Digital title insurance, escrow and closing provider Doma is laying off 15 percent of its workforce after rising interest rates dramatically curbed its customers’ mortgage originations, driving a double-digit drop in revenue and a $50 million first-quarter loss.
The layoffs of 310 employees, which were primarily focused on departments that had helped facilitate mortgage refinancings, will save the company about $30 million a year and help it bring its technology to bear on purchase mortgages, Doma executives said on an earnings call Tuesday.
Its machine learning platform, Doma Intelligence, and other technology it has developed to automate the title and escrow processes, can reduce closing times by 15 percent and save homeowners who are refinancing up to 20 percent compared to traditional processes, Doma said.
But the company is still in the process of adapting the technology it pioneered to provide “instant underwriting” of title insurance for mortgage refinancings so that it can be used to underwrite title insurance on more complex purchase loans.
With its customers seeing the bottom falling out of their mortgage refinancing business, Doma is cutting costs so it can continue to invest in moving purchase transactions onto the Doma Intelligence platform, CEO Max Simkoff said on the earnings call. In addition to workforce reductions, Doma has “restructured and streamlined” the capital it had earmarked to expand into adjacent markets, such as home warranties and appraisals.
“We are refocusing resources from other areas of the company to a narrower set of strategic initiatives that will ensure we rise to solve the biggest pain points in a purchase focus market, while also keeping the company on our previously communicated timeline to achieve adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] profitability in 2023,” Simkoff said.
In an earnings release, Doma said it has grown its market share by 40 percent in the last year to 1.4 percent. But because refinancings are down 63 percent over that time, Doma has seen its orders, revenue and profit decline.
Closed orders were down 16 percent, to 27,347, driving a 12 percent decline in revenue to $112.2 million. With operating expenses rising 26 percent, to $171.7 million, over the same period, Doma posted a $50 million net loss for the quarter, up from $11.6 million a year ago.
Doma’s acting CFO, Mike Smith, said business has continued to slide, and that Doma now expects adjusted EBITDA losses in the range of $100 million to $120 million for the year.
“Given the faster than expected rise in mortgage rates, and the likelihood that they may continue to increase for the remainder of this year, we expect mortgage volumes for both purchase and refinance to continue to deteriorate further than today’s industry forecasts,” Smith said. “Despite this more muted top line outlook, we are confident in our ability to better control the profitability side of the equation. And we are taking meaningful actions to protect our bottom-line results.”
A number of mortgage lenders have downsized in recent months to adjust to lower refinancing volume, including Better, Pennymac, Guaranteed Rate, Keller Mortgage, Mr. Cooper and Wells Fargo. This week, the nation’s largest mortgage lender, Rocket Companies Inc., says it expects buyout offers it has made to 2,000 employees will save $180 million a year, while LoanDepot said it does not expect to turn a profit this year and will lay off workers and suspend its quarterly dividend.
Simkoff made a case that the struggles the mortgage industry is facing today will help drive adoption of the kind of technology Doma is developing.
“I want to emphasize that the very challenges we’re facing on the macro front are one of the strongest and most compelling reasons Doma exists,” Simkoff said. “For far too long, companies in the title and escrow industry — not to mention the broader U.S. mortgage market — have put off making investments in modern day technology to make the closing process simpler and more affordable because it would be difficult for them to invest preemptively, ahead of and through the ups and downs of the mortgage market.
“We believe that Doma is better equipped than anyone else in our industry to handle these challenges due to our technology first approach with Doma Intelligence, and the superior value customers and referral partners derive from a product. It is during challenging times that the best companies stay firmly committed to the areas of investment that will define their story. And ours is a story of driving change through technology.”
While 2021 was a banner year for the title insurance industry, with premiums written surging by 36 percent to $26.2 billion, independent title insurers posted even stronger growth numbers, with premiums up 37.3 percent, to $5.076 billion.
The “big four” title insurers — Fidelity, First American, Old Republic and Stewart — claimed more than 80 percent of premiums. But the smallest of the big four — Old Republic and Stewart — posted stronger growth numbers than the industry giants Fidelity and First American, according to an analysis by the American Land Title Association.