Anthony Hsieh was fearful in March that he would lose Foothill Ranch-based loanDepot.com LLC, the billion-dollar mortgage company that he built into the nation’s second largest non-bank lender.
He had reason to be scared.
Within a two-day period, he had to move 7,000 of his employees from their offices to work from their homes, something that he had never done before.
And while he typically sold loans at par to Wall Street, the crisis caused him to unload hundreds of millions of loans at a loss, where he was able to recuperate only 90 cents on the dollar.
“I was petrified,” Hsieh told the Business Journal in a May 21 interview.
“I wish I could say that we were fully prepared. Health and economic events collided at once. It’s certainly a shock and awe for the world, our country and us.”
As it turned out, the entrepreneur who has built three successful mortgage companies may ultimately see loanDepot’s revenue climb 50% this year—to more than $2 billion. Only 11 privately held companies based in Orange County reported topping that mark last year.
He’s also planning on expanding his workforce to almost 10,000; the company has held virtual job fairs to find new candidates.
The decline in interest rates has been the biggest growth driver for the company. It has spurred lending, particularly the refinancing of mortgages.
“This cycle is the perfect storm,” Hsieh said. “There was unprecedented growth in income, high FICO scores, a lot of liquidity and low debt to income ratios.
“You have the strongest American borrowers in history with the lowest interest rates.”
LoanDepot, which Hsieh founded in 2010, is ranked No. 16 on this year’s Business Journal list of the largest private companies in Orange County (see list, page 23).
Hsieh, a native of Taiwan who came to the U.S. when he was 8, first started paying attention to the coronavirus in early February and called a management meeting to discuss it.
“My management team thought I was losing it. I have no experience in this area,” he said.
“My gut reaction was that it was starting to take over other countries. I was certain enough to understand it was contagious. I had no idea that it would get to this level.”
In March, the company ordered all employees to work from home, saying health overrode all other concerns. Company executives scrambled to buy thousands of laptops and make sure their employees had the appropriate internet speed.
“It’s never been done before. To move violently within a short amount of time was unprecedented. We had no idea if we were going to have a company left.”
A few days later, he looked at his empty parking lot next to the Foothill Ranch Towne Center that normally holds thousands of cars.
“It was a surreal twilight zone,” he said.
After the Federal Reserve cut benchmark borrowing rate to zero on March 15 and made sure the markets had liquidity, loanDepot began to see a pickup in activity.
Industrywide, about $403 billion of refi loans were originated in the first quarter, more than triple the $123 billion produced in the same period a year ago, estimated Inside Mortgage Finance, a widely followed industry newsletter. It said refinanced mortgages were “just a prelude to the crescendo of refinance activity in April and May” when a “whopping” $323.4 billion of refi loans were securitized by Fannie Mae, Freddie Mac and Ginnie Mae.
Hsieh said he’s been pleased by the productivity of his employees working out of their homes.
“The fear was that 7,000 people working at home was not going to work,” Hsieh said. “During this event, surprisingly to us, we have not lost productivity.”
Hsieh credited part of the success to becoming a technology company rather than just a processor of mortgages. The company in 2016 spent $80 million to develop an online system that it calls Mello; it provides mortgages online from beginning to end.
“We’re starting to achieve a level of confidence and pride. We’re trying to figure out how we can be helpful in keeping our employees safe and providing security and giving our community a lift.”
Whether the company decides to cut back on its future office space also remains to be seen, he said.
Hsieh isn’t yet convinced that productivity will remain high, calling the current time “a head fake” because employees working from their homes at the outset of the pandemic could not do other things like go to happy hours or visit the parks.
Now, with restrictions easing, they can, and they probably will, Hsieh said.
“When freedom calls you and the sun is out, family events, picnics, that will make a determination of how remote employees will really work,” he said.
Hsieh is fine with having his employees work from their homes up to 18 months, until a vaccine is found.
“We will not have our folks return to work until there is a vaccine,” he said.
“It will fundamentally change our company,” he said. “No CEO is smart enough to read the future. This isn’t a business event. This is a health event.”
Asked if he’s still worried about the future of his company, Hsieh said, “I’m scared to death every day.”
Impac Restarts Lending After 9 Week Hiatus
Impac Mortgage Holdings Inc., the Irvine-based provider of residential mortgages, took a different strategy to managing the coronavirus pandemic than its larger rival loanDepot.com LLC.
Impac (NYSE: IMH) in March said it suspended all lending activities to de-risk and protect its liquidity.
At the time, it cited a lack of communication from one of its whole loan investors, which Impac believed was prompting concern from some of its capital markets counterparts.
On June 4, the company said it would begin lending again, but only for certain types of loans. The company also revealed that its losses in March alone were $69 million, which is higher than its $43 million market cap.
Impac also said it chose to reduce borrowing capacity from $1.7 billion to $600 million, has satisfied all margin calls and increased its unrestricted cash from $25 million to $58.1 million.
Chief Financial Officer Brian Kuelbs stepped down on April 30 to take a new job as a CFO at a Michigan bank. He was replaced by Controller Paul Licon.
“2020 has been a more challenging year than any in our industry had anticipated,” Impac Chairman and Chief Executive George Mangiaracina said in a statement.
The company is “now prepared to return to originating loans, as we have for the past 25 years, through numerous economic cycles,” he said in the June 4 announcement.
The company in 2014 began originating higher interest loans called non-qualified mortgages, for a category of consumers who may have good credit scores but who cannot meet the income documentation required for qualified mortgages as set by the Consumer Financial Protection Bureau.
In 2019, it generated $1.24 billion of non-QM loans, about a fourth of its total originations.
It’s reduced such non-qualified mortgages for sale from $274.8 million on Dec. 31 to $11 million on May 31.
It said for the time being, it will focus “on segments of the market that have demonstrated adequate and stable capital markets distribution exits.”
Impac’s shares have fallen about 70% since early March to around $2.00.
—Peter J. Brennan