Home Point Capital shares jump on $71M profit in 3rd quarter

Home Point Capital Inc. shares closed up 3.7% on Thursday after the Ann Arbor-based mortgage lender posted net income of $71.2 million in the third quarter, despite increasing competition and a shrinking market.

The profit did represent a 73% drop from the same period a year ago. Home Point originated $20.8 billion in loan volume in the third quarter, up 15% year over year, but its gain-on-sale margin decreased 71% year over year. As interest rates rise and with the industry forecasting further decreases in demand, Home Point emphasized its efforts to  reduce expenses and recruit brokers to its platform.

“In the fourth quarter, we’re seeing additional pressures beyond the competitive pressure, so I would expect to see at least what we are seeing on (profit margins) a downward trend on that,” Mark Elbaum, chief financial officer, said during a conference call. “We still expect to be profitable in the fourth quarter, but we’ll be focused on reducing expenses as well as creating a high-value servicing asset.”

Shares rose as high as 18% on Thursday morning following the results.

The overall mortgage industry is expected to contract to $3.8 trillion in originations this year, down from $4.1 trillion last year, according to the Mortgage Bankers Association, which predicts another decrease in 2022 to $2.5 trillion. A significant portion likely will come from a decrease in refinances, which are expected to drop to 33% of mortgages from 64% last year.

To counter that trend, Home Point has sought to grow its business base. The lender primarily is a wholesale lender, which means it sells mortgages through mortgage brokers who work with multiple lenders to find their clients the best rates and products for them. Home Point now has 7,452 broker partners, up by more than 2,500 year over year.

That growth comes after Pontiac-based United Wholesale Mortgage Holdings Corp. said in March it would stop doing business with brokers who continue to work with Detroit's Rocket Companies Inc. and Wisconsin’s Fairway Independent Mortgage Corp. Home Point CEO Willie Newman has said his company expects to end the year with more than 8,000 brokers, though that's still shy of Rocket and UWM.

"The significant shift in competitive dynamics in the wholesale channel, which began earlier this year, has created a strategic opportunity for Home Point to accelerate our engagement with brokers and attract them to our platform," Newman said.

Home Point also has been working to reduce expenses. They did increase 7.3% year over year to $175.3 million, but Newman said direct loan costs fell by 10%. The company's goal by the end of 2022 is to decrease that cost to $900 per loan.

Home Point reported net revenue of $274.6 million in July through September, a 46% decrease from the prior-year quarter. It made 51 cents per share, a 74% drop.

Home Point's originations segment contributed $67.3 million in profit in the third quarter, down 84% year over year. Refinances represented 65% of Home Point's second-quarter mix, down from 71% in 2020. The remaining 35% came from purchases.

Home Point retains the servicing for most of its loans; that segment made $86.2 million after losing money a year ago. The unpaid principal balance for that portfolio totaled $125.8 billion at the end of September, up 70% from the end of the third quarter of 2020.

Home Point at the end of September had $550 million in available liquidity, including $160.6 million in cash and cash equivalents, a 41% decrease from a year ago. Although it entered the capital markets in January, Home Point didn't actually see an influx in money to its coffers from the IPO. The offering came from private Home Point investors, but it now provides the company an opportunity to tap public investors for funds.

Rocket, which includes its Rocket Mortgage lending business, title insurer Amrock LLC, automotive retail marketplace Rocket Auto and more, will report third-quarter earnings after the bell on Thursday. UWM will post its results Tuesday.

bnoble@detroitnews.com

Twitter: @BreanaCNoble