California lender Guild Mortgage reported an increased profit in the third quarter despite high mortgage rates and limited home sales inventory.
The purchase-focused lender with a distributed retail model emphasized its growth strategy of gaining purchase market share through acquisitions and bringing on high-performing originators as the industry continues to see muted demand for mortgages.
Guild reported a $54.2 million net income in the third quarter of 2023, up 47% from the previous quarter’s $36.9 million. The adjusted net income was $29 million, up from $9 million during the same period.
“We have remained consistent with our strategy of growing market share in the retail purchase mortgage market while retaining the servicing of those loans. This focus not only allows us to see more reliable income, it enables us to build an ongoing asset, where we believe we have the opportunity to realize repeat transactions over time,” said Terry Schmidt, chief executive officer of Guild.
The company’s net revenues rose 9% to $257.3 million in Q3 2023, up from $236.8 million in Q2. Total expenses marginally dropped 1% to $183.7 million, down from $186.4 million in the previous quarter.
Guild’s total in-house originations were at $4.3 billion in Q3, declining 4% compared to the previous quarter’s $45 billion. But the gain-on-sale margin on originations rose 22% to 377 in Q3, up from 310 over Q2.
“We changed certain of our assumptions through enhancements to the models used in the valuation of our interest rate lock commitments and mortgage loans held for sale, which resulted in a $17.4 million increase to gain on sale of loans,” Amber Kramer, chief financial officer of Guild, told analysts.
Of the $4.3 billion total in-house originations, purchase loans came in at $4 billion. Purchase volume consisted of 94% of closed production volume in Q3 despite Mortgage Bankers Association’s (MBA’s) industry average of 82%, according to the lender.
Guild had a net income of $7.2 million with its origination business in Q3, up from a net loss of $21.3 million in the prior quarter. The company also had a net income of $84 million with its servicing business, down from $88.7 million net income in the previous quarter.
The lender had a servicing portfolio of $83.7 billion in unpaid principal balance as of Sep. 30, 2023, up 2% from June 30, 2023. A fair value adjustment for the company’s MSRs brought a $22.1 million gain in the third quarter compared to $27.9 million in the previous quarter.
Guild retained MSR for 80% of its loans sold in the third quarter. Its purchase recapture rate was 25% from July to September.
Guild’s growth strategy in the face of industry headwinds
Executives shared expectations of continued pressure on originations in the coming quarters as well as consolidation in the mergers and acquisition market.
“We believe there continues to be consolidation in both M&A and organic origination,” Schmidt told analysts.
“We have continued to invest in our people and our platforms. Both drive market share in the near term and to be positioned to accelerate growth when this cycle turns,” she added.
In Q3, the retail lender acquired First Centennial Mortgage, a privately-held Illinois-based lender to increase its presence in the Midwest.
Guild’s acquisition of lenders in 2023 included Colorado-based Cherry Creek Mortgage and New Mexico-headquartered Legacy Mortgage. The lender also expanded its California footprint by adding 8 branch offices.
The lender didn’t provide expectations for Q4 but noted muted demand for originations.
“We are going into a very seasonally slow fourth quarter on top of these inventory issues. We’re not going to see any changes and at this point, we don’t know when the market will turn in 2024. We’re hoping that it’s some point within the year,” Schmidt noted.