Home Point Capital Inc. (HMPT) is a residential mortgage originator and servicer with a focus on growing its servicing portfolio. The company has faced significant challenges in recent years, as the mortgage industry has grappled with rising interest rates, increased competition, and a decline in origination volumes. Despite these headwinds, Home Point Capital has demonstrated the resilience of its mortgage servicing business, which has become the primary driver of its financial performance.

Financials

In the fiscal year 2022, Home Point Capital reported annual revenue of $255.6 million, a decline from the previous year's $358.8 million. This decrease was primarily attributable to a $103.2 million drop in gain on loans, net, as the company's origination volume fell from $49.6 billion in 2021 to $24.1 billion in 2022. The company's net income for the year was a loss of $221.0 million, compared to a loss of $59.8 million in the prior year. The significant net loss was largely driven by a $176.4 million decrease in the fair value of the company's mortgage servicing rights (MSRs), as rising interest rates led to lower expected prepayment speeds and higher discount rates.

Mortgage Servicing Business

Despite the challenging market conditions, Home Point Capital's mortgage servicing business has remained a bright spot. The company's servicing portfolio decreased from $89.3 billion in unpaid principal balance (UPB) at the end of 2021 to $88.9 billion at the end of 2022, with the number of servicing customers increasing from 315,000 to 316,000 over the same period. The company's servicing revenue, which includes loan servicing fees and changes in the fair value of MSRs, totaled $258.9 million in 2022, compared to $298.2 million in the prior year.

First Quarter 2023 Performance

In the first quarter of 2023, Home Point Capital continued to navigate the industry's headwinds. The company reported total revenue, net of $-107.6 million, a significant decline from the $158.2 million reported in the same period of 2022. This decrease was primarily driven by a $159.2 million loss in the fair value of the company's MSRs, as well as a $46.9 million decrease in gain on loans, net. The company's net loss for the quarter was $133.8 million, compared to net income of $11.9 million in the first quarter of 2022.

Recent Developments

Despite the challenging financial performance, Home Point Capital has taken steps to streamline its operations and position the company for long-term success. In April 2023, the company announced that it had entered into a definitive agreement to sell certain assets of its wholesale originations channel, which had historically been its primary business driver. This strategic move is expected to reduce the company's expenses and enable it to focus more resources on its mortgage servicing business.

Mortgage Servicing Portfolio

The company's mortgage servicing portfolio remains a key strength, with a weighted average note rate of 3.38% and a fair value multiple of 5.31 as of March 31, 2023. The portfolio's delinquency rate of 1.1% is also relatively low, indicating the overall quality of the loans being serviced.

Liquidity

Home Point Capital's liquidity position remains solid, with $110.3 million in cash and cash equivalents and restricted cash as of March 31, 2023. The company maintains a $1.0 billion MSR financing facility, as well as other debt facilities, to support its operations. However, the company's debt-to-equity ratio of 2.77 as of the same date suggests a relatively high level of leverage, which could be a concern in the current economic environment.

Outlook

Looking ahead, the company's guidance and outlook remain uncertain. The proposed merger with Mr. Cooper, announced in May 2023, is expected to provide some clarity on the company's future direction. If the merger is completed, it will likely result in the delisting of Home Point Capital's shares from the Nasdaq and the suspension of its reporting obligations under the Securities Exchange Act of 1934.

Conclusion

Home Point Capital has faced significant challenges in recent years, as the mortgage industry has grappled with rising interest rates, increased competition, and a decline in origination volumes. Despite these headwinds, the company's mortgage servicing business has remained a bright spot, with a growing portfolio and relatively low delinquency rates. The company's recent strategic move to sell its wholesale originations channel is expected to streamline its operations and enable it to focus more resources on its servicing business. However, the company's financial performance and future outlook remain uncertain, particularly in light of the proposed merger with Mr. Cooper.