Guild Mortgage’s second-quarter earnings suggest that a high share of purchase loans won’t necessarily be enough to protect lenders from the most challenging and volatile mortgage market in years. They’ll have to cut costs and grab opportunities as they emerge.
The nonbank lender reported a $58.3 million net income from April to June, a 72% decrease from $208 million in the first quarter. Virtually all mortgage lenders have posted significant decreases in profits in the second quarter from last quarter, owing to a sharp increase in mortgage rates and challenges in the secondary market.
Guild’s net income from originations declined 60% from the previous quarter to $25.6 million from April to June. The second-quarter profits at Guild mainly came from servicing, with $63.9 million in profits recorded. Still, that was down 72% from the first quarter.
“Much of the sequence of declines in revenue and income can be tied to lower origination volumes and margins, consistent with broader industry trends,” Mary Ann McGarry, Guild’s CEO, said during a call with analysts on Thursday.
Guild, a purchase-focused lender with a distributed retail model, reported $5.7 billion in-house originations in the second quarter, down 6% from the previous quarter. Purchase originations were $4.78 billion in the second quarter, 84% of the mix. Purchase business increased 20.7% from the first quarter’s $3.96 billion.
The gain-on-sale margin on pull-through adjusted locked volume increased from 3.34% in the first quarter to 3.57% in the second quarter, but it was down from 4.54% in the first half of 2021.
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“Looking ahead, we expect gain-on-sale margins to stabilize in the second half of this year, assuming excess capacity continues to contract, thereby driving more favorable pricing dynamics over time,” Terry Schmidt, Guild’s president, told analysts.
She added, “Having said that, a sustainable step up and gain-on-sale margins will depend upon market rate and spread trends as well as broader inventory levels.”
Guild’s revenues declined 40% quarter over quarter, to $287.5 million. Total expenses increased from $203.6 million in the first quarter to $209.1 million in the second quarter, up 3%. But it went down 30% from the first half of 2021 to the first half of 2022, to $412.7 million.
“We have realized approximately $40 million of annualized expense savings through the first half of the year, which is primarily the result of staff reductions and their associated total compensations,” Amber Kramer, Guild’s CFO, said during the conference call.
The executive added, “We maintain the flexibility to continue to invest for growth and implement further cost savings as needed.”
Guild had $249 million in cash and $1.6 billion of unutilized loan funding capacity as of June 30, 2022. The liquidity, according to executives, may support mergers and acquisitions and a $20 million share repurchase program approved by the board in May. In the second quarter, the company repurchased $1.4 million in shares, with $18.6 million still available.
On the servicing side, adjustments in the fair value of the mortgage servicing rights (MSR), which brought in $184.6 million in net revenues in the first quarter, contributed $21 million to profits in the second quarter. Loan servicing and other fees increased 3% quarter over quarter, to $54.6 million.
Guild ended the second quarter with $75.8 billion in unpaid principal balance, up 4% quarter over quarter.
Guild’s share were trading on Friday afternoon at $12.46, up 4.47% from the previous day.