Rising interest rates have cooled demand for mortgage refinancing, prompting executives at digital title, escrow and closing provider Doma to forecast slower growth this year.
In reporting fourth quarter earnings after markets closed Thursday, Doma said revenue was up 17 percent from a year ago, to $137.7 million, with closed orders up 35 percent and retained premiums and fees growing by 24 percent. But compared to the previous quarter, revenue was down 15 percent, with closed orders falling by nearly 5 percent.
For the full year, Doma reported a $113 million net loss on $558 million in revenue. While revenue was up 36 percent from a year ago, the company’s net loss grew by 222 percent.
The prospect that Doma’s fourth quarter slowdown will continue into this year dragged the company’s share price down to a new all-time low of $2.20 Friday. Since going public in a July SPAC merger, shares in Doma hadn’t traded below $3.28, and had sold for as much as $10.61.
Doma is racing to adapt technology it pioneered to provide “instant underwriting” of title insurance for mortgage refinancings, so that the same technology can also be used to underwrite title insurance on more complex purchase loans.
If it succeeds, Doma founder and CEO Max Simkoff says the company can take market share away from competitors by cutting the time and cost needed to provide title and other closing services.
“In a rising rate environment, our customers become more sensitive to expenses and speed,” Simkoff said on a call with investment analysts. “We believe that as the market tightens, we will pick up further market share as our value proposition becomes even more attractive to lenders and real estate professionals who are looking to reduce costs.”
In issuing guidance for 2022, Doma said it expects a key metric, retained premiums and fees, will total between $300 million and $320 million. That would represent growth of 16 percent to 23 percent over 2021, when retained premiums and fees totaled $259.6 million. But it would also be a considerable slowdown from the 37 percent annual growth achieved in 2021.
That prompted a skeptical line of questioning from Oppenheimer analyst Jason Helfstein.
“You’re pretty much telling us the market slowed down, and instead of 40 percent growth, you’re seeing 20 percent growth,” Helfstein said, adding that, “I don’t think 20 percent is gonna attract a lot of interest.”
Simkoff said the company’s long term outlook “hasn’t changed at all. In fact, you know, I’ve never been more confident than I am right now. And what our long term opportunity is to take a lot more share in a large antiquated market that we’re in.”
Doma says its machine learning platform, Doma Intelligence, and other technology it’s developed automates the most time consuming title and escrow processes, cutting closing times by 15 percent and saving homeowners up to 20 percent compared to traditional processes.
With Doma Intelligence coming online in six new states in December — Washington, Utah, Maine, Tennessee, Mississippi and Kentucky — Doma says it’s capable of addressing 83 percent of the U.S. residential real estate market.
In addition to underwriting title insurance for third-party agents, Doma also acquires orders directly, through local agents working out of branch offices in 10 states. Those agents partner with Realtors, attorneys and loan originators to provide title and escrow services.
Doma expects to “realize significant cost savings over time” as manual processes in its local branches are replaced by Doma Intelligence.
In addition to its local business, Doma also has partnerships with national lenders and mortgage originators, which the company refers to as its enterprise business. Once a partnership has been established, Doma integrates its Doma Intelligence platform into the client’s loan production systems, enabling “frictionless order origination and fulfillment.”
Simkoff said the company opened its first purchase mortgage transactions using the Doma Intelligence platform in December, which “lines up well with the overall mortgage market backdrop, which is now experiencing a rapid decline in refinance volume.”
Later in the call, Simkoff clarified that “we actually rolled it out to start just by pointing our Doma Intelligence technology at the escrow and settlement piece of the transaction. The instant underwriting algorithm for purchase will be rolling out online very shortly here. So we will then have full use of all the technology we use for refi also being used on purchase.”
He said Doma plans to accelerate investments “in a number of key areas, specifically sales and marketing, that will help get our differentiated offering in the hands of local business in a more meaningful way.”
“These customer acquisition investments go hand in hand with the migration of more transactions onto Doma Intelligence,” Simkoff said. “Bringing more of our local purchase volume onto the Doma Intelligence platform is a transformational effort but also comes at an opportune time. This acceleration will require a number of upfront costs but also drives undeniable longer term benefits. This trade off in the short term will help us drive faster growth in our local channel, which in turn adds more certainty on our path to profitability. So we’re looking forward to deploying the necessary capital in that area.”
Doma said closed orders in its enterprise channel during the fourth quarter were up 296 percent from a year ago, even as refinancings plunged by 59 percent.
The company reported that growth “was propelled by the addition of several new Enterprise referral partners that include another top 10 national mortgage lender, a leading provider of innovative home equity products, and a technology-led non-bank originator, as well as increases in wallet share from existing referral partners, reflecting confidence in Doma’s technology by the nation’s largest mortgage lenders.”