Guild sees a strong purchase market and its differentiated platform as key to pushing its business forward following a favorable third quarter.

San Diego-based Guild Holdings posted net income of $72.1 million for the three months ending Sept. 30, a 710% jump from the previous quarter’s $8.9 million profit, but down 60.3% year over year from $181.8 million in the third quarter of 2020. Diluted earnings per share came in at $1.17, while the adjusted EPS equaled $1.27

Guild generated $413 million in net revenue for the quarter, up 40.4% from $294.1 in the prior three months, but 26.7% below the third-quarter 2020 number of $563.5 million.

The company’s leaders noted its dual origination and servicing strategy as essential to its strong financial performance, especially as the industry faces the likely prospect of rising rates to apply downward pressure on new loans.

“We believe that maintaining both an origination segment and a servicing segment provides us with a more balanced model and therefore more sustainable earnings power across interest rate cycles,” said Terry Schmidt, president of Guild Holdings, during a call with analysts on Nov. 10. “Assuming interest rates rise, our servicing business functions as a natural hedge to originations segments.”

With its servicing portfolio consisting primarily of MSRs originated through its retail channel, the two sides of Guild’s business naturally feed the other, according to Schmidt.

“We retain [mortgage] servicing rights for 86% of total loans sold year to date through September, reinforcing that complementary nature of our two businesses,” she said.

Despite the acceleration of home prices to record levels throughout 2021, purchase demand remained strong to the benefit of mortgage banks like Guild, a lender whose business has long been more weighted toward the purchase market than refinances. Many of Guild’s competitors reported similarly robust purchase activity. According to Guild’s CEO Mary Ann McGarry, 61% of Guild’s third-quarter home loan volume came from purchases, up 2% for the quarter and above the Mortgage Bankers Association estimate of 47% for the entire industry.

The MBA predicts purchase volumes to increase steadily over the next two years, but potentially at a slower rate. Even with home-price appreciation still expected to be a factor, it likely won’t reach the eye-popping numbers of 2021, said Jay McCanless, senior vice president, equity research, at Wedbush Securities, in a recent interview with National Mortgage News. The rise in single- and multifamily rents could help add demand for purchases as well, including new constructions, he said, making purchases more appealing.

“We feel like housing prices have had a big run, but it’s still a competitive option for most buyers,” McCanless said

Within its originations segment, Guild reported net income of $100.5 million, compared to $78.8 million last quarter, a gain of 27.5%, but 65% below third-quarter 2020 income of $287.4 million. In-house originations totaled $10 billion for the quarter, up 18% from $8.2 billion in the second quarter, and consistent on a year-over-year basis.

Gain-on-sale margins came in at a better-than-anticipated 396 basis points, slightly down from 405 bps in the second quarter and 562 bps year over year. Healthy market dynamics brought about the third-quarter gain-on-sale result.

“Rates didn’t rise as much as they were expected to, and the demand was strong. It didn’t seem to push our gain-on-sale margin down,” McGarry said.

Guild’s servicing division posted a $10.1 million net profit, following losses in the previous quarter of $48.9 million and $11.5 million in the third quarter last year. Unpaid balances in its servicing portfolio increased to $68 billion as of Sept. 30, up from $65.7 billion in the second quarter and $56.4 billion a year ago, a 20% annual increase.

Investors appeared to react favorably to Guild’s earnings announcement, sending its stock value up overnight. After closing at $14 on Nov. 10, its shares opened 6% higher at $14.85 on the next day. By 2:00 p.m. on Nov. 11, the price had surged another 1% to $15.

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