CEDAR CREEK, Texas — loanDepot is “fully committed” to return to profitability and “aggressively manage the cost structure” while investing in “automation and process improvement,” CEO Frank Martell said in an exclusive sit-down interview during HousingWire Annual earlier this month.
“We want to be in a leadership position coming out of this cycle, which I don’t measure simply in terms of volume and size,” Martell said. “We’re still going to be the same company in terms of structure. But we’re going to be more automated and purpose-driven.”
loanDepot hired Martell in April 2022, three months after he retired from CoreLogic, to help the company “deal with the down cycle,” he said. He was not hired to restructure loanDepot and sell it, even though “every public company is for sale,” in his general opinion.
In fact, loanDepot recently showed the market that it’s considering acquisitions by appointing industry veteran Dan Hanson as executive director of enterprise partnerships and acquisitions. The company is looking for businesses that add value to its operations, as Martell is not “a big believer in buying a bunch of LOs walking across the street.”
Martell’s first big move as CEO was to announce the Vision 2025 plan in July 2022, which included simplifying the organizational structure, focusing on client service, quality, automation and operating leverage.
Another restructuring was announced this year: consolidating LDI Digital, including mellohome, into existing production channels under Jeff Walsh’s leadership. Amid a shrinking market, Vision 2025 was extended into 2026 and beyond, Martell said.
In the Q&A below, Martell shared more details about loanDepot’s strategy and focus in the months and years ahead.
This interview has been condensed and edited for clarity.
Flávia Nunes: As loanDepot narrows its financial losses, what does the company’s path to profitability look like?
Frank Martell: We are fully committed [to reaching profitability]. From the implementation of Vision 2025, we have significant cost reductions. And the losses have come down to just roughly $50 million a quarter. By the way, some of that is book [losses]. Our cash flow is actually better, still negative, but better than the book losses. That trajectory should continue, obviously, subject to the market.
We solved for breakeven about five times in the last 18 months because the market has just come down. But we have a lot of cash, over $700 million. I would expect the most likely period [for a trajectory to profitability] is the spring selling season, as we get into next year and the market provides some lift. Right now, it’s ultra-low. But the fact that we are reducing losses as the market continues to deteriorate is a good thing. I’d expect the trend to continue.
Nunes: Margins at loanDepot also rose in Q2 2023. How sustainable are these higher margins?
Martell: Time will tell. But our margin is driven by mix and also a more productive cost structure. Those factors shouldn’t change. There are a lot of players out there that are fighting for their lives, but we’re pretty disciplined. I don’t expect a major shift. There could be some ups and downs. The margins are supported by the mix of the business presently and, also, our cost, which is very much something we’re focused on, even beyond the market.
We have to be efficient. Despite the fact that the market is so bad, we’re investing quite a bit of money in re-platforming and in some of the key point-of-sale systems. We’re doing that to make sure that when the market turns, we can participate and drive margin and productivity. And not just adding tons of people — that is the traditional model in mortgages.
Nunes: loanDepot fell from the 8th largest U.S. lender in 2022 to 13th in the first half of 2023, per Inside Mortgage Finance estimates. How will loanDepot recover this market share?
Martell: Obviously, we exited the wholesale channel last year. That is a big chunk of what they’re looking at. We were one of the first to exit it, and it was the right decision. And then also a little bit of a mix of the volumes, because we did have such a large percentage of revenue in refi.
The company was about 70% [refis] and 30% [purchases]. Now, we have three-quarters of purchase loans. We’re holding our own from a market share point of view. But we’re also being disciplined. We’re not chasing business that doesn’t make sense. We’re trying to make sure our focus is on the strategic growth areas that we think will contribute to the first-time homebuyer, diverse lending and affordable [lending].
Nunes: As loanDepot returns to profitability, what market share can we expect in the coming quarters?
Martell: We want our fair share. But we want to do it in the context of Vision 2025. We’ve extended that to 2026 or so. We’ll rename it something. The company is purposeful. We are a very large lender already in diverse communities — Hispanic, Black and Asian. We are proud of that. As we go forward, first-time homebuyers are going to be more diverse. We can’t do what we did with the baby boomers era. It’s got to be something in a different engagement model.
From a share perspective, we don’t want to lose share. But we’re not looking to take share for share’s sake. Whether we’re [No.] 7, 8, 10 or 5, we’re a major player. We want to be in a leadership position coming out of this cycle, which I don’t measure simply in terms of volume and size. We have four channels [joint ventures, retail, consumer direct and servicing]. We’re still going to be the same company in terms of structure. But we’re going to be more automated and purpose-driven.
Nunes: What is the strategy to get more purchase loans in this market after exiting the wholesale channel? In general, what is the product strategy at loanDepot?
Martell: Most of our purchase transactions are coming through the JV [joint ventures] channel and our in-market retail network. I don’t see that changing. The direct-to-consumer channel is more home equity and refi-driven; they do some purchases, but it’s primarily that. Our in-market retail channel, I think we have a great team there. We have plenty of products and solutions for the market.
Our percentage of government conforming has increased, which is good. We’re stable. We have a very large contingent of loan officers and branch networks. Looking at the market shifting towards interest-only variables and the jumbos, we don’t compete in those areas. We don’t hold loans on our balance sheet. A lot of jumbos are being originated from the bank’s balance sheet.
Nunes: How relevant are joint ventures for loanDepot? How do the financials work in these partnerships?
Martell: We have a number of joint ventures. The ones we’re talking about now are more our ventures with builders. We have several very large builders. That’s new construction. It’s being sold in the market, and supply is tight. This has been an area that’s been very productive for the company and, frankly, for housing to [produce] more supply. We help these lenders run the mortgage operation and provide support for their home sales. Usually, the name would be in the name of the builder, but it’s run by loanDepot.
It [the financials] is pretty similar to a normal underwriting transaction; it’s very similar economics-wise. There are some nuances because of the building process and how long a rate lock would be in effect. It’s just a strong market now and for the foreseeable future. That channel is growing, and we’re benefiting from that. We don’t disclose that publicly [how much JVs represent from the business], but it’s meaningful.
Nunes: loanDepot has reduced its headcount to 4,683 employees as of June 30, 2023, compared to 8,540 a year ago. What can we expect moving forward?
Martell: I said on the last couple of earnings calls that we’re going to continue to aggressively manage the cost structure. A lot of what we’ve been cutting, generally, the full benefit lags a bit. Part of our reduction in losses is the flow through the benefit of actions taken in the past. But, realistically speaking, we’re still going to be driving cost productivity.
In my experience, this is a time when the company will get better because the market requires it. If you’re going to win the market, we have to do better. The multichannel is unique. The team’s capabilities are unique; our quality is quite good. And people don’t fully realize it. I get many letters from customers thanking us (maybe complaints here and there). But our quality is really good. Things like repurchases have come down quite a bit, and so that will continue.
Cost-cutting for addressing the market drop is one thing. Reducing through automation and fundamental process improvement is something that we want. Something I’ve believed all my career is that you can always do something better. That’s how Rocket started. Quicken Loans was focused on ‘Engineered to Amaze.’ I remember that, and that’s right. So we’re doing the same thing — optimizing and automating. You’ll see continued cost reduction; whether it’s necessarily headcount-focused is the question.
Nunes: How is loanDepot retaining and attracting loan officers?
Martell: Our attrition rates have fallen. There’s a lot of loyalty to the company. Do people get offers? That’s all slowed to a trickle. The market participants, the people that were doing that, I don’t think they can afford it. We’ve seen that slowdown. Our voluntary turnover has been manageable and static for some time. We’ll see if that continues.
Everybody’s challenged in this market. There’s nobody winning. Some folks have tried buying market share, but it doesn’t work well — I think most times — because market volumes are not there. We’ve been successful in attracting talent without resorting to big sign-on bonuses. I think LOs fly to quality and, as some of our competitors struggle more and more, having the scale and the reputation, we are seeing an inflow versus the challenges when, in the middle of last year, the market was falling, and we announced Vision 2025. We tried to be very transparent, and you tend to typically get outflows. But that’s now a thing of the past.
Nunes: In Q2, loanDepot had a leadership shake-up, with chief financial officer Patrick Flanagan, chief accounting officer Nicole Carrillo and chief human resources officer Kevin Tackaberry, among others, departing the company. What happened?
Martell: One thing we discussed about Vision 2025 was organization optimization and review. When I arrived, a lot of the executive team was scattered all over the place. It was a function of COVID-19. Patrick Flanagan is a very fine CFO, but he was remote. When we explained that we wanted to bring not every single person but the critical executive team back into Irvine, that was why you see most of the people [parting ways]. And then, obviously, we wanted to reduce redundancy and layers. That was really what those folks were.
Nunes: What was the rationale behind consolidating LDI Digital, including mellohome, into existing production channels under Jeff Walsh?
Martell: When we created Vision 2025, Jeff Walsh took all the channels. So, all of our revenue generation was under Jeff Walsh. Jeff had primarily run wholesale. We had LDI Digital, which included mellohome, with a component of Realtor [aspects] and also the component technology. So there’s mello technology. But the more we looked at that structure, I wanted to integrate it more. And, when you have two divisions, there’s always similar costs. We just put those two together. Now, to be honest, LDI Digital wasn’t that large. We incubated our HELOC product, LDI Digital. That had gotten to maturity. This made sense. As it got bigger in revenue, it was taken over by Jeff Walsh.
Nunes: Where’s the company when you see its technology journey regarding leadership and platforms?
Martell: I’ve been around a long time, and I’ve had a lot of CIOs. George Brady is our CIO; he’s just phenomenal. He’s been there the whole time I’ve been there and helped architect the technology strategy. I don’t anticipate changes there. IT is always a tough area to keep people, especially remember when COVID started and all the technology people were hiring everybody. It was crazy. There was a little fluctuation there. That was before my time at loanDepot, but I saw it at CoreLogic. That’s all changed. We’ve got a pretty good team.
The mello technology is a calling card. When I recruit people and talk to people in the industry, the perception of our technology is that it’s top-notch, which is true. Our point-of-sale platform, our underwriting decisioning . . . it’s really good. We have a new generation coming out before the end of this year. I feel good about technology. loanDepot traditionally has been more of an in-house player from a technology point of view. There was a lot of investment during the boom in 2020 and 2021. We’ve harvested the benefits of that.
Nunes: What makes mello technology competitive?
Martell: It’s the usability, the speed and the types of data that’s provided. Most technology tends to be overly complicated. It’s much more relatable to the consumer and to the loan originator. A lot of our users are internal. I spend a lot of time on the floor with our loan officers and watch them use the different technology platforms we have. It makes a big difference that they’re able to make decisions, underwriting decisions; there’s lots of complexity in terms of compliance costs related to different types of loans. You need to have that [mello technology] to make those decisions and talk to borrowers.
Nunes: HousingWire reported on the battle between loanDepot’s founder Anthony Hsieh and the board to nominate a new member. What happened? What is Hsieh’s role at the company?
Martell: Anthony is our founder chairman. He’s prominent in the strategy. We just had a strategic planning review. He’s a great student of the industry. He’s engaged. He and I work well together. We’re complementary in terms of approach. I’ve had a great relationship with Anthony.
The board issue . . . the correct thing is Anthony had somebody that he wanted to put forward as a board director. And he did that; the board was considering his proposed candidate, and he felt he wanted to make a public statement. There was not a proxy fight. The bottom line is we brought on Steve [Ozonian]; he’s been a good contributing board member. There wasn’t any strife or any issue, per se. It was more of a tempest in a teacup. The board is very collegial. We don’t have fights on the board. Everybody is singularly focused on coming to this cycle stronger.
Nunes: When you joined loanDepot, industry experts said that it could be a step to put the company up for sale. Is that on the horizon?
Martell: The proper answer is we are a public company. Every public company is for sale every day. All these rumors and speculations . . . we’re a large company, and we’ll do whatever is proper for the shareholders. Anthony and Parthenon [Capital], for a matter of public record, are the controlling shareholders. Whatever would be done would be with their review and approval. But I was not brought in to sell a company. I was brought in to help deal with the down cycle. And I have a track record of doing that successfully.
Nunes: With the appointment of Dan Hanson as executive director of enterprise partnerships and acquisitions, what acquisitions is the company currently pursuing?
Martell: There is a lot of challenge in the market. A lot of companies have either gone out of business or dwindled. The longer this goes, the worse it’s going to get. I’ve done over 100 acquisitions in my career. But you need to find a value accretive to the company’s operations. I’m not a big believer in buying a bunch of LOs walking across the street. We want technology. We want value added. We signaled publicly that Dan Hanson is going to run in that area. We did that on purpose because we want people to know that we’ll look at stuff — whether we do anything or not is another matter.
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