Higher interest rates hurt E-Loan 3Q

Larry Dignan
2 min read

Higher interest rates will put a crimp in E-Loan's (Nasdaq: EELN) third quarter results, the company said Thursday.

E-Loan, an online mortgage originator, said third quarter sales will be roughly $4.7 million to $5 million with pro forma loss of 34 - 35 cents a share. According to First Call, analysts were expecting a loss of 29 cents a share.

The company, which went public in June, said higher interest rates pummeled its refinancing revenue. E-Loan's mortgage refinancing volume fell about 38 percent in the quarter. Third quarter mortgage-related revenue was also hurt by its ability to process loans purchased in the secondary market. E-Loan is trying to increase its number of purchased loans to boost revenue. Typically, it passes loans on to other lenders.

E-Loan's funding of purchase loans increased 163 percent from the second quarter, growing from 18 percent of total second quarter originations to 50 percent of total originations in the third quarter. Officials said purchased loans make revenue more predictable.

"These capacity issues did not affect our ability to serve customers," said CEO Chris Larsen, on an analyst conference call. Larsen said the inability to process the loans meant E-Loan's interest rate locks expired. The company has hired more employees to compensate. The company maintained that capacity problems were a "one-time issue."

The sequential third quarter revenue growth is bleak for E-Loan considering the third quarter includes $300,000 to $400,000 in revenue from CarFinance.com, which was acquired Sept. 17. Revenue from the second quarter will be about flat. In the second quarter, E-Loan reported sales of $4.6 million and a pro forma loss of 30 cents a share. In the third quarter of 1998, E-Loan reported sales of $2.1 million and a loss of 11 cents a share.

Nevertheless, E-Loan implied it was doing better than its industry peers. The company said mortgage applications increased 35 percent in a quarter where rising interest rates caused a 24 percent decline in industry-wide mortgage applications.

To lessen its exposure to interest rate risks, E-Loan said it is diversifying with CarFinance.com and forging alliances to offer credit cards and home equity loans. The goal is to fulfill "all consumer debt needs online," the company said.

E-Loan needs to expand into other markets because its focus is narrow. E-Loan competes with Intuit Corp. (Nasdaq: INTU) in the mortgage origination market.

The company will report full results Oct. 28.