Velocity Financial, Inc.

Note 1 — Organization and Description of Business

Velocity Financial, LLC (“VF” or “the Company”) was a Delaware limited liability company formed on July 9, 2012, for the purpose of acquiring all membership units in Velocity Commercial Capital, LLC (“VCC”). On January 16, 2020, Velocity Financial, LLC converted from a Delaware limited liability company to a Delaware corporation and changed its name to Velocity Financial, Inc. Upon completion of the conversion, Velocity Financial, LLC’s Class A equity units of 97,513,533 and Class D equity units of 60,193,989 were converted to 11,749,994 shares of Velocity Financial, Inc. common stock. On January 22, 2020, the Company completed its initial public offering of 7,250,000 shares of common stock at a price of $13.00 per share to the public. On January 28, 2020, the Company completed the sale of an additional 1,087,500 shares of its common stock, representing the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $13.00 per share. The Company’s stock trades on The New York Stock Exchange under the symbol “VEL”. The Company's stock also trades on the NYSE Texas, Inc. under the same symbol “VEL” starting August 2025.

VCC, a California LLC formed on June 2, 2004, is a mortgage lender that originates and acquires residential and commercial investor real estate loans, providing capital to the investor real estate loan market. The Company is licensed as a California Finance Lender and, as such, is required to maintain a minimum net worth of $250 thousand. The Company does not believe there is any potential risk of not being able to meet this regulatory requirement. The Company uses its equity capital and borrowed funds to originate and invest in investor real estate loans and seeks to generate income based primarily on the difference between the yield on its investor real estate loan portfolio and the cost of its borrowings. The Company may also sell loans from time to time. The Company does not originate or acquire investments outside of the United States of America.

The Company, through its wholly owned subsidiaries, is the primary beneficiary of the Velocity Commercial Capital Loan Trusts, from the 2017-2 Trust through and including the 2026-P2 Trust, all of which are New York common law trusts, with the exception of the VCC 2025-MC1 Trust, and VCC 2025-RTL1 Trust which are Delaware statutory trusts. The Trusts are bankruptcy remote, variable interest entities (“VIEs”) formed for the purpose of providing secured borrowings to the Company and are consolidated with the accounts of the Company. On June 30, 2026, the Company sold a pool of nonperforming loans pursuant to a mortgage loan sale agreement (“Mortgage Loan Sale Agreement”) to VCC 2026-MC2 Trust, a Delaware statutory trust. The conveyance of mortgage loans was accounted for as a sale and not deemed as a pledge to secure a debt or other obligation of the Company. The Company determined that VCC 2026-MC2 Trust is also a VIE; however, the Company did not consolidate 2026-MC2 because it concluded it is not the primary beneficiary as it does not have the power to direct the activities that most significantly impact the entity's economic performance. See Note 2— Basis of Presentation and Summary of Significant Accounting Policies.

On December 28, 2021, the Company acquired an 80% ownership interest in Century Health & Housing Capital, LLC (“Century”). Century is a licensed Government National Mortgage Association (“Ginnie Mae” or “GNMA”) issuer/servicer that provides government insured Federal Housing Administration (“FHA”) mortgage financing for multifamily housing, senior housing and long-term care/assisted living facilities. Century originates loans through its borrower-direct origination channel and services the loans through its in-house servicing platform, which enables the formation of long-term relationships with its clients and drives strong portfolio retention. Century is a consolidated subsidiary of the Company as of completion of the acquisition. In addition, as a servicer of Ginnie Mae loans, Century is required to maintain a minimum net worth, and Century is in compliance with this requirement as of September 30, 2026.

Note 2 — Basis of Presentation and Summary of Significant Accounting Policies

The accompanying unaudited Consolidated Financial Statements as of and for the three and nine months ended September 30, 2026 and 2025 have been prepared on a basis that is substantially consistent with the accounting principles applied to the Company’s audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal, recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the Company’s audited Consolidated Financial Statements.

(a)

Use of Estimates

The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of consolidated income and expenses during the reporting period. These estimates relate to the allowance for credit losses and fair value option accounting.

(b)

Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2— Basis of Presentation and Summary of Significant Accounting Policies, of its audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the Securities and Exchange Commission (“SEC”).

There have been no material changes to the Company’s significant accounting policies as described in its 2025 Annual Report.

(c)

Securitizations and Principles of Consolidation

The Company transfers mortgage loans and certain financial assets to special-purpose entities in securitization transactions. These transactions are used to obtain liquidity while retaining certain interests in the securitization structures.

1. Consolidation Policy

The Company evaluates securitization trusts and other special-purpose entities under the variable interest entity (VIE) model. Under this model, the Company consolidates an entity when it has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity.

In substantially all securitization transactions, the Company is the primary beneficiary of the securitization trust and therefore consolidates the trust.

The consolidated financial statements as of September 30, 2026 and December 31, 2025 include only those assets, liabilities, and results of operations related to the business of the Company, its subsidiaries, and consolidated VIEs.

In the 2026-MC2 securitization transaction, the Company concluded it is not the primary beneficiary because it does not have the power to direct the activities that most significantly impact the entity's economic performance and, therefore, the Company did not consolidate 2026-MC2. The Company recognized on its consolidated balance sheet its retained interest in the 2026-MC2 security through its ownership of the Trust Certificate.

2. Sale Recognition & Derecognition

For securitization transactions in which the Company is not required to consolidate, the transfer of financial assets is evaluated under the sale accounting and derecognition guidance. For nonconsolidated special-purpose entities, the transferred financial assets are removed from the Company's consolidated balance sheet provided the conditions for sale accounting are met.

The Company recognizes a sale when control over the transferred financial assets has been surrendered, which generally requires that (i) the transferred financial assets are legally isolated from the Company's creditors, (ii) the transferee or beneficial interest holders have the right to pledge or exchange the transferred financial assets, and (iii) the Company does not maintain effective control over the transferred financial assets (for example, the Company cannot repurchase the transferred assets before their maturity and does not have the ability to unilaterally cause the holder to return the transferred assets).

In connection with this nonconsolidated securitization transaction involving 2026-MC2, the Company evaluated the transfer under the applicable derecognition criteria, including legal isolation and surrender of control, supported by a true sale legal opinion obtained in connection with the transaction. The Company received gross proceeds of $107.2 million in connection with the transfer, which were used to repay $91.9 million of existing indebtedness and fund a $2.8 million reserve account, resulting in net proceeds of $11.2 million after transaction costs of $1.3 million, received at closing. The Company recognized a $754 thousand gain from the transfer of nonperforming loans into 2026-MC2. In addition, the Company wrote off $6.0 million of protective advances related to the sale of nonperforming loans, which is included in“Loan servicing” in the Consolidated Statements of Income.

3. Retained Securities

The Company's retained interest in 2026-MC2 (the “Retained Securities”) consists of the trust certificate. The retained securities may be held to satisfy risk retention requirements and represent the Company’s compliance with the risk retention rules under the Dodd-Frank Act, requiring the Company to retain at least five percent of the credit risk of the assets underlying asset-backed securitizations.

4. Accounting Classification and Measurement

The Company has elected the fair value option for subsequently measuring the retained securities in 2026-MC2. The retained securities are measured at fair value at each reporting date, and changes in fair value are recognized in current period earnings.

(d)

Fair Value Option Accounting

The Company elected to apply fair value option (“FVO”) accounting to mortgage loans originated effective October 1, 2022. The fair value option loans are presented as a separate line item in the Consolidated Balance Sheets. Interest income on FVO loans is recorded on an accrual basis in the Consolidated Statements of Income under the heading “Interest income.” Changes in the fair value of the loans are recorded as “Unrealized gain (loss) on fair value loans” in the Consolidated Statements of Income. The Company does not record a current expected credit loss (“CECL”) reserve on fair value option loans.

The Company elected to apply FVO accounting to securitized debt issued effective January 1, 2023 when the underlying collateral is also carried at fair value. The FVO securitized debt is presented as a separate line item in the Consolidated Balance Sheets. The Company reflects interest expense on the FVO securitized debt as “Interest expense – portfolio related” and presents the other fair value changes of the FVO securitized debt separately as “Unrealized gain (loss) on fair value securitized debt” in the Consolidated Statements of Income.

The Company elected to apply FVO accounting for a note receivable from a privately held third party upon initial recognition in July 2026. The Company made this election because of the short-term nature of the note, because fair value best reflects the economics of the instrument, and for consistency with the measurement of its fair value option loans. The note is included in “Note receivable, at fair value” in the Consolidated Balance Sheets and is measured at fair value on a recurring basis, with changes in fair value recognized in “Other income” in the Consolidated Statements of Income. Interest income, including interest paid in kind and capitalized to principal, is recognized in “Other income” based on the contractual rate. As the Company has elected the FVO, the note receivable is not subject to a CECL reserve.

(e)

Derivative Instruments and Hedge Accounting

The Company issues fixed rate debt at regular intervals during the year through the securitization of its fixed rate mortgage assets. The Company is subject to interest rate risk on its forecasted debt issuances as these fixed rate debt issuances are priced at then-current market rates. The Company’s risk management objective is to hedge the risk of variability in its interest payment cash flows attributable to changes in the benchmark Secured Overnight Financing Rate (“SOFR”) between the time the fixed rate mortgages are originated and the fixed rate debt is issued. To accomplish this hedging strategy, the Company may from time to time enter into derivative instruments such as forward starting payer interest rate swaps or interest rate payer and receiver swaptions designated as cash flow hedges that are designed to be highly correlated to the underlying terms of the forecasted debt instruments. To qualify for hedge accounting, the Company formally documents its hedging relationships at inception, including the identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction at the time the derivative contract is executed. The Company also formally assesses effectiveness both at the hedge's inception and on an ongoing basis.

The Company's policy is to present all derivative balances on a gross basis, without regard to counterparty master netting agreements or similar arrangements. The fair value of the derivative instruments is recorded as a separate line item on the Consolidated Balance Sheets as an asset or liability with the related gains or losses reported as a component of Accumulated Other Comprehensive Income (“AOCI”). Beginning in the period in which the forecasted debt issuance occurs and the related derivative instruments are terminated, the gains or losses accumulated in AOCI are then reclassified into interest expense as a yield adjustment over the term of the related debt. If the Company determines it is not probable that the forecasted transaction will occur, gains and losses are reclassified immediately to earnings. The related cash flows are recognized on the cash flows from operating activities section on the Consolidated Statements of Cash Flows. The Company uses hedge accounting based on the exposure being hedged as cash flow hedges in operations.

(f)

Other Comprehensive Income

Other comprehensive income (“OCI”) is reported in the Consolidated Statements of Comprehensive Income. OCI is comprised of net income and the effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges, net of tax, less amounts reclassified into earnings.

Accumulated other comprehensive income represents the cumulative balance of OCI, net of tax, as of the end of the reporting period and relates to unrealized gains or losses on cash flow hedges, net of tax.

Note 3 — Current Accounting Developments

Recently Issued Accounting Standards

Codification Improvements

In December 2025, the FASB issued ASU No. 2025-12 “Codification Improvements” to address suggestions received from stakeholders on the Accounting Standards Codification and to make other incremental improvements to U.S. GAAP. The update represents changes to the Codification that (1) clarify, (2) correct errors, or (3) make minor improvements. The amendments make the Codification easier to understand and apply. The guidance is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.

Interim Reporting

In December 2025, the FASB issued ASU No. 2025-11 “Interim Reporting (Topic 270): Narrow-Scope Improvements” (“ASU 2025-11”). ASU 2025-11 clarifies the applicability of interim reporting guidance, types of interim reporting, and the form and content of interim financial statements in accordance with United States generally accepted accounting principles (“GAAP”). ASU 2025-11 does not change the fundamental nature of interim reporting or modify the scope of current interim disclosure requirements, but clarifies and improves the navigability of existing interim reporting requirements. This guidance is effective for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. Upon adoption, ASU 2025-11 may be applied prospectively or retrospectively to any or all periods presented in the interim financial statements. The Company is currently evaluating the impact ASU 2025-11 will have on its consolidated financial statements and related disclosures.

Derivatives and Hedging

In November 2025, the FASB issued ASU 2025-09 “Derivatives and Hedging (Topic 815), Hedge Accounting Improvements”, which aligns financial reporting with the economics of some of an entity's risk management activities by updating similar risk assessment for cash flow hedges, hedging interest payments on choose-your-rate debt, cash flow hedges of nonfinancial forecasted transactions, net written options as hedging instruments, and foreign currency-denominated debt designated as a hedging instrument and a hedged item. The amendments in ASU 2025-09 are effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods and applied on a prospective basis. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.

Expense Disaggregation

In January 2025, the FASB issued ASU 2025-01 “Income Statement— Reporting Comprehensive Income (Subtopic 220-40) Expense Disaggregation Disclosures”, clarifies for non-calendar year end entities the interim effective date of ASU 2024-03. All public business entities are required to adopt the guidance in the annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03 “Income Statement— Reporting Comprehensive Income (Subtopic 220-40) Expense Disaggregation Disclosures”, which requires specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively will need to be disclosed. The accounting update is effective January 1, 2027 for the Company. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.

Note 4 — Cash, Cash Equivalents, and Restricted Cash

The Company is required to hold cash for potential future advances due to certain borrowers. In accordance with various mortgage servicing and related agreements, Century maintains escrow accounts for mortgage insurance premium, tax and insurance, working capital, sinking fund and other mortgage related escrows. The total escrow balances payable amounted to$78.9 million and$83.3 million as of September 30, 2026 and 2025, respectively. These amounts are not reflected on the Consolidated Balance Sheets of the Company.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s Consolidated Balance Sheets to the total of the same such amounts shown in the Consolidated Statements of Cash Flows for thenine months ended September 30, 2026 and 2025:

Note 5 — Loans Held for Sale at Fair Value

The following table summarizes loans held for sale at fair value as of September 30, 2026 and December 31, 2025:

(1)

Reflects discount from borrower rate-buy down.

Note 6 — Loans Held for Investment at Amortized Cost and Loans Held for Investment at Fair Value

The following tables summarize loans held for investment as of September 30, 2026 and December 31, 2025:

The following tables summarize the Unpaid Principal Balance (“UPB”) and amortized cost basis of loans in the Company's COVID-19 forbearance program for thethree and nine months ended September 30, 2026 and the year ended December 31, 2025:

Since April 1, 2020, the inception of the COVID-19 forbearance program, the Company has modified$416.4 million in UPB of loans, which includes capitalized interest of$18.3 million. As of September 30, 2026,$296.3 million in UPB of modified loans has been paid down, which includes$7.0 million of capitalized interest received. The Company has not forgiven any capitalized interest.

Approximately 77.9% and 76.6% of the COVID forbearance loans in UPB were performing, and 22.1% and 23.4% were on nonaccrual status as of September 30, 2026 and December 31, 2025, respectively.

As of September 30, 2026 and December 31, 2025, the gross unpaid principal balances of loans held for investment pledged as collateral for the Company’s warehouse facilities and securitized debt issued were as follows:

(a)

Nonaccrual Loans

The following tables present the amortized cost basis, or recorded investment, of the Company’s loans held for investment, excluding loans carried at fair value, that were nonperforming and on nonaccrual status as of September 30, 2026 and December 31, 2025.

The Company made the accounting policy election not to measure an allowance for accrued interest receivable and to write off accrued interest receivable by reversing interest income when loans are placed on nonaccrual status, or 90 days or more past due. Any future payments received for these loans will be recognized on a cash basis.

The following tables present the amortized cost basis in loans held for investment, excluding loans held for investment at fair value, as of September 30, 2026 and 2025, and the amount of accrued interest receivable written off by reversing interest income by portfolio segment of loans that have been placed on nonaccrual for the three and nine months ended September 30, 2026 and 2025:

The cash basis interest income recognized on nonaccrual loans, including loans held for investment at fair value, was$12.5 million and$12.2 million for the three months ended September 30, 2026 and 2025, respectively. The cash basis interest income recognized on nonaccrual loans, including loans held for investment at fair value, was$34.3 million and$34.7 million for the nine months ended September 30, 2026 and 2025, respectively. No accrued interest income was recognized on nonaccrual loans for thenine months ended September 30, 2026 and 2025. The average recorded investment of individually evaluated loans, computed using month-end balances, was$177.4 million and$270.2 million for the three months ended September 30, 2026 and 2025, respectively, and$211.1 million and$286.6 million for the nine months ended September 30, 2026 and 2025, respectively. There were no commitments to lend additional funds to debtors experiencing financial difficulty whose loans have been modified as of September 30, 2026 and 2025.

(b)

Allowance for Credit Losses

The following tables present the activity in the allowance for credit losses for thethree and nine months ended September 30, 2026 and 2025:

(c)

Credit Quality Indicator

A credit quality indicator is a statistic used by the Company to monitor and assess the credit quality of loans held for investment, excluding loans held for investment at fair value. The Company monitors its charge-offs rate in relation to its nonperforming loans as a credit quality indicator.

Other credit quality indicators include aging status and accrual status. Nonperforming loans are loans that are 90 or more days past due, in bankruptcy, in foreclosure, or not accruing interest. Past due status is based on the contractual terms of the loan. The amortized cost basis of loans held for investment included $115.7 million and$127.3 million of loans in the Company’s COVID-19 forbearance program as of September 30, 2026 and December 31, 2025, respectively. The following tables present the aging status of the amortized cost basis of loans held for investment, excluding loans held for investment at fair value, as of September 30, 2026 and December 31, 2025:

(1)

Includes loans in bankruptcy and foreclosure less than 90 days past due.

(1)

Includes loans in bankruptcy and foreclosure less than 90 days past due.

In addition to the aging status, the Company also evaluates credit quality by accrual status. The following tables present the amortized cost of loans held for investment, excluding loans held for investment at fair value, by accrual status and loan origination year as of September 30, 2026 and December 31, 2025:

Nonaccrual Loans - Loans Held for Investment at Fair Value

The following tables present the aggregate fair value of loans held for investment at fair value that are 90 days or more past due and/or in nonaccrual status, and the difference between the aggregate fair value and the aggregate unpaid principal balance as of September 30, 2026 and December 31, 2025 by loan segments:

Note 7 — Retained Securities, at Fair Value

In connection with the Company's securitization of nonperforming mortgage loans (the “2026-MC2 Securitization”), the Company, through VCC Mortgage Securities LLC, a wholly-owned, bankruptcy-remote special purpose subsidiary of the Company (the "Depositor"), retained a Trust Certificate (the “Retained Securities”) issued by VCC 2026-MC2 Trust (the “Trust”).

The Company elected the fair value option under ASC 825-10, Financial Instruments, for the Retained Securities at the date of initial recognition, concurrent with the true sale and derecognition of the underlying nonperforming loan pool under ASC 860-20-30, Transfers and Servicing. The election was made to align the measurement of the Retained Securities with the fair value basis on which the transaction was priced and to avoid bifurcating the embedded credit and interest rate risk inherent in a subordinate beneficial interest in a securitization of nonperforming loans.

The Retained Securities are measured at fair value at each reporting date, with all changes in fair value, including changes attributable to instrument-specific credit risk, recognized in earnings.

The Trust Certificate represents the Company's retained subordinate interest in the underlying pool of mortgage loans transferred in the 2026-MC2 Securitization. The Trust Certificate had a fair value at the Closing Date of approximately 22.0% of the aggregate fair value of the Notes and the Trust Certificate, representing approximately$30.0 million of subordinated, first-loss exposure to the underlying mortgage loan pool.

The follo wing table presents the Company's retained securities, measured at fair value on a recurring basis, by fair value hierarchy level as of September 30, 2026:

The Company has elected the fair value option for its retained securities in the 2026-MC2 securitization trust. The following table presents the amounts of net loss included in earnings attributable to changes in fair value of this instrument for thethree and nine months ended September 30, 2026:

The trust certificate is subjectto a bullet repayment structure with no scheduled principal or interest payments prior to its contractual maturity of June 25, 2056. Due to the possibility of prepayment, actual receipt of amounts due may occur prior to the certificate's contractual maturity date, and expected maturities may therefore differ from contractual maturities.

Continuing Involvement

Following the 2026-MC2 Securitization, the Company continues to act as Special Servicer with respect to the mortgage loans transferred to the Trust. The Company's role as Special Servicer is limited to certain administrative functions and does not include primary servicing responsibilities or control over key decisions affecting the transferred loans, which are performed by the Master Servicer and Operating Advisor. Because the Company does not have the unilateral ability to substantively affect the transferred loans' performance, its continuing involvement as Special Servicer does not result in the recognition of a servicing asset or liability.

The Master Servicer and Operating Advisor, is not an affiliate or related party of the Company, as defined under ASC 850, Related Party Disclosures. The Company has no ownership interest in, or common control with the Master Servicer and Operating Advisor, and there are no other relationships between the Company and Master Servicer and Operating Advisor that would require disclosure as a related party transaction under ASC 850.

The Company's maximum exposure to loss as a result of its continuing involvement with, and variable interest in, the VCC 2026-MC2 Trust is limited to the carrying value of its retained securities at fair value of$29.3 million as of September 30, 2026. The Company, as Special Servicer, is not obligated to make servicing advances with respect to the underlying loans, and, other than customary representations, warranties, and indemnification obligations which the Company does not believe are material, has not retained any other recourse, guarantee, or indemnification obligations related to the transferred assets.

Note 8 — Receivables Due From Servicers

The following tables summarize receivables due from servicers as of September 30, 2026 and December 31, 2025:

Note 9 — Real Estate Owned, Net

As of September 30, 2026, the carrying value of real estate owned was$154.6 million, of which$140.5 million was pledged as collateral for the Company's securitized debt and$3.5 million was pledged as collateral under a warehouse repurchase agreement. As of December 31, 2025, the carrying value of real estate owned was$118.3 million, of which$114.5 million was pledged as collateral for the Company's securitized debt.

Note 10 — Mortgage Servicing Rights

Mortgage loans sold with servicing retained are not included in the Consolidated Balance Sheets. The Company has elected to record its mortgage servicing rights using the fair value measurement method. Fair value adjustments recorded at the end of the current period reflect valuation changes from the prior period-end.

The following table presents the Company's mortgage servicing rights, unpaid principal balance of loans serviced for GNMA by Century and BPC MC Trust, a related party (see Note 18 — Related Party Transactions), and significant assumptions used in determining the fair value of servicing rights as of September 30, 2026 and December 31, 2025:

The following table presents the Company's mortgage servicing rights activity for the three and nine months ended September 30, 2026 and 2025:

Note 11 — Goodwill

The following table presents the activity for goodwill as of September 30, 2026 and December 31, 2025:

Note 12 — Note Receivable, at Fair Value

On July 6, 2026, VCC entered into a letter loan agreement and promissory note with a privately held third party, under which the Company may advance up to $15.0 million on a revolving basis. The note bears interest at 12.0% per annum, which is paid-in-kind and capitalized to principal monthly. The note matures on the earlier of January 6, 2027 or the occurrence of a specified transaction, and is secured by a pledge of the equity interests of a subsidiary of the borrower.

As of September 30, 2026, advances under the facility totaled$15.0 million, and the unpaid principal balance of the note, including capitalized interest, and its fair value were each$15.3 million. For the three and nine months ended September 30, 2026, the Company recognized interest income of$0.3 million on the note and didnot recognize any gain or loss from changes in its fair value. The note is included at fair value in “Note receivable, at fair value” in the Consolidated Balance Sheets.

Note 13 — Securitized Debt at Amortized Cost and Securitized Debt at Fair Value

As of September 30, 2026, the Company is the sole beneficial interest holder of 40 Trusts, which are variable interest entities included in the consolidated financial statements. The securitization transactions are accounted for as secured borrowings under U.S. GAAP. The securities are subject to redemption by the Company when the stated principal balance is less than a certain percentage, ranging from 10% to 30% of the original stated principal balance of loans at issuance. As a result, the actual maturity dates of the securities issued could be earlier than their respective stated maturity dates, ranging from March 2030 through August 2056.

The following tables summarize securitized debt at amortized cost and securitized debt at fair value as of September 30, 2026 and December 31, 2025:

(1)

Balance sheet adjustment to recognize fair value at issuance. This valuation adjustment is not recognized in net income.

(2)

Valuation adjustment recognized in net income. No valuation change is due to instrument specific credit risk as the Company’s (issuer) credit risk has not changed.

The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of securitized debt at fair value as of September 30, 2026 and December 31, 2025:

The following table presents the effective interest rate of securitized debt at amortized cost and securitized debt at fair value for thenine months ended September 30, 2026 and 2025:

(1)

Effective interest rate represents annualized interest expense divided by average gross outstanding balance, which includes average rates of 5.92% and 5.96%, and debt issuance cost amortization of 0.08% and 0.14% for the nine months ended September 30, 2026 and 2025, respectively.

Note 14 — Other Debt

Secured and unsecured financings and warehouse facilities are utilized to finance the origination and purchase of commercial real estate mortgage loans. Warehouse facilities are designated to fund mortgage loans that are purchased and originated within specified underwriting guidelines. Most of these lines of credit fund less than 100% of the principal balance of the mortgage loans originated and purchased, requiring the use of working capital to fund the remaining portion.

(a)

Secured Financing, Net (Corporate Debt)

On March 15, 2022, the Company entered into afive-year, $215.0 million syndicated corporate debt agreement (the“2022 Term Loan”). The 2022 Term Loan bore interest at a fixed rate of 7.125% and was to mature on March 15, 2027. Interest on the 2022 Term Loan was paid everysix months. As of December 31, 2025, the balance of the 2022 Term Loan was $215.0 million. The 2022 Term Loan was paid off on January 30, 2026 with proceeds from the issuance and sale of $500.0 million 2026 Term Notes.

On February 5, 2024, the Company entered into afive-year, $75.0 million syndicated corporate debt agreement (the“2024 Term Loan”). The 2024 Term Loan bears interest at 9.875% and matures on February 15, 2029. Interest on the 2024 Term Loan is paid every six months. As of September 30, 2026 and December 31, 2025, the balance of the 2024 Term Loan was $75.0 million.

The total balance of the 2022 Term Loan and the 2024 Term Loan in the Consolidated Balance Sheets is net of debt issuance costs and discount of$1.4 million and$3.3 million as of September 30, 2026 and December 31, 2025, respectively. The secured financing is secured by substantially all assets of the Company not otherwise pledged under a securitized debt or warehouse facility and contains certain reporting and financial covenants. Should the Company fail to adhere to those covenants, the lenders have the right to demand immediate repayment that may require the Company to sell the collateral at less than the carrying amounts. As of September 30, 2026, the Company was in compliance with all covenants.

(b)

Unsecured Senior Notes, Net (Corporate Debt)

On January 30, 2026, Velocity Commercial Capital, LLC (“VCC”)completed the issuance and sale of $500.0 million aggregate principal amount of 9.375% Unsecured Senior Notes due 2031 (the “2026 Term Notes”). The 2026 Term Notes were sold at an offering price equal to 100% of the principal thereof and bear interest at a rate of 9.375% per annum. Interest on the 2026 Term Notes is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2026 and will mature on February 15, 2031. The 2026 Term Notes are guaranteed by the Company on a senior unsecured basis, with no conditions to the guarantee and no additional risks on a consolidated basis as VCC is the Company's primary operating company. After deducting fees and expenses, the net proceeds from the issuance and sale of the 2026 Term Notes were approximately $484.9 million. The 2026 Term Notes were sold in an offering exempt from the registration requirements of the Securities Act of 1933. The balance of the 2026 Term Notes in the Consolidated Balance Sheets isnet of debt issuance costs of$13.1 million as of September 30, 2026.

(c) Warehouse Repurchase and Revolving Loan Facilities, Net

On January 4, 2011, Century entered into a Master Participation and Facility Agreement with a bank (the“September 2022 Term Repurchase Agreement” or the “Facility Agreement”). The Facility Agreement has anextended maturity date of July 31, 2027, and is a short-term borrowing facility, collateralized by performing loans, with a temporary maximum capacity of $100.0 million through December 31, 2026, and bears interest atone-month SOFR plus 1.60% with a 0.25% floor.

On March 19, 2025, the Company entered into a Repurchase Agreement (the “2025 Repurchase Agreement”) with a warehouse lender. The 2025 Repurchase Agreement is a modified mark-to-market agreement and has a current maturity date of September 30, 2027, and is a short-term borrowing facility, collateralized by a pool of performing loans, with a maximum capacity of$400.0 million, and bears interest at SOFR plus 2.65%. All borrower payments on loans financed under the warehouse repurchase facility are first used to pay interest on the facility.

On January 29, 2021, the Company entered into a non-mark-to-market Repurchase Agreement (the“2021 Repurchase Agreement”) with a warehouse lender. The 2021 Repurchase Agreement has a current extended maturity date of June 20, 2027, and is a short-term borrowing facility, collateralized by a pool of loans. On July 25, 2024, the Company entered into a mark-to-market Repurchase Agreement (the“2024 Repurchase Agreement”) with the same warehouse lender. The 2024 Repurchase Agreement also has an extended maturity date of June 20, 2027, and is a short-term borrowing facility, collateralized by a pool of loans. The maximum capacity under both agreements is $200.0 million individually and in the aggregate. The 2024 Repurchase Agreement includes a $125.0 million sublimit for nonperforming loans. Borrowings under these two facilities bear interest at SOFR plus 2.650% during the availability period and 3.650% during the amortization period. All borrower payments on loans financed under the warehouse repurchase facilities are first used to pay interest on the facilities.

On April 16, 2021, the Company entered into a non-mark-to-market Term Repurchase Agreement (the“2021 Term Repurchase Agreement”) with a warehouse lender. The 2021 Term Repurchase Agreement has a maturity date of April 14, 2028, with an extended borrowing period through April 14, 2027. During the borrowing period, the Company can take loan advances from time to time, subject to availability. Each loan advance bears interest at SOFR plus 2.95%. The maximum capacity under this facility is $100.0 million.

On December 27, 2023, the Company entered into a loan facility agreement (the“2023 Repurchase Agreement”) with a bank. The 2023 Repurchase Agreement has a maturity date of December 27, 2026. During the borrowing period, the Company can take loan advances from time to time subject to availability. Each loan advance bears interest at SOFR plus 3.00%. The maximum loan amount under this facility is$125.0 million.

On November 7, 2024, the Company entered into a non-mark-to-market secured revolving loan facility agreement (the“2024 Bank Credit Agreement”) with a bank. The 2024 Bank Credit Agreement has a current maturity date of May 7, 2027. Each loan advance bears interest at SOFR plus 3.50%, with a floor of 2.00%. The maximum loan amount under this facility is $50.0 million.

Certain loans are pledged as collateral under the warehouse repurchase facilities and the revolving loan facility, which contain covenants. Should the Company fail to adhere to those covenants or otherwise default under the facilities, the lenders have the right to terminate the facilities and demand immediate repayment that may require the Company to sell the collateral at less than the carrying amounts. As of September 30, 2026 and December 31, 2025, the Company was in compliance with all covenants.

The following table summarizes the maximum borrowing capacity, current gross balances outstanding, and effective interest rates of the Company’s warehouse facilities and loan agreements as of September 30, 2026 and December 31, 2025:

(1)

Warehouse repurchase facilities amounts on the Consolidated Balance Sheets are net of debt issuance costs, amounting to$1.4 million and$1.9 million as of September 30, 2026 and December 31, 2025, respectively.

The following table provides an overview of the activity and effective interest rates of the Company’s warehouse facilities and loan agreements for thethree and nine months ended September 30, 2026 and 2025:

(1)

Effective interest rate represents annualized interest expense divided by average gross outstanding balance. The rate includes an average rate of 6.70% and 7.69%, and debt issuance cost amortization of 0.77% and 0.49%, for the three months ended September 30, 2026 and 2025, respectively, and includes an average rate of 6.83% and 7.54%, and debt issuance cost amortization of 1.06% and 0.46%, for the nine months ended September 30, 2026 and 2025, respectively.

The following table provides a summary of interest expense that includes interest, amortization of discount, and deal cost amortization of the Company’s warehouse facilities, securitizations and other financing for thethree and nine months ended September 30, 2026 and 2025:

Note 15 — Commitments and Contingencies

(a)

Repurchase Liability

When the Company sells loans, it is required to make normal and customary representations and warranties about the loans to the purchaser. The loan sale agreements generally require the Company to repurchase loans if the Company breaches a representation or warranty given to the loan purchaser. In addition, the Company may be required to repurchase loans as a result of borrower fraud or if a payment default occurs on a loan shortly after its sale.

The Company records a repurchase liability relating to representations and warranties and early payment defaults. The method used to estimate the liability for repurchase is a function of the representations and warranties given and considers a combination of factors, including, but not limited to, estimated future defaults and loan repurchase rates and the potential severity of loss in the event of defaults. The Company establishes a liability at the time loans are sold and continually updates the estimated repurchase liability. The level of the repurchase liability for representations and warranties and early payment default requires considerable management judgment.

The Company regularly evaluates the adequacy of repurchase reserves based on trends in repurchase, actual loss experience, estimated future loss exposure and other relevant factors including economic conditions. As of September 30, 2026 and December 31, 2025, the balance of repurchase liability was$144 thousand, and is included in “Accounts payable and accrued expenses” on the Consolidated Balance Sheets.

(b)

Legal Proceedings

The Company is a party to various legal proceedings in the normal course of business. The Company, after consultation with legal counsel, believes the disposition of all pending litigation will not have a material effect on the Company’s consolidated financial condition or results of operations as of September 30, 2026.

(c)

Employee Retention Credit

Under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020 and the subsequent extension of the CARES Act, the Company, with the guidance from a third-party specialist, determined it was eligible for a refundable employee retention credit (“ERC”) subject to certain criteria.

The Company applied for ERC for the first three quarters’ wages paid in calendar year 2021. During the second quarter of 2023, the Company received approximately$4.2 million of ERC. Due to the subjectivity of the credit, the Company elected to account for the ERC as a gain analogizing to ASC 450-30, Gain Contingencies. Accordingly, the $4.2 million ERC, net of the third-party specialist fees of $0.6 million, was deferred until the uncertainty surrounding them is resolved. As of March 31, 2026, the IRS statute of limitations for the ERC refunds received related to the first and second quarters of 2021 have expired, as such, the Company recognized $2.4 million of ERC as other income during the quarter ended March 31, 2026. The Company continues to defer the third quarter 2021 net ERC refund of $1.3 million until the special six-year IRS statute of limitations expires in 2028. The deferred net ERC refunds of $1.3 million and$3.6 million are included in “Accounts payable and accrued expenses” on the Consolidated Balance Sheets as of September 30, 2026 and December 31, 2025, respectively.

(d)

Commitments

Century originated a$25.9 million government-backed construction loan in September 2025. The funded advances (draws) on the construction loan were sold after funding. The unfunded portion of the construction loan totaled$8.6 million and$22.0 million as of September 30, 2026 and December 31, 2025, respectively.

Note 16 — Stock-Based Compensation

The Company’s Amended and Restated 2020 Omnibus Incentive Plan, or the “2020 Plan,” authorizes grants of stock‑based compensation instruments including but not limited to non-qualified stock options, restricted stock awards (“RSAs”) and performance stock unit awards (“PSUs”) to certain employees and non-employee directors of the Company, to purchase or issue up to 4,520,000 shares of the Company's common stock.

Expenses related to the stock-based compensation instruments and Employee Stock Purchase Plan (“ESPP”) are included in “Compensation and employee benefits” and “Other operating expenses” on the Consolidated Statements of Income.

Below are summaries of the recognized and unrecognized stock-based compensation expense by instrument for the periods indicated:

Stock Options

Stock option awards provide for the option to purchase the Company's common stock. From the date of the grant, the stock options generally vest ratably over a service period ofthree years and are exercisable for a period up toten years.

The Company uses the Black-Scholes option pricing model to value stock options in determining the stock-based compensation expense. Compensation expense is recognized over thethree-year vesting period using the straight-line method. Forfeitures are recognized as they occur. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. The expected dividend yield is zero as the Company does not expect to pay dividends in the foreseeable future. Expected volatility is based on historical volatilities of the Company’s common stock.

The table below summarizes stock option activity for thenine months ended September 30, 2026 and 2025:

(1)

The number of options expected to vest reflects no expected forfeiture.

(2)

The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the “in-the-money” option exercise price.

RSAs

The fair value of RSAs is determined based on the fair market value of the Company's common shares on the grant date. The estimated fair value of RSA awards is generally amortized as an expense over thethree-year requisite service period. The Company has elected to recognize forfeitures as they occur rather than estimating service-based forfeitures over the requisite service period.

The table below summarizes RSA activity for thenine months ended September 30, 2026 and 2025:

PSUs

In February 2022, the Company began granting PSUs to certain employees, including named executive officers under the 2020 Plan. PSUs are linked to the average core net income annual growth over the three-year period from the year of grant. Settlement of vested PSUs will be made on the date that the Compensation Committee certifies the average core net income annual growth for the three-year period. PSUs are subject to forfeiture until predetermined performance conditions have been achieved. The number of shares issued at the end of any performance period could range between 0% and 200% of the original target award amount. Compensation expense related to PSUs is based on the fair value of the underlying stock on the award date and is recognized over the vesting period using an estimate of the probability of achieving the performance target. Adjustments to compensation expense are made each year based on changes in estimate of the number of PSUs that are probable of vesting.

The table below summarizes PSU activity for thenine months ended September 30, 2026 and 2025:

(1)

The number of PSUs are presented at 100% of the specified target shares.

ESPP

In July 2022, the Company initiated an ESPP which allows permitted eligible employees to purchase shares of the Company's common stock through payroll deductions of up to 15% of their eligible compensation, subject to certain limitations. The purchase price of the shares under the ESPP equals 85% of the lower of the fair market value of the Company's common stock on either the first or last day of each offering period. Compensation expense for the ESPP is calculated as of the beginning of the offering period as the fair value of the employees’ purchase rights utilizing the Black-Scholes option valuation model and is recognized as a compensation expense over the offering period.

Treasury Stock

Treasury stock represents shares purchased from the open market and shares surrendered to the Company to satisfy tax withholding obligations in connection with the vesting or exercise of stock-based awards. Shares withheld were 19,370 and 9,600, at an average price of$18.60 and$18.74 per share for thethree months ended September 30, 2026 and 2025, respectively. There wereno treasury shares acquired from the open market by the employee stock purchase plan for thethree months ended September 30, 2026.

Note 17 — Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income attributable to Velocity Financial, Inc. by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock that shared in earnings. Diluted earnings per share is calculated using the treasury stock method.

During the third quarter of 2026, the Company identified an error in the application of the two-class method to basic earnings per share in prior periods. The Company determined that unvested restricted stock awards are not participating securities because the rights to dividends on those awards are forfeitable, and that the two-class method therefore should not have been applied in calculating basic earnings per share. The Company evaluated the error in accordance with SEC Staff Accounting Bulletin No. 99, Materiality, and SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, considering both quantitative and qualitative factors, and concluded that the error was not material, individually or in the aggregate, to any previously issued financial statements. Basic earnings per share for the three and nine months ended September 30, 2025 were corrected to $0.67 and $1.93, respectively, from $0.66 and $1.91 as previously reported. The corrections had no effect on net income, diluted earnings per share, or any other amounts in the consolidated financial statements.

The following table presents the basic and diluted earnings per share calculations for thethree and nine months ended September 30, 2026 and 2025:

The following table sets forth the weighted average number of shares excluded from the computation of diluted earnings per share, as their inclusion would have been anti-dilutive.

Note 18 — Related Party Transactions

In the ordinary course of business, the Company sells held for sale loans and issues securitized debt to various financial institutions and investors through a market bidding process. As a result of this process, the Company may sell held for sale loans and/or issue securitized debt to an affiliate.

On December 29, 2025, the Company entered into a Master Flow Mortgage Loan Purchase Agreement (“MLPA”) with BPC MC Trust (a Beach Point Capital Management affiliate) to sell $128.9 million of nonperforming loans. Beach Point Capital Management is a related party of the Company as it beneficially owns more than 10% of our outstanding common stock. The sale was servicing retained whereby the Company sold whole loans, but retained the servicing rights to the loans. The MLPA contained standard loan level and corporate representations and warranties from the Company as the seller under the agreement. The Company entered into a Servicing Agreement to service and special service the loans for a fee. In addition to the servicing fee, the Company is entitled to a disposition fee of the unpaid principal balance of all loans that are paid off or resolved through an REO sale. This fee is not due on loans that are paid current. The Company also entered into a Servicing Fee Incentive Side Letter with the BPC MC Trust that provides further incentives to the Company based on meeting certain future Internal Rate of Return (“IRR”) hurdles.

The Company recognized a $19.3 million gain from the sale of nonperforming loans to BPC MC Trust on December 29, 2025. The Company also recognized mortgage servicing rights of $0.2 million as of December 31, 2025. The mortgage servicing right is approximately $0.1 million as of September 30, 2026, which is included in “Mortgage servicing rights, at fair value” on the Consolidated Balance Sheets. See Note 10 — Mortgage Servicing Rights.

The following table presents the related party transactions completed during thethree and nine months ended September 30, 2026 and 2025:

(1)

The 2026-1 Loan Trust included $6.75 million of securitized debt issued to related parties. The 2026-1 Loan Trust was a broadly marketed securitization through the Company’s normal securitization process.

Note 19 — Derivative Instruments

In September 2023, the Company began utilizing derivative instruments designated as cash flow hedges to manage the exposure to interest rate volatility related to its forecasted issuances of fixed-rate debt through its securitization process. The derivative instruments include forward starting interest rate swaps or interest rate payer and receiver swaptions. The Company’s risk management objective is to hedge the risk of variability in its interest payment cash flows attributable to changes in the benchmark SOFR between the time the fixed rate mortgages are originated and the fixed rate debt is issued. As of September 30, 2026, the maximum length of time over which the Company was hedging its exposure to variability in future cash flows for forecasted transactions did not exceed four years.

The gains or losses on derivative instruments that are designated and qualify as cash flow hedges are reported as a component of AOCI. Beginning in the period in which the forecasted debt is issued and the related derivative instruments are terminated, the accumulated gains or losses associated with the terminated derivatives are then reclassified into interest expense as a yield adjustment over the term of the related debt. For the quarters ended September 30, 2026 and 2025,$179 thousand and$192 thousand, respectively, of after-tax net losses on terminated derivative instruments were reclassified from AOCI to interest expense. For the nine months ended September 30, 2026 and 2025,$581 thousand and$459 thousand of after-tax net losses on terminated derivative instruments were reclassified from AOCI to interest expense. As of September 30, 2026 and 2025, the Company had$0.8 million of after-tax net unrealized gain and$2.9 million of after-tax net unrealized loss, respectively, associated with cash flow hedging instruments recorded in AOCI. As of September 30, 2026, the Company expects to reclassify an estimated$0.7 million of after-tax net unrealized loss on derivative instruments designated as cash flow hedges from AOCI into earnings over the next 12 months.

The following tables present the fair value of the Company’s derivative financial instruments on a gross basis, as well as its classification on the Company’s Consolidated Balance Sheets as of September 30, 2026 and December 31, 2025:

(1)

Fair value reported is exclusive of collateral held and pledged, related to derivative exposure between the Company and its derivative counterparty. As of September 30, 2026, the Company held$2.9 million of margin collateral from its derivative counterparty, which was included in “Accounts payable and accrued expenses” on the Consolidated Balance Sheets. As of December 31, 2025,$0.1 million was pledged to its derivative counterparty, which was included in “Other receivables” on the Consolidated Balance Sheets.

The counterparty to the financial derivatives that the Company enters into is a major institution. The Company is exposed to credit-related losses in the event of non-performance by the counterparty. This credit risk is generally limited to the unrealized gains in such contracts, less collateral held, should the counterparty fail to perform as contracted.

Note 20 — Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in the components of accumulated other comprehensive income (loss) balances for thethree and nine months ended September 30, 2026 and 2025:

The following tables present the components of other comprehensive income (loss) and the related tax effect for thethree and nine months ended September 30, 2026 and 2025:

Note 21 — Fair Value Measurements

Fair Value Determination

ASC Topic 820, “Fair Value Measurement,” defines fair value, establishes a framework for measuring fair value including a three-level valuation hierarchy, and requires disclosures about fair value measurements. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:

o

Level 1 - Valuation is based on quoted prices for identical instruments traded in active markets.

o

Level 2 - Valuation is based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable and can be corroborated by market data.

o

Level 3 - Valuation is based on significant unobservable inputs for determining the fair value of assets or liabilities. These significant unobservable inputs reflect assumptions that market participants may use in pricing the assets or liabilities.

Transfers to/from Levels 1, 2 and 3 are recognized at the beginning of the reporting period in which a change in valuation technique or methodology occurs. Given the nature of some of the Company’s assets and liabilities, clearly determinable market-based valuation inputs are often not available; therefore, these assets and liabilities are valued using internal estimates. As subjectivity exists with respect to the valuation estimates used, the fair values disclosed may not equal prices that can ultimately be realized if the assets are sold or the liabilities are settled with third parties.

Below is a description of the valuation methods for the assets and liabilities recorded at fair value on either a recurring or nonrecurring basis and for estimating fair value of financial instruments not recorded at fair value for disclosure purposes. While management believes the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the measurement date.

Cash, Cash Equivalents, and Restricted Cash

Cash and restricted cash are recorded at historical cost. The carrying amount is a reasonable estimate of fair value as these instruments have short-term maturities and interest rates that approximate market, a Level 1 measurement.

Loans Held for Investment, at Amortized Cost and Loans Held for Investment, at Fair Value

The Company uses a third-party loan valuation specialist to estimate the fair value of its nonperforming mortgage loans, a Level 3 measurement. The significant unobservable inputs used in the fair value measurement of the Company’s nonperforming mortgage loans are interest rates, market yield requirements, the probability of default, loss given default, voluntary prepayment speed and loss timing. The Company uses a third-party loan valuation model to estimate the fair value of its performing mortgage loans, a Level 3 measurement. The significant unobservable inputs used in the fair value measurement of the Company’s performing mortgage loans are discount rate, constant prepayment rate, constant default rate, and loss severity rate. Significant changes in any of those inputs in isolation could result in a significant change to the mortgage loans’ fair value measurement.

Collateral Dependent or Loans Individually Evaluated

Nonaccrual loans held for investment and carried at amortized cost are evaluated individually and are adjusted to the fair value of the collateral when the fair value of the collateral is below the carrying value of the loan. To the extent such a loan is collateral dependent, the Company determines the allowance for credit losses based on the estimated fair value of the underlying collateral. The fair value of each loan’s collateral is generally based on appraisals or broker price opinions obtained, less estimated costs to sell, a Level 3 measurement.

Loans Held for Sale, at Fair Value

The Company elected to account for certain loans originated with the intent to sell at fair value using FASB ASC Topic 825, Financial Instruments (ASC 825). The FVO loans held for sale are measured based on a discounted cash flow model, or on the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value, including the value attributable to mortgage servicing and credit risk, and current commitments to purchase loans, a Level 2 measurement. Management identified all loans to be accounted for at estimated fair value at the instrument level. Changes in fair value are reflected in income as they occur.

Retained Securities, at Fair Value

Retained securities, or Trust Certificate, is carried at fair value. The fair value of the Trust Certificate is classified within Level 3 of the fair value hierarchy, as it is not actively traded and its valuation requires the use of significant unobservable inputs. The Company estimates the fair value of the Trust Certificate using a discounted cash flow model, which incorporates projected cash flows from the underlying mortgage loan pool, including assumptions regarding the timing and amount of loan liquidations (the“liquidation rate”) and a discount rate reflecting the risk profile of a subordinated, first-loss interest in nonperforming loan collateral. Significant changes in any of the input factors in isolation, including the liquidation rate, could result in a significant change to the Trust Certificate's fair value measurement.

Real Estate Owned, Net (“REO”)

Real estate owned, net is initially recorded at the property’s estimated fair value, based on appraisals or broker price opinions obtained, less estimated costs to sell at acquisition date, a Level 3 measurement. From time to time, nonrecurring fair value adjustments are made to real estate owned, net based on the current updated appraised value of the property, or management’s judgment and estimation of value based on recent market trends or negotiated sales prices with potential buyers.

Mortgage Servicing Rights

The Company determined the fair values based on a third-party valuation specialist using a model that calculates the present value of estimated future net servicing income, a Level 3 measurement.

Derivative Instruments

Derivative financial instruments are measured at fair value using readily observable market inputs and the overall fair value measurement is classified as Level 2.

Note Receivable, at Fair Value

The Company estimates the fair value of the note receivable using a discounted cash flow model, which is a Level 3 measurement. Significant unobservable inputs include the discount rate. Because of the short remaining term of the note, its fair value approximates its unpaid principal balance, including capitalized interest.

Secured and Unsecured Financing, Net (“Corporate Debt”)

The Company determined the fair value estimates of the secured and unsecured financing using the estimated cash flows discounted at an appropriate market rate, a Level 3 measurement.

Warehouse Repurchase Facilities, Net

Warehouse repurchase facilities are recorded at historical cost. The carrying amount is a reasonable estimate of fair value as these instruments have short-term maturities of one-year or less and interest rates that approximate market plus a spread, a Level 2 measurement.

Securitized Debt, at Amortized Cost and Securitized Debt, at Fair Value

The Company obtains the fair value estimates at instrument level from a third-party broker dealer based on trader input on benchmark securities. The fair values take into consideration input factors such as bond structure and collateral characteristics, and performance and pricing factors such as yield, spread, average life, prepayment speeds, default rate, and severities. The fair values are considered a Level 2 measurement. Significant changes in any of the input factors in isolation could result in a significant change to securitized debt’s fair value measurement.

Accrued Interest Receivable and Accrued Interest Payable

The carrying amounts of accrued interest receivable and accrued interest payable approximate fair value due to the short-term nature of these instruments, a Level 1 measurement.

The Company does not have any off-balance sheet financial instruments other than the unfunded commitments disclosed in Note 15 — Commitments and Contingencies.

Receivables Due From Servicers

The carrying amounts of receivables due from servicers approximate fair value due to the short-term nature of these instruments, a Level 1 measurement.

Fair Value Disclosures

The following tables present information on assets and liabilities measured and recorded at fair value as of September 30, 2026 and December 31, 2025, by level, in the fair value hierarchy:

The following table presents gains and losses recognized on assets measured on a nonrecurring basis for thethree and nine months ended September 30, 2026 and 2025:

The following tables present the primary valuation techniques and unobservable inputs related to Level 3 assets that are recorded on a recurring and nonrecurring basis as of September 30, 2026 and December 31, 2025:

(1)

Individ ually evaluated loans requiring specific allowance, net is weighted by collateral value; real estate owned, net is weighted by selling price; loans held for investment at fair value and mortgage servicing rights are weighted by UPB.

(1)

Individually evaluated loans requiring specific allowance, net is weighted by collateral value; real estate owned, net is weighted by selling price; loans held for investment at fair value and mortgage servicing rights are weighted by UPB.

The following is a roll-forward of loans held for investment that are measured and recorded at estimated fair value on a recurring basis for the periods indicated:

The following is a roll-forward of loans held for sale that are measured and recorded at estimated fair value on a recurring basis for the periods indicated:

(1)

Reflects discount from borrower rate-buy down.

The following is a roll-forward of securitized debt measured and recorded at estimated fair value on a recurring basis for the periods indicated:

The following is a roll-forward of retained securities measured and recorded at estimated fair value on a recurring basis for the periods indicated:

The Company estimates the fair value of certain financial instruments on a quarterly basis. These instruments are recorded at fair value using a valuation allowance only if they are individually evaluated. As described above, these adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets. As of September 30, 2026 and December 31, 2025, financial assets and liabilities measured at fair value include loans held for investment at fair value, loans held for sale at fair value, mortgage servicing rights, derivative instruments, securitized debt at fair value and retained securities at fair value. Financial assets measured at the lower of cost or estimated fair value include certain individually evaluated loans held for investment and REOs, which are measured using unobservable inputs, including appraisals and broker price opinions on the values of the underlying collateral. Individually evaluated loans requiring an allowance were carried at approximately$7.8 million and$10.8 million as of September 30, 2026 and December 31, 2025, respectively, net of specific allowance for credit losses of approximately$1.0 million, respectively.

A financial instrument is cash, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity on potentially favorable terms. The methods and assumptions used in estimating the fair values of the Company’s financial instruments are described above.

The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated:

Note 22 — Segment Information

The Company operates as asingle reportable segment, conducting its business activities within the United States. The Company's chief operating decision maker (“CODM”) is its Chief Executive Officer, who reviews financial information presented on a consolidated basis.

The CODM regularly reviews net income as presented on the Company’s Consolidated Statements of Income for purposes of assessing performance and making decisions about resource allocation. Items regularly reviewed by the CODM include those line items reported on the Company’s Consolidated Statements of Income, the most significant of which include net interest income, unrealized gain (loss) on fair value loans, unrealized gain (loss) on fair value securitized debt, origination fee income, and compensation and benefits. See Consolidated Statements of Income.

Note 23 — Pending Acquisition

On August 26, 2026, Velocity Commercial Capital, LLC (“VCC”), a wholly owned subsidiary of the Company, entered into an Equity Purchase Agreement (the “Purchase Agreement”) with Toorak Capital LLC (the “Seller”), pursuant to which VCC will purchase from the Seller all of the issued and outstanding equity interests of a Delaware limited liability company to be formed through a statutory division of Toorak Capital Partners LLC, MMTC Holdings LLC, and MMTC Portfolio Holdings, LLC (collectively, the “Purchased Companies”) (the “Toorak Acquisition”). Upon completion of the Toorak Acquisition, each of the Purchased Companies will become an indirect wholly owned subsidiary of the Company.

The consideration to be paid by VCC consists of a purchase price of approximately $62.0 million subject to certain adjustments as described in the Purchase Agreement. The completion of the Toorak Acquisition is subject to the satisfaction or waiver of customary closing conditions, including the receipt of certain required regulatory approvals, the completion of certain pre-closing transactions, and the completion, or substantially concurrent completion, of the acquisition by affiliates of TOBI III SPE I LLC, an affiliate of the Company, of certain loan assets and securitization equity interests of the Seller or its subsidiaries (the “Back Book Acquisition”). The Purchase Agreement contains certain termination rights, including if the Toorak Acquisition and related transactions have not been completed on or before the date that is 120 days following the date of the Purchase Agreement, subject to certain exceptions and extension rights.

In connection with the Purchase Agreement, VCC entered into a Master Transaction Agreement with Titan RR LLC, an affiliate of TOBI III SPE I LLC, pursuant to which, subject to the completion of the Toorak Acquisition and the Back Book Acquisition, VCC will receive certain fees related to loan administration matters.

The Toorak Acquisition is expected to close in the fourth quarter of 2026. The Company expects to account for the Toorak Acquisition as a business combination under ASC 805, Business Combinations. During the three and nine months ended September 30, 2026, the Company incurred$2.4 million and$7.2 million, respectively, of acquisition-related costs, which are included in professional fees in the consolidated statements of income.

Note 24 — Subsequent Events

On October 14, 2026, an indirect wholly owned subsidiary of the Company entered into a $200.0 million uncommitted Master Repurchase Agreement with a financial institution to finance eligible commercial mortgage loans. The facility matures on October 13, 2027, bears interest at Term SOFR plus a spread of 1.50% to 3.50%, and is guaranteed by the Company. As of the date of this filing, no amounts were outstanding under the facility.

The Company has evaluated events that have occurred subsequent to September 30, 2026 through the issuance of the accompanying consolidated financial statements and has concluded there are no other subsequent events that would require recognition or disclosure in the accompanying consolidated financial statements.