Mortgage

Guild earnings are pushed by a robust procuring market

Guild sees a strong shopping market and differentiated platform as key to propelling its business after a positive third quarter.

San Diego-based Guild Holdings reported net income of $ 72.1 million for the three months ended September 30th. Diluted earnings per share were $ 1.17 while adjusted earnings per share were $ 1.27

Guild posted net sales of $ 413 million for the quarter

The company's executives believed its dual issuance and servicing strategy was essential to its strong financial performance, especially as the industry is likely to face rising interest rates to put downward pressure on new loans.

"We believe that maintaining both origination and servicing segments gives us a more balanced model and therefore more sustainable profitability across interest rate cycles," said Terry Schmidt, president of Guild Holdings, during a phone call with analysts on November 10th "When interest rates rise, our servicing business acts as a natural hedge for origination segments."

With its service portfolio consisting primarily of MSRs sourced through its retail channel, the two sides of Guild's business naturally feed each other, according to Schmidt.

"We retain [mortgage] servicing rights for 86% of the total loans sold through September, which underscores the complementary nature of our two businesses," she said.

Despite the acceleration in house prices to record levels in 2021, purchase demand remained strong, benefiting mortgage lenders like Guild, a lender whose business has long been more focused on the purchase market than refinancing. Many of Guild's competitors reported similar robust buying activity. According to Guild CEO Mary Ann McGarry, 61% of Guild's home loan volume in the third quarter came from purchases, up 2% for the quarter and above the Mortgage Bankers Association's estimate of 47% for the industry as a whole.

The MBA predicts that the volume of purchases will increase steadily over the next two years, but possibly more slowly. Even if the rise in home prices will still be a factor, it likely won't hit the impressive 2021 numbers, Wedbush Securities senior vice president, Equity Research, Jay McCanless said in a recent interview with National Mortgage News. The rise in single and multi-family rents could also increase the demand for purchases, including new builds, and make buying more attractive.

"We feel like home prices have risen sharply, but it's still a competitive option for most buyers," said McCanless

Within its origins segment, Guild reported net income of $ 100.5 million. Internal origins totaled $ 10 billion for the quarter, up 18% from $ 8.2 billion in the second quarter and constant year over year .

Profit margins were better than expected at 396 basis points, down slightly from 405 basis points in the second quarter and 562 basis points year over year. Healthy market momentum led to the third quarter profit-on-sale result.

“The prices did not rise as much as expected and the demand was great. It didn't seem to be pushing our profit margin down, ”said McGarry.

The Guild service division posted net income of $ 10.1 million, following losses of $ 48.9 million in the previous quarter and $ 11.5 million in the third quarter last year. Unpaid balances in its service portfolio rose to $ 68 billion as of September 30, up from $ 65.7 billion in the second quarter and $ 56.4 billion a year ago, an annual increase of 20%.

Investors appeared positive on Guild's earnings announcement, which propelled the stock's value overnight. After closing at $ 14 on November 10, shares opened the next day 6% higher at $ 14.85. By 2:00 p.m. on November 11, the price had risen another 1% to $ 15.

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