loanDepot, Inc.

Previous wording

An investment in our Class A Common Stock involves risk. You should carefully consider the following risks as well as the other information included in this annual report on Form 10-K and the information incorporated by reference herein. Any of the following risks could materially and adversely affect our business, financial condition or results of operations. However, the selected risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition or results of operations. In such a case, the trading price of the Class A Common Stock could decline and you may lose all or part of your investment in our Company. Additionally, while some of the factors, events and contingencies described herein may have occurred in the past, the disclosures herein are not representations as to whether or not they have occurred, and are instead provided because future occurrences of such factors, events, or contingencies could have a material adverse effect. Certain statements below are forward-looking statements. See the information included under the heading "Cautionary Statement Regarding Forward-Looking Information" included elsewhere in this annual report on Form 10-K. Because of the following risk factors, as well as other variables affecting the Company’s operating results, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.

Current wording

An investment in our Class A Common Stock involves risk. You should carefully consider the following risks as well as the other information included in this annual report on Form 10-K and the information incorporated by reference herein. Any of the following risks could materially and adversely affect our business, reputation, financial condition, and results of operations. However, the selected risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect us. In any such case, the trading price of our Class A Common Stock could decline and you may lose all or part of your investment in our Company. Statements in this section are based on the Company’s beliefs and opinions regarding matters that could materially adversely affect the Company and our Class A Common Stock in the future. References to past events are provided by way of example only and are not intended to be a complete listing or representation as to whether such matters have or have not occurred previously or their likelihood of occurring in the future. Certain statements below are forward-looking statements. See the information included under the heading “Cautionary Statement Regarding Forward-Looking Information” included elsewhere in this annual report on Form 10-K. Because of the following risk factors, as well as other variables affecting the Company’s operating results, past financial performance may not be a reliable indicator of future performance, and historical trends may not accurately indicate results or trends in future periods.

Previous wording

•We may not achieve some or all of the expected benefits of our Project North Star strategic plan.

Current wording

•We may not achieve some or all of the expected benefits of our strategic plan.

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•Our servicing rights are highly volatile assets with continually changing values that my decrease or be inaccurate.

Current wording

•Our servicing rights are highly volatile assets with continually changing values that may decrease or be inaccurate.

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•Our servicing rights portfolio may experience unanticipated increased delinquencies and defaults as it ages.

Current wording

•Our servicing rights portfolio may experience increased delinquencies and defaults as it ages.

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•Our vendor relationships subject us to a variety of risks and they may failure to adequately provide essential services.

Current wording

•Our vendor relationships subject us to a variety of risks and they may fail to adequately provide essential services.

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•We depend on the programs of the Agencies and Ginnie Mae and changes could materially alter our business.

Current wording

•We depend on the programs of the Agencies and Ginnie Mae and changes or failures to comply with guidelines could materially alter our business.

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•Our multi-class common stock structure may limit or preclude your ability to influence corporate matters and may adversely affect the trading market for our Class A Common Stock. The Hsieh Stockholders hold a majority of the voting power of our common stock.

Current wording

•Control of the Company is concentrated with a few large stockholders whose interests may conflict with yours, limit or preclude your ability to influence corporate matters and may adversely affect the trading market for our Class A Common Stock.

Previous wording

•We have controlling stockholders with the right to engage or invest in the same or similar businesses as us.

Current wording

•We have large stockholders with the right to engage or invest in the same or similar businesses as us.

Previous wording

We may not achieve some or all of the expected benefits of our Project North Star strategic plan and our initiatives may adversely affect our business.

Current wording

We may not achieve some or all of the expected benefits of our strategic plan and our initiatives may adversely affect our business.

Previous wording

In November 2024, we announced our Project North Start strategic plan designed to address current and anticipated mortgage market conditions and facilitate durable revenue growth, positive operating leverage, best-in-class productivity, and investments in platforms and solutions that support and ultimately transform our customers' homeownership journey. Project North Star is described more fully in Part I, Item 1, “Business—Vision 2025 and Project North Star.” We may not realize, in full or in part, the anticipated benefits, savings and improvements in our operations from Project North Star due to unforeseen difficulties, delays, unexpected costs, market conditions materially different than our predictions, or other risks described in these Item 1A Risk Factors. If we are unable to execute on our business strategies, including Project North Star, we may face significant challenges in:

Current wording

Our strategic plan is designed to address current and anticipated mortgage market conditions and facilitate profitable market share growth, profitable operations, best-in-class mortgage banking operations, operational efficiencies, and investments in technology that improve the customer experience, our manufacturing processes, our risk profile and our growth prospects. Our strategy is described more fully in Part I, Item 1, “Business—Strategy.” We may not realize, in full or in part, the anticipated benefits, savings and improvements in our operations from our strategic plan due to unforeseen difficulties, delays, unexpected costs, market conditions materially different than our predictions, or other risks described in these Item 1A Risk Factors. If we are unable to execute on our business strategies we may face significant challenges in:

Previous wording

We may not be able to execute on our Project North Star strategic plan and failure to do so could adversely affect our ability to generate revenue and control our expenses.

Current wording

We may not be able to execute on our strategic plan and failure to do so could adversely affect our ability to generate revenue and control our expenses.

Previous wording

We have derived substantially all of our revenue from originating, selling and servicing traditional mortgage loans. Efforts to expand into new consumer products, such as HELOCs, closed-end second lien mortgage loans, insurance, real estate services, or other products consistent with our business purpose, may not succeed and may reduce expected revenue growth. Furthermore, we incur expenses and expend resources upfront to develop, acquire and market new products and platform enhancements to incorporate additional features, improve functionality or otherwise make our products more desirable to consumers. New products and services may not achieve high levels of market acceptance and employee acceptance. Some of the new products we have introduced have not been, and may never be, as successful as anticipated.

Current wording

We have derived substantially all of our revenue from originating, selling and servicing traditional mortgage loans. Efforts to expand with new or revised consumer products and services, such as HELOCs, closed-end second lien mortgage loans, insurance, real estate services, or other products consistent with our business purpose, may not succeed and may reduce expected revenue growth. Furthermore, we incur expenses and expend resources upfront to develop, acquire and market new products, platform enhancements, additional features, improved functionality and other changes to make our products more desirable to consumers. New and revised products and services may not achieve high levels of market acceptance. Some of the new or revised products and services we have introduced have not been, and may never be, as successful as anticipated.

Previous wording

Recently launched and future products could fail to attain sufficient market acceptance for many reasons, including:

Current wording

New and revised products and services can fail to attain sufficient market acceptance for many reasons, including:

Previous wording

•our failure to predict market demand accurately or to supply products that meet market demand in a timely fashion;

Current wording

•our failure to predict market demand accurately or to supply products and services that meet market demand in a timely fashion;

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•negative publicity about our products’ performance or effectiveness or our customer experience;

Current wording

•negative publicity about the performance or effectiveness of our products or services or our customer experience;

Previous wording

•our ability to obtain financing sources at competitive rates to support such products;

Current wording

•our ability to obtain financing sources at competitive rates to support such products and services;

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•delays in releasing the new products to market;

Current wording

•delays in releasing the new or revised products and services to market;

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•defective or inadequate systems and procedures to support and facilitate the new products; and

Current wording

•defective or inadequate systems and procedures to support and facilitate the new or revised products and services;

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•the offering or anticipated offering of competing products by our competitors.

Current wording

•the offering or anticipated offering of competing products or services by our competitors.

Previous wording

If our new and recently launched products do not achieve adequate acceptance in the market, our competitive position, revenue and operating results could be harmed. The adverse effect on our financial results may be particularly acute because of the significant development, marketing, sales and other expenses we will have incurred in connection with the new products or enhancements before such products or enhancements generate sufficient revenue. Additionally, we can provide no assurance that we will be able to develop, commercially market and achieve acceptance of our new and recently launched products. Our investment of resources to develop new products and services may either be insufficient or result in expenses that are excessive in light of revenue actually originated from these new products.

Current wording

If our new new products, services, enhancements or expansions do not achieve adequate acceptance in the market, our competitive position, revenue and operating results can be harmed. The adverse effect on our financial results may be particularly acute because of the significant development, marketing, sales and other expenses we will have incurred in connection with the new or revised products or services before such products or services generate sufficient revenue. Additionally, we may not be able to develop, commercially market and achieve acceptance of our new or revised products and services. Our investment of resources to develop new and revised products and services can either be insufficient or result in expenses that are excessive in light of revenue actually originated from these new or revised products and services.

Previous wording

In addition, significantly expanding existing business activities or strategies may expose us to new or increased financial, regulatory, reputational and other risks. For example, our closed-end second lien mortgage loans and second lien HELOCs may result in a higher risk of loss than other loans since our second lien is subordinated to more senior secured loan claims. As another example, developing an in-house servicing operation required us to heavily invest in employee recruiting and development, and to implement new technologies and new control processes to manage the increased risk and regulatory requirements. Even with several years of experience now, we still cannot be certain that we will be able to manage the associated costs, risks and compliance requirements of maintaining our in-house mortgage servicing capabilities in accordance with our expectations. Such risks include a lack of experienced management-level personnel, increased administrative burden, increased logistical problems common to large, expansive operations, increased credit and liquidity risk and increased regulatory scrutiny. In addition, while our strategy is to continue growing our MSR business, in 2024 we sold MSRs to meet liquidity needs and we may be required to sell additional MSRs.

Current wording

In addition, significantly expanding existing business activities or strategies can expose us to new or increased financial, operational, regulatory, reputational and other risks. For example, our closed-end second lien mortgage loans and second lien HELOCs are subject to a higher risk of loss than other loans since our second lien is subordinated to more senior secured loan claims. As another example, developing an in-house servicing operation required us to heavily invest in employee recruiting and development, and to implement new technologies and new control processes to manage the increased risk and regulatory requirements. Even with several years of experience now, we still cannot be certain that we will be able to manage the associated costs, risks and compliance requirements of maintaining our in-house mortgage servicing capabilities due to a number of reasons, such as a lack of sufficient experienced management-level personnel, increased administrative burden, increased logistical problems common to large, expansive operations, increased credit and liquidity risk and increased regulatory scrutiny. In addition, while our strategy is to continue growing our MSR business, we have made bulk sales of MSRs and we may sell additional MSRs.

Previous wording

We believe that developing and maintaining awareness of our brands in a cost-effective manner is critical to attracting new and retaining existing consumers. Successful promotion of our brands will depend largely on the effectiveness of our marketing efforts and the experience of our consumers. Our efforts to build our brands have involved significant expense, and our future marketing efforts will require us to maintain or incur significant additional expense. These brand promotion activities may not result in increased revenue and, even if they do, any increases may not offset the expenses incurred. If we fail to successfully promote and maintain our brands or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brands, we may lose our existing consumers to our competitors or be unable to attract new consumers.

Current wording

We believe that developing and maintaining awareness of our brands in a cost-effective manner is critical to attracting new and retaining existing customers. Successful promotion of our brands will depend largely on the effectiveness of our marketing efforts and the experience of our customers. Our efforts to build our brands have involved significant expense, and our future marketing efforts will require us to maintain or incur significant additional expense. These brand promotion activities may not result in increased revenue and, even if they do, any increases may not offset the expenses incurred. If we fail to successfully promote and maintain our brands or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brands, we may lose our existing customers to our competitors or be unable to attract new customers.

Previous wording

Additionally, reputational risk, or the risk to our business, results of operations and financial condition from negative public opinion, is inherent in our business. Negative public opinion can result from actual or alleged conduct by our employees or representatives in any number of activities, including lending and debt collection practices, cybersecurity incidents, marketing and promotion practices, corporate governance and actions taken by government regulators and community organizations in response to those activities. Negative public opinion can also result from media coverage, whether accurate or not. Negative public opinion could erode trust and confidence and damage our reputation among existing and potential customers. In turn, this could decrease the demand for our products, increase regulatory scrutiny and detrimentally affect our business.

Current wording

Additionally, reputational risk, or the risk to our business, results of operations and financial condition from negative public opinion, is inherent in our business. Negative public opinion or perceptions about our services, trustworthiness, and business practices can result from actual or alleged activities or conduct by our employees or representatives (even if related to isolated incidents or to practices not specific to the origination or servicing of loans), including lending and debt collection practices, cybersecurity incidents, marketing and promotion practices, corporate governance, and actions taken by government regulators and community organizations in response to those activities. Negative public opinion can also result from media coverage, including on social media or by the analysis community, whether factually accurate or not, or from advocacy by special interest groups supporting additional governmental requirements on non-bank consumer loans and other financial products. Negative public opinion could erode trust and confidence and damage our reputation among existing and potential customers. In turn, this could decrease the demand for our products and services, increase regulatory scrutiny, lead to more restrictive laws or regulations, and detrimentally affect our business.

Previous wording

Part of our growth strategy has included acquisitions, and we may acquire additional companies or businesses. We may not be successful in identifying origination platforms or businesses, or other businesses that meet our acquisition criteria in the future. In addition, even after a potential acquisition target has been identified, we may not be successful in completing or integrating the acquisition. We face significant competition for attractive acquisition opportunities from other well-capitalized companies, who may have greater financial resources and a greater access to debt and equity capital to secure and complete acquisitions than we do. As a result of such competition, we may be unable to acquire certain assets or businesses that we deem attractive or the purchase price may be significantly elevated or other terms may be substantially more onerous. Any delay or failure on our part to identify, negotiate, finance on favorable terms, consummate and integrate such acquisitions could impede our growth.

Current wording

We may grow by acquiring additional companies or businesses. We may not be successful in identifying origination platforms or businesses, or other businesses that meet our acquisition criteria in the future. In addition, even after a potential acquisition target has been identified, we may not be successful in completing or integrating the acquisition. We face significant competition for attractive acquisition opportunities from other well-capitalized companies, who may have greater financial resources and greater access to debt and equity capital to secure and complete acquisitions than we do. As a result of such competition, we may be unable to acquire certain assets or businesses that we deem attractive or the purchase price may be significantly elevated or other terms may be substantially more onerous. Any delay or failure on our part to identify, negotiate, finance on favorable terms, consummate and integrate such acquisitions could impede our growth.

Previous wording

One of the focuses of our origination efforts is retention, which involves actively working with existing customers to refinance their mortgage loans with us instead of another residential mortgage originator of mortgage loans. Customers who refinance have no obligation to refinance their loans with us and may choose to refinance with a competitor. Additionally, we may elect not to refinance an existing customer’s mortgage loan due to a number of reasons, including, but not limited to, the customer’s inability to meet our eligibility requirements. If customers refinance with a competitor, this decreases the profitability of our retained servicing portfolio because the original loan will be repaid prematurely, and we will not have an opportunity to earn further servicing fees after the original loan is paid in full. If we are not successful in retaining our existing loans that are refinanced, our servicing portfolio will become increasingly subject to run-off, which could have a material adverse effect on our consolidated financial position, results of operations or cash flow.

Current wording

One of the focuses of our origination efforts is retention, which involves actively working with existing customers to refinance their mortgage loans with us instead of another residential mortgage originator of mortgage loans. Customers who refinance have no obligation to refinance their loans with us and may choose to refinance with a competitor. Additionally, we may elect not to refinance an existing customer’s mortgage loan due to a number of reasons, including, but not limited to, the customer’s inability to meet our eligibility requirements. Further, we may be contractually restricted from soliciting certain customers whose loans we service. If customers refinance with a competitor, this decreases the profitability of our retained servicing portfolio because the original loan will be repaid prematurely, and we will not have an opportunity to earn further servicing fees after the original loan is paid in full. If we are not successful in retaining our existing loans that are refinanced, our servicing portfolio will become increasingly subject to run-off, which could have a material adverse effect on our consolidated financial position, results of operations or cash flow.

Previous wording

We employ various economic hedging strategies that utilize derivative instruments to mitigate the interest rate and fall-out risks that are inherent in many of our assets, including our IRLCs, our LHFS and our MSRs. Our derivative instruments, which currently consist of forward sale contracts, interest rate swap futures, and put options on treasuries are accounted for as free-standing derivatives and are included on our consolidated balance sheet at fair market value. Our operating results may suffer because losses on derivatives we enter into may not be offset by changes in the fair value of the related hedged transaction.

Current wording

We employ various economic hedging strategies that utilize derivative instruments to mitigate the interest rate and fall-out risks that are inherent in many of our assets, including our IRLCs, our LHFS and our MSRs. Our derivative instruments, which currently consist of forward sale contracts, interest rate swap futures, and put options on treasuries are accounted for as free-standing derivatives and are included on our consolidated balance sheets at fair market value. Our operating results may suffer because losses on derivatives we enter into may not be offset by changes in the fair value of the related hedged transaction.

Previous wording

We monitor the markets and make necessary adjustments to our models and apply management judgment in the interpretation and adjustment of the results produced by our models. As a result of the time and resources, including technical and staffing resources, that are required to perform these processes effectively, it may not be possible to update or replace existing models quickly enough to ensure that they will always properly account for the impacts of recent information and actions. In addition, we may not have adequate resources or the required expertise to sufficiently control processes for model updates, including model development, testing, independent validation and implementation. Flawed models or uses of models, particularly those that rely on artificial intelligence (“AI”), may result in, among other consequences, erroneous, biased or misleading outputs, inappropriate business decisions, inadequate risk management or enhanced regulatory supervision, which could have a material adverse effect on the Company’s results of operations, financial condition and reputation.

Current wording

We monitor the markets and make necessary adjustments to our models and apply management judgment in the interpretation and adjustment of the results produced by our models. As a result of the time and resources, including technical and staffing resources, that are required to perform these processes effectively, it may not be possible to update or replace existing models quickly enough to ensure that they will always properly account for the impacts of recent information and actions. In addition, we may not have adequate resources or the required expertise to sufficiently control processes for model updates, including model development, testing, independent validation and implementation. Flawed models or uses of models, including those that rely on artificial intelligence (“AI”), may result in, among other consequences, erroneous, biased or misleading outputs, inappropriate business decisions, inadequate risk management or enhanced regulatory supervision, which could have a material adverse effect on the Company’s results of operations, financial condition and reputation.

Previous wording

A substantial portion of our aggregate mortgage loan origination is secured by properties concentrated in the states of California, Texas and Florida, and properties securing a substantial portion of our outstanding UPB of mortgage loan servicing rights portfolio are located in California, Texas, Florida, Virginia, Arizona and Washington. To the extent that these states have experienced or may experience weaker economic conditions or greater rates of decline in real estate values than the United States generally, the concentration of loans that we service in those states makes the adverse impact from any decreases in the value of our servicing rights more severe. The impact of property value declines may increase in magnitude and it may continue for a long period of time. Homeowners’ insurance in California, Florida, Texas and other states has become increasingly expensive and harder to obtain, including as a result of wildfires, hurricanes and other calamities, which has resulted in, may continue to result in, higher delinquency rates relative to other states and may adversely affect our lending business. Additionally, if states in which we have greater concentrations of business were to change their licensing or other regulatory requirements to make our business cost-prohibitive, we may be required to stop doing business in those states or may be subject to a higher cost of doing business in those states, which could materially adversely affect our business, financial condition and results of operations.

Current wording

A substantial portion of our aggregate mortgage loan origination is secured by properties concentrated in the states of California, Texas and Florida, and properties securing a substantial portion of our outstanding UPB of mortgage loan servicing rights portfolio are located in California, Texas, Florida, Arizona, Virginia and New York. To the extent that these states experience weaker economic conditions or greater rates of decline in real estate values than the United States generally, the concentration of loans that we service in those states makes the adverse impact from any decreases in the value of our servicing rights more severe. The impact of property value declines may increase in magnitude and it may continue for a long period of time. Homeowners’ insurance in California, Florida, Texas and other states has become increasingly expensive and harder to obtain, including as a result of wildfires, hurricanes and other calamities, which has resulted in, and may continue to result in, higher delinquency rates relative to other states and may adversely affect our lending business. Additionally, if states in which we have greater concentrations of business were to change their licensing or other regulatory requirements to make our business cost-prohibitive, we may be required to stop doing business in those states or may be subject to a higher cost of doing business in those states, which could materially adversely affect our business, financial condition and results of operations.

Previous wording

We believe that market conditions in recent years have resulted in many purchasers of mortgage loans being particularly aware of the conditions under which mortgage loan originators or sellers must indemnify them against losses related to purchased mortgage loans, or repurchase those mortgage loans, and the benefits of enforcing repurchase remedies they may have.

Current wording

Many purchasers of mortgage loans are particularly aware of the conditions under which mortgage loan originators or sellers must indemnify them against losses related to purchased mortgage loans, or repurchase those mortgage loans, and the benefits of enforcing repurchase remedies they may have.

Previous wording

Repurchased loans typically can only be resold at a discount to their repurchase price. In recent years, we experienced, and we may again, experience, increased severity of losses on repurchased loans or loans subject to repurchase that were originated at interest rates lower than currently prevailing rates. Additionally, certain investors may no longer offer alternatives to repurchase that could help to mitigate losses on repurchased loans. To recognize these potential indemnification and repurchase losses, we have recorded estimated loan loss obligations for loans sold of $18.4 million and $32.0 million at December 31, 2024 and 2023, respectively. Our liability for repurchase losses is assessed quarterly. Although not all mortgage loans repurchased are in arrears or default, as a practical matter most have been. Factors that we consider in evaluating our reserve for such losses include default expectations, actual and expected investor repurchase demands (influenced by, among other things, current and expected mortgage loan file requests and mortgage loan insurance rescission notices), appeals success rates (where the investor rescinds the demand based on a cure of the defect or acknowledges that the mortgage loan satisfies the investor’s applicable representations and warranties), reimbursement by third-party originators, and projected loss severity. Also, although we re-evaluate our reserves for repurchase losses each quarter, evaluations are estimates and the reserves may not be adequate. Additionally, if home values decrease, our realized mortgage loan losses from mortgage loan indemnifications and repurchases may increase.

Current wording

Repurchased loans typically can only be resold at a discount to their repurchase price. Losses on repurchased loans or loans subject to repurchase that were originated at interest rates lower than currently prevailing rates typically result in more severe losses. Additionally, certain investors may no longer offer alternatives to repurchase that could help to mitigate losses on repurchased loans. To recognize these potential indemnification and repurchase losses, we have recorded estimated loan loss obligations for loans sold of $16.1 million and $18.4 million at December 31, 2025 and 2024, respectively. Our liability for repurchase losses is assessed quarterly. Although not all mortgage loans repurchased are in arrears or default, as a practical matter most have been. Factors that we consider in evaluating our reserve for such losses include default expectations, actual and expected investor repurchase demands (influenced by, among other things, current and expected mortgage loan file requests and mortgage loan insurance rescission notices), appeals success rates (where the investor rescinds the demand based on a cure of the defect or acknowledges that the mortgage loan satisfies the investor’s applicable representations and warranties), reimbursement by third-party originators, and projected loss severity. Also, although we re-evaluate our reserves for repurchase losses each quarter, evaluations are estimates and the reserves may not be adequate. Additionally, if home values decrease, our realized mortgage loan losses from mortgage loan indemnifications and repurchases may increase.

Previous wording

Additionally, we may not be able to recover amounts from some third parties from whom we may seek indemnification or against whom we may assert a loan repurchase demand in connection with a breach of a representation or warranty due to financial difficulties or otherwise. As a result, we are exposed to counterparty risk in the event of non-performance by counterparties to our various contracts, including, without limitation, as a result of the rejection of an agreement or transaction in bankruptcy proceedings, which could result in substantial losses for which we may not have insurance coverage.

Current wording

Additionally, we are not always able to recover amounts from third parties from whom we may seek indemnification or against whom we may assert a loan repurchase demand in connection with a breach of a representation or warranty due to financial difficulties or otherwise. As a result, we are exposed to counterparty risk in the event of non-performance by counterparties to our various contracts, including, without limitation, as a result of the rejection of an agreement or transaction in bankruptcy proceedings, which could result in substantial losses for which we may not have insurance coverage.

Previous wording

Certain of our loan funding and MSR-backed facilities are subject to margin calls based on the lender’s opinion of the value of the loan collateral securing such financing. In addition, certain of our hedges related to newly originated mortgages are also subject to margin calls. A margin call would require us to repay a portion of the outstanding borrowings. A large, unanticipated margin call could have a material adverse effect on our liquidity. We have faced some margin calls on hedges and our financing facilities and may face additional margin calls in the future. Our regular stress tests of our positions may not be adequate to prevent additional margin calls that could impact our liquidity, particularly if the interest rate market experiences significant volatility.

Current wording

Certain of our loan funding and MSR-backed facilities are subject to margin calls based on the lender’s opinion of the value of the loan collateral securing such financing. In addition, certain of our hedges related to newly originated mortgages are subject to margin calls. A margin call would require us to repay a portion of the outstanding borrowings. A large, unanticipated margin call could have a material adverse effect on our liquidity. We have faced some margin calls on hedges and our financing facilities and may face additional margin calls in the future. Our regular stress tests of our positions may not be adequate to prevent additional margin calls that could impact our liquidity, particularly if the interest rate market experiences significant volatility.

Previous wording

•the speed of prepayment and repayment within the underlying pools of loans;

Current wording

•the speed of prepayment and repayment of the loans;

Previous wording

On February 1, 2023, we completed the transfer of servicing operations from Cenlar FSB (“Cenlar”) and brought the servicing of all MSRs in-house. Cenlar was our primary subservicer from 2012 to 2023. Notably, on October 26, 2021, Cenlar entered into a consent order with its regulator, the Office of the Comptroller of the Currency, regarding an alleged failure to establish effective controls and risk management practices related to its mortgage servicing and subservicing activities. When Cenlar serviced our loans on our behalf, there were a number of factors out of our control that could have negatively impacted Cenlar’s ability to effectively service our portfolio and to satisfy their contractual obligations to us. These included both intentional actions Cenlar took in running their businesses such as management of staffing levels and the number of customers serviced, and the occurrence of external events, including, but not limited to regulatory changes, enforcement actions, and natural disasters that may have posed challenges to Cenlar. The failure on Cenlar’s part to effectively service our portfolio of MSRs in the past has resulted in, and may result in, residual, regulatory, operational and litigation risk, which could adversely impact our business, financial condition, liquidity and results of operations. Our current servicing operations also has addressed, and could be required to continue to address, any past servicing concerns on behalf of Cenlar, which also could result in regulatory, operational and litigation risk.

Current wording

On February 1, 2023, we completed the transfer of servicing operations from Cenlar FSB (“Cenlar”) and brought the servicing of all MSRs in-house. Cenlar was our primary subservicer from 2012 to 2023. Notably, on October 26, 2021, Cenlar entered into a consent order with its prudential regulator, the Office of the Comptroller of the Currency, regarding an alleged failure to establish effective controls and risk management practices related to its mortgage servicing and subservicing activities. When Cenlar serviced our loans on our behalf, there were a number of factors out of our control that could have negatively impacted Cenlar’s ability to effectively service our portfolio and to satisfy their contractual obligations to us. These included actions taken by Cenlar in running their businesses such as management of staffing levels and the number of customers serviced, and the occurrence of external events, including, but not limited to regulatory changes, enforcement actions, and natural disasters that may have posed challenges to Cenlar. The failure on Cenlar’s part to effectively service our portfolio of MSRs in the past has resulted in, and may result in, residual, regulatory, operational and litigation risk, which could adversely impact our business, financial condition, liquidity and results of operations. Cenlar recently announced that its subservicing business is being acquired by one of our competitors. Our current servicing operations also have addressed, and could be required to continue to address, any past servicing concerns on behalf of Cenlar, which also could result in regulatory, operational and litigation risk.

Previous wording

In-house servicing of loans carries with it increased operational and compliance costs as we become directly responsible for complying with regulatory requirements.

Current wording

In-house servicing of loans increases operational and compliance costs as we become directly responsible for complying with investor and regulatory requirements.

Previous wording

Our transition from an outsourcing model to an in-house model for the servicing of loans means that we are more directly responsible for complying with guidelines set forth by the Agencies and other investors (including securitization trusts) on whose behalf we service mortgage loans. Failure to meet stipulations of servicing guidelines, which risk is higher than some of our competitors due to our limited operating history, can result in the assessment of fines and loss of reimbursement of loan-related advances, expenses, interest and servicing fees, as well as reputational damage. When the subservicing of a loan is transferred to the Company to be serviced in-house, the loan may have been previously serviced in a manner that will contribute towards our not meeting certain servicing guidelines. If not recovered from a prior servicer, such event could lead to the eventual realization of a loss to us.

Current wording

Our transition from an outsourcing model to an in-house model for the servicing of loans means that we are directly responsible for complying with applicable laws and regulations related to servicing, as well as the guidelines set forth by the Agencies and other investors (including securitization trusts) on whose behalf we service mortgage loans. Failure to comply with these laws, regulations, or guidelines, which risk is higher than some of our competitors due to our limited operating history, can result in litigation, the assessment of fines and loss of reimbursement of loan-related advances, expenses, interest and servicing fees, as well as reputational damage. When the subservicing of a loan is transferred to the Company to be serviced in-house, the loan may have been previously serviced in a manner that will contribute towards our not meeting certain servicing guidelines or legal requirements. If not recovered from a prior servicer, such event could lead to the eventual realization of a loss to us.

Previous wording

For mortgage loans, during any period in which a borrower is not making payments, we are required under most of our servicing agreements in respect of our servicing rights to advance our own funds to meet contractual principal and interest remittance requirements for investors and pay property taxes and insurance premiums, legal expenses and other protective advances. We also advance funds under these agreements to maintain, repair and market real estate properties on behalf of investors. When home values rise, costs increase, or delinquencies increase, as they recently have, we are typically required to advance greater amounts. In addition, if a mortgage loan serviced by us is in default or becomes delinquent, the repayment to us of the advance may be delayed until the mortgage loan is repaid or refinanced or foreclosure or a liquidation occurs. If the home value decreases and the property is sold in foreclosure or is real estate owned, we may not recover some or all of our advance funds. A delay in our ability to collect an advance may adversely affect our liquidity, and our inability to be reimbursed for an advance could adversely affect our business, financial condition and results of operations. As our servicing portfolio continues to age, defaults might increase as the loans age, which may increase our costs of servicing and could be detrimental to our business. Market disruptions, natural disasters, pandemics, or economic downturns may necessitate the offering of a temporary period of forbearance for customers unable to pay on certain mortgage loans and may also increase the number of defaults, delinquencies or forbearances related to the loans we service, increasing the advances we make for such loans and delaying our recoveries. We have recently been subject to such forbearance requirements in California, Florida and other jurisdictions in connection with fires, hurricanes and other catastrophe events. In connection with large scale catastrophe or other adverse events, particularly in jurisdictions where we have large concentrations of serviced loans, we may be required to advance funds in excess of our funding capacity, which could materially and adversely affect our mortgage loan servicing activities and our status as an approved servicer by Fannie Mae and Freddie Mac and result in our termination as an issuer and approved servicer by Ginnie Mae.

Current wording

For mortgage loans, during any period in which a borrower is not making payments, we are required under most of our servicing agreements to advance our own funds to meet contractual principal and interest remittance requirements for investors and pay property taxes and insurance premiums, legal expenses and other protective advances. We also advance funds under these agreements to maintain, repair and market real estate properties on behalf of investors. When home values rise, costs increase, or delinquencies increase, we are typically required to advance greater amounts. In addition, if a mortgage loan serviced by us is in default or becomes delinquent, the repayment to us of the advance may be delayed until the mortgage loan is repaid or refinanced or foreclosure or a liquidation occurs. If the home value decreases and the property is sold in foreclosure or is real estate owned, we may not recover all of our advance funds. A delay in our ability to collect advances may adversely affect our liquidity, and our inability to be reimbursed for advances could adversely affect our business, financial condition and results of operations. As our servicing portfolio continues to age, defaults might increase as the loans age, which may increase our costs of servicing and could be detrimental to our business. Market disruptions, natural disasters, pandemics, or economic downturns may necessitate the offering of a temporary period of forbearance for customers unable to pay on certain mortgage loans and may also increase the number of defaults, delinquencies or forbearances related to the loans we service, increasing the advances we make for such loans and delaying our recoveries. We are subject to such forbearance requirements in California, Florida and other jurisdictions in connection with fires, hurricanes and other catastrophe events. In connection with large scale catastrophe or other adverse events, particularly in jurisdictions where we have large concentrations of serviced loans, we may be required to advance funds in excess of our funding capacity, which could materially and adversely affect our mortgage loan servicing activities and our status as an approved servicer by Fannie Mae and Freddie Mac and result in our termination as an issuer and approved servicer by Ginnie Mae.

Previous wording

Any significant increase in required servicing advances or delinquent loan repurchases, could have a significant adverse impact on our cash flows, even if they are reimbursable, and could also have a detrimental effect on our business and financial condition.

Current wording

Any significant increase in required servicing advances or delinquent or other loan repurchases, could have a significant adverse impact on our cash flows, even if they are reimbursable, and could also have a detrimental effect on our business and financial condition.

Previous wording

Adverse actions by Ginnie Mae could materially and adversely impact our business, reputation, financial condition, liquidity and results of operations, including if Ginnie Mae were to terminate us as an issuer or servicer of Ginnie Mae loans or otherwise take action indicating that such a termination was planned. For example, such actions could make financing our business more difficult, including by making future financing more expensive or, if a lender were to allege a default under our debt agreements, could trigger cross-defaults under all our other material debt agreements. See “Changes in GSE or Ginnie Mae selling and/or servicing guidelines could adversely affect our business, financial condition and results of operations” below for additional discussion.

Current wording

Adverse actions by Ginnie Mae could materially and adversely impact our business, reputation, financial condition, liquidity and results of operations, including if Ginnie Mae were to terminate us as an issuer or servicer of Ginnie Mae loans or otherwise take action indicating that such a termination was planned. For example, such actions could make financing our business more difficult, including by making future financing more expensive or, if a lender were to allege a default under our debt agreements, could trigger cross-defaults under all our other material debt agreements. See “Changes in or failure to satisfy Agency or Ginnie Mae guidelines or requirements could adversely affect our business” below for additional discussion.

Previous wording

Our servicing rights portfolio may experience unanticipated increased delinquencies and defaults as it ages, which may adversely affect our business and financial condition.

Current wording

Our servicing rights portfolio may experience increased delinquencies and defaults as it ages, which may adversely affect our business and financial condition.