It wasn’t a bullseye, but he’s now a 39% owner of a company worth about $6.3 billion—Foothill Ranch-based loanDepot Inc. (NYSE: LDI).
“It really is an honor to be newly listed on the New York Stock Exchange and we look forward to building long-term value for all of our stakeholders including our new shareholders,” Hsieh told analysts on his first conference call as a publicly traded company.
It’s a vindication for the hard driving Taiwanese native, who in January was named the Business Journal’s Businessperson of the Year in the financial sector.
LoanDepot is the nation’s second most valuable nonbank mortgage lender, trailing only Rocket Companies Inc. (NYSE: RKT), which has a $40 billion market cap. LoanDepot is now the seventh-most valuable publicly traded company in Orange County.
“Wall Street hasn’t seen modern mortgage lenders like Rocket and loanDepot,” Jefferies analyst Ryan Carr, who covers Rocket and plans to start covering loanDepot, told the Business Journal. “They are used to legacy mortgage originators with older more traditional business models. This is first time their technology has come into public view.”
Beginning
Hsieh, who was born in Taiwan, immigrated at age 8 with his parents to the U.S. and grew up in Fullerton. He described himself as “a terrible student” while earning a business degree at California State University, Fullerton.
At 21, he became a mortgage lender, taking his first loan application on a typewriter. Four years later, he bought out the owners of his company, changing the name to loandirect.com, which he said was the world’s first internet-based financial services company. He sold it in 2001 to E-Trade Financial Corp. for shares worth about $51.5 million.
At 35, he had every intention of retiring and spending his time fishing, a life-long passion. Instead, he founded HomeLoanCenter.com, selling it for an undisclosed price to IAC/Interactive Corp., which merged it into Lending Tree.
Hsieh worked there for three years, and when he left, he had a noncompete clause of more than two years. While he chafed at the restriction, it turned out to be fortuitous because he was able to avoid the 2008 financial crisis, which devastated numerous mortgage firms.
In 2010, he started loanDepot as “a way to do something.” He didn’t have an idea it would become “a monster of a company.”
Since then, it’s generated more than $275 billion in loans and now has 10,200 employees. Hsieh in February told analysts he plans to continue “aggressively onboarding full-time employees.”
First Attempt
In 2015, he withdrew a potential public offering at the last minute, not satisfied with the price he was getting.
He kept spending, investing $400 million-plus to build a technology system that the company calls mello, so as to differentiate his firm from other mortgage lenders that aren’t highly regarded on Wall Street.
When the coronavirus struck last March, the investment in technology showed its worth as he moved all his employees to work from their homes.
“It was not a drill,” he told the Business Journal. “It’s a real-life event with serious consequences. We didn’t know what was going to happen.”
Then a surprise occurred—business began booming. After the credit market froze and the equity market collapsed, the Federal Reserve slashed interest rates, encouraging a frenzy of mortgage refinancing.
The company went on a hiring spree, adding 3,000 employees. He said productivity has never been better.
It wasn’t all smooth sailing for one of Orange County’s wealthiest execs.
Hsieh, who often wakes up at 4:30 a.m., himself caught the virus in July. He suffered but recovered.
“Life is wonderful, but it’s different today,” Hsieh said.
IPO Downsized
In July, Hsieh watched larger competitor Rocket Companies, parent of Quicken Loans, go public by raising $1.8 billion.
Since loanDepot’s revenue doubled to $4 billion in 2020, the time seemed right for an IPO.
However, it didn’t go as planned.
The offering was initially priced at $19 to $21, and expected to sell 17 million shares to raise $362.5 million.
However, the company ultimately decided to issue just 3.9 million shares at $14 each, raising only $54 million.
On the first day, its shares almost tripled to $40. Since then, they have fallen to around $20 at press time.
Investors are skeptical about the mortgage industry, analyst Carr said.
“Wall Street is less confident because it’s cyclical industry,” he said. “They think 2020 was the peak. It looks like 2012 when demand tapered off because of rates increasing.”
Record 2021?
Hsieh shrugged off the setback in his typical manner with a LinkedIn post.
“I still remember PE firms laughing at me across conference tables in 2009 telling me that I was insane to even think about getting a warehouse line,” he wrote after going public.
“Today we are the second largest retail nonbank home loan lender in the country and employ over 10,000 employees/team members. For those that are doubting us still, wait for my next post in the next 11 years. Being insane has its benefits.”
Carr said the mortgage industry had a record year in 2020 with interest rates at “the lowest in history.”
That, combined with the lowest debt ratio in history, the highest savings rate since 1975 and people moving to cheaper areas of the country, caused demand to explode to a point that the industry didn’t have enough capacity to handle the demand, he said.
“This is an unprecedented time for mortgages,” Carr said.
The industry has shifted from banks issuing mortgages to nonbank lenders. Banks don’t view mortgage loans as profitable as other potential loans like credit cards, Carr said.
Hsieh argues that loanDepot and Rocket, the only two nonbank lenders that doubled loan originations in 2020, have created brand awareness that gives them an edge.
“We (are) like the Coke and Pepsi mix,” Hsieh told analysts in February.
“Our diversified operating model is different from most others in the industry and it allows us to drive volumes in all market conditions. This entails a combination of a retail strategy, including direct-to-consumer and in-market mortgage professionals, as well as partner strategy consisting of a network of joint venture and referral partnerships.”
It’s also an industry that relies heavily on the whims of the Federal Reserve that could tank the sector by increasing rates.
However, the Fed has signaled rates will stay low for the next two to three years. Market watchers believe that about $11 trillion in debt could be turned over and refinanced, but the industry has the capacity to only finance $3 trillion to $4 trillion a year.
Nonbank lenders like loanDepot and Rocket are using technology to speed up the mortgage process and hence are nimbler than their competitors, Carr said.
“Mortgage investors are not as confident about profitability going forward,” Carr said. “We argue differently. We anticipate this will be a record year. That will surprise investors.”
