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loanDepot Reports Increased Q3 Loss Amid Servicing Book Shrinkage and Debt Reduction
loanDepot reported a widening net loss for Q3 2026, attributable to its sale of mortgage servicing rights (MSRs), debt repurchases, and a shift towards higher-margin products.
The nonbank lender based in California disclosed a net loss of $29 million for the third quarter, an increase from a $7 million loss the previous quarter, as stated in its earnings release on Monday. Founder and CEO Anthony Hsieh noted that the quarter faced challenges due to unexpectedly high interest rates, but he remains optimistic about capturing market share despite lower overall volumes.
“As we move past the seasonal effects of Q4 and Q1, and considering the uncertainty of next year’s market, if conditions remain steady, we are confident in our ability to achieve break-even profitability by the first half or middle of next year,” Hsieh shared with analysts.
In terms of mortgage origination, loanDepot reported $7.05 billion for the third quarter, a 12% decline from the previous quarter but a 7.8% increase year-over-year. Notably, purchase loans accounted for over 61% of the total volume.
On a unit basis, originations increased by 7% quarter-over-quarter, aided by the company’s expansion into home equity products. According to management, loanDepot estimated that it ranked among the top three nonbank home equity lenders in the third quarter based on volume, contributing to a gain-on-sale margin of 399 basis points, up 54 basis points from the second quarter.
“Since my return last year, we have achieved an 8% increase in origination volume, a 33% rise in unit volume, a 10% growth in purchase volume, a 14% improvement in return on marketing, and a 16% reduction in production costs,” Hsieh stated. “These results underscore our success in diversifying revenue, enhancing operational efficiency, and scaling our platform.”
The company anticipates its productivity initiatives will yield $25 million in annual cost savings through the rest of 2026, significantly higher than the previous estimate of $12 million.
MSR Sales Fuel Debt Reduction
In the third quarter, loanDepot continued to reduce its balance sheet and debt through MSR sales. The company finalized the sale of $10 billion in agency MSRs and is set to sell an additional $9 billion in government MSRs, with completion expected in October.
Following these transactions, loanDepot’s servicing portfolio reached $115.7 billion by the end of the quarter. The proceeds were utilized to repurchase $87 million in senior notes at an average of 88% of par.
Chief Financial Officer David Hayes indicated that the combined impact of MSR sales and debt repurchases lowered net debt obligations by approximately $114 million, enhancing liquidity and financial flexibility.
Despite these efforts, the company’s leverage remains high, with debt obligations relative to total equity at 6.5x at the end of the quarter, up from 4.8x a year ago. Hayes mentioned that the company is actively working on addressing upcoming debt maturities and exploring financing options for refinancing or extending contracts ahead of the 2027 bond maturities, although he did not provide specific details during the analysts’ calls.
Outlook
For the fourth quarter of 2026, loanDepot projects origination volumes between $4.5 billion and $6.5 billion, indicating a potential decrease from Q3 levels. However, it expects a gain-on-sale margin between 315 basis points and 355 basis points.
Management characterized the outlook as a continuation of their strategy to focus on more profitable products, expand their footprint in the purchase market, and maintain a leaner cost structure amidst ongoing rate pressures.
“Although high interest rates pose a challenge for mortgage demand, we are confident that our initiatives to diversify product offerings, enhance purchase market presence, boost efficiency, strengthen margins, and optimize our balance sheet have positioned loanDepot to emerge from this cycle as a stronger, more competitive entity,” Hsieh affirmed. “We remain dedicated to growing market share, improving profitability, and generating long-term value for our shareholders.”
