Guild Holdings expects market share gains as industry originations dip

Guild Mortgage reported a third-quarter uptick in profits on servicing gains, but also a sizable decline in origination volume, albeit one that was slightly less severe than the broader industry’s.

The lender and servicer’s parent company, Guild Holdings, earned net income of $77.4 million for the fiscal period, up 33% from the second quarter’s $58.3 million. Year-to-date, the mortgage player generated $343.6 million in net income, compared to $241.6 million for the same period in 2021.

Guild also reported a 24% drop in origination volume to $4.4 billion from $5.7 billion in the second quarter. The results bring its total originations year-to-date to $16.1 billion, a 42% dip from the $28 billion a year earlier. 

While the drop was considerable, executives said the fact that it was less steep than the industry average suggests that it generated gains relative to competitors for Guild.

“In regards to the sequential decline from Q2 to Q3, we saw 24% decline versus the (Mortgage Bankers Association’s) average closer to 29%, so we did pick up market share,” David Neylan, executive vice president and chief operating officer at Guild, said during the company’s earnings call on Thursday. “On a go-forward basis in a purchase environment, we’re typically able to continue to pick up market share in this type of an environment given our focus on purchase business.”

The firm said 91% of its mortgage volume came from purchase loans, also ahead of the MBA’s projected 81% industry-wide purchase share. 

Guild’s origination net income fell 94% from the second quarter to $1.5 million from $25.6 million, a slowdown driven by rising interest rates, company leaders said. 

Gain on sale margins also pulled back, and executives said they expect the figures to further soften in the fourth quarter because of excess capacity, heightened competition and the limited supply of homes available for sale. Guild’s GOS margin on originations was 354 basis points compared to 363 in the second quarter. Its GOS margin on pull-through adjusted locked volume fell to 349 basis points from 357 in the prior quarter. Guild calculates the pull-through rate based on changes in pricing and borrower behavior using a historical analysis of loan closing and fallout data.

Guild hasn’t been immune to the industry’s sweeping layoffs, but the firm didn’t disclose how many employees it’s cut, only citing approximately $75 million of annualized expense savings primarily linked to compensation in staff reductions. 

At the same time, Guild said it’s “well ahead” on its goals regarding net new hirings of loan officers. Guild’s leadership also touted their firm’s preparedness to make acquisitions because of its experience in this area and consistent profitability across market cycles. Mary Ann McGarry, CEO and director of Guild, said the phone has been ringing “quite a lot” regarding acquisition opportunities, which are abundant in the depressed market. 

“We think it’s a great opportunity right now and think it’ll even get stronger in the first quarter of 2023,” she said, when asked about acquisition prospects and how selective the company will be. “In today’s environment, of course the cash flows are going to be much thinner. And so I would say…we’re being a little bit more cautious on pricing.”

The company also reported a gain in servicing net income to $96.8 million against $63.9 million in the second quarter. The jump reflected more favorable mortgage servicing rights valuation adjustments and higher servicing fees on continued growth in Guild’s portfolio, which had an unpaid principal balance of $77.7 billion at the end of the third quarter. Reduced operating expenses also contributed to the servicing unit’s net earnings, company leaders said. Guild retained servicing rights for 89% of its loans sold in the third quarter. 

Guild had operating cash and cash equivalents of $162.2 million, a decrease of 33% from the second quarter. The lender retains warehouse lines of credit totaling $2.6 billion with unused capacity of $1.8 billion, according to its earnings report. 

The firm also repurchased 138,962 of its shares at an average price of $11.13, part of its board’s earlier authorization to buy back up to $20 million of its stock over the next year-and-a-half. Guild’s earnings per share were $1.27 compared to $0.95 in the second quarter. The company’s stock opened at $8.73 per share Friday following Thursday evening’s report, and ended the day at $9.00 per share.