In the first quarter of 2023, California-based lender Guild Mortgage, which announced a leadership transition in March, continued to face pressures from high mortgage rates and low inventory levels – just like its peers. Ultimately, the company’s revenues declined more than its expenses in the period, leading to another quarterly loss.
“While these results reflect a challenging backdrop of rising rates and limited inventories, we continue to gain market share as we execute on our growth plan,” Mary Ann McGarry, Guild’s CEO, told analysts during a call on Monday afternoon.
Guild, the purchase-focused lender with a distributed retail model, delivered a $37.2 million net loss from January to March, higher than the $15 million loss in the previous quarter. The adjusted net loss came in at $2.5 million in Q1 2023.
The company’s net revenues declined to $103.9 million in Q1 2023, down 23% from Q4 2022. Meanwhile, total expenses dropped to $154.7 million, 2% lower than the previous quarter.
“Looking ahead, we anticipate continued pressure in the near term but expect some pickup in mortgage activity as we enter the traditional home sales season,” McGarry said in a statement.
McGarry, who joined Guild in 1984, announced she will retire in late June. Terry Schmidt, Guild’s current president, is the successor.
To analysts, McGarry said she will remain on the board of directors and, as she has been working with Schmidt for almost four decades, the transition will be “seamless.”
Guild’s total in-house originations were at $2.7 billion in Q1 2023, declining 9% compared to the previous quarter. The pull-through adjusted locked volume was $3.3 billion in the first quarter of 2023, compared to $2.8 billion in the fourth quarter of 2022.
Gain-on-sale margins, however, increased to 343 basis points in Q1 2023 from 331 bps in Q4 2022. Margins on pull-through adjusted locked volume went down from 351 bps to 284 bps in the same period. According to executives, the reduction is due to higher volumes.
Purchase originations comprised 92% of closed loan origination volume in the first quarter of 2023. According to its executives, the concentration on purchase loans allows the company to see more consistency in its earnings across interest rate cycles.
Guild had a net loss of $32.8 million with its origination business in Q1 2023, up from a net loss of $26.6 million in the prior quarter. The company also had a loss of $300,000 with its servicing portfolio compared to a $21.5 million net income in the previous quarter.
The lender had a servicing portfolio of $79.9 billion in unpaid principal balance as of March 31, 2023, up 1.3% from December 31, 2022. A fair value adjustment for the company’s MSRs brought a $54.9 million loss in the first quarter compared to $29.9 million in the previous quarter. Guild has no plans to sell MSRs, executives said.
Guild retained MSR for 87% of its loans sold in the first quarter. Its purchase recapture rate was 24% from January to March.
Acquisition’s impact
Guild has focused on acquisitions as the market consolidates. In December, the lender acquired Wisconsin-based Inlanta Mortgage and added New Mexico-headquartered Legacy Mortgage in February. In March, Guild acquired Cherry Creek Mortgage, a Colorado-based lender with 68 branches in 45 states. In April, it picked up a top-producing team in California that previously worked at rival retail shop Fairway Independent Mortgage.
To support the strategy, the company had $147.8 million in cash as of March 31, 2023. During the call, analysts asked executives about the impact of these acquisitions on Guild’s earnings and balance sheet.
“In terms of our leverage profile, it’s not going to swing anything,” Amber Kramer, Guild’s CFO, told analysts. “It’s not a huge impact materially on the expense side, and the gain on sale being flat is what we are seeing. No change on that.”
“We expect that by month six that they’re in, they’re starting to turn a profit, and between month 12 and 18, we’ve recouped any type of net expense that we’ve had. And so that’s what we expect on these acquisitions,” Schmidt said.
Aside from gaining market share and growing business, these acquisitions add new business lines to Guild. Cherry Creek Mortgage, for example, is adding reverse mortgages to the mix.
“Over the last 10 years, we’ve wanted to get into reverse, but there’s been a lot of other areas that we’ve continued to focus on,” Schmidt said. “We’re looking at the end of Q2 and Q3 to start expanding it [reverse mortgages] in our own retail footprint. But they’re already growing without our retail footprint.”