loanDepot Inc

Previous wording

Increases in interest rates may affect affordability and the ability for potential home buyers to qualify for a mortgage loan. As interest rates increase, rate and term refinancings become less attractive to consumers. However, rising interest rates during periods of inflationary pressures can make real assets, including real estate, an attractive investment. Demand for real estate may result in ongoing support for purchase mortgages and home price appreciation creating borrower equity that could result in opportunities for cash-out refinancings or home equity lines of credit.

Current wording

Higher interest rates may affect affordability and the ability for potential home buyers to qualify for a mortgage loan. As interest rates increase, rate and term refinancings become less attractive to consumers. However, rising interest rates during periods of inflationary pressures can make real assets, including real estate, an attractive investment. Demand for real estate may result in ongoing support for purchase mortgages and home price appreciation creating borrower equity that could result in opportunities for cash-out refinancings or home equity lines of credit.

Previous wording

Our mortgage loan refinancing volumes (and to a lesser degree, our purchase volumes), balance sheets, and results of operations are influenced by changes in interest rates and how we effectively manage the related interest rate risk. The majority of our assets are subject to interest rate risk, including LHFS, LHFI, IRLCs, servicing rights and mandatory trades, forward sales contracts, interest rate swap futures and put options. We refer to such mandatory trades, forward sales contracts, interest rate swap futures and put options collectively as “Hedging Instruments.” As interest rates increase, our LHFS, LHFI and IRLCs generally decrease in value while our Hedging Instruments utilized to hedge against interest rate risk typically increase in value. Rising interest rates cause our expected mortgage loan servicing revenues to increase due to a decline in mortgage loan prepayments which extends the average life of our servicing portfolio and increases the value of our servicing rights. Conversely, as interest rates decrease, our LHFS, LHFI and IRLCs generally increase in value while our Hedging Instruments decrease in value. In a declining interest rate environment, borrowers tend to refinance their mortgage loans, which increases prepayment speeds and causes expected mortgage loan servicing revenues to decrease, which reduces the average life of our servicing portfolio and decreases the value of our servicing rights. Changes in fair value of our servicing rights are recorded as unrealized gains and losses in changes in fair value of servicing rights, net, in our consolidated statements of operations.

Current wording

Our mortgage loan refinancing volumes (and to a lesser degree, our purchase volumes), balance sheets, and results of operations are influenced by changes in interest rates and how we effectively manage the related interest rate risk. The majority of our assets are subject to interest rate risk, including LHFS, LHFI, IRLCs, servicing rights and mandatory trades, forward sales contracts, interest rate swap futures and put options. We refer to such mandatory trades, forward sales contracts, interest rate swap futures and put options collectively as “Hedging Instruments.” As interest rates increase, our LHFS, LHFI and IRLCs generally decrease in value while our Hedging Instruments utilized to hedge against interest rate risk typically increase in value. Rising interest rates cause our expected mortgage loan servicing revenues to increase due to a decline in mortgage loan prepayments which extends the average life of our servicing portfolio and increases the value of our servicing rights. Conversely, as interest rates decrease, our LHFS, LHFI and IRLCs generally increase in value while our Hedging Instruments decrease in value. In a declining interest rate environment, borrowers tend to refinance their mortgage loans, which increases prepayment speeds and causes expected mortgage loan servicing revenues to decrease, which reduces the average life of our servicing portfolio and decreases the value of our servicing rights. Changes in fair value of our servicing rights are recorded as unrealized gains and losses in change in fair value of servicing rights, net, in our consolidated statements of operations.

Previous wording

During 2022 and 2023, the Federal Reserve implemented a series of rate adjustments, resulting in a cumulative increase of 5.25 percentage points in the Federal Funds rate. The associated increase in mortgage interest rates has impacted mortgage loan origination volumes, impacting affordability and qualification for homebuyers. The mortgage industry continues to face decreased volumes due to elevated mortgage rates and low inventory of existing homes for sale, driven in part by a large number of existing homeowners benefiting from low-interest rates from previous purchases or refinance. In response to the challenges posed by these market dynamics, we introduced our Vision 2025 Plan in July 2022. Since the initial announcement of Vision 2025, we have consolidated our retail and corporate locations, exited our wholesale business, and expanded offerings on the HELOC platform. We established a joint venture with National HomeCorp, dedicated to extending credit to underserved communities and partnered with Habitat for Humanity to enhance housing conditions. We transitioned our servicing portfolio to an in-house platform, streamlined our leadership structures, and realigned other aspects of our cost structure. These non-volume related reductions were achieved through measures such as headcount reduction, business process optimization, and the consolidation of real estate assets. In November 2023, we announced an additional $120 million annualized productivity improvement program, including $100 million in non-volume related benefits such as vendor contract termination and renegotiation, optimized marketing spending, and corporate real estate cost reductions, that we expect will benefit our 2024 results. During thethree months ended June 30, 2024, we achieved and surpassed our goal of $120.0 million in planned program improvements with a total of $121.1 million in annualized cost savings.

Current wording

Beginning in early 2022 long-term interest rates began a period of sustained increases until the Federal Reserve lowered interest rates by 50 basis points in September 2024 and another 25 basis points in November 2024. The corresponding increase in mortgage interest rates impacted mortgage loan origination volumes, reducing demand for refinance mortgages and impacting affordability and qualification for homebuyers. The mortgage industry continues to face decreased volumes due to elevated mortgage rates and low inventory of existing homes for sale, driven in part by a large number of existing homeowners benefiting from low-interest rates.

Previous wording

On January 8, 2024, the Company announced that it identified a cybersecurity incident that affected certain of the Company’s systems (the “Cybersecurity Incident”). Upon detecting unauthorized activity, the Company promptly took steps to contain and remediate the Cybersecurity Incident and initiated an investigation. The Cybersecurity Incident has now been contained. Based on the Company’s investigation findings to date, during the Cybersecurity Incident, an unauthorized third party gained access to certain sensitive personal information of approximately 16.9 million individuals stored in the Company’s systems. The Company has notified applicable regulators as required and has notified individuals in accordance with applicable law and is offering credit monitoring and identity protection services at no charge to those individuals whose sensitive personal information was identified as potentially being subject to unauthorized access.

Current wording

On January 8, 2024, the Company announced that it identified a cybersecurity incident that affected certain of the Company’s systems (the “Cybersecurity Incident”). Upon detecting unauthorized activity, the Company promptly took steps to contain and remediate the Cybersecurity Incident and initiated an investigation. The Cybersecurity Incident has now been contained. Based on the Company’s investigation findings, during the Cybersecurity Incident, an unauthorized third party gained access to certain sensitive personal information of approximately 16.9 million individuals stored in the Company’s systems. The Company has notified applicable regulators as required and has notified individuals in accordance with applicable law and is offering credit monitoring and identity protection services at no charge to those individuals whose sensitive personal information was identified as potentially being subject to unauthorized access.

Previous wording

The Cybersecurity Incident had a material impact on the Company’s first and second quarter 2024 results, but, based on the information available to date, the Company does not expect the incident to have a material impact on full year 2024 results. In addition to lost revenue, the Company recorded approximately $26.9 million and $41.6 million of expenses related to the Cybersecurity Incident, net of expected insurance recovery, during the three and six months ended June 30, 2024, respectively, which includes an accrual of $25.0 million in connection with the related class action litigation. These cybersecurity related expenses are recognized in general and administrative expenses in the statements of operations. The Company maintains cybersecurity insurance coverage to limit its exposure to losses such as those related to the Cybersecurity Incident. While the Company has submitted claims to its cybersecurity insurers for reimbursement of some of the costs, expenses, and losses stemming from the Cybersecurity Incident, the exact timing and amount of any such reimbursements is not known at this time.

Current wording

The Cybersecurity Incident had a material impact on the Company’s first and second quarter 2024 results, but, based on the information available to date, the Company does not expect the incident to have a material impact on full year 2024 results. In addition to lost revenue, the Company recorded approximately $22.8 million of expenses related to the Cybersecurity Incident, net of expected insurance recoveries, during the nine months ended September 30, 2024, which includes an accrual of $25.0 million in connection with the related class action litigation. These cybersecurity related expenses are recognized in general and administrative expenses in the statements of operations. The Company maintains insurance coverage to limit its exposure to losses such as those related to the Cybersecurity Incident. The Company received $15.0 million of reimbursements from its insurers during the three months ended June 30, 2024 and recorded an additional insurance receivable of $20.0 million during the three months ended September 30, 2024. No additional reimbursements are expected at this time.

Previous wording

The increase in net loss of $16.1 million was primarily due to a $12.4 million increase in total expenses and $6.4 million decrease in total net revenues. The increase in total expenses was driven by costs associated with our cybersecurity incident and debt exchange transaction, offset by a reduction in salaries and benefits from fewer employees and lower marketing expense aligned with our Vision 2025 Plan. The decrease in total revenues was primarily due to a decrease in the fair value of servicing rights, net, partially offset by an increase in gain on origination and sale of loans, net from higher gain on sale margin and an increase in servicing fee income due to an increase in ancillary income from higher interest rates and higher average custodial balances.

Current wording

The increase in net income (loss) of $36.9 million was primarily due to a $48.9 million increase in total net revenues, offset by a $5.9 million increase in total expenses. The increase in total revenues was primarily due to an increase in gain on origination and sale of loans, net from increased volume, higher gain on sale margins, and an increase in other income as the result of fair value gains on trading securities and income from loans held for investment. The increase in total expenses was driven by an increase in personnel expense as headcount increased, higher commission expense and an increase in direct origination expense due to increased origination volumes, offset by a decrease in general and administrative expense as the result of the insurance claim receivable related to the Cybersecurity Incident.

Previous wording

Net Interest Income. Net interest income primarily represents income earned on LHFS offset by interest expenses on amounts borrowed under warehouse and other lines of credit to finance these loans until sold. Our LHFS are generally tied to longer-term interest rates while our warehouse lines of credit are tied to short-term interest rates. Therefore, our net interest income is impacted by the term structure of market interest rates. The decrease in net interest income was due to higher cost of funds on warehouse lines as short-term interest rates were higher during the second quarter 2024 and a $60.0 million increase in average balance of warehouse lines, while the average balance of LHFS decreased $47.4 million.

Current wording

Net Interest Income. Net interest income primarily represents income earned on LHFS offset by interest expenses on amounts borrowed under warehouse and other lines of credit to finance these loans until sold. Our LHFS are generally tied to longer-term interest rates while our warehouse lines of credit are tied to short-term interest rates. Therefore, our net interest income is impacted by the term structure of market interest rates. The decrease in net interest income was due to higher cost of funds on warehouse lines as short-term interest rates were higher during the third quarter 2024 and an increase in loans financed on warehouse lines resulting in a $142.7 million increase in average balance of warehouse lines, partially offset by a higher yield on LHFS and $13.1 million increase in the average balance of LHFS.

Previous wording

Origination Income, Net. Origination income, net, reflects the fees that we earn, net of lender credits we pay, from originating loans. Origination income includes loan origination fees, processing fees, underwriting fees, and other fees collected from the borrower at the time of funding. Lender credits typically include rebates or concessions to borrowers for certain loan origination costs. The $1.2 million, or 6.3%, increase in origination income, net, was the result of an increase in HELOC origination fees associated with the growth in HELOC volume, partially offset by a 2.9% decrease in loan origination volumes.

Current wording

Origination Income, Net. Origination income, net, reflects the fees that we earn, net of lender credits we pay, from originating loans. Origination income includes loan origination fees, processing fees, underwriting fees, and other fees collected from the borrower at the time of funding. Lender credits typically include rebates or concessions to borrowers for certain loan origination costs. The $5.9 million, or 33.5%, increase in origination income, net, was the result of a 9.5% increase in loan origination volumes and an increase in HELOC origination fees associated with the growth in HELOC volume.

Previous wording

Servicing Fee Income. Servicing fee income reflects contractual servicing fees and ancillary and other fees (including late charges) related to the servicing of mortgage loans. The increase of $5.6 million or 4.6% reflects higher ancillary income from interest earned on custodial funds due to higher interest rates and higher average custodial balances.

Current wording

Servicing Fee Income. Servicing fee income reflects contractual servicing fees and ancillary and other fees (including late charges) related to the servicing of mortgage loans. The increase of $3.2 million or 2.7% reflects higher ancillary income from interest earned on custodial funds due to higher interest rates and higher average custodial balances and increased late fees, partially offset by reduced servicing fee income collections from bulk sales completed in the prior quarter.

Previous wording

Change in Fair Value of Servicing Rights, Net. Change in fair value of servicing rights, net includes (i) fair value gains or losses net of Hedging Instrument gains or losses; (ii) collection/realization of cash flows, which includes principal amortization and prepayments; and (iii) realized gains or losses on the sales of servicing rights. The decrease of $22.3 million reflects a increased loss of $15.7 million in fair value, net of hedging and a provision for losses of $5.0 million related to the two bulk sales completed during the quarter.

Current wording

Change in Fair Value of Servicing Rights, Net. Change in fair value of servicing rights, net includes (i) fair value gains or losses net of Hedging Instrument gains or losses; (ii) collection/realization of cash flows, which includes principal amortization and prepayments; and (iii) realized gains or losses on the sales of servicing rights. The decrease of $20.9 million reflects an increased loss of $19.4 million in fair value, net of hedge and a $3.0 million increase in prepayments due to declining interest rates during the three months ended September 30, 2024.

Previous wording

Other Income. Other income includes our pro rata share of net earnings from joint ventures, fee income from title, escrow and settlement services for mortgage loan transactions performed by LDSS, the fair value changes in our trading securities, interest on cash deposits and interest income and fair value gains or losses from loans held for investment. The decrease of $7.0 million, or 18.8%, is primarily related to a $2.9 million decrease in income from joint ventures, a $2.6 million decrease in escrow and title fee income due to decreased mortgage loan settlement activity, and $2.3 million increase in trading securities fair value losses. partially offset by $0.8 million in income related to loans held for investment.

Current wording

Other Income. Other income includes our pro rata share of net earnings from joint ventures, fee income from title, escrow and settlement services for mortgage loan transactions performed by LDSS, interest income and fair value gains or losses in our trading securities, interest on cash deposits and interest income and fair value gains or losses from loans held for investment. The increase of $12.8 million, or 95.6%, is primarily related to a $7.1 million increase in fair value gains on trading securities from declining interest rates and $4.9 million of income related to loans held for investment including $3.4 million in fair value gains, partially offset by a $1.1 million decrease in income from joint ventures.

Previous wording

Personnel Expense. Personnel expense includes salaries, commissions, incentive compensation, benefits, and other employee costs. The $16.8 million or 10.6% decrease in personnel expense was attributable to lower salaries and benefits of $13.3 million from the 9.3% decrease in headcount related to previously announced costs savings initiatives, and volume- related declines in commissions of $3.5 million. As of June 30, 2024, we had 4,246 employees compared to 4,683 employees as of June 30, 2023.

Current wording

Personnel Expense. Personnel expense includes salaries, commissions, incentive compensation, benefits, and other employee costs. The $19.9 million or 14.1% increase in personnel expense was attributable to increases in origination volumes with higher salaries and benefits of $9.9 million from an 8.7% increase in headcount and volume-related increases in commissions of $10.0 million. As of September 30, 2024, we had 4,615 employees compared to 4,532 employees as of September 30, 2023.

Previous wording

Direct Origination Expense. Direct origination expense reflects the unreimbursed portion of direct out-of-pocket expenses that we incur in the loan origination process, including underwriting, appraisal, credit report, loan document and other expenses paid to non-affiliates. The $4.3 million or 25.1% increase in direct origination expense was the result of increased credit reporting fees during the period.

Current wording

Direct Origination Expense. Direct origination expense reflects the unreimbursed portion of direct out-of-pocket expenses that we incur in the loan origination process, including underwriting, appraisal, credit report, loan document and other expenses paid to non-affiliates. The $7.4 million or 46.8% increase in direct origination expense was the result of an increase in loan originations and an industry-wide increase in pricing for credit reporting fees.

Previous wording

General and Administrative Expense. General and administrative expense includes professional fees, data processing expense, communications expense, and other operating expenses. The $18.3 million or 33.5% increase in general and administrative expense is primarily related to a $20.7 million increase in professional and consulting services as the result of cybersecurity related costs and litigation settlement accrual, offset by a $0.8 million reduction in impairment and other real estate exit costs.

Current wording

General and Administrative Expense. General and administrative expense includes professional fees, data processing expense, communications expense, and other operating expenses. The $23.5 million or 50.6% decrease in general and administrative expense is primarily related to a $19.6 million decrease in professional and consulting services as the result of a $20.0 million insurance claim receivable related to the Cybersecurity Incident.

Previous wording

The decrease of $4.1 million, or 2.9% in net loss was due to an $8.4 million increase in total net revenues, offset by a $5.9 million increase in total expenses. The increase in total revenues was primarily due to an increase in gain on origination and sale of loans, net from higher gain on sale margin and an increase in servicing fee income due to an increase in ancillary income. The increase in total expenses was driven by cybersecurity related costs and loss on extinguishment of debt related to our debt exchange transaction, partially offset by a decrease in salaries and marketing and advertising expenses.

Current wording

The decrease of $41.1 million, or 23.4% in net loss was due to an $57.4 million increase in total net revenues, offset by a $11.7 million increase in total expenses. The increase in total revenues was primarily due to an increase in gain on origination and sale of loans, net from higher gain on sale margin and an increase in servicing fee income due to an increase in ancillary income. The increase in total expenses was driven by increases in direct origination expense and other interest expense, partially offset by a decrease in personnel and marketing and advertising expenses.

Previous wording

Net Interest Income. The decrease in net interest income was predominately driven by higher cost of funds, resulting from increased market rates, partially offset by higher yield on LHFS. The increase was also attributable to a $78.7 million increase in the average balance of warehouse lines while the average balance of LHFS decreased $5.2 million.

Current wording

Net Interest Income. The decrease in net interest income was predominately driven by higher cost of funds on warehouse lines as short-term interest rates were higher during the nine months ended September 30, 2024 and an increase in loans financed on warehouse lines resulting in a $100.8 million increase in the average balance of warehouse lines, partially offset by a higher yield on LHFS and $8.1 million increase in the average balance of LHFS.

Previous wording

The increase in gain on origination and sale of loans, net was primarily driven by higher gain on sale margin and a recovery of loan losses, partially offset by a reduction in volume due to higher interest rates and lost volume during the Cybersecurity Incident.

Current wording

The $69.7 million or 16.9% increase in gain on origination and sale of loans, net was primarily driven by higher gain on sale margin and a recovery of loan losses from improved credit performance and reduced exposure as our peak production years have met required payment histories.

Previous wording

Origination Income, Net. The $2.8 million or 9.1% increase in origination income, net, was the result of an increase in HELOC fees associated with the growth in HELOC volume, partially offset by a 5.1% decrease in loan origination volume.

Current wording

Origination Income, Net. The $8.7 million or 18.1% increase in origination income, net, was primarily the result of an increase in HELOC fees associated with the growth in HELOC volume.

Previous wording

Servicing Fee Income. The $9.7 million or 4.1% increase was the result of higher ancillary income from custodial funds due to higher interest rates and higher average custodial balances, partially offset by a decrease in servicing fee collections related to the decrease of $4.6 billion in the average UPB of our servicing portfolio.

Current wording

Servicing Fee Income. The $12.9 million or 3.6% increase was the result of higher ancillary income from interest earned on custodial funds due to higher interest rates and higher average custodial balances and increased late fees, partially offset by a decrease in servicing fee collections related to the decrease in the average UPB of our servicing portfolio from bulk sales completed in the second quarter of 2024.

Previous wording

Change in Fair Value of Servicing Rights, Net. The decrease of $14.8 million reflects an increased loss of $5.6 million in fair value, net of hedge, a provision for losses of $6.1 million due to the two bulk sales completed during the second quarter, and a $2.0 million increase in fallout and decay.

Current wording

Change in Fair Value of Servicing Rights, Net. The decrease of $35.7 million or 28.1% reflects an increased loss of $25.1 million in fair value, net of hedge, a provision for losses of $6.3 million due to the two bulk sales completed during the second quarter of 2024, and a $5.0 million increase in fallout and decay.

Previous wording

Personnel Expense. The decrease of $23.5 million or 7.9% is primarily due to a $15.7 million decrease in salaries and benefits due to the 9.3% decrease in headcount, a decrease of $4.8 million in severance expenses and a $2.4 million decrease in commissions due to the decrease in loan originations.

Current wording

Personnel Expense. The decrease of $3.6 million or 0.8% is primarily due to a $5.6 million decrease in salaries and benefits as a result of a 10.1% decrease in average headcount and a decrease of $5.5 million in severance expenses, offset by a $7.5 million increase in commissions primarily due to guarantees paid associated with lost volume during the Cybersecurity Incident during the first quarter 2024.

Previous wording

Marketing and Advertising Expense. The decrease of $11.1 million or 15.7% primarily reflects the lower level of market refinance volume available to route to our consumer direct channel as well as our decision to suspend certain marketing expenditures during the Cybersecurity Incident.

Current wording

Marketing and Advertising Expense. The decrease of $8.7 million or 8.3% primarily reflects the lower level of market refinance volume available to route to our consumer direct channel as well as our decision to suspend certain marketing expenditures during the Cybersecurity Incident.

Previous wording

Direct Origination Expense. The $5.1 million or 14.8% increase in direct origination expense was the result of increased credit reporting fees during the period.

Current wording

Direct Origination Expense. The $12.5 million or 24.8% increase in direct origination expense was the result of increased credit reporting fees during the period related to an industry-wide increase in pricing for credit reporting fees.

Previous wording

General and Administrative Expense. The $20.0 million or 18.0% increase in general and administrative expense is primarily related to a $23.6 million increase in professional and consulting services as the result of cybersecurity related costs and litigation settlement accrual, offset by a $1.7 million reduction in impairment and other real estate exit costs..

Current wording

General and Administrative Expense. The $3.6 million or 2.3% decrease in general and administrative expense is primarily related to a $7.5 million decrease in impairment and other real estate exit costs related to the consolidation and reduction of office leases as well as decreases in maintenance, office costs and software subscriptions, offset by a $4.0 million increase in professional and consulting services as the result of cybersecurity related costs and litigation settlement accrual.

Previous wording

Servicing Expense. The increase of $6.1 million or 58.1% in servicing expense reflects an increase in default and loss mitigation expense associated with an increase in delinquencies and average age of loans serviced, partially offset by a decrease in our servicing portfolio.

Current wording

Servicing Expense. The increase of $6.0 million or 31.6% in servicing expense reflects an increase in default and loss mitigation expense associated with an increase in delinquencies and average age of loans serviced, partially offset by a decrease in our servicing portfolio.

Previous wording

Cash and Cash Equivalents. The $127.6 million or 19.3% decrease in cash and cash equivalents relates to net losses for the year and repayment of debt obligations, partially offset by proceeds from servicing rights sales.

Current wording

Cash and Cash Equivalents. The $177.7 million or 26.9% decrease in cash and cash equivalents relates to net losses for the year and repayment of debt obligations, partially offset by proceeds from servicing rights sales and financing from net warehouse advances.

Previous wording

Loans Held for Sale, at Fair Value. Loans held for sale, at fair value, are primarily fixed and variable rate, 15- to 30-year term first-lien loans that are secured by residential property. The $245.1 million or 11.5% increase reflects $10.5 billion in loan originations, partially offset by $10.2 billion in loan sales and a $122.5 million transfer of loans to loan held for investment.

Current wording

Loans Held for Sale, at Fair Value. Loans held for sale, at fair value, are primarily fixed and variable rate, 15- to 30-year term first-lien loans that are secured by residential property. The $657.4 million or 30.8% increase reflects $17.0 billion in loan originations and $462.5 million in repurchases, partially offset by $16.5 billion in loan sales, $201.0 million in principal payments and a $122.5 million transfer of loans to loan held for investment.

Previous wording

Loans Held for Investment, at Fair Value. Loans held for investment, at fair value, are the residential mortgage loans securitized in the second quarter of 2024. The securitization transaction did not qualify for sale treatment and was recorded as a secured borrowing. As a result, the loans held for investment and corresponding securitization debt remain on the consolidated balance sheets.

Current wording

Loans Held for Investment, at Fair Value. Loans held for investment, at fair value, of $122.1 million are the residential mortgage loans securitized in the second quarter of 2024. The securitization transaction did not qualify for sale treatment and was recorded as a secured borrowing. As a result, the loans held for investment and corresponding securitization debt remain on the consolidated balance sheets.

Previous wording

Servicing Rights, at Fair Value. The $416.6 million or 20.8% decrease included a $495.3 million reduction from the sale of servicing rights associated with $31.8 billion in UPB and $78.3 million from principal amortization and prepayments, partially offset by $114.5 million of capitalized servicing rights from servicing-retained loan sales and a $43.9 million increase in fair value.

Current wording

Servicing Rights, at Fair Value. The $457.0 million or 22.9% decrease included a $503.8 million reduction from the sale of servicing rights associated with $31.9 billion in UPB, $119.8 million from principal amortization and prepayments, and $8.7 million decrease in fair value, partially offset by $176.5 million of capitalized servicing rights from servicing-retained loan sales.

Previous wording

Warehouse and Other Lines of Credit. The increase of $266.1 million or 13.7% was the result of loan originations outpacing loan sales by $304.7 million during the six months ended June 30, 2024.

Current wording

Warehouse and Other Lines of Credit. The increase of $618.7 million or 31.8% was the result of loan originations outpacing loan sales by $658.1 million during the nine months ended September 30, 2024.

Previous wording

Debt Obligations, net. The decrease of $298.6 million or 13.1% included a decrease in MSR facilities of $237.9 million and a decrease in Senior Notes related to the debt exchange of $184.0 million, partially offset by an increase of $102.0 million in other secured financings due to the loan securitization and an increase of $22.0 million in servicing advance facilities.

Current wording

Debt Obligations, net. The decrease of $316.7 million or 13.9% included a decrease in MSR facilities of $262.0 million and a decrease in Senior Notes related to the debt exchange of $180.6 million, partially offset by an increase of $100.9 million in other secured financings due to the loan securitization and an increase of $22.8 million in servicing advance facilities.

Previous wording

Equity. Total equity was $578.9 million and $704.5 million as of June 30, 2024 and December 31, 2023, respectively. The decrease was attributed to a net loss of $137.4 million and the repurchase of treasury shares at cost of $1.0 million to net settle and withhold tax on vested RSUs, partially offset by stock-based compensation of $10.8 million and an increase to additional paid in capital of $2.1 million primarily related to the TRA liability and deferred taxes.

Current wording

Equity. Total equity was $592.0 million and $704.5 million as of September 30, 2024 and December 31, 2023, respectively. The decrease was attributed to a net loss of $134.7 million and the repurchase of treasury shares at cost of $2.3 million to net settle and withhold tax on vested RSUs, partially offset by stock-based compensation of $19.0 million and an increase to additional paid in capital of $6.6 million primarily related to the TRA liability and deferred taxes.

Previous wording

Our liquidity reflects our ability to meet current potential cash requirements. We forecast the need to have adequate liquid funds available to operate and grow our business. As of June 30, 2024, unrestricted cash and cash equivalents were $533.2 million and committed and uncommitted available capacity under our warehouse and other lines of credit was $0.8 billion.

Current wording

Our liquidity reflects our ability to meet current potential cash requirements. We forecast the need to have adequate liquid funds available to operate and grow our business. As of September 30, 2024, unrestricted cash and cash equivalents were $483.0 million and committed and uncommitted available capacity under our warehouse and other lines of credit was $534.3 million.

Previous wording

Our lenders require us to comply with various financial covenants including tangible net worth, liquidity, leverage ratios and profitability. As of June 30, 2024, the Company amended certain warehouse lines and debt obligations related to certain profitability covenants, following which we were in full compliance with all financial covenants. Although these financial covenants limit the amount of indebtedness that we may incur and affect our liquidity through minimum cash reserve requirements, we believe that these covenants currently provide us with sufficient flexibility to operate our business and obtain the financing necessary to achieve that purpose.

Current wording

Our lenders require us to comply with various financial covenants including tangible net worth, liquidity, leverage ratios and profitability. As of September 30, 2024, the Company was in full compliance with all financial covenants. Although these financial covenants limit the amount of indebtedness that we may incur and affect our liquidity through minimum cash reserve requirements, we believe that these covenants currently provide us with sufficient flexibility to operate our business and obtain the financing necessary to achieve that purpose.

Previous wording

As seller and servicer, we are subject to minimum net worth, liquidity and other financial requirements. In 2022, both FHFA and Ginnie Mae revised these requirements. Effective from September 30, 2023, minimum net worth requirements for FHFA and Ginnie Mae include a base of $2.5 million plus percentages of the seller/servicer’s residential first lien mortgage servicing UPB serviced for each agency and a percentage of other non-agencies servicing UPB. Base liquidity for the agencies depends on the remittance type and includes specific percentages of the seller/servicer's residential first lien mortgage servicing UPB for each agency, along with a percentage for other non-agencies servicing UPB. Large non-depositories require a liquidity buffer based on UPB for FHFA and Ginnie Mae. The capital ratio for FHFA and Ginnie Mae requires tangible net worth/total assets to be equal to or greater than 6% for both agencies. As of June 30, 2024, we were in compliance with these financial requirements.

Current wording

As seller and servicer, we are subject to minimum net worth, liquidity and other financial requirements. In 2022, both FHFA and Ginnie Mae revised these requirements. Effective from September 30, 2023, minimum net worth requirements for FHFA and Ginnie Mae include a base of $2.5 million plus percentages of the seller/servicer’s residential first lien mortgage servicing UPB serviced for each agency and a percentage of other non-agencies servicing UPB. Base liquidity for the agencies depends on the remittance type and includes specific percentages of the seller/servicer's residential first lien mortgage servicing

Previous wording

We primarily finance mortgage loans through borrowings under our warehouse and other lines of credit. Under these facilities, we transfer specific loans to our counterparties and receive funds from them. Simultaneously, there is an agreement in place where the counterparties commit to transferring the loans back to us, either at the date the loans are sold or upon our request, and we provide the funds in return. We do not recognize these transfers as sales for accounting purposes. During the three months ended June 30, 2024, our loans remained on warehouse lines for an average of 17 days. Our warehouse facilities are generally short-term borrowings with original maturities between one and two years and our securitization facility is a three year term. We utilize both committed and uncommitted loan funding facilities and we evaluate our needs under these facilities based on forecasted volume of loan originations and sales. Our liquidity could be affected as lenders may reassess their exposure to the mortgage origination industry and potentially limit access to uncommitted mortgage warehouse financing or increase associated costs. Moreover, there may be reduced demand from investors to acquire our mortgage loans in the secondary market, further impacting our liquidity. Approximately 72% of the mortgage loans that we originated during the six months ended June 30, 2024 were sold in the secondary mortgage market either directly to Fannie Mae and Freddie Mac or securitized into MBS guaranteed by Ginnie Mae. We also sell loans to many private investors.

Current wording

We primarily finance mortgage loans through borrowings under our warehouse and other lines of credit. Under these facilities, we transfer specific loans to our counterparties and receive funds from them. Simultaneously, there is an agreement in place where the counterparties commit to transferring the loans back to us, either at the date the loans are sold or upon our request, and we provide the funds in return. We do not recognize these transfers as sales for accounting purposes. During the three months ended September 30, 2024, our loans remained on warehouse lines for an average of 17 days. Our warehouse facilities are generally short-term borrowings with original maturities of one year and our securitization facility is a two year term. We utilize both committed and uncommitted loan funding facilities and we evaluate our needs under these facilities based on forecasted volume of loan originations and sales. Our liquidity could be affected as lenders may reassess their exposure to the mortgage origination industry and potentially limit access to uncommitted mortgage warehouse financing or increase associated costs. Moreover, there may be reduced demand from investors to acquire our mortgage loans in the secondary market, further impacting our liquidity. Approximately 69% of the mortgage loans that we originated during the nine months ended September 30, 2024 were sold in the secondary mortgage market either directly to Fannie Mae and Freddie Mac or securitized into MBS guaranteed by Ginnie Mae. We also sell loans to many private investors.

Previous wording

As of June 30, 2024, we maintained revolving lines of credit with eight counterparties providing warehouse and securitization facilities with borrowing capacity totaling $3.1 billion of which $0.9 billion was committed. Our $3.1 billion of capacity as of June 30, 2024 was comprised of $3.1 billion with maturities staggered throughout 2024 and through April 2025. As of June 30, 2024, we had $2.2 billion of borrowings outstanding and $0.8 billion of additional availability under our facilities. Warehouse and other lines of credit are further discussed in Note 9- Warehouse and Other Lines of Credit of the Notes to Consolidated Financial Statements contained in Item 1.

Current wording

As of September 30, 2024, we maintained revolving lines of credit with eight counterparties providing warehouse and securitization facilities with borrowing capacity totaling $3.1 billion of which $0.7 billion was committed. Our $3.1 billion of capacity as of September 30, 2024 was comprised of $2.8 billion with maturities staggered through September 2025 and a $300.0 million securitization facility that matures in September 2026. As of September 30, 2024, we had $2.6 billion of borrowings outstanding and $0.5 billion of additional availability under our facilities. Warehouse and other lines of credit are further discussed in Note 9- Warehouse and Other Lines of Credit of the Notes to Consolidated Financial Statements contained in Item 1.

Previous wording

When we draw on our warehouse and securitization facilities we must pledge eligible loan collateral. Our warehouse line providers require us to make a capital investment, or “haircut.” upon financing the loan, which is generally based on product types and the market value of the loans. The haircuts are normally recovered from sales proceeds. As of June 30, 2024, we had a total of $7.9 million in restricted cash posted as collateral with our warehouse and securitization facilities, of which $5.3 million was the minimum requirement.

Current wording

When we draw on our warehouse and securitization facilities we must pledge eligible loan collateral. Our warehouse line providers require us to make a capital investment, or “haircut.” upon financing the loan, which is generally based on product types and the market value of the loans. The haircuts are normally recovered from sales proceeds. As of September 30, 2024, we had a total of $6.1 million in restricted cash posted as collateral with our warehouse and securitization facilities, of which $4.8 million was the minimum requirement.

Previous wording

MSR facilities and Term Notes provide financing for our servicing portfolio investments. As of June 30, 2024 the outstanding balance of our MSR facilities was $742.9 million net of $2.5 million deferred financing costs. The outstanding balance of Term Notes was $200.0 million. MSR facilities are secured by Ginnie Mae, Fannie Mae, or Freddie Mac MSRs, which amounted to $909.3 million as of June 30, 2024 and Term Notes are secured by specific participation certificates relating to Ginnie Mae MSRs totaling $596.1 million as of the same date.

Current wording

MSR facilities and Term Notes provide financing for our servicing portfolio investments. As of September 30, 2024, MSR facilities secured by Fannie Mae and Freddie Mac MSRs had an outstanding balance of $542.8 million, secured by MSRs totaling $874.8 million. As of September 30, 2024, our Ginnie Mae MSR facility had an outstanding balance of $175.9 million in variable funding notes and $200.0 million in Term Notes, secured by Ginnie Mae MSRs totaling $590.8 million.

Previous wording

Securities financing facilities provide financing for the retained interest securities associated with our securitizations. As of June 30, 2024 there were outstanding securities financing facilities of $75.3 million, secured by trading securities with a fair value of $89.5 million.

Current wording

Securities financing facilities provide financing for the retained interest securities associated with our securitizations. As of September 30, 2024 there were outstanding securities financing facilities of $78.2 million, secured by trading securities with a fair value of $92.3 million.