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The U.S. economy lost 23,000 jobs in July, a surprise drop that usually signals a slowing economy. Despite this, Federal Reserve officials are still focused on inflation, which is the rate at which prices for goods and services rise. They may still raise interest rates to keep those prices in check.
For a mortgage lender like loanDepot, this is a difficult mix. A weak job market can mean fewer people are ready to buy homes, while high interest rates make borrowing more expensive. The company's turnaround depends on more people taking out loans, so a stalled job market and high rates could delay its return to profit.
Source: NYTimes
The company reported a loss of 9 cents per share, which was wider than the break-even result analysts expected. However, revenue grew 18 percent from the previous quarter to $337 million. This growth was driven by a 25 percent jump in the number of loans processed, specifically in home equity products.
This shift is important because home equity loans, which let homeowners borrow against the value of their house, carry higher profit margins than standard refinances. The company's gain on sale margin, a measure of how much profit it makes on each loan it sells, rose significantly to 3.45 percent. By keeping costs nearly flat while revenue grew, the company is showing it can move toward profitability even while the broader housing market remains slow.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
The company will open a new corporate center in Miami to serve as its primary hub on the East Coast. While this expands its physical presence, it is a routine move for a national lender and does not change the core financial outlook for the business.
Source: Business Wire
Goldman Sachs lowered its price target for the stock from $2.10 to $1.25, though it kept its sell rating. A price target is what an analyst thinks a stock will be worth in the future. This change suggests the firm sees less room for the stock to rise than it did before, likely reflecting the continued pressure that high interest rates are putting on the mortgage industry.
Source: Goldman Sachs
The company has missed analyst targets in six of the last eight quarters. This track record suggests that the mortgage market is currently very difficult for management to forecast accurately.
| Expectation | |
|---|---|
| EPS | $-0.01 |
| Revenue | $330M |