

sole channel, taking to interim, about to the Mark. wholesale the We we that that, optimistic call extremely highly the are focused navigate focus will required to challenging on well-positioned on prospects. With actions In are over market. this our trend. from benefit like turn our we With long-term the remain I’d to

Mark Elbaum

and good morning, Willie, everyone. Thanks,

these navigate executing remains continue channel through to we our while to in focused market of challenging Point our efforts headwinds, areas investing on liquidity. business our key Home our and As managing plan, within wholesale bolster the expenses on

financial We earnings to release a key discussion handful on results. included I’m the and focus going metrics. period-over-period have in my our standard of presentation

will rise had declined The on the to demand rates be prepared at strategically decision consumer at the sentiment a answer many you sidelines. regarding coincided demand with over our rapid in following remarks. to impact in We significant any questions our margins vastly volume. focus That results drop happy people have purchase on financial on

quarter July. from margin origination on attributable in sale As and the channels volume points basis a XX XX quarterly around was third funded for $X.X basis points, gain was result, our to billion up

of volumes necessitated. two to to renewal mature we savings expect as quarter, Willie credit proactively to without origination optimize mentioned, In financing to fourth which and took steps in accrete with third warehouse by lenders a we expense the facilities our allowing addition the terminating lines

expenses our a position, lower increased impacting quarter, quarter, expenses Notably, from our the sale the reduction inventory key or we our in-house that to widened financial further completing and divestments the severance in reserves. converted resulting of cost operations quarter. we execution which ServiceMac, platform quarter and deterioration million fixed assets. into of spread maintained saw flexibility. our as repurchase cost as our agency in A $XX.X in outside last market non-core of strong The During third held capital a Related a variable performance. expense liquidity finalized we provided to for materialized a transition third few service contributed charge QX, well efforts, material the costs in total to

a As Willie XXXX, of of mentioned, we investment million. completed the October a impairment approximately of X, our for $XX.X an sale of in $X.X our on approximately Longbridge price We recognized investment the during the $XX.X quarter, third decline conditions, Also saw market our million. recognized due during impairment charge a in million quarter. we of and deteriorating to goodwill capitalization market significant third

action to our remarks, financial forward I outlook. briefly discuss plan like and Before I finish my prepared would

the the of at see see that has look to we but not back expect first XXXX, the normalized As quarters of pressure of a margin fourth three at levels. do year, through quarter them we slight easing existed

affordability origination with our In additional addition, inventory will liquidity. to and Ellington least of Longbridge Financial rates quarter sale and MSR until seasonality, to we sale continue XXXX. pressure issues housing fourth the our and of to source expect at middle an of volume market serve increased Proceeds from as

our efficiency We will while our wholesale-focused concentrating model. to continue on optimize operational

believe create our growth value long-term concludes to volume leverage a and of for for continue the in our We that channel focus opportunities positions, the remarks even will our reduced additionally sole the sale enhance margins. morning. We this prioritizing on liquidity environment. our while prepared market us will gain to That wholesale on to MSR monitor enable

We to to operator call turn back are to Operator? now questions. the take ready the your

Operator

you. ahead. Thank Doug is Harter first question Suisse. Please [Operator Instructions] go Our from of Credit

Doug Harter

about the your combination fourth guess quarter, are construct, as the sale, look kind for uses Longbridge cash the how plus of optimizing you additional about into structure? thinking we in you I are thinking capital or that rightsizing Thanks. sale MSR the of that what

Willie Newman

Doug. Thanks, Yes.

point, going maintain the are possible. this at as as a to we position of liquid So kind

look against as some So We point, leverage liquid we to as debt. at position that possible. maintain MSR. are have our this we of may buying But pay some a at our down our going that’s we back could of

Doug Harter

the Got of utilize at mean, kind discount point improve and point the that take offering I what kind of lower liquidity? to in to look would debt advantage be you of that the unsecureds use are the guess try leverage? some some to maybe some the cost do I What of of market you that, it. would that of

Willie Newman

Sure.

are to your add there continue point, it. we feel get looking market, I opportunity in the at an of to buying think that. liquidity is liquid we like market know in back we us, anything if will what we debt for conditions to you back don’t optimize Mark, have I and to some said, evaluate That to that? the better being the volatility to really than a to where more are is using are. able considering that And not place of kind

Mark Elbaum

want No, is to it, that’s Doug, are maintain how we is We possible. be to at able much as liquidity exactly looking runway as better.

do way make to continue that’s to so discount and And to that where adequate are the have through the of Very to available. things. the bonds mindful navigate liquidity sure is trading we

table the going be But and time, evaluated. be the will on to certainly this that’s is So at priority. liquidity

Doug Harter

you. thank Okay,

Operator

from ahead. Our question of is next Rick go Shane Please JPMorgan.

Rick Shane

Good for my questions. morning, taking guys. Thanks

of is the Ginnie terms the coming books? sale, how UPB much Mae First, in off

Willie Newman

Mark, want that? do to you take

Mark Elbaum

be to $X.X notional. billion going It’s about Sure. of

be be books. that the will will that So coming off the amount

Rick Shane

in it’s about the we quarter? fourth the marked, associated You given Got a gain talked And there but is gain it. with any that? where income, should assume cash

Mark Elbaum

I were to wouldn’t our able gain. We value. No, it sell roughly assume a fair at

– to it be quarter. needed where the marked in to it by third we So the

not like in that a that quarter, There expect? so and what to costs I would due but loss And be would would might see transaction that to I would gain. things the expect fourth we a be slight incur

Rick Shane

perspective, quarter. Understood. that a to the things stabilize Thank made the like it from then modestly feels in comment fourth you margin starting are And you.

what also contributing that What I’m that? enter rate is the rationalize reduced generally interest we starting there to capacity You still just Is capacity. to industry or excess the you think it volatility? a think excess stabilization driving it quarter, of pricing? is the you do curious, is weaker highlight do in as Is What industry. margin? seasonally is

Willie Newman

Yes, Rick.

So a One have things. there is wholesale side the pretty margins, of down especially gone is, obviously, I couple think materially. in

like is stabilization I’ll at, the say, out there, a we’re kind there So that we around of lows. feel on based what seeing

constant and keep more the volume to Second though, which let be kind specifically variable. more our of is is strategy, margin really

should we you maybe Mark, what talk saw little bit a in So October. about

Mark Elbaum

Yes, sure.

margin. we’re Number one mean we XX I things there is of a seeing. of So reported basis couple that points is

If XX you’ll recall, July, points. basis reported we about

So there or basis has will points. was XX there. then about XX certainly about been some channels October, attributed be And our margin upward basis momentum points

seeing. So what we’re that’s

a over volume. to margin on own it, far of what’s As as is focus lot our contributing it

we’re capture So – to and able margin. that

So we’re the seeing marketplace just in that’s now. right what

Rick Shane

been quarter, has volume a driven gain drag there in Got obviously, especially given reflecting lot repurchases, that long on of the sale, a denominator effect. etcetera. net How effect how compressed one denominator the much to it. third the drag? how And should And then that assume long we the continue create last question, on – is will by

Willie Newman

that? Mark, take do you want to

Mark Elbaum

to is going were recovery. quarter, denominator of in going really time it. quarter we period that first hard the inventory. a are a for will Sure. lot is couple you’re to there be And coming of some the have had are time effect, pretty of the sure. we the And loans which are worked know be, than we a depressed to here But lot by we now. volume see is where also, into think, There more second this another start of repurchasing to now through right, from quarters we Maybe It’s volumes at quarter. fourth the doing where that

two. be or So another it could quarter

Rick Shane

Hey, I the the environment. Got Thank you. answers appreciate it. clear challenging in

Mark Elbaum

you. Thank

Operator

Our next of question go is from Please Morgan Stanley. James Faucette ahead.

Unidentified Analyst

about going And forward in on you about of are James. most cost-cutting, the in we which found how inning to [indiscernible] actions profitability, in? very Where difficult it’s OpEx on? we think on thinking are that? towards you getting to forecast. fruit low-hanging Obviously, And here? most profitability? the question the areas terms focused is your should A This the path on how similarly, What are near-term have for you

Willie Newman

Yes. Thanks for question. the

we is So continuing that kind But a the grind back a margins variables to reasonable there level as that you’ve are point, volume, we’re far to involved. of point seen as to I reasonable think path, number what certainly and the get I during profitability. to down assuming of get is operational cost where XXXX, of your can

the So Mark, the some to you little talk more do want a about elements of of path?

Mark Elbaum

absolutely. Yes,

hard low-hanging easiest it’s because you start because mean all Let’s terms fruit. with I control of and the of in expenses difficult it’s decisions certainly have that’s the make across board. to to

no dimensionalize It’s focused just one that help area you is on. particular to the across we’re But there board. So that.

at $XXX our look you third of we about had If million expenses. quarter,

the were goodwill on there million. in impairment third actions included from then the to in quarter. As related the about we took was we That was and noted call, one-time $XX about costs $XX severance million

So that and a took us we resulted would $XXX And expenses. year about million reduction benefits. actions $XX as in circa mentioned, we the million take to of salary in a then

that’s So a quarter. million about $XX

So that under about to see would down From relative to take there, moderate expenses. $XX $XX to me, that quarterly volume. I $XX level would expect or million excuse us of us – to million continue

come make So out, we capacity costs as will well. decisions if volume variable continues additional to will decline,

below. expenses even our the find So $XX or somewhere in it be millions low could we

where that be. that’s would So

season start we we to should points the more XXs, basis to normalized that’s to XXXX continue extent upper move as of approaching purchase see expect XXX the be and in that area. Secondly, period, into a margins to

the to that’s path So on that we’re to path. profitability. Willie’s point, And

this helpful too. our and expenses We’re the I looking focus going in we’ve be feel got to is a margins approach like really good to accomplish to on XXXX.

Willie Newman

Yes.

I in performing really would from about to add prepayment we historic is is it at a think that levels servicing prepared the – is remarks, I talked standpoint. portfolio our

kind And of bit through supporting so – the quite cash also of environment. origination It’s that’s generating of the supportive challenges for a us. of us

can this the about our most is management and point coupled perspective kind environment being that, back the type at gets point back it’s that us thing get where the to to profitability. the important generating from path with we actions, of kind really navigate So of liquidity liquidity these that to to expense through of that liquidity, part

Unidentified Analyst

more you what can obviously, as Got mentioned pricing purchase, And you the the I’ll do? purchase-heavy, versus are mind, Or that terms of follow-up. still it. becomes volumes, one keeping And strategy you. focused that continues purchase? to initiatives on Thank into? ask you the in into market the aspect you to you about can lean of Is broader purchase as a an obviously, refi, market channel context share broker versus contract? market or in benefit of that lean how are the thinking And in

Willie Newman

you mortgage have the they are positioned in What it business They volume Sure. brokers. They on we the order are to perfectly is that most important have do initiative established referral do to that. hit market. with do going is because purchase that sources to in

have, so an quality, the And to from the it into us to well a very which for evolve really on – experience, market. those broker support is is bode to standpoint, purchase partners improve organizational focus things that focus efficiency we continue our all

we’ve So that of it’s and kind already really established. tackling the blocking

Unidentified Analyst

Got it. you. Thank

Operator

go [Operator Bank Instructions] Our is next of Mihir question Please Bhatia America. of ahead. from

Mihir Bhatia

how back is And – being was additional I’m driven Hi, volume what thank path focus curious, questions. I giving about you on by in there solve I bit those basis I high of a much for points to taking even did go you talked about in margins your comments want enough your your on to a comments and bit you’ve guess my I regarding you to mentioned up trying XX that to think at little the your October. profitability, little that to volume? X. XX profitability is

to there that more? year XX cuts year, that to or mentioned need next in you X enough cost make think volume do will range, your to you you I would be expect for for enough next be

Willie Newman

Yes.

we will that do grow. that of that share broker depends the size And continue believe that of to have. is lot market. the that I a think We on challenge

every remarks, that As we during is indication happening. is that prepared said our

really focus us where that results I level so continue point profitable. upon mentioned incumbent up earlier operationally volume fundamentals those the to is And it order on get that to in us being in to combination the to

Mihir Bhatia

effects that you benefits yet? starting Okay. guess, gone And a leading like, of any, towards Are seeing out to who’ve any movement been etcetera? then terms competitors competitors of from from any business. in – broker the are by I channel incoming more the or see channel, just the There few you is the

Willie Newman

in and originators the during our we the broker that of the remarks, of the Again, over seeing segment, the the say of broker prepared specifically as has years, of our mentioned with that which into benefit which with you with if the would kind X,XXX X.X significant well. I last loan we partners, dialogue partners broker quarter flow over new level our look migration in we’re flow a at in partners a been increase material. average is have

out a are there. one the That’s it’s at competitive obviously, reasons bar in high very of transactionally, The migrating wholesale. originators environment broker. frankly think, why I is to

to it’s bar to that grow continue volume And again, us that market share to reach can upon and make order so incumbent drive in sure we in.

Mihir Bhatia

my as comments Rick’s Okay, of you echo thank you answering this questions you. type will Thank transparent environment. can you for as in and about I appreciate being

Operator

Piper is Barker Sandler. Our from next of go ahead. Please question Kevin

Kevin Barker

Could help margin look gain like Thanks month my morning. did What in like the had of of believe seeing look third quarter? in points on Good about XX last in for July. you this understand what margins basis that referenced And quarter then taking October? you questions. what August you the September? sale through and us I you’re

Willie Newman

to want take that? you do Mark,

Mark Elbaum

Sure.

basis So the for ended we up points. quarter, Kevin, full at XX

about at So XX, started if finished XX. the we at we quarter

margins then XX So that for sale you were basis sense a our trajectory. gives October, points. gain of on And that

Kevin Barker

Great. Okay.

focus move progress as the and to some to into quarter fourth you early higher-margin through there. that obviously so higher business And expect ‘XX? continue Do on you

Willie Newman

Yes.

expect can that we mean, in – Kevin, think think I I I range.

down. the we’re sort of margin volume toggle look so. at up, a margins So have. that over But moving we, There daily emphasizing some volume, we again, margins moving is on basis,

feel and with we comfortable trying think those press it to higher. I pretty we’re levels

Kevin Barker

Great. for seeing seeing continue MSRs? near And market to – proactively with you you do then MSRs continue servicing And bids Xx are expect sell multiple? to the that, X.X,

Willie Newman

Yes.

think as we we I will opportunistic. So mentioned, be

I the really we liquidity point, think about this good we position feel have. at

need of MSRs origination So for we’re itself the reset business. sell the to of supportive there not making effort that been is side a us. the to And really performance the has

opportunistic. again, So

the not We’re not that at that we’re levels mentioned. sales seeing you seeing – levels

right or comfortable opportunity. across very standpoint. if asset an now as multiples advantage of of feel our we board may valuations and again, But position from we move So kind take the up, that with

Kevin Barker

Ginnie the rules these understand they got help controversial manage put the and pretty an to allowing Mae? then capital on for have subsidiary where can could And rules? you risk-based But out for But a Okay. year stand I which versus around in and do relation to FHFA you understand us get idea you structure like give around capital, for just rules, another been what Ginnie people deferred impact where prepared. is could may to corporate us you those that. there that that are you

Willie Newman

that? Mark, do take want you to

Mark Elbaum

sure. Yes,

So be deferred rules the is another which in were I compliance for today. in We year, if been place fine, guess. yes, it’s would

place, year-end, In that can running the say through in prepared I – compliance. the we in if terms do of rules not be were call, would detailed to let’s but say, calculations, if at I’m we the on that really

Kevin Barker

restrictive need it So a over Or time, like to they around you going MSRs? something large you’re are given how – those you’re what you to manage – do is are above margin? just levels well feel that by

Mark Elbaum

going to monitoring things, it. managing managing it be always types those and We’re of

for this at take granted. not say That’s where are. I’m to I would comfortable it So we point, with

managing be will else. it we everything do We like

Kevin Barker

Mark. Oaky, thank you,

Operator

ahead, end comments. to Willie reached session. now to go back like Newman closing question-and-answer call of would turn sir. the have Please for We the the I over

Willie Newman

as talked I comments, Appreciate focused well, about, at Well, to operational we’ve profitability. want getting you. thank questions. everybody’s we’re very back and to on wholesale just And executing

with So much. that, thanks very

Operator

conference. Ladies joining us. and Thank concludes today’s for gentlemen that you

may your You disconnect now lines.

Home Point Capital (HMPT) 13 Nov 222022 Q3 Earnings call transcript