Foothill Ranch-based loanDepot Inc. (NYSE: LDI), the nation’s seventh largest mortgage originator, last week announced plans to cut its workforce in about half from where it stood in late 2021.
Its employee count, which was already reduced from 11,300 in December to 8,500 as of June 30, will be slashed another 2,000 to 6,500 employees by the end of this year.
The company expects to generate $375 million to $400 million of annualized savings from those cuts and other expense-saving moves, including a reduction of its real estate footprint.
“After two years of record-breaking volumes, the market has contracted sharply and abruptly in 2022,” Chief Executive Frank Martell said in a statement. “We are investing in the areas of our business we have identified as growth drivers over time, rightsizing our cost structure for current and anticipated market conditions, and positioning the company for long-term value creation.”
Since the Federal Reserve began increasing its benchmark interest rate earlier this year to stem inflation, the U.S. mortgage industry’s loan origination is expected to fall in half to $2.2 trillion this year, according to Guy Cecala, publisher of Inside Mortgage Finance, the industry’s leading newsletter.
He’s expecting other mortgage industry leaders like Wells Fargo and Rocket Companies Inc. to soon announce large layoffs as well.
“The mortgage origination industry is dealing with a significant decline in volume,” Cecala told the Business Journal. “They all need to adjust their headcount to meet that lower demand for mortgage loans.
“When volumes go down, the playbook is you lay off people quickly. LoanDepot is just the tip of the iceberg on this in terms of layoffs.”
OC Mortgages
The potential job cuts at loanDepot and others in the area may be the worst for Orange County’s mortgage sector since the financial crisis of 2007-08, when several Orange County-based subprime mortgage lenders collapsed, causing the loss of thousands of jobs.
While loanDepot isn’t involved in subprime lending, the rise in interest rates has clearly slowed refinancing, which composed the majority of loanDepot’s origination business in both 2020 and 2021. The Mortgage Bankers Association is projecting refinancing transaction nationwide will be down almost 70% this year.
“Refi’s just dried up completely,” Cecala said. “There’s no way that comes back until interest rates start falling again.”
Orange-based lender Owning earlier this year disclosed in state filings it was laying off 189 local workers. Other large lenders with operations in Orange County include Tustin’s New American Funding and Santa Ana’s Kind Lending LLC; spokespeople for those privately held firms didn’t respond to inquiries by press time.
LoanDepot had about 4,000 employees in Orange County as of late 2021; a spokeswoman wasn’t able to say by press time how many employees in Orange County will be cut.
In May, when loanDepot executives spoke with the Business Journal, it was clear that founder Anthony Hsieh was reluctant to cut jobs, declining to say if they were pending.
“We will continue to evaluate the current market conditions,” he said in May.
At that time, analysts forecast a 36% drop in revenue; two months later, analysts are now forecasting loanDepot sales will fall 56% this year to $1.64 billion.
Only three analysts out of 12 recommends buying the stock of loanDepot, whose shares have fallen sharply this year.
In the trading session after the job cuts were announced, the shares climbed 16% to $1.70 and a $578 million market cap. A year ago, the shares almost touched $40 and surpassed a $4 billion market cap.
Vision 2025
The job cuts were announced almost three months after Martell assumed the CEO position from Hsieh, who took the company public in early 2021 and remains executive chairman.
Martell was previously CEO at Irvine-based CoreLogic.
Martell last week outlined his plan called “Vision 2025” to address current and anticipated mortgage market conditions and position loanDepot for the long term.
The plan includes four main areas: cutting jobs; focusing more on purchase transactions and supporting underserved communities; investing more in services and launching digital consumer lending solutions; and simplifying its organization structure with an emphasis on client service, automation and operating leverage.
“The market decline in 2022 has been particularly sharp and abrupt, compared with past cycles,” Martell said.
Company executives also told analysts that they are expecting lower volumes next year, don’t intend to lower credit standards and are not aiming to take significant amounts of market share.
“This is not a vanilla action—it’s very planned,” Martell said. “We believe the plan sets us up to achieve profitability in 2023 for the full year. We are managing and looking at the market closely because it is changing. We want to make sure that we’re ahead of the game.”
Real Estate Fallout
LoanDepot leases about 144,000 square feet of space at its three-building Foothill Ranch headquarters. It also leased 10 additional facilities in the U.S., including one spot in Lake Forest and two in Irvine, according to its latest annual report. Its Lake Forest location “is primarily operations, support services, and settlement services,” while “our Irvine locations are primarily sales and operations, and technology,” the company said.
Last week’s restructuring plan also included “real estate consolidation,” though specifics weren’t detailed.
One area where loanDepot may thrive is loan servicing; its $153.4 billion portfolio is the 15th largest in the country. Its servicing fee income rose 35% to $111.1 million in the first quarter.
