UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2021June 30, 2022
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____to _____
Commission File Number: 001-40003
loanDepot, Inc.
(Exact Name of Registrant as Specified in Its Charter)
| | | | | | | | | | | | | | |
Delaware | | 85-3948939 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | |
26642 Towne Centre Drive, | Foothill Ranch, | California | | 92610 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (888) 337-6888
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Class A Common Stock, $0.001 per value per share | | LDI | | The New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐☒ No ☒☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | ☐ | | Accelerated filer | ☐ | |
| Non-accelerated filer | ☒ | | Smaller reporting company | ☐☒ | |
| | | | Emerging growth company | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 7, 2021, 6,643,187August 9, 2022, 64,282,684 shares of the registrant’s Class A common stock, par value $0.001 per share, were outstanding. NaNNo shares of registrant’s Class B common stock were outstanding, 181,515,475152,010,113 shares of registrant’s Class C common stock were outstanding and 119,694,20097,026,671 shares of registrant’s Class D common stock were outstanding.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, including our Vision 2025 plan, technology developments, financing and investment plans, financial condition and liquidity, dividend policy, competitive position, industry and regulatory environment, potential growth opportunities and the effects of competition. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,”"seek," “should,” “will,” “would” or similar expressions and the negatives of those terms.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. You should read this report with the understanding that our actual future results may be materially different from what we expect.
Important factors that could cause actual results to differ materially from our expectations are included in Part I, Item 2 “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A "Risk Factors" in this report as well as Part I, Item 1A “Risk Factors” and Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended December 31, 20202021 filed with the Securities and Exchange Commission (“SEC”) on March 16, 2021.18, 2022.
Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Table of Contents
| | | | | |
| |
| |
PART 1. FINANCIAL INFORMATION | |
Item 1. Financial Statements | |
Consolidated Balance Sheets as of March 31, 2021June 30, 2022 and December 31, 20202021 | |
Consolidated Statements of Operations for the three and six months ended March 31,June 30, 2022 and 2021 and 2020 | |
Consolidated Statements of Equity for the three and six months ended March 31,June 30, 2022 and 2021 and 2020 | |
Consolidated Statements of Cash Flows for the threesix months ended March 31,June 30, 2022 and 2021 and 2020 | |
Notes to Consolidated Financial Statements | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. Controls and Procedures | |
PART II. OTHER INFORMATION | |
Item 1. Legal Proceedings | |
Item 1A. Risk Factors | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. Defaults Upon Senior Securities | |
Item 4. Mine Safety Disclosures | |
Item 5. Other Information | |
Item 6. Exhibits | |
Signatures | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
loanDepot, Inc.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
ASSETS | (Unaudited) | | |
Cash and cash equivalents | $ | 630,457 | | | $ | 284,224 | |
Restricted cash | 121,389 | | | 204,465 | |
Accounts receivable, net | 84,047 | | | 138,122 | |
Loans held for sale, at fair value (includes $2,213,801 and $1,595,442 pledged to creditors in securitization trusts at March 31, 2021 and December 31, 2020, respectively) | 8,787,756 | | | 6,955,424 | |
Derivative assets, at fair value | 760,519 | | | 647,939 | |
Servicing rights, at fair value (includes $355,565 and $300,465 pledged to creditors in securitization trusts at March 31, 2021 and December 31, 2020, respectively) | 1,772,099 | | | 1,127,866 | |
Property and equipment, net | 91,007 | | | 85,002 | |
Operating lease right-of-use assets | 63,207 | | | 66,433 | |
Prepaid expenses and other assets | 84,804 | | | 77,241 | |
Loans eligible for repurchase | 842,970 | | | 1,246,158 | |
Investments in joint ventures | 17,332 | | | 17,528 | |
| | | |
| | | |
Goodwill and intangible assets, net | 42,698 | | | 42,826 | |
Total assets | $ | 13,298,285 | | | $ | 10,893,228 | |
| | | |
LIABILITIES AND EQUITY | | | |
Liabilities: | | | |
Warehouse and other lines of credit | $ | 8,309,450 | | | $ | 6,577,429 | |
Accounts payable, accrued expenses and other liabilities | 890,826 | | | 446,370 | |
Derivative liabilities, at fair value | 95,188 | | | 168,169 | |
Liability for loans eligible for repurchase | 842,970 | | | 1,246,158 | |
Operating lease liability | 80,804 | | | 86,023 | |
Debt obligations, net | 1,305,089 | | | 712,466 | |
Total liabilities | 11,524,327 | | | 9,236,615 | |
Commitments and contingencies (Note 16) | 0 | | 0 |
| | | |
Equity: | | | |
Class A common stock, $0.001 par value, 2,500,000,000 authorized, 6,643,187 issued and outstanding as of March 31, 2021 | $ | 7 | | | $ | — | |
Class B common stock, $0.001 par value, 2,500,000,000 authorized, NaN issued and outstanding as of March 31, 2021 | 0 | | | — | |
Class C common stock, $0.001 par value, 2,500,000,000 authorized, 179,746,190 issued and outstanding as of March 31, 2021 | 180 | | | — | |
Class D common stock, $0.001 par value, 2,500,000,000 authorized, 119,694,200 issued and outstanding as of March 31, 2021 | 119 | | | — | |
Preferred stock, $0.001 par value, 50,000,000 authorized, NaN issued and outstanding as of March 31, 2021 | 0 | | | — | |
Additional paid-in capital | 561,494 | | | 0 | |
Retained earnings | 42,412 | | | 0 | |
Noncontrolling interest | 1,169,746 | | | 1,656,613 | |
Total equity | 1,773,958 | | | 1,656,613 | |
Total liabilities and equity | $ | 13,298,285 | | | $ | 10,893,228 | |
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
ASSETS | (Unaudited) | | |
Cash and cash equivalents | $ | 954,930 | | | $ | 419,571 | |
Restricted cash | 194,645 | | | 201,025 | |
Accounts receivable, net | 91,766 | | | 56,183 | |
Loans held for sale, at fair value (includes $1,800,968 and $2,557,490 pledged to creditors in securitization trusts at June 30, 2022 and December 31, 2021, respectively) | 4,656,338 | | | 8,136,817 | |
Derivative assets, at fair value | 153,607 | | | 194,665 | |
Servicing rights, at fair value (includes $484,393 and $400,678 pledged to creditors in securitization trusts at June 30, 2022 and December 31, 2021, respectively) | 2,213,700 | | | 2,006,712 | |
Trading securities, at fair value | 105,308 | | | 72,874 | |
Property and equipment, net | 111,443 | | | 104,262 | |
Operating lease right-of-use assets | 48,443 | | | 55,646 | |
Prepaid expenses and other assets | 140,145 | | | 140,315 | |
Loans eligible for repurchase | 506,454 | | | 363,373 | |
Investments in joint ventures | 18,408 | | | 18,553 | |
| | | |
| | | |
Goodwill and intangible assets, net | — | | | 42,317 | |
Total assets | $ | 9,195,187 | | | $ | 11,812,313 | |
| | | |
LIABILITIES AND EQUITY | | | |
| | | |
Warehouse and other lines of credit | $ | 4,265,343 | | | $ | 7,457,199 | |
Accounts payable, accrued expenses and other liabilities | 643,144 | | | 624,444 | |
Derivative liabilities, at fair value | 72,758 | | | 37,797 | |
Liability for loans eligible for repurchase | 506,454 | | | 363,373 | |
Operating lease liability | 66,485 | | | 71,932 | |
Debt obligations, net | 2,427,140 | | | 1,628,208 | |
Total liabilities | 7,981,324 | | | 10,182,953 | |
Commitments and contingencies (Note 15) | 0 | | 0 |
| | | |
| | | |
Class A common stock, $0.001 par value, 2,500,000,000 authorized, 65,257,349 and 38,060,302 issued at June 30, 2022 and December 31, 2021, respectively | $ | 65 | | | $ | 38 | |
Class B common stock, $0.001 par value, 2,500,000,000 authorized, none issued at June 30, 2022 and December 31, 2021, respectively | — | | | — | |
Class C common stock, $0.001 par value, 2,500,000,000 authorized, 152,191,394 and 172,729,168 issued at June 30, 2022 and December 31, 2021, respectively | 152 | | | 173 | |
Class D common stock, $0.001 par value, 2,500,000,000 authorized, 97,026,671 and 100,822,084 issued at June 30, 2022 and December 31, 2021, respectively | 97 | | | 101 | |
Preferred stock, $0.001 par value, 50,000,000 authorized, none issued at June 30, 2022 and December 31, 2021, respectively | — | | | — | |
Treasury stock at cost, 1,664,301 and 1,593,366 shares at June 30, 2022 and December 31, 2021, respectively | (13,087) | | | (12,852) | |
Additional paid-in capital | 762,635 | | | 565,073 | |
Retained deficit | (205,235) | | | (28,976) | |
Noncontrolling interest | 669,236 | | | 1,105,803 | |
Total equity | 1,213,863 | | | 1,629,360 | |
Total liabilities and equity | $ | 9,195,187 | | | $ | 11,812,313 | |
See accompanying notes to the unaudited consolidated financial statements.
1
loanDepot, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)thousands except per share amounts)
(Unaudited)
| | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | Three Months Ended March 31, | | | |
| | 2021 | | 2020 | | | |
REVENUES: | REVENUES: | | | | | | REVENUES: | | | | | | | |
Interest income | Interest income | $ | 54,730 | | | $ | 35,165 | | | | Interest income | $ | 62,722 | | | $ | 61,874 | | | $ | 115,687 | | | $ | 116,605 | |
Interest expense | Interest expense | (53,497) | | | (32,805) | | | | Interest expense | (39,923) | | | (54,848) | | | (79,813) | | | (108,346) | |
Net interest income | Net interest income | 1,233 | | | 2,360 | | | | Net interest income | 22,799 | | | 7,026 | | | 35,874 | | | 8,259 | |
| Gain on origination and sale of loans, net | Gain on origination and sale of loans, net | 1,020,646 | | | 492,485 | | | | Gain on origination and sale of loans, net | 146,562 | | | 692,479 | | | 509,692 | | | 1,826,054 | |
Origination income, net | Origination income, net | 101,599 | | | 38,613 | | | | Origination income, net | 39,108 | | | 92,624 | | | 98,181 | | | 194,223 | |
Servicing fee income | Servicing fee income | 82,568 | | | 36,563 | | | | Servicing fee income | 117,326 | | | 94,742 | | | 228,385 | | | 177,309 | |
Change in fair value of servicing rights, net | Change in fair value of servicing rights, net | 69,294 | | | (100,287) | | | | Change in fair value of servicing rights, net | (33,507) | | | (145,098) | | | (101,890) | | | (188,733) | |
Other income | Other income | 40,668 | | | 16,387 | | | | Other income | 16,351 | | | 38,141 | | | 41,707 | | | 78,810 | |
| Total net revenues | Total net revenues | 1,316,008 | | | 486,121 | | | | Total net revenues | 308,639 | | | 779,914 | | | 811,949 | | | 2,095,922 | |
| EXPENSES: | EXPENSES: | | | EXPENSES: | |
Personnel expense | Personnel expense | 603,735 | | | 240,199 | | | | Personnel expense | 296,569 | | | 470,125 | | | 642,563 | | | 1,073,861 | |
Marketing and advertising expense | Marketing and advertising expense | 109,626 | | | 57,312 | | | | Marketing and advertising expense | 60,837 | | | 114,133 | | | 162,350 | | | 223,759 | |
Direct origination expense | Direct origination expense | 46,976 | | | 26,503 | | | | Direct origination expense | 33,996 | | | 50,017 | | | 87,153 | | | 96,993 | |
General and administrative expense | General and administrative expense | 51,317 | | | 29,630 | | | | General and administrative expense | 63,927 | | | 48,654 | | | 113,675 | | | 99,972 | |
Occupancy expense | Occupancy expense | 9,988 | | | 9,892 | | | | Occupancy expense | 9,388 | | | 9,283 | | | 18,784 | | | 19,270 | |
Depreciation and amortization | Depreciation and amortization | 8,454 | | | 9,372 | | | | Depreciation and amortization | 11,323 | | | 8,686 | | | 21,867 | | | 17,139 | |
Subservicing expense | 26,611 | | | 13,247 | | | | |
Servicing expense | | Servicing expense | 10,741 | | | 27,241 | | | 32,252 | | | 53,851 | |
Other interest expense | Other interest expense | 13,171 | | | 10,970 | | | | Other interest expense | 33,140 | | | 21,266 | | | 47,533 | | | 34,438 | |
| Goodwill impairment | | Goodwill impairment | 40,736 | | | — | | | 40,736 | | | — | |
Total expenses | Total expenses | 869,878 | | | 397,125 | | | | Total expenses | 560,657 | | | 749,405 | | | 1,166,913 | | | 1,619,283 | |
| Income before income taxes | 446,130 | | | 88,996 | | | | |
(Loss) income before income taxes | | (Loss) income before income taxes | (252,018) | | | 30,509 | | | (354,964) | | | 476,639 | |
| Income taxes | 18,277 | | | 0 | | | | |
Net income | 427,853 | | | 88,996 | | | | |
Net income attributable to noncontrolling interests | 382,978 | | | 88,996 | | | | |
Net income attributable to loanDepot, Inc. | $ | 44,875 | | | $ | 0 | | | | |
Income tax (benefit) expense | | Income tax (benefit) expense | (28,196) | | | 4,225 | | | (39,823) | | | 22,502 | |
| Earnings per share: | | | |
Net (loss) income | | Net (loss) income | (223,822) | | | 26,284 | | | (315,141) | | | 454,137 | |
| Net (loss) income attributable to noncontrolling interests | | Net (loss) income attributable to noncontrolling interests | (122,894) | | | 17,723 | | | (179,472) | | | 400,701 | |
| Net (loss) income attributable to loanDepot, Inc. | | Net (loss) income attributable to loanDepot, Inc. | $ | (100,928) | | | $ | 8,561 | | | $ | (135,669) | | | $ | 53,436 | |
| (Loss) earnings per share: | | (Loss) earnings per share: | |
Basic | Basic | $ | 0.36 | | | N/A | | | Basic | $ | (0.66) | | | $ | 0.07 | | | $ | (0.93) | | | $ | 0.42 | |
Diluted | Diluted | $ | 0.36 | | | N/A | | | Diluted | $ | (0.66) | | | $ | 0.07 | | | $ | (0.93) | | | $ | 0.42 | |
| Weighted average shares outstanding: | Weighted average shares outstanding: | | | Weighted average shares outstanding: | |
Basic | Basic | 125,772,797 | | | N/A | | | Basic | 153,822,380 | | | 126,726,876 | | | 146,415,135 | | | 126,392,949 | |
Diluted | Diluted | 125,772,797 | | | N/A | | | Diluted | 153,822,380 | | | 126,726,876 | | | 146,415,135 | | | 126,392,949 | |
See accompanying notes to the unaudited consolidated financial statements.
2
loanDepot, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common shares issued | | Common shares $ | | Additional paid-in capital | | Retained Earnings | | Noncontrolling Interests | | Total Equity |
| Class A | | | | Class C | | Class D | | Class A | | | | Class C | | Class D | | | | |
Balance at December 31, 2019 | — | | | | | — | | | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 375,885 | | | $ | 375,885 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Repurchase | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (220) | | | (220) | |
| | | | | | | | | | | | | | | | | | | | | | | |
Equity-based compensation | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (65) | | | (65) | |
Dividends | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (1,914) | | | (1,914) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net income | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | | | 88,996 | | | 88,996 | |
Balance at March 31, 2020 | — | | | | | — | | | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 462,682 | | | $ | 462,682 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | 0 | | | | | 0 | | | 0 | | | $ | 0 | | | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1,656,613 | | | $ | 1,656,613 | |
Distributions prior to the reorganization transaction | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (160,617) | | | (160,617) | |
Equity compensation prior to the reorganization transaction | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 338 | | | 338 | |
Net income prior to the reorganization transaction | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 294,598 | | | 294,598 | |
Deferred taxes and other tax adjustments associated with the Reorganization and IPO | — | | | | | — | | | — | | | — | | | | | — | | | — | | | (203,741) | | | — | | | — | | | (203,741) | |
Effect of the reorganization transaction | 2,215,687 | | | | | 181,789,329 | | | 121,368,600 | | | 2 | | | | | 182 | | | 121 | | | 740,629 | | | 0 | | | (740,934) | | | 0 | |
Effect of the IPO | 3,850,000 | | | | | (2,394,000) | | | (1,456,000) | | | 4 | | | | | (2) | | | (2) | | | — | | | — | | | — | | | — | |
Effect of the Greenshoe | 577,500 | | | | | (359,100) | | | (218,400) | | | 1 | | | | | (1) | | | — | | | — | | | — | | | — | | | — | |
Vested Class C shares | — | | | | | 709,961 | | | — | | | — | | | | | 1 | | | — | | | (1) | | | | | | | — | |
Net income subsequent to the reorganization and IPO | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 44,875 | | | 88,380 | | | 133,255 | |
Stock based compensation subsequent to the reorganization transaction | — | | | | | — | | | — | | | — | | | | | — | | | — | | | 24,607 | | | — | | | 34,872 | | | 59,479 | |
Distributions for state taxes on behalf of shareholders, net | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | (2,463) | | | (3,504) | | | (5,967) | |
Balance at March 31, 2021 | 6,643,187 | | | | | 179,746,190 | | | 119,694,200 | | | $ | 7 | | | | | $ | 180 | | | $ | 119 | | | $ | 561,494 | | | $ | 42,412 | | | $ | 1,169,746 | | | $ | 1,773,958 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock issued | | Common stock $ | | Treasury Shares | | Additional paid-in capital | | Retained Earnings (Deficit) | | Non-controlling Interests | | Total Equity |
| Class A | | | | Class C | | Class D | | Class A | | | | Class C | | Class D | | | | | |
Balance at March 31, 2021 | 6,643,187 | | | | | 179,746,190 | | | 119,694,200 | | | $ | 7 | | | | | $ | 180 | | | $ | 119 | | | $ | — | | | $ | 561,494 | | | $ | 42,412 | | | $ | 1,169,746 | | | $ | 1,773,958 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Deferred taxes and other tax adjustments associated with the Reorganization and IPO | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 370 | | | — | | | — | | | 370 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net issuance of common shares under stock based compensation plans | 5,897,899 | | | | | 1,521,965 | | | (4,715,556) | | | 6 | | | | | 1 | | | (4) | | | — | | | (3) | | | — | | | — | | | — | |
Dividends to Class A and Class D shareholders ($0.69 per share) | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (36,062) | | | (51,938) | | | (88,000) | |
Distributions to Class C shareholders | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (56,497) | | | (81,368) | | | (137,865) | |
Stock-based compensation | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 797 | | | — | | | 1,138 | | | 1,935 | |
Distributions for taxes on behalf of shareholders, net | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (3,235) | | | (4,613) | | | (7,848) | |
Net income | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 8,561 | | | 17,723 | | | 26,284 | |
Balance at June 30, 2021 | 12,541,086 | | | | | 181,268,155 | | | 114,978,644 | | | $ | 13 | | | | | $ | 181 | | | $ | 115 | | | $ | — | | | $ | 562,658 | | | $ | (44,821) | | | $ | 1,050,688 | | | $ | 1,568,834 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2022 | 43,600,418 | | | | | 170,690,888 | | | 97,026,671 | | | $ | 45 | | | | | $ | 171 | | | $ | 97 | | | $ | (13,015) | | | $ | 656,267 | | | $ | (77,151) | | | $ | 944,755 | | | $ | 1,511,169 | |
Deferred taxes and other tax adjustments associated with the Reorganization and IPO | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | (18,426) | | | — | | | — | | | (18,426) | |
Net issuance of common stock under stock-based compensation plans | 19,992,630 | | | | | (18,499,494) | | | — | | | 20 | | | | | (19) | | | — | | | (72) | | | 122,452 | | | — | | | (122,453) | | | (72) | |
Forfeiture of dividends on unvested Class A RSUs | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 37 | | | 45 | | | 82 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 2,342 | | | — | | | 2,369 | | | 4,711 | |
Distributions for taxes on behalf of shareholders, net | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (27,193) | | | (32,586) | | | (59,779) | |
Net loss | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (100,928) | | | (122,894) | | | (223,822) | |
Balance at June 30, 2022 | 63,593,048 | | | | | 152,191,394 | | | 97,026,671 | | | $ | 65 | | | | | $ | 152 | | | $ | 97 | | | $ | (13,087) | | | $ | 762,635 | | | $ | (205,235) | | | $ | 669,236 | | | $ | 1,213,863 | |
See accompanying notes to the unaudited consolidated financial statements.
3
loanDepot, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock issued | | Common stock $ | | Treasury Stock | | Additional paid-in capital | | Retained Earnings (Deficit) | | Non-controlling Interests | | Total Equity |
| Class A | | | | Class C | | Class D | | Class A | | | | Class C | | Class D | | | | | |
Balance at December 31, 2020 | — | | | | | — | | | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,656,613 | | | $ | 1,656,613 | |
Distributions prior to the Reorganization | — | | | | | — | | | — | | | — | | | | | | | | | — | | | — | | | — | | | (160,617) | | | (160,617) | |
Equity compensation prior to the Reorganization | — | | | | | — | | | — | | | — | | | | | | | | | — | | | — | | | — | | | 338 | | | 338 | |
Net income prior to the Reorganization | — | | | | | — | | | — | | | — | | | | | | | | | — | | | — | | | — | | | 294,598 | | | 294,598 | |
Deferred taxes and other tax adjustments associated with the Reorganization and IPO | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | (203,370) | | | — | | | — | | | (203,370) | |
Effect of the Reorganization | 2,215,687 | | | | | 181,789,329 | | | 121,368,600 | | | 2 | | | | | 182 | | | 121 | | | — | | | 740,629 | | | — | | | (740,934) | | | — | |
Effect of the IPO | 3,850,000 | | | | | (2,394,000) | | | (1,456,000) | | | 4 | | | | | (2) | | | (2) | | | — | | | — | | | — | | | — | | | — | |
Effect of the Greenshoe | 577,500 | | | | | (359,100) | | | (218,400) | | | 1 | | | | | (1) | | | — | | | — | | | — | | | — | | | — | | | — | |
Net issuance of common stock under stock-based compensation plans | 5,897,899 | | | | | 2,231,926 | | | (4,715,556) | | | 6 | | | | | 2 | | | (4) | | | — | | | (4) | | | — | | | — | | | — | |
Dividends to Class A and Class D shareholders ($0.69 per share) | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (36,062) | | | (51,938) | | | (88,000) | |
Distributions to Class C shareholders | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (56,497) | | | (81,368) | | | (137,865) | |
Stock-based compensation | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 25,403 | | | — | | | 36,011 | | | 61,414 | |
Distributions for taxes on behalf of shareholders, net | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (5,698) | | | (8,118) | | | (13,816) | |
Net income subsequent to the Reorganization and IPO | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 53,436 | | | 106,103 | | | 159,539 | |
Balance at June 30, 2021 | 12,541,086 | | | | | 181,268,155 | | | 114,978,644 | | | $ | 13 | | | | | $ | 181 | | | $ | 115 | | | $ | — | | | $ | 562,658 | | | $ | (44,821) | | | $ | 1,050,688 | | | $ | 1,568,834 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | 36,466,936 | | | | | 172,729,168 | | | 100,822,084 | | | $ | 38 | | | | | $ | 173 | | | $ | 101 | | | $ | (12,852) | | | $ | 565,073 | | | $ | (28,976) | | | $ | 1,105,803 | | | $ | 1,629,360 | |
Deferred taxes and other tax adjustments associated with the Reorganization and IPO | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | (17,744) | | | — | | | — | | | (17,744) | |
Net issuance of common stock under stock-based compensation plans | 27,126,112 | | | | | (20,537,774) | | | (3,795,413) | | | 27 | | | | | (21) | | | (4) | | | (235) | | | 211,930 | | | — | | | (211,932) | | | (235) | |
Dividends to Class A and Class D shareholders ($0.08 per share) | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (5,273) | | | (6,397) | | | (11,670) | |
Distributions to Class C shareholders | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (6,338) | | | (7,665) | | | (14,003) | |
Stock-based compensation | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 3,376 | | | — | | | 3,645 | | | 7,021 | |
Distributions for taxes on behalf of shareholders, net | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (28,979) | | | (34,746) | | | (63,725) | |
Net loss | — | | | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (135,669) | | | (179,472) | | | (315,141) | |
Balance at June 30, 2022 | 63,593,048 | | | | | 152,191,394 | | | 97,026,671 | | | $ | 65 | | | | | $ | 152 | | | $ | 97 | | | $ | (13,087) | | | $ | 762,635 | | | $ | (205,235) | | | $ | 669,236 | | | $ | 1,213,863 | |
See accompanying notes to the unaudited consolidated financial statements.
4
loanDepot, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| | | Three Months Ended March 31, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES | CASH FLOWS FROM OPERATING ACTIVITIES | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 427,853 | | | $ | 88,996 | | |
Adjustments to reconcile net income to net | | |
cash used in operating activities: | | |
Net (loss) income | | Net (loss) income | $ | (315,141) | | | $ | 454,137 | |
Adjustments to reconcile net (loss) income to net | | Adjustments to reconcile net (loss) income to net | |
cash provided by (used in) operating activities: | | cash provided by (used in) operating activities: | |
Depreciation and amortization expense | Depreciation and amortization expense | 8,454 | | | 9,372 | | Depreciation and amortization expense | 21,867 | | | 17,139 | |
Amortization of operating lease right-of-use asset | Amortization of operating lease right-of-use asset | 5,895 | | | 6,174 | | Amortization of operating lease right-of-use asset | 11,272 | | | 11,594 | |
Amortization of debt issuance costs | Amortization of debt issuance costs | 2,685 | | | 1,498 | | Amortization of debt issuance costs | 8,067 | | | 6,744 | |
Gain on origination and sale of loans | Gain on origination and sale of loans | (990,904) | | | (417,716) | | Gain on origination and sale of loans | (809,990) | | | (2,041,979) | |
Loss on sale of servicing rights | 39 | | | 63 | | |
| Gain on sale of servicing rights | | Gain on sale of servicing rights | (20,041) | | | (11,478) | |
Fair value change in trading securities | | Fair value change in trading securities | 13,883 | | | — | |
Provision for loss obligation on sold loans and servicing rights | Provision for loss obligation on sold loans and servicing rights | 857 | | | 6,494 | | Provision for loss obligation on sold loans and servicing rights | 108,120 | | | 5,752 | |
(Increase) decrease in net deferred tax liabilities | 203,892 | | | 0 | | |
(Decrease) increase in provision for deferred income taxes | | (Decrease) increase in provision for deferred income taxes | (39,643) | | | 202,871 | |
Fair value change in derivative assets | Fair value change in derivative assets | (92,879) | | | (199,327) | | Fair value change in derivative assets | 191,682 | | | 303,639 | |
Fair value change in derivative liabilities | Fair value change in derivative liabilities | (72,980) | | | 150,175 | | Fair value change in derivative liabilities | 34,961 | | | (109,364) | |
Premium (paid) received on derivatives | Premium (paid) received on derivatives | (19,700) | | | 12,919 | | Premium (paid) received on derivatives | (150,624) | | | 5,061 | |
| Purchase of options contracts | | Purchase of options contracts | — | | | (10,383) | |
Fair value change in loans held for sale | Fair value change in loans held for sale | 178,844 | | | (54,519) | | Fair value change in loans held for sale | 174,519 | | | 33,191 | |
Fair value change in servicing rights | Fair value change in servicing rights | (112,917) | | | 119,355 | | Fair value change in servicing rights | (154,290) | | | 122,120 | |
Equity compensation | 59,817 | | | (65) | | |
Change in fair value of contingent consideration | 0 | | | 2,508 | | |
Stock-based compensation expense | | Stock-based compensation expense | 7,021 | | | 61,752 | |
| Originations of loans | Originations of loans | (41,401,575) | | | (15,106,459) | | Originations of loans | (37,142,855) | | | (75,814,894) | |
Proceeds from sales of loans | Proceeds from sales of loans | 40,380,774 | | | 15,611,107 | | Proceeds from sales of loans | 40,992,588 | | | 75,281,888 | |
Proceeds from principal payments | Proceeds from principal payments | 23,300 | | | 3,000 | | Proceeds from principal payments | 100,885 | | | 66,506 | |
Payments to investors for loan repurchases | Payments to investors for loan repurchases | (556,870) | | | (8,692) | | Payments to investors for loan repurchases | (376,387) | | | (671,166) | |
| Gain on extinguishment of debt | | Gain on extinguishment of debt | (10,528) | | | — | |
Goodwill impairment | | Goodwill impairment | 40,736 | | | — | |
Disbursements from joint ventures | Disbursements from joint ventures | 819 | | | 1,493 | | Disbursements from joint ventures | 4,565 | | | 5,790 | |
Changes in operating assets and liabilities: | | |
| Other changes in operating assets and liabilities | Other changes in operating assets and liabilities | 76,795 | | | (60,178) | | Other changes in operating assets and liabilities | (19,739) | | | (189,193) | |
Net cash (used in) provided by operating activities | (1,877,801) | | | 166,198 | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | 2,670,928 | | | (2,270,273) | |
| CASH FLOWS FROM INVESTING ACTIVITIES | CASH FLOWS FROM INVESTING ACTIVITIES | | CASH FLOWS FROM INVESTING ACTIVITIES | |
Purchase of property and equipment | Purchase of property and equipment | (14,163) | | | (4,997) | | Purchase of property and equipment | (28,844) | | | (30,400) | |
Proceeds from sale of servicing rights | Proceeds from sale of servicing rights | 635 | | | 6,808 | | Proceeds from sale of servicing rights | 387,968 | | | 176,995 | |
| Cash flows received on trading securities | | Cash flows received on trading securities | 4,109 | | | — | |
Investments in joint ventures | | Investments in joint ventures | (350) | | | (1,115) | |
| Return of capital from joint ventures | Return of capital from joint ventures | 189 | | | 150 | | Return of capital from joint ventures | — | | | 189 | |
Net cash flows (used in) provided by investing activities | (13,339) | | | 1,961 | | |
Net cash flows provided by investing activities | | Net cash flows provided by investing activities | 362,883 | | | 145,669 | |
See accompanying notes to the unaudited consolidated financial statements.
45
loanDepot, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Dollars in thousands)
(Unaudited)
| | | Three Months Ended March 31, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
CASH FLOWS FROM FINANCING ACTIVITIES | CASH FLOWS FROM FINANCING ACTIVITIES | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from borrowings on warehouse lines of credit | $ | 45,606,028 | | | $ | 15,542,362 | | |
Repayment of borrowings on warehouse lines of credit | (43,874,006) | | | (15,237,251) | | |
Proceeds from borrowings on warehouse and other lines of credit | | Proceeds from borrowings on warehouse and other lines of credit | $ | 42,522,401 | | | $ | 85,132,551 | |
Repayment of borrowings on warehouse and other lines of credit | | Repayment of borrowings on warehouse and other lines of credit | (45,714,257) | | | (83,211,614) | |
| Proceeds from debt obligations | Proceeds from debt obligations | 776,743 | | | 64,450 | | Proceeds from debt obligations | 2,099,247 | | | 1,044,221 | |
Payments on debt obligations | Payments on debt obligations | (175,935) | | | 0 | | Payments on debt obligations | (1,290,746) | | | (276,947) | |
Payments of debt issuance costs | Payments of debt issuance costs | (11,260) | | | (767) | | Payments of debt issuance costs | (4,135) | | | (13,913) | |
| Payments on capital lease obligation | (689) | | | (6,119) | | |
Payments on financing lease obligation | | Payments on financing lease obligation | — | | | (1,367) | |
| Payments on repurchase of units | 0 | | | (220) | | |
| Dividend distributions | (166,584) | | | (1,914) | | |
Net cash provided by financing activities | 2,154,297 | | | 360,541 | | |
Treasury stock purchased to net settle and withhold taxes on vested shares | | Treasury stock purchased to net settle and withhold taxes on vested shares | (235) | | | — | |
Dividends and shareholder distributions | | Dividends and shareholder distributions | (117,107) | | | (400,298) | |
Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (2,504,832) | | | 2,272,633 | |
| Net change in cash and cash equivalents and restricted cash | Net change in cash and cash equivalents and restricted cash | 263,157 | | | 528,700 | | Net change in cash and cash equivalents and restricted cash | 528,979 | | | 148,029 | |
| Cash and cash equivalents and restricted cash at beginning of the period | Cash and cash equivalents and restricted cash at beginning of the period | 488,689 | | | 117,496 | | Cash and cash equivalents and restricted cash at beginning of the period | 620,596 | | | 488,689 | |
| Cash and cash equivalents and restricted cash at end of the period | Cash and cash equivalents and restricted cash at end of the period | $ | 751,846 | | | $ | 646,196 | | Cash and cash equivalents and restricted cash at end of the period | $ | 1,149,575 | | | $ | 636,718 | |
| | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |
Cash paid (received) during the period for: | | |
Cash paid during the period for: | | Cash paid during the period for: | |
Interest | Interest | $ | 49,901 | | | $ | 47,585 | | Interest | $ | 120,060 | | | $ | 126,497 | |
Income taxes | Income taxes | 3 | | | (3) | | Income taxes | 24,223 | | | 7,628 | |
| Supplemental disclosure of noncash investing and financing activities | Supplemental disclosure of noncash investing and financing activities | | Supplemental disclosure of noncash investing and financing activities | |
Operating leases right-of-use assets obtained in exchange for lease liabilities | Operating leases right-of-use assets obtained in exchange for lease liabilities | $ | 2,669 | | | $ | 2,247 | | Operating leases right-of-use assets obtained in exchange for lease liabilities | $ | 8,656 | | | $ | 5,285 | |
Purchase of equipment under capital leases | 168 | | | 202 | | |
| Trading securities retained in securitizations | | Trading securities retained in securitizations | 50,426 | | | 16,757 | |
Purchase of equipment under financing leases | | Purchase of equipment under financing leases | — | | | 168 | |
See accompanying notes to the unaudited consolidated financial statements.
56
loanDepot, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ are in thousands, unless otherwise indicated)
(Unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS, PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements were prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation were included. The results of operations for the three and six months ended March 31, 2021June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report of loanDepot, Inc. on Form 10-K for the year ended December 31, 20202021 (“20202021 Form 10-K”).
Nature of Operations
loanDepot, Inc. was incorporated in Delaware on November 6, 2020 to facilitate the initial public offering (“IPO”) of its Class A common stock and related transactions in order to carry on the business of LD Holdings Group, LLC (“LD Holdings”) and its consolidated subsidiaries. loanDepot, Inc.’s common stock began trading on the New York Stock Exchange on February 11, 2021 under the ticker symbol “LDI.” loanDepot, Inc. is a holding company and its sole material asset is its equity interest in LD Holdings. As of June 30, 2022 the consolidated subsidiaries of LD Holdings included loanDepot.com, LLC, (“LDLLC”), Artemis Management, LLC (“ART”), LD Settlement Services, LLC (“LDSS”), and mello Holdings, LLC (“Mello”), and mello Credit Strategies LLC (“MCS”). Unless otherwise noted or indicated by the context, the term, the “Company”“Company,” refers (1) prior to the consummation of the IPO and Reorganization described below, to LD Holdings and its consolidated subsidiaries, and (2) after the IPO and reorganization described below, to loanDepot, Inc. and its consolidated subsidiaries, including LD Holdings.
The Company engages in the originating, financing, selling, and servicing of residential mortgage loans, and engages in title, escrow, and settlement services for mortgage loan transactions. The Company derives income primarily from gains on the origination and sale of loans to investors, income from loan servicing, and fees charged for settlement services related to the origination and sale of loans.
Initial Public Offering
The Company's common stock began trading on The New York Stock Exchange on February 11, 2021 under the ticker symbol “LDI.” The IPO consisted of 3,850,000 shares of Class A common stock, $0.001 par value per share, at an offering price of $14.00 per share, pursuant to a Registration Statement on Form S-1.
Prior to the IPO, the Company completed a reorganization by which it changed its equity structure to create a single class of LLC units in LD Holdings. Prior to that transaction, the capital structure consisted of different classes of membership interests held by certain members of LD Holdings (“Continuing LLC Members”). The LLC units were then exchanged on a 1-for-one basis for Holdco Units and Class C common stock. The Continuing LLC Members have the right to exchange 1 Holdco Unit and 1 share of Class B common stock or Class C common stock, as applicable, together for cash or one share of Class A common stock at the Company’s election, subject to customary conversion rate adjustments for stock splits, stock dividends, and reclassifications.
The reorganization is considered a transaction between entities under common control, therefore, the financial statements for the periods prior to the IPO and reorganization have been adjusted to combine the previously separate entities for presentation. Prior to the reorganization and IPO, the Company had not engaged in any business or other activities, except in connection with its formation.
As a result of the IPO and reorganization:
•loanDepot, Inc. is a holding company and its sole material asset is an equity interest in LD Holdings. LD Holdings continues to be a holding company and has no material assets other than its equity interests in its direct subsidiaries consisting of a 99.99% ownership in LDLLC (the majority asset of the group), and 100% equity ownership in ART, LDSS, and Mello. loanDepot, Inc. is the sole managing member of LD Holdings, and indirectly
operates and controls all of LD Holdings’ business and affairs and consolidates the financial results of LD Holdings and its subsidiaries. The financial results of LD Holdings and its subsidiaries are consolidated with loanDepot, Inc., and the consolidated net earnings or loss are allocated to the noncontrolling interest to reflect the entitlement of the Continuing LLC Members.
•The Company has entered into a tax receivable agreement (“TRA”) with certain funds managed by Parthenon Capital Partners, (the “Parthenon Stockholders”), Parthenon affiliates owning Holdco Units, and certain Continuing LLC Members, whereby loanDepot, Inc. will be obligated to pay such parties or their permitted assignees, 85% of the amount of cash tax savings, if any, in U.S. federal, state, and local taxes that loanDepot, Inc. realizes, or is deemed to realize as a result of future tax benefits from increases in tax basis. The TRA liability is accounted for as a contingent liability with amounts accrued when deemed probable and estimable.
Summary of Significant Accounting Policies
Our accounting policies are described below and in Note 1- Description of Business, Presentation and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our 20202021 Form 10-K.
Consolidation and Basis of Presentation
The Company's consolidated financial statements are prepared in accordance with U.S. GAAP as codified in the Financial Accounting Standards Board's (“FASB”) Accounting Standards Codification (“ASC” or the “Codification”).
ASC 250 requires that a change in the reporting entity or the consummation of a transaction accounted for in a manner similar to a pooling of interests, i.e., a reorganization of entities under common control, be retrospectively applied to the financial statements of all prior periods when the financial statements are issued for a period that includes the date the change in reporting entity or the transaction occurred. Prior to the IPO, the Company completed a reorganization where LLC units in LD Holdings held by certain members (“Continuing LLC Members) were exchanged on a 1-for-one basis for Class A holding units (“Holdco Units”) and Class C common stock. LD Holdings continues to be a holding company and has no material assets other than its equity interests in its direct subsidiaries consisting of a 99.99% ownership in LDLLC (the majority asset of the group), and 100% equity ownership in ART, LDSS, Mello, and MCS. As a result of the IPO and reorganization, loanDepot, Inc. became a holding company, its sole material asset is its equity interest in LD Holdings and as the sole managing member of LD Holdings, loanDepot, Inc. indirectly operates and controls all of LD Holdings’ business and affairs. The IPO and reorganization were considered transactions between entities under common control, therefore, the financial statements for the periods prior to the IPO and reorganization have been adjusted to combine the previously separate entities for presentation.control. The financial results of LD Holdings and
its subsidiaries were therefore combinedare consolidated with loanDepot, Inc.,Inc, and the consolidated net earnings or loss has beenare allocated to the noncontrolling interest to reflect the entitlement of the Continuing LLC Members.
The accompanying consolidated financial statements include all of the assets, liabilities, and results of operations of the Company and consolidated variable interest entities (“VIEs”) in which the Company is the primary beneficiary. VIEs are entities that have a total equity investment at risk that is insufficient to permit the entity to finance its activities without additional subordinated financial support, whose equity investors at risk lack the ability to control the entity's activities, or is structured with non-substantive voting rights. The Company evaluates its associations with VIEs, both at inception and when there is a change in circumstance that requires reconsideration, to determine if the Company is the primary beneficiary and consolidation is required. A primary beneficiary is defined as a variable interest holder that has a controlling financial interest. A controlling financial interest requires both: (a) the power to direct the activities that most significantly impact the VIEs’ economic performance, and (b) the obligation to absorb losses or receive benefits of a VIE that could potentially be significant to the VIE. The Company has not provided financial or other support during the periods presented to any VIE that it was not previously contractually required to provide. Other entities that the Company does not consolidate, but for which it has significant influence over operating and financial policies, are accounted for using the equity method. All intercompany accounts and transactions have been eliminated in consolidation.
Certain items in prior periods were reclassified to conform to the current presentation. AsTo conform to the current period presentation, servicing expense on the consolidated statements of March 31, 2021, financing lease obligations are now included as partoperations includes subservicing expense and in-house servicing expense.
The Company has evaluated subsequent events for recognition or disclosure through the date of accounts payable, accrued expensesthis report and other liabilities.has not identified any recordable or disclosable events that were not already reported in these consolidated financial statements or notes thereto.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Management has
made significant estimates in certain areas, including determining the fair value of loans held for sale, servicing rights, derivative assets and derivative liabilities, trading securities, awards granted under the incentive equity plan, assets acquired and liabilities assumed in business combinations, and determining the loan loss obligation on sold loans.loans and MSRs, and goodwill impairment. Actual results could differ from those estimates.
Non-controlling interests
loanDepot, Inc. is a holding company and its sole material asset is an equity interest in LD Holdings. LD Holdings continues to be a holding company and has no material assets other than its equity interests in its direct subsidiaries consisting of a 99.99% ownership in LDLLC (the majority asset of the group), and 100% equity ownership in ART, LDSS, and Mello. loanDepot, Inc. is the sole managing member of LD Holdings, and indirectly operates and controls all of LD Holdings’ business and affairs and consolidates the financial results of LD Holdings and its subsidiaries. The financial results of LD Holdings and its subsidiaries are consolidated with loanDepot, Inc., and the consolidated net earnings or loss will be allocated to the noncontrolling interest to reflect the entitlement of the Continuing LLC Members.
Income Taxes
The Company’s provision for income taxes is made for current and deferred income tax on pretax net income adjusted for permanent and temporary differences based on enacted tax laws and applicable statutory tax rates. The Company accounts for interest and penalties associated with income tax obligations as a component of income tax expense.
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates for the periods in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the change. Deferred tax assets are recorded in prepaid expenses and other assets on the consolidated balance sheets. Deferred tax liabilities are recorded in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets.
Following the IPO and Reorganization, the Company’s purchase of Holdco Units and any future exchanges of Holdco Units for cash or Class A Common Stock are expected to result in increases to the Company’s allocable tax basis in its assets. These increases in tax basis are expected to increase (for tax purposes) depreciation and amortization deductions allocable to the Company, and therefore reduce the amount of tax that the Company would otherwise be required to pay in the future. As a result, the Company has entered into a TRA with Parthenon Stockholders and certain Continuing LLC Members, whereby loanDepot, Inc. will be obligated to pay such parties or their permitted assignees, 85% of the amount of cash tax savings, if any, in U.S. federal, state, and local taxes that loanDepot, Inc. realizes, or is deemed to realize as a result of future tax benefits from increases in tax basis. The TRA liability is accounted for as a contingent liability within accounts payable, accrued expenses and other liabilities on the consolidated balance sheets with amounts accrued when deemed probable and estimable.
The Company evaluates tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet the more-likely than-not threshold of being sustained would be recorded as a tax benefit in the current period.
Stock-Based Compensation
Effective upon the completion of the IPO, the Company adopted the loanDepot, Inc. 2021 Omnibus Incentive Plan (the “2021 Plan”). The 2021 Plan allows for the grant of stock options, restricted stock, restricted stock units (“RSUs”), and stock appreciation rights. There are currently only RSUs granted under the 2021 Plan. The Company uses the grant-date fair value of equity awards to determine the compensation cost associated with each award. Compensation cost for service-based equity awards is recognized on a straight-line basis over the requisite service period, which is generally the vesting period. Compensation cost for awards with only service conditions that have graded vesting schedules is recognized on a straight-line basis over the requisite service period for the entire award such that compensation cost recognized at any date is at least equal to the portion of the grant-date value of the award that is vested at that date. Expense is reduced for actual forfeitures as they occur. The cost of stock-based compensation is recorded to personnel expense.
Earnings per share
Basic net income per common share is calculated using the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each share of common stock and participating security according to dividends declared (distributed earnings) and participation rights in undistributed earnings. Distributed and undistributed earnings are allocated between common and participating security shareholders based on their respective rights to receive dividends. According to the Company’s certificate of incorporation, the holders of Class A common stock and Class D common stock are entitled to share equally, on a per share basis, in dividends and other distributions of cash, property or shares of stock of the Company as may be declared by the board of directors.
Diluted net income per common share is calculated using the more dilutive of either the treasury stock method or the two-class method. The dilutive calculation considers common stock issuable under the assumed conversion of Class C common stock to Class A common stock as well as restricted stock units granted under the Corporation’s stock plans using the treasury stock method, if dilutive.
Concentration of Risk
The Company has concentrated its credit risk for cash by maintaining deposits in several financial institutions, which may at times exceed amounts covered by insurance provided by the Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk related to cash.
Due to the nature of the mortgage lending industry, changes in interest rates may significantly impact revenue from originating mortgages and subsequent sales of loans to investors, which are the primary source of income for the Company. The Company originates mortgage loans on property located throughout the United States, with loans originated for property located in California totaling approximately 36%23% of total loan originations for the threesix months ended March 31, 2021.June 30, 2022.
The Company sells mortgage loans to various third-party investors. Three investors accounted for 47%32%, 33%27%, and 13%19% of the Company’s loan sales for the threesix months ended March 31, 2021.June 30, 2022. No other investors accounted for more than 5% of the loan sales for the threesix months ended March 31, 2021.June 30, 2022.
The Company funds loans through warehouse and other lines of credit. As of March 31, 2021, 23%June 30, 2022, 14% and 9%15% of the Company's warehouse lines were payable to two separate lenders.
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS
In September 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU 2018-15 was issued to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The ASU was effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of this guidance on January 1, 2020 did not have a significant effect on the Company’s consolidated financial statements given that (1) the changes under the ASU generally align with our existing accounting treatment of implementation costs incurred in a hosting arrangement that is a service contract and (2) the Company has not incurred a material amount of implementation costs in a hosting arrangement.
In December 2019, FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, Income Taxes related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies
the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance clarifies that single-member limited liability companies and similar disregarded entities that are not subject to income tax are not required to recognize an allocation of consolidated income tax expense in their separate financial statements, but they could elect to do so. This ASU was effective for public business entities for fiscal years and interim periods beginning after December 15, 2020. The adoption of this guidance on January 1, 2021 did not have a significant effect on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provided optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the benefits of) reference rate reform on financial reporting. The amendments in ASU 2020-04 are elective and apply to all entities, subject to meeting certain criteria, that have contract, hedging relationships, and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU 2021-01 to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. This guidance is effective upon issuance and allows application to contract changes as early as January 1, 2020. The Company is in the process of reviewing its warehouse and other lines of credit and debt obligations that use LIBOR as the reference rate and is currently evaluating the potential impact that the adoption of this ASU will have on the consolidated financial statements.
NOTE 32 – FAIR VALUE
The Company's consolidated financial statements include assets and liabilities that are measured based on their estimated fair values. Refer to Note 1 - Description of Business, Presentation and Summary of Significant Accounting Policies in the 20202021 Form 10-K for information on the fair value hierarchy, valuation methodologies, and key inputs used to measure financial assets and liabilities recorded at fair value, as well as methods and assumptions used to estimate fair value disclosures for financial instruments not recorded at fair value in their entirety on a recurring basis.
The following tables present the carrying amount and estimated fair value of financial instruments included in the consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 |
| | Carrying Amount | | Estimated Fair Value |
| | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | |
Assets | | | | | | | | |
Cash and cash equivalents | | $ | 630,457 | | | $ | 630,457 | | | $ | 0 | | | $ | 0 | |
Restricted cash | | 121,389 | | | 121,389 | | | 0 | | | 0 | |
Loans held for sale, at fair value | | 8,787,756 | | | 0 | | | 8,787,756 | | | 0 | |
Derivative assets, at fair value | | 760,519 | | | 0 | | | 448,722 | | | 311,797 | |
Servicing rights, at fair value | | 1,772,099 | | | 0 | | | 0 | | | 1,772,099 | |
| | | | | | | | |
Loans eligible for repurchase | | 842,970 | | | 0 | | | 842,970 | | | 0 | |
| | | | | | | | |
Liabilities | | | | | | | | |
Warehouse and other lines of credit | | $ | 8,309,450 | | | $ | 0 | | | $ | 8,309,450 | | | $ | 0 | |
Derivative liabilities, at fair value | | 95,188 | | | 30,167 | | | 2 | | | 65,019 | |
Servicing rights, at fair value(1) | | 6,011 | | | 0 | | | 0 | | | 6,011 | |
Debt obligations: | | | | | | | | |
| | | | | | | | |
2020-VF1 Notes | | 8,720 | | | 0 | | | 9,401 | | | 0 | |
GMSR VFN | | 15,000 | | | 0 | | | 15,000 | | | 0 | |
Term notes | | 198,791 | | | 0 | | | 200,000 | | | 0 | |
| | | | | | | | |
| | | | | | | | |
Senior notes | | 1,082,578 | | | 0 | | | 1,134,340 | | | 0 | |
Liability for loans eligible for repurchase | | 842,970 | | | 0 | | | 842,970 | | | 0 | |
(1)Included in accounts payable and accrued expenses on the consolidated balance sheet. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Carrying Amount | | Estimated Fair Value |
| | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | |
Assets | | | | | | | | |
Cash and cash equivalents | | $ | 954,930 | | | $ | 954,930 | | | $ | — | | | $ | — | |
Restricted cash | | 194,645 | | | 194,645 | | | — | | | — | |
Loans held for sale, at fair value | | 4,656,338 | | | — | | | 4,656,338 | | | — | |
Derivative assets, at fair value | | 153,607 | | | — | | | 61,721 | | | 91,886 | |
Servicing rights, at fair value | | 2,213,700 | | | — | | | — | | | 2,213,700 | |
Trading securities, at fair value | | 105,308 | | | — | | | 105,308 | | | — | |
Loans eligible for repurchase | | 506,454 | | | — | | | 506,454 | | | — | |
| | | | | | | | |
Liabilities | | | | | | | | |
Warehouse and other lines of credit | | $ | 4,265,343 | | | $ | — | | | $ | 4,265,343 | | | $ | — | |
Derivative liabilities, at fair value | | 72,758 | | | 14,859 | | | 23,618 | | | 34,281 | |
Servicing rights, at fair value | | 9,107 | | | — | | | — | | | 9,107 | |
Debt obligations: | | | | | | | | |
Secured credit facilities | | 1,237,269 | | | — | | | 1,239,841 | | | — | |
| | | | | | | | |
Term Notes | | 199,415 | | | — | | | 200,000 | | | — | |
| | | | | | | | |
| | | | | | | | |
Senior Notes | | 990,456 | | | — | | | 657,453 | | | — | |
Liability for loans eligible for repurchase | | 506,454 | | | — | | | 506,454 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Carrying Amount | | Estimated Fair Value |
| | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | |
Assets | | | | | | | | |
Cash and cash equivalents | | $ | 284,224 | | | $ | 284,224 | | | $ | 0 | | | $ | 0 | |
Restricted cash | | 204,465 | | | 204,465 | | | 0 | | | 0 | |
Loans held for sale, at fair value | | 6,955,424 | | | 0 | | | 6,955,424 | | | 0 | |
Derivative assets, at fair value | | 647,939 | | | 483 | | | 107 | | | 647,349 | |
Servicing rights, at fair value | | 1,127,866 | | | 0 | | | 0 | | | 1,127,866 | |
| | | | | | | | |
Loans eligible for repurchase | | 1,246,158 | | | 0 | | | 1,246,158 | | | 0 | |
| | | | | | | | |
Liabilities | | | | | | | | |
Warehouse and other lines of credit | | $ | 6,577,429 | | | $ | 0 | | | $ | 6,577,429 | | | $ | 0 | |
Derivative liabilities, at fair value | | 168,169 | | | 4,299 | | | 163,566 | | | 304 | |
Servicing rights, at fair value (1) | | 3,564 | | | 0 | | | 0 | | | 3,564 | |
| | | | | | | | |
Debt obligations: | | | | | | | | |
| | | | | | | | |
2020-VF1 Notes | | 7,571 | | | 0 | | | 8,593 | | | 0 |
GMSR VFN | | 15,000 | | | 0 | | | 15,000 | | | 0 | |
Term notes | | 198,640 | | | 0 | | | 200,000 | | | 0 | |
| | | | | | | | |
| | | | | | | | |
Senior notes | | 491,255 | | | 0 | | 518,245 | | | 0 |
Liability for loans eligible for repurchase | | 1,246,158 | | | 0 | | | 1,246,158 | | | 0 | |
(1)Included in accounts payable and accrued expenses on the consolidated balance sheet. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Carrying Amount | | Estimated Fair Value |
| | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | |
Assets | | | | | | | | |
Cash and cash equivalents | | $ | 419,571 | | | $ | 419,571 | | | $ | — | | | $ | — | |
Restricted cash | | 201,025 | | | 201,025 | | | — | | | — | |
Loans held for sale, at fair value | | 8,136,817 | | | — | | | 8,136,817 | | | — | |
Derivative assets, at fair value | | 194,665 | | | 4,924 | | | 5,358 | | | 184,383 | |
Servicing rights, at fair value | | 2,006,712 | | | — | | | — | | | 2,006,712 | |
Trading securities, at fair value | | 72,874 | | | — | | | 72,874 | | | — | |
Loans eligible for repurchase | | 363,373 | | | — | | | 363,373 | | | — | |
| | | | | | | | |
Liabilities | | | | | | | | |
Warehouse and other lines of credit | | $ | 7,457,199 | | | $ | — | | | $ | 7,457,199 | | | $ | — | |
Derivative liabilities, at fair value | | 37,797 | | | 31,070 | | | 2,964 | | | 3,763 | |
Servicing rights, at fair value | | 7,310 | | | — | | | — | | | 7,310 | |
Debt obligations: | | | | | | | | |
Secured credit facilities | | 343,759 | | | — | | | 345,596 | | | — | |
Term Notes | | 199,133 | | | — | | | 200,000 | | | — | |
| | | | | | | | |
| | | | | | | | |
Senior Notes | | 1,085,316 | | | — | | | 1,057,977 | | | — | |
Liability for loans eligible for repurchase | | 363,373 | | | — | | | 363,373 | | | — | |
Financial Statement Items Measured at Fair Value on a Recurring Basis
The following tables presents the Company’s assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy as of the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 |
| | Recurring Fair Value Measurements of Assets (Liabilities) Using: |
| | Quoted Market Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements |
Fair value through net income: | | | | | | | | |
Assets: | | | | | | | | |
Loans held for sale | | $ | 0 | | | $ | 8,787,756 | | | $ | 0 | | | $ | 8,787,756 | |
Derivative assets: | | | | | | | | |
Interest rate lock commitments | | 0 | | | 0 | | | 311,797 | | | 311,797 | |
Forward sales contracts | | 0 | | | 442,317 | | | 0 | | | 442,317 | |
| | | | | | | | |
MBS put options | | 0 | | | 6,405 | | | 0 | | | 6,405 | |
Servicing rights | | 0 | | | 0 | | | 1,772,099 | | | 1,772,099 | |
Total assets at fair value | | $ | 0 | | | $ | 9,236,478 | | | $ | 2,083,896 | | | $ | 11,320,374 | |
Liabilities: | | | | | | | | |
Derivative liabilities: | | | | | | | | |
Interest rate lock commitments | | $ | 0 | | | $ | 0 | | | $ | 65,019 | | | $ | 65,019 | |
Interest rate swap futures | | 10,833 | | | 0 | | | 0 | | | 10,833 | |
Forward sales contracts | | 0 | | | 2 | | | 0 | | | 2 | |
Put options on treasuries | | 19,334 | | | 0 | | | 0 | | | 19,334 | |
Servicing rights(1) | | 0 | | | 0 | | | 6,011 | | | 6,011 | |
Total liabilities at fair value | | $ | 30,167 | | | $ | 2 | | | $ | 71,030 | | | $ | 101,199 | |
(1)Included in accounts payable and accrued expenses on the consolidated balance sheet.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Recurring Fair Value Measurements of Assets and Liabilities Using: |
| | Quoted Market Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements |
Fair value through net income: | | | | | | | | |
Assets: | | | | | | | | |
Loans held for sale | | $ | — | | | $ | 4,656,338 | | | $ | — | | | $ | 4,656,338 | |
Trading securities | | — | | | 105,308 | | | — | | | 105,308 | |
Derivative assets: | | | | | | | | |
Interest rate lock commitments | | — | | | — | | | 91,886 | | | 91,886 | |
Forward sale contracts | | — | | | 43,926 | | | — | | | 43,926 | |
| | | | | | | | |
MBS put options | | — | | | 17,795 | | | — | | | 17,795 | |
Servicing rights | | — | | | — | | | 2,213,700 | | | 2,213,700 | |
Total assets at fair value | | $ | — | | | $ | 4,823,367 | | | $ | 2,305,586 | | | $ | 7,128,953 | |
Liabilities: | | | | | | | | |
Derivative liabilities: | | | | | | | | |
Interest rate lock commitments | | $ | — | | | $ | — | | | $ | 34,281 | | | $ | 34,281 | |
Interest rate swap futures | | 5,746 | | | — | | | — | | | 5,746 | |
Forward sale contracts | | — | | | 10,694 | | | — | | | 10,694 | |
Put options on treasuries | | 9,113 | | | — | | | — | | | 9,113 | |
MBS put options | | — | | | 12,924 | | | — | | | 12,924 | |
Servicing rights | | — | | | — | | | 9,107 | | | 9,107 | |
Total liabilities at fair value | | $ | 14,859 | | | $ | 23,618 | | | $ | 43,388 | | | $ | 81,865 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Recurring Fair Value Measurements of Assets (Liabilities) Using: |
| | Quoted Market Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements |
Fair value through net income: | | | | | | | | |
Assets: | | | | | | | | |
Loans held for sale | | $ | 0 | | | $ | 6,955,424 | | | $ | 0 | | | $ | 6,955,424 | |
Derivative assets: | | | | | | | | |
Interest rate lock commitments | | 0 | | | 0 | | | 647,349 | | | 647,349 | |
Forward sales contracts | | 0 | | | 107 | | | 0 | | | 107 | |
Interest rate swap futures | | 483 | | | 0 | | | 0 | | | 483 | |
| | | | | | | | |
Servicing rights | | 0 | | | 0 | | | 1,127,866 | | | 1,127,866 | |
Total assets at fair value | | $ | 483 | | | $ | 6,955,531 | | | $ | 1,775,215 | | | $ | 8,731,229 | |
Liabilities: | | | | | | | | |
Derivative liabilities: | | | | | | | | |
Interest rate lock commitments | | $ | 0 | | | $ | 0 | | | $ | 304 | | | $ | 304 | |
Put options on treasuries | | 4,299 | | | 0 | | | 0 | | | 4,299 | |
| | | | | | | | |
Forward sales contracts | | 0 | | | 163,566 | | | 0 | | | 163,566 | |
Servicing rights (1) | | 0 | | | 0 | | | 3,564 | | | 3,564 | |
| | | | | | | | |
Total liabilities at fair value | | $ | 4,299 | | | $ | 163,566 | | | $ | 3,868 | | | $ | 171,733 | |
(1)Included in accounts payable and accrued expenses on the consolidated balance sheet. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Recurring Fair Value Measurements of Assets and Liabilities Using: |
| | Quoted Market Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements |
Fair value through net income: | | | | | | | | |
Assets: | | | | | | | | |
Loans held for sale | | $ | — | | | $ | 8,136,817 | | | $ | — | | | $ | 8,136,817 | |
Trading securities | | — | | | 72,874 | | | — | | | 72,874 | |
Derivative assets: | | | | | | | | |
Interest rate lock commitments | | — | | | — | | | 184,383 | | | 184,383 | |
Forward sale contracts | | — | | | 5,358 | | | — | | | 5,358 | |
Interest rate swap futures | | 4,924 | | | — | | | — | | | 4,924 | |
| | | | | | | | |
Servicing rights | | — | | | — | | | 2,006,712 | | | 2,006,712 | |
Total assets at fair value | | $ | 4,924 | | | $ | 8,215,049 | | | $ | 2,191,095 | | | $ | 10,411,068 | |
Liabilities: | | | | | | | | |
Derivative liabilities: | | | | | | | | |
Interest rate lock commitments | | $ | — | | | $ | — | | | $ | 3,763 | | | $ | 3,763 | |
Forward sale contracts | | — | | | 2,964 | | | — | | | 2,964 | |
Put options on treasuries | | 31,070 | | | — | | | — | | | 31,070 | |
| | | | | | | | |
| | | | | | | | |
Servicing rights | | — | | | — | | | 7,310 | | | 7,310 | |
| | | | | | | | |
Total liabilities at fair value | | $ | 31,070 | | | $ | 2,964 | | | $ | 11,073 | | | $ | 45,107 | |
The following presents the changes in the Company’s assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2021 | | |
| | Interest Rate Lock Commitments(1) | | Servicing Rights, net(2) | | | | | | | |
| | | | | |
Balance at beginning of period | | $ | 647,045 | | | $ | 1,124,302 | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total net gains or losses included in | | | | | | | | | | | |
earnings (realized and unrealized) | | 388,548 | | | 642,421 | | | | | | | | |
Sales and settlements | | | | | | | | | | | |
Purchases | | 0 | | | 0 | | | | | | | | |
Sales | | 0 | | | (635) | | | | | | | | |
Settlements | | (593,703) | | | 0 | | | | | | | | |
Transfers of IRLCs to closed loans | | (195,112) | | | 0 | | | | | | | | |
Balance at end of period | | $ | 246,778 | | | $ | 1,766,088 | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
| | IRLCs, net | | Servicing Rights, net | | IRLCs, net | | Servicing Rights, net |
| | | | |
Balance at beginning of period | | $ | 12,000 | | | $ | 2,078,187 | | | $ | 180,620 | | | $ | 1,999,402 | |
| | | | | | | | |
| | | | | | | | |
Total net gains or losses included in earnings (realized and unrealized) | | 114,197 | | | 212,777 | | | 257,154 | | | 624,546 | |
Sales and settlements | | | | | | | | |
| | | | | | | | |
Sales | | — | | | (86,371) | | | — | | | (419,355) | |
Settlements (1) | | (38,536) | | | — | | | (271,458) | | | — | |
Transfers of IRLCs to closed loans | | (30,056) | | | — | | | (108,711) | | | — | |
Balance at end of period | | $ | 57,605 | | | $ | 2,204,593 | | | $ | 57,605 | | | $ | 2,204,593 | |
(1) Interest rate lock commitments include both assets and liabilities and are shown net.
(2) Balance is net of $6.0 million servicing liability at March 31, 2021.
Funded amount for IRLCs.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2020 | | |
| | Interest Rate Lock Commitments(1) | | Servicing Rights, net(2) | | Contingent Consideration | | | | | | |
| | | | | | |
Balance at beginning of period | | $ | 128,208 | | | $ | 444,443 | | | $ | (2,374) | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total net gains or losses included in | | | | | | | | | | | | |
earnings (realized and unrealized) | | 555,067 | | | (5,300) | | | (2,507) | | | | | | | |
Sales and settlements | | | | | | | | | | | | |
Purchases | | 0 | | | 0 | | | 0 | | | | | | | |
Sales | | 0 | | | (7,279) | | | 0 | | | | | | | |
Settlements | | (259,455) | | | 0 | | | 0 | | | | | | | |
Transfers of IRLCs to closed loans | | (109,083) | | | 0 | | | 0 | | | | | | | |
Balance at end of period | | $ | 314,737 | | | $ | 431,864 | | | $ | (4,881) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| | IRLCs, net | | Servicing Rights, net | | IRLCs, net | | Servicing Rights, net |
| | | | |
Balance at beginning of period | | $ | 246,778 | | | $ | 1,766,088 | | | $ | 647,045 | | | $ | 1,124,302 | |
| | | | | | | | |
| | | | | | | | |
Total net gains or losses included in earnings (realized and unrealized) | | 720,422 | | | 203,937 | | | 1,108,970 | | | 846,359 | |
Sales and settlements | | | | | | | | |
| | | | | | | | |
Sales | | — | | | (193,630) | | | — | | | (194,266) | |
Settlements (1) | | (432,748) | | | — | | | (1,026,450) | | | — | |
Transfers of IRLCs to closed loans | | (201,371) | | | — | | | (396,484) | | | — | |
Balance at end of period | | $ | 333,081 | | | $ | 1,776,395 | | | $ | 333,081 | | | $ | 1,776,395 | |
(1)Interest rate lock commitments include both assets and liabilities and are shown net.
(2)Balance is net of $2.8 million servicing rights liability at March 31, 2020.Funded amount for IRLCs.
The following presents the gains and losses included in earnings for the three months ended March 31, 2021 and 2020 relating to the Company’s assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
| | | Three Months Ended March 31, 2021 | | | | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 |
| | Interest Rate Lock Commitments(1) | | Servicing Rights, net(2) | | | | | IRLCs, net (1) | | Servicing Rights, net(2) | | IRLCs, net (1) | | Servicing Rights, net(3) |
| | | | | | IRLCs, net (1) | | Servicing Rights, net(2) | |
| Total net (losses) gains included in earnings | | $ | (400,267) | | | $ | 642,421 | | | | | |
Total net gains (losses) included in earnings | | Total net gains (losses) included in earnings | | $ | 45,605 | | | $ | 212,777 | | | $ | (123,015) | | | $ | 624,546 | |
| Change in unrealized gains relating to assets and liabilities still held at period end | Change in unrealized gains relating to assets and liabilities still held at period end | | $ | 246,778 | | | $ | 741,791 | | | | | Change in unrealized gains relating to assets and liabilities still held at period end | | $ | 57,605 | | | $ | 215,835 | | | $ | 57,605 | | | $ | 615,444 | |
(1)(Losses) gains included in gain on origination and sale of loans, net.
(2)Includes $529.5 million in gains included in gain on origination and sale of loans, net and $112.9 million of gains included in change in fair value of servicing rights, net, for the three months ended March 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
|
|
|
| | | | | | | | | | | | |
| | Three Months Ended March 31, 2020 | | |
| | Interest Rate Lock Commitments(1) | | Servicing Rights, net(2) | | Contingent Consideration(3) | | | | | | |
| | | | | | |
| | | | | | | | | | | | |
Total net gains (losses) included in earnings | | $ | 186,529 | | | $ | (5,300) | | | $ | (2,507) | | | | | | | |
| | | | | | | | | | | | |
Change in unrealized gains relating to assets and liabilities still held at period end | | $ | 314,737 | | | $ | 19,802 | | | $ | (2,507) | | | | | | | |
|
|
|
(1)Gains (losses) included in gain on origination and sale of loans, net.
(2)Includes $114.1$180.5 million in gains included in gain on origination and sale of loans, net and $119.4$32.3 million of gains included in change in fair value of servicing rights, net, for the three months ended June 30, 2022.
(3)Includes $450.2 million in gains included in gain on origination and sale of loans, net and $174.3 million of gains included in change in fair value of servicing rights, net, for the six months ended June 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | |
| | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
|
|
| | | | | | | | |
| | Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| | IRLCs, net (1) | | Servicing Rights, net(2) | | Interest Rate Lock Commitments(1) | | Servicing Rights, net(3) |
| | | | |
| | | | | | | | |
Total net gains (losses) included in earnings | | $ | 86,303 | | | $ | 203,937 | | | $ | (313,964) | | | $ | 846,359 | |
| | | | | | | | |
Change in unrealized gains relating to assets and liabilities still held at period end | | $ | 333,081 | | | $ | 296,555 | | | $ | 333,081 | | | $ | 1,038,347 | |
|
|
|
(1)Gains (losses) included in gain on origination and sale of loans, net.
(2)Includes $427.5 million in gains included in gain on origination and sale of loans, net and $223.5 million in losses included in change in fair value of servicing rights, net, for the three months ended March 31, 2020.June 30, 2021.
(3)Gains (losses)Includes $957.0 million in gains included in generalgain on origination and administrative expense.sale of loans, net and $110.6 million of losses included in change in fair value of servicing rights, net, for the six months ended June 30, 2021.
The following table presents quantitative information about the valuation techniques and unobservable inputs applied to Level 3 fair value measurements for financial instruments measured at fair value on a recurring basis:
| | | | March 31, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
Unobservable Input | Unobservable Input | | Range of inputs | | Weighted Average | | Range of inputs | | Weighted Average | Unobservable Input | | Range of inputs | | Weighted Average (2) | | Range of inputs | | Weighted Average (2) |
IRLCs: | IRLCs: | | | | | | | | | IRLCs: | | | | | | | | |
Pull-through rate | Pull-through rate | | 5.3% | - | 99.9% | | 81.0% | | 2.8% | - | 99.9% | | 70.5% | Pull-through rate | | 1.0% | - | 99.9% | | 80.2% | | 0.3% | - | 99.3% | | 74.2% |
| Servicing rights | Servicing rights | | Servicing rights | |
Discount rate(1) | Discount rate(1) | | 5.4% | - | 9.4% | | 6.3% | | 5.0% | - | 10.0% | | 6.2% | Discount rate(1) | | 4.6% | - | 10.5% | | 6.2% | | 4.5% | - | 9.0% | | 5.8% |
Prepayment rate(1) | Prepayment rate(1) | | 8.2% | - | 27.8% | | 9.0% | | 13.4% | - | 34.8% | | 14.0% | Prepayment rate(1) | | 5.4% | - | 14.9% | | 7.2% | | 8.4% | - | 18.7% | | 10.2% |
Cost to service (per loan) | Cost to service (per loan) | | $70 | - | $142 | | $85 | | $71 | - | $139 | | $89 | Cost to service (per loan) | | $63 | - | $136 | | $85 | | $70 | - | $114 | | $82 |
|
(1)The Company estimates the fair value of MSRs using an option-adjusted spread (“OAS”) model, which projects MSR cash flows over multiple interest rate scenarios in conjunction with the Company’s prepayment model, and then discounts these cash flows at risk-adjusted rates.
(2)Weighted average inputs are based on the committed amounts for IRLCs and the UPB of the underlying loans for servicing rights.
Financial Statement Items Measured at Fair Value on a Nonrecurring Basis
The Company did not have any material assets or liabilities that were recorded at fair value on a non-recurring basis as of March 31, 2021June 30, 2022 or December 31, 2020.2021.
Financial Statement Items Measured at Amortized Cost
Warehouse and other lines of credit - The Company’s warehouse and other lines of credit bear interest at a rate that is periodically adjusted based on a market index. The carrying value of warehouse and other lines of credit approximates fair value.
Debt obligations, net - Debt consists of secured credit facilities, term notes,Term Notes, and senior notes.Senior Notes. The Company’s secured credit facilities and term notesTerm Notes accrue interest at a stated rate of 30-day or 90-day LIBOR, or other alternative base rate such as SOFR, plus a margin, they are highly liquid and short-term in nature and as a result, their carrying value approximated fair value as of March 31, 2021June 30, 2022 and December 31, 2020.2021. Fair value of the Company’s Senior Notes issued in October 2020 and March 2021 were estimated using the quoted market prices at March 31, 2021.June 30, 2022. The Senior Notesdebt obligations are classified as Level 2 in the fair value hierarchy.
NOTE 43 – BALANCE SHEET NETTING
Certain derivatives, loan warehouse and repurchase agreements are subject to master netting arrangements or similar agreements. In certain circumstances the Company may elect to present certain financial assets, liabilities, and related collateral subject to master netting arrangements in a net position on the consolidated balance sheets. The Company has elected to present net derivative assets and liabilities obtained from (or posted to) its counterparties when subject to a master netting arrangement that is legally enforceable on all counterparties in the event of default.
The table below represents financial assets and liabilities that are subject to master netting arrangements or similar agreements categorized by financial instrument, together with corresponding financial instruments and corresponding collateral received or pledged. Warehouse and other lines of credit and secured debt obligations were secured by sufficient collateralfinancial instruments with fair value that exceeded the liability amount recorded on the consolidated balance sheets as of March 31, 2021June 30, 2022 and December 31, 2020,2021, respectively.
| | | March 31, 2021 | | June 30, 2022 |
| | Gross amounts recognized | | Gross amounts offset in consolidated balance sheet | | Net amounts presented in consolidated balance sheet | | Gross amounts not offset in consolidated balance sheet | | Net amount | | Gross amounts recognized | | Gross amounts offset in consolidated balance sheet | | Net amounts presented in consolidated balance sheet | | Gross amounts not offset in consolidated balance sheet | | Net amount |
| | | Financial instruments | | Cash collateral | | | Financial instruments | | Cash collateral | |
| Assets: | Assets: | | | | | | | | | | | | | Assets: | | | | | | | | | | | | |
Forward delivery contracts | | $ | 556,621 | | | $ | (114,304) | | | $ | 442,317 | | | $ | 0 | | | $ | (334,977) | | | $ | 107,340 | | |
Put options on treasuries | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
Forward sale contracts | | Forward sale contracts | | $ | 100,202 | | | $ | (56,276) | | | $ | 43,926 | | | $ | — | | | $ | (40,606) | | | $ | 3,320 | |
| MBS put options | MBS put options | | 6,405 | | | 0 | | 6,405 | | | 0 | | | 0 | | | 6,405 | | MBS put options | | 17,795 | | | — | | | 17,795 | | | — | | | — | | | 17,795 | |
| Total Assets | Total Assets | | $ | 563,026 | | | $ | (114,304) | | | $ | 448,722 | | | $ | 0 | | | $ | (334,977) | | | $ | 113,745 | | Total Assets | | $ | 117,997 | | | $ | (56,276) | | | $ | 61,721 | | | $ | — | | | $ | (40,606) | | | $ | 21,115 | |
| Liabilities: | Liabilities: | | Liabilities: | |
Forward delivery contracts | | $ | 114,306 | | | $ | (114,304) | | | $ | 2 | | | $ | 0 | | | $ | 0 | | | $ | 2 | | |
Forward sale contracts | | Forward sale contracts | | $ | 66,970 | | | $ | (56,276) | | | $ | 10,694 | | | $ | — | | | $ | (1,947) | | | $ | 8,747 | |
Put options on treasuries | Put options on treasuries | | 19,334 | | | 0 | | | 19,334 | | | 0 | | | 0 | | | 19,334 | | Put options on treasuries | | 9,113 | | | — | | | 9,113 | | | — | | | — | | | 9,113 | |
MBS put options | | MBS put options | | 12,924 | | | — | | | 12,924 | | | — | | | — | | | 12,924 | |
Interest rate swap futures | Interest rate swap futures | | 10,833 | | | 0 | | | 10,833 | | | 0 | | | 0 | | | 10,833 | | Interest rate swap futures | | 5,746 | | | — | | | 5,746 | | | — | | | — | | | 5,746 | |
Warehouse lines of credit | | 8,309,450 | | | — | | | 8,309,450 | | | (8,309,450) | | | 0 | | | 0 | | |
Warehouse and other lines of credit | | Warehouse and other lines of credit | | 4,265,343 | | | — | | | 4,265,343 | | | (4,265,343) | | | — | | | — | |
Secured debt obligations (1) | Secured debt obligations (1) | | 224,401 | | | — | | | 224,401 | | | (224,401) | | | 0 | | | 0 | | Secured debt obligations (1) | | 1,439,841 | | | — | | | 1,439,841 | | | (1,439,841) | | | — | | | — | |
Total Liabilities | Total Liabilities | | $ | 8,678,324 | | | $ | (114,304) | | | $ | 8,564,020 | | | $ | (8,533,851) | | | $ | 0 | | | $ | 30,169 | | Total Liabilities | | $ | 5,799,937 | | | $ | (56,276) | | | $ | 5,743,661 | | | $ | (5,705,184) | | | $ | (1,947) | | | $ | 36,530 | |
(1)Secured debt obligations as of March 31, 2021June 30, 2022 included the GMSR VFN,secured credit facilities and Term Notes, and 2020-VF1 Notes.
| | | December 31, 2020 | | December 31, 2021 |
| | Gross amounts recognized | | Gross amounts offset in consolidated balance sheet | | Net amounts presented in consolidated balance sheet | | Gross amounts not offset in consolidated balance sheet | | Net amount | | Gross amounts recognized | | Gross amounts offset in consolidated balance sheets | | Net amounts presented in consolidated balance sheets | | Gross amounts not offset in consolidated balance sheets | | Net amount |
| | | Financial instruments | | Cash collateral | | | Financial instruments | | Cash collateral | |
| Assets: | Assets: | | | | | | | | | | | | | Assets: | | | | | | | | | | | | |
Forward delivery contracts | | $ | 71,029 | | | $ | (70,922) | | | $ | 107 | | | $ | 0 | | | $ | 0 | | | $ | 107 | | |
Forward sale contracts | | Forward sale contracts | | $ | 29,497 | | | $ | (24,139) | | | $ | 5,358 | | | $ | — | | | $ | (1,447) | | | $ | 3,911 | |
| Interest rate swap futures | Interest rate swap futures | | 483 | | | 0 | | | 483 | | | 0 | | | 0 | | | 483 | | Interest rate swap futures | | 4,924 | | | — | | | 4,924 | | | — | | | — | | | 4,924 | |
Total Assets | Total Assets | | $ | 71,512 | | | $ | (70,922) | | | $ | 590 | | | $ | 0 | | | $ | 0 | | | $ | 590 | | Total Assets | | $ | 34,421 | | | $ | (24,139) | | | $ | 10,282 | | | $ | — | | | $ | (1,447) | | | $ | 8,835 | |
| Liabilities: | Liabilities: | | Liabilities: | |
Forward delivery contracts | | $ | 234,488 | | | $ | (70,922) | | | $ | 163,566 | | | $ | 0 | | | $ | 0 | | | $ | 163,566 | | |
Forward sale contracts | | Forward sale contracts | | $ | 27,103 | | | $ | (24,139) | | | $ | 2,964 | | | $ | — | | | $ | (1,736) | | | $ | 1,228 | |
Put options on treasuries | Put options on treasuries | | 4,299 | | | 0 | | | 4,299 | | | 0 | | | 0 | | | 4,299 | | Put options on treasuries | | 31,070 | | | — | | | 31,070 | | | — | | | — | | | 31,070 | |
| Warehouse lines of credit | | 6,577,429 | | | — | | | 6,577,429 | | | (6,577,429) | | | 0 | | | 0 | | |
Warehouse and other lines of credit | | Warehouse and other lines of credit | | 7,457,199 | | | — | | | 7,457,199 | | | (7,457,199) | | | — | | | — | |
Secured debt obligations (1) | Secured debt obligations (1) | | 223,593 | | | — | | | 223,593 | | | (223,593) | | | 0 | | | 0 | | Secured debt obligations (1) | | 545,596 | | | — | | | 545,596 | | | (545,596) | | | — | | | — | |
Total Liabilities | Total Liabilities | | $ | 7,039,809 | | | $ | (70,922) | | | $ | 6,968,887 | | | $ | (6,801,022) | | | $ | 0 | | | $ | 167,865 | | Total Liabilities | | $ | 8,060,968 | | | $ | (24,139) | | | $ | 8,036,829 | | | $ | (8,002,795) | | | $ | (1,736) | | | $ | 32,298 | |
(1)Secured debt obligations as of December 31, 20202021 included the GMSR VFN,secured credit facilities and Term Notes, and 2020-VF1 Notes.
The Company has entered into agreements with counterparties, which include netting arrangements whereby the counterparties are entitled to settle their positions on a net basis. In certain circumstances, the Company is required to provide
certain counterparties financial instruments and cash collateral against derivative financial instruments, warehouse and other lines of credit, or debt obligations. Cash collateral is held in margin accounts and included in restricted cash on the Company's consolidated balance sheets.
NOTE 54 – LOANS HELD FOR SALE, AT FAIR VALUE
The following table represents the unpaid principal balance of LHFS by product type of loan as of March 31, 2021June 30, 2022 and December 31, 2020:2021:
| | | | March 31, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| | Amount | | % | | Amount | | % | | Amount | | % | | Amount | | % |
Conforming - fixed | Conforming - fixed | | $ | 7,029,584 | | | 81% | | $ | 5,223,177 | | | 78% | Conforming - fixed | | $ | 3,018,321 | | | 64% | | $ | 4,881,222 | | | 61% |
Conforming - ARM | Conforming - ARM | | 88,083 | | | 1 | | 260 | | | 0 | Conforming - ARM | | 26,694 | | | 1 | | 351,408 | | | 4 |
Government - fixed | Government - fixed | | 967,163 | | | 11 | | 1,108,936 | | | 16 | Government - fixed | | 1,003,598 | | | 21 | | 1,156,890 | | | 15 |
Government - ARM | Government - ARM | | 40,680 | | | 0 | | 45,243 | | | 1 | Government - ARM | | 6,951 | | | — | | 10,906 | | | — |
Other - residential mortgage loans | Other - residential mortgage loans | | 576,456 | | | 7 | | 312,954 | | | 5 | Other - residential mortgage loans | | 648,560 | | | 14 | | 1,576,858 | | | 20 |
Consumer loans | Consumer loans | | 2,322 | | | 0 | | 2,541 | | | 0 | Consumer loans | | 1,819 | | | — | | 1,942 | | | — |
| | 8,704,288 | | | 100% | | 6,693,111 | | | 100% | | 4,705,943 | | | 100% | | 7,979,226 | | | 100% |
Fair value adjustment | Fair value adjustment | | 83,468 | | | 262,313 | | | Fair value adjustment | | (49,605) | | | 157,591 | | |
Total | Total | | $ | 8,787,756 | | | $ | 6,955,424 | | | Total | | $ | 4,656,338 | | | $ | 8,136,817 | | |
A summary of the changes in the balance of loans held for sale is as follows:
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | | 2022 | | 2021 | | 2022 | | 2021 |
Balance at beginning of period | Balance at beginning of period | | $ | 6,955,424 | | | $ | 3,681,840 | | | Balance at beginning of period | | $ | 6,558,668 | | | $ | 8,787,756 | | | $ | 8,136,817 | | | $ | 6,955,424 | |
Origination and purchase of loans | Origination and purchase of loans | | 41,401,575 | | | 15,106,459 | | | Origination and purchase of loans | | 15,769,229 | | | 34,413,319 | | | 37,142,855 | | | 75,814,894 | |
Sales | Sales | | (39,919,413) | | | (15,307,510) | | | Sales | | (17,876,229) | | | (34,294,254) | | | (40,681,596) | | | (74,213,668) | |
Repurchases | Repurchases | | 552,314 | | | 10,021 | | | Repurchases | | 194,650 | | | 111,385 | | | 333,666 | | | 663,700 | |
Principal payments | Principal payments | | (23,300) | | | (3,000) | | | Principal payments | | (40,598) | | | (43,206) | | | (100,885) | | | (66,506) | |
Fair value (loss) gain | | (178,844) | | | 54,519 | | | |
Fair value gain (loss) | | Fair value gain (loss) | | 50,618 | | | 145,653 | | | (174,519) | | | (33,191) | |
Balance at end of period | Balance at end of period | | $ | 8,787,756 | | | $ | 3,542,329 | | | Balance at end of period | | $ | 4,656,338 | | | $ | 9,120,653 | | | $ | 4,656,338 | | | $ | 9,120,653 | |
Gain on origination and sale of loans, net is comprised of the following components:
| | | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | | 2022 | | 2021 | | 2022 | | 2021 |
Premium from loan sales | | $ | 470,572 | | | $ | 376,829 | | | |
(Discount) premium from loan sales | | (Discount) premium from loan sales | | $ | (437,194) | | | $ | 407,314 | | | $ | (673,291) | | | $ | 877,887 | |
Servicing rights | Servicing rights | | 529,544 | | | 114,118 | | | Servicing rights | | 180,455 | | | 427,458 | | | 450,215 | | | 957,002 | |
Unrealized gains from derivative assets and liabilities | | 209,386 | | | 29,981 | | | |
Realized gains (losses) from derivative assets and liabilities | | 105,643 | | | (54,361) | | | |
Unrealized losses from derivative assets and liabilities | | Unrealized losses from derivative assets and liabilities | | (190,545) | | | (510,788) | | | (31,803) | | | (182,467) | |
Realized gains from derivative assets and liabilities | | Realized gains from derivative assets and liabilities | | 553,834 | | | 250,912 | | | 902,875 | | | 350,548 | |
Discount points, rebates and lender paid costs | Discount points, rebates and lender paid costs | | (114,855) | | | (18,871) | | | Discount points, rebates and lender paid costs | | 71,767 | | | (28,603) | | | 131,834 | | | (143,458) | |
Mark to market (loss) gain on loans held for sale | | (178,844) | | | 54,519 | | | |
Fair value gain (loss) | | Fair value gain (loss) | | 50,618 | | | 145,653 | | | (174,519) | | | (33,191) | |
Provision for loan loss obligation for loans sold | Provision for loan loss obligation for loans sold | | (800) | | | (9,730) | | | Provision for loan loss obligation for loans sold | | (82,373) | | | 533 | | | (95,619) | | | (267) | |
Total gain on origination and sale of loans, net | Total gain on origination and sale of loans, net | | $ | 1,020,646 | | | $ | 492,485 | | | Total gain on origination and sale of loans, net | | $ | 146,562 | | | $ | 692,479 | | | $ | 509,692 | | | $ | 1,826,054 | |
The Company had $37.8$23.7 million and $25.8$28.8 million of loans held for sale on non-accrual status as of March 31, 2021June 30, 2022 and December 31, 2020,2021, respectively.
NOTE 65 – SERVICING RIGHTS, AT FAIR VALUE
The outstanding principal balance of the servicing portfolio was comprised of the following:
| | | March 31, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
Conventional | Conventional | | $ | 99,987,686 | | | $ | 74,459,448 | | Conventional | | $ | 120,545,854 | | | $ | 127,270,097 | |
Government | Government | | 29,722,206 | | | 28,471,810 | | Government | | 34,671,158 | | | 34,842,868 | |
Total servicing portfolio | Total servicing portfolio | | $ | 129,709,892 | | | $ | 102,931,258 | | Total servicing portfolio | | $ | 155,217,012 | | | $ | 162,112,965 | |
A summary of the unpaid principal balance underlying servicing rights is as follows:
| | | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
Current loans | | $ | 127,255,772 | | | $ | 100,358,713 | |
Loans 30 - 89 days delinquent | | 570,091 | | | 709,946 | |
Loans 90 or more days delinquent or in foreclosure | | 1,884,029 | | | 1,862,599 | |
Total servicing portfolio (1) | | $ | 129,709,892 | | | $ | 102,931,258 | |
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Current loans | | $ | 153,367,435 | | | $ | 160,302,966 | |
Loans 30 - 89 days delinquent | | 520,963 | | | 504,467 | |
Loans 90 or more days delinquent or in foreclosure | | 1,328,614 | | | 1,305,532 | |
Total servicing portfolio (1) | | $ | 155,217,012 | | | $ | 162,112,965 | |
(1)At March 31, 2021June 30, 2022 and December 31, 2020, 1.4%2021 0.4% and 2.4%0.6%, respectively, of the servicing portfolio was in forbearance as a result of payment relief efforts afforded to borrowers underas a result of the Coronavirus Aid, Relief, and Economic Security Act and other regulatory guidance.
A summary of the changes in the balance of servicing rights, net of servicing rights liability is as follows:
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | | 2022 | | 2021 | | 2022 | | 2021 |
Balance at beginning of period | Balance at beginning of period | | $ | 1,124,302 | | | $ | 444,443 | | | Balance at beginning of period | | $ | 2,078,187 | | | $ | 1,766,088 | | | $ | 1,999,402 | | | $ | 1,124,302 | |
Additions | Additions | | 529,543 | | | 114,118 | | | Additions | | 180,455 | | | 427,458 | | | 450,215 | | | 957,001 | |
Sales proceeds, net | Sales proceeds, net | | (674) | | | (7,342) | | | Sales proceeds, net | | (86,464) | | | (182,113) | | | (399,314) | | | (182,788) | |
Changes in fair value: | Changes in fair value: | | | Changes in fair value: | |
Due to changes in valuation inputs or assumptions | Due to changes in valuation inputs or assumptions | | 231,023 | | | (86,314) | | | Due to changes in valuation inputs or assumptions | | 98,795 | | | (129,267) | | | 297,792 | | | 101,757 | |
Other changes in fair value (1) | | (118,106) | | | (33,041) | | | |
Due to collection/realization of cash flows | | Due to collection/realization of cash flows | | (66,380) | | | (105,771) | | | (143,502) | | | (223,877) | |
Balance at end of period (2) | Balance at end of period (2) | | $ | 1,766,088 | | | $ | 431,864 | | | Balance at end of period (2) | | $ | 2,204,593 | | | $ | 1,776,395 | | | $ | 2,204,593 | | | $ | 1,776,395 | |
(1)Other changes in fair value include fall out and decay from loan payoffs and principal amortization.
(2)Balance is net of $6.0 million and $2.8 million of servicing rights liability at March 31, 2021 and 2020, respectively.
The following is a summary of the components of loan servicing fee income as reported in the Company’s consolidated statements of operations:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2021 | | 2020 | | | | |
Contractual servicing fees | | $ | 79,571 | | | $ | 31,441 | | | | | |
Late, ancillary and other fees | | 2,997 | | | 5,122 | | | | | |
Total servicing fee income | | $ | 82,568 | | | $ | 36,563 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Contractual servicing fees | | $ | 113,824 | | | $ | 92,164 | | | $ | 222,650 | | | $ | 171,734 | |
Late, ancillary and other fees | | 3,502 | | | 2,578 | | | 5,735 | | | 5,575 | |
Servicing fee income | | $ | 117,326 | | | $ | 94,742 | | | $ | 228,385 | | | $ | 177,309 | |
The following is a summary of the components of changes in fair value of servicing rights, net as reported in the Company’s consolidated statements of operations:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2021 | | 2020 | | | | |
Changes in fair value: | | | | | | | | |
Due to changes in valuation inputs or assumptions | | $ | 231,023 | | | $ | (86,314) | | | | | |
Other changes in fair value (1) | | (118,106) | | | (33,041) | | | | | |
Realized gains (losses) on sales of servicing rights | | (97) | | | (103) | | | | | |
Net gain from derivatives hedging servicing rights | | (43,526) | | | 19,171 | | | | | |
Changes in fair value of servicing rights, net | | $ | 69,294 | | | $ | (100,287) | | | | | |
(1) Other changes in fair value include fall out and decay from loan payoffs and principal amortization. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Changes in fair value: | | | | | | | | |
Due to changes in valuation inputs or assumptions | | $ | 98,795 | | | $ | (129,267) | | | $ | 297,792 | | | $ | 101,757 | |
Due to collection/realization of cash flows | | (66,380) | | | (105,771) | | | (143,502) | | | (223,877) | |
Realized (losses) gains on sales of servicing rights | | (2,493) | | | 6,089 | | | 7,540 | | | 5,992 | |
Net (loss) gain from derivatives hedging servicing rights | | (63,429) | | | 83,851 | | | (263,720) | | | (72,605) | |
Changes in fair value of servicing rights, net | | $ | (33,507) | | | $ | (145,098) | | | $ | (101,890) | | | $ | (188,733) | |
The table below illustrates hypothetical changes in fair values of servicing rights, caused by assumed immediate changes to key assumptions that are used to determine fair value.
| Servicing Rights Sensitivity Analysis
| | March 31, 2021 | | December 31, 2020 | |
| |
| | June 30, 2022 | | December 31, 2021 |
Fair Value of Servicing Rights, net | Fair Value of Servicing Rights, net | | $ | 1,766,088 | | | $ | 1,124,302 | | Fair Value of Servicing Rights, net | | $ | 2,204,593 | | | $ | 1,999,402 | |
Change in Fair Value from adverse changes: | Change in Fair Value from adverse changes: | | Change in Fair Value from adverse changes: | |
Discount Rate: | Discount Rate: | | Discount Rate: | |
Increase 100 basis points | | (76,086) | | | (45,745) | | |
Increase 200 basis points | | (149,291) | | | (87,800) | | |
Increase 1% | | Increase 1% | | (79,165) | | | (85,066) | |
Increase 2% | | Increase 2% | | (152,847) | | | (163,255) | |
Cost of Servicing: | Cost of Servicing: | | Cost of Servicing: | |
Increase 10% | Increase 10% | | (15,795) | | | (11,556) | | Increase 10% | | (19,008) | | | (20,843) | |
Increase 20% | Increase 20% | | (31,817) | | | (23,112) | | Increase 20% | | (38,045) | | | (41,727) | |
Prepayment Speed: | Prepayment Speed: | | Prepayment Speed: | |
Increase 10% | Increase 10% | | (54,622) | | | (63,351) | | Increase 10% | | (29,614) | | | (76,532) | |
Increase 20% | Increase 20% | | (108,383) | | | (122,294) | | Increase 20% | | (58,466) | | | (148,556) | |
Sensitivities are hypothetical changes in fair value and cannot be extrapolated because the relationship of changes in assumptions to changes in fair value may not be linear. Also, the effect of a variation in a particular assumption is calculated without changing any other assumption, whereas a change in one factor may result in changes to another. Accordingly, no assurance can be given that actual results would be consistent with the results of these estimates. As a result, actual future changes in servicing rights values may differ significantly from those displayed above.
NOTE 76 – DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Derivatives instruments utilized by the Company primarily include interest rate lock commitments, forward salessale contracts, MBS put options, put options on treasuries, and interest rate swap futures. Derivative financial instruments are recognized as assets or liabilities and are measured at fair value. The Company accounts for derivatives as free-standing derivatives and does not designate any derivative financial instruments for hedge accounting. All derivative financial instruments are recognized on the consolidated balance sheets at fair value with changes in the fair values being reported in current period earnings. The Company does not use derivative financial instruments for purposes other than in support of its risk management activities. Refer to Note 1- Description of Business, Presentation and Summary of Significant Accounting Policies and Note 3-2- Fair Value for further details on derivatives in the 20202021 Form 10-K.
The following summarizes the Company’s outstanding derivative instruments:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Fair Value |
| | Notional | | Balance Sheet Location | | Asset | | Liability |
June 30, 2022: | | | | | | | | |
Interest rate lock commitments | | $ | 5,120,259 | | | Derivative asset, at fair value | | $ | 91,886 | | | $ | — | |
Interest rate lock commitments | | 2,569,129 | | | Derivative liabilities, at fair value | | — | | | 34,281 | |
| | | | | | | | |
Forward sale contracts | | 17,168,753 | | | Derivative asset, at fair value | | 43,926 | | | — | |
Forward sale contracts | | 2,335,109 | | | Derivative liabilities, at fair value | | — | | | 10,694 | |
| | | | | | | | |
Put options on treasuries | | — | | | Derivative asset, at fair value | | — | | | — | |
Put options on treasuries | | 3,500 | | | Derivative liabilities, at fair value | | — | | | 9,113 | |
| | | | | | | | |
MBS put options | | 2,150,000 | | | Derivative asset, at fair value | | 17,795 | | | — | |
MBS put options | | 1,300,000 | | | Derivative liabilities, at fair value | | — | | | 12,924 | |
| | | | | | | | |
Interest rate swap futures | | — | | | Derivative asset, at fair value | | — | | | — | |
Interest rate swap futures | | 3,339 | | | Derivative liabilities, at fair value | | — | | | 5,746 | |
| | | | Total derivative financial instruments | | $ | 153,607 | | | $ | 72,758 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Fair Value |
| | Notional | | Balance Sheet Location | | Asset | | Liability |
March 31, 2021: | | | | | | | | |
Interest rate lock commitments - assets | | $ | 18,454,546 | | | Derivative asset, at fair value | | $ | 311,797 | | | $ | — | |
Interest rate lock commitments - liabilities | | 6,008,115 | | | Derivative liabilities, at fair value | | — | | | 65,019 | |
| | | | | | | | |
Forward sales contracts - assets | | 62,786,233 | | | Derivative asset, at fair value | | 442,317 | | | — | |
Forward sales contracts - liabilities | | 1,507 | | | Derivative liabilities, at fair value | | — | | | 2 | |
| | | | | | | | |
Put options on treasuries - assets | | 0 | | | Derivative asset, at fair value | | 0 | | | — | |
Put options on treasuries - liabilities | | 32,048 | | | Derivative liabilities, at fair value | | — | | | 19,334 | |
| | | | | | | | |
MBS put options - assets | | 850,000 | | | Derivative asset, at fair value | | 6,405 | | | — | |
MBS put options - liabilities | | 0 | | | Derivative liabilities, at fair value | | — | | | 0 | |
| | | | | | | | |
Interest rate swap futures - assets | | 0 | | | Derivative asset, at fair value | | 0 | | | — | |
Interest rate swap futures - liabilities | | 3,487 | | | Derivative liabilities, at fair value | | — | | | 10,833 | |
Total derivative financial instruments | | $ | 88,135,936 | | | | | $ | 760,519 | | | $ | 95,188 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Fair Value |
| | Notional | | Balance Sheet Location | | Asset | | Liability |
December 31, 2020: | | | | | | | | |
Interest rate lock commitments - assets | | $ | 31,365,494 | | | Derivative asset, at fair value | | $ | 647,349 | | | $ | — | |
Interest rate lock commitments - liabilities | | 99,635 | | | Derivative liabilities, at fair value | | — | | | 304 | |
| | | | | | | | |
Forward sales contracts - assets | | 44,694 | | | Derivative asset, at fair value | | 107 | | | — | |
Forward sales contracts - liabilities | | 54,397,834 | | | Derivative liabilities, at fair value | | — | | | 163,566 | |
| | | | | | | | |
Put options on treasuries - assets | | 0 | | | Derivative asset, at fair value | | 0 | | | — | |
Put options on treasuries - liabilities | | 27,803 | | | Derivative liabilities, at fair value | | — | | | 4,299 | |
| | | | | | | | |
Interest rate swap futures - assets | | 2,350 | | | Derivative asset, at fair value | | 483 | | | — | |
Interest rate swap futures - liabilities | | 0 | | | Derivative liabilities, at fair value | | — | | | 0 | |
Total derivative financial instruments | | $ | 85,937,810 | | | | | $ | 647,939 | | | $ | 168,169 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Fair Value |
| | Notional | | Balance Sheet Location | | Asset | | Liability |
December 31, 2021: | | | | | | | | |
Interest rate lock commitments | | $ | 11,530,721 | | | Derivative asset, at fair value | | $ | 184,383 | | | $ | — | |
Interest rate lock commitments | | 1,125,911 | | | Derivative liabilities, at fair value | | — | | | 3,763 | |
| | | | | | | | |
Forward sale contracts | | 19,482,705 | | | Derivative asset, at fair value | | 5,358 | | | — | |
Forward sale contracts | | 13,171,462 | | | Derivative liabilities, at fair value | | — | | | 2,964 | |
| | | | | | | | |
Put options on treasuries | | — | | | Derivative asset, at fair value | | — | | | — | |
Put options on treasuries | | 16,980 | | | Derivative liabilities, at fair value | | — | | | 31,070 | |
| | | | | | | | |
Interest rate swap futures | | 2,640 | | | Derivative asset, at fair value | | 4,924 | | | — | |
Interest rate swap futures | | — | | | Derivative liabilities, at fair value | | — | | | — | |
| | | | Total derivative financial instruments | | $ | 194,665 | | | $ | 37,797 | |
Because many of the Company’s current derivative agreements are not exchange-traded, the Company is exposed to credit loss in the event of nonperformance by the counterparty to the agreements. The Company controls this risk through credit monitoring procedures including financial analysis, dollar limits and other monitoring procedures. The notional amount of the contracts does not represent the Company’s exposure to credit loss.
The following summarizes the realized and unrealized net gains and (losses)or losses on derivative financial instruments and the consolidated statements of operations line items where such gains and losses are included:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, | | Six Months Ended June 30, |
Derivative instrument | | Statements of Operations Location | | 2022 | | 2021 | | 2022 | | 2021 |
Interest rate lock commitments, net | | Gain on origination and sale of loans, net | | $ | 45,605 | | | $ | 86,303 | | | $ | (123,015) | | | $ | (313,964) | |
Forward sale contracts | | Gain on origination and sale of loans, net | | 297,939 | | | (317,263) | | | 962,458 | | | 507,082 | |
Interest rate swap futures | | Gain on origination and sale of loans, net | | (50,848) | | | (22,217) | | | (84,530) | | | (52,208) | |
Put options | | Gain on origination and sale of loans, net | | 70,593 | | | (6,699) | | | 116,159 | | | 27,171 | |
Forward sale contracts | | Change in fair value of servicing rights, net | | (23,399) | | | 33,925 | | | (97,627) | | | (79,004) | |
Interest rate swap futures | | Change in fair value of servicing rights, net | | (38,916) | | | 48,194 | | | (165,579) | | | 7,178 | |
Put options | | Change in fair value of servicing rights, net | | (1,114) | | | 1,732 | | | (514) | | | (779) | |
Total realized and unrealized gains (losses) on derivative financial instruments | | $ | 299,860 | | | $ | (176,025) | | | $ | 607,352 | | | $ | 95,476 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, | | |
Derivative instrument | | Statements of Operations Location | | 2021 | | 2020 | | | | |
Interest rate lock commitments, net | | Gain on origination and sale of loans, net | | $ | (400,267) | | | $ | 186,528 | | | | | |
Forward sales contracts (1) | | Gain on origination and sale of loans, net | | 711,416 | | | (203,407) | | | | | |
Interest rate swap futures | | Gain on origination and sale of loans, net | | (29,991) | | | (6,398) | | | | | |
Put options | | Gain on origination and sale of loans, net | | 33,870 | | | (1,103) | | | | | |
Interest rate swap futures | | Change in fair value of servicing rights, net | | (41,016) | | | 19,735 | | | | | |
Put options | | Change in fair value of servicing rights, net | | (2,511) | | | (564) | | | | | |
Total realized and unrealized gains (losses) on derivative financial instruments | | $ | 271,501 | | | $ | (5,209) | | | | | |
NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS, NET
(1)
A summary of the Company’s activity related to goodwill is as follows.
Amounts include pair-off settlements.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Goodwill | | Other intangible assets | | Total |
Balance, December 31, 2021 | | | | | $ | 40,736 | | | $ | 1,581 | | | $ | 42,317 | |
Amortization | | | | | — | | | (205) | | | (205) | |
Impairment loss | | | | | (40,736) | | | (1,376) | | | (42,112) | |
Balance, June 30, 2022 | | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Goodwill | | Other intangible assets | | Total |
Balance, December 31, 2020 | | | | | $ | 40,736 | | | $ | 2,090 | | | $ | 42,826 | |
Amortization | | | | | — | | | (255) | | | (255) | |
Balance June 30, 2021 | | | | | $ | 40,736 | | | $ | 1,835 | | | $ | 42,571 | |
The Company performs its annual assessment of possible impairment of goodwill and intangible assets as of December 31, or more frequently if events and circumstances indicate that impairment may have occurred. The Company compares the fair value of each reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
During the three months ended June 30, 2022, the Company performed an interim impairment test due to the impact of rising interest rates on the mortgage industry and the Company’s recent stock performance. The evaluation of goodwill included a market based and income based approach. Based upon the results of this evaluation, an impairment charge of $40.7 million was recognized, driven predominantly by a significant decline in our market capitalization.
In addition to goodwill, the Company had other intangible assets related to trademarks associated with prior acquisitions. The Company reviews intangible assets for possible impairment whenever events or circumstances indicate that
carrying amounts may not be recoverable. The factors outlined in the goodwill impairment discussion above triggered an interim impairment evaluation of other intangible assets during the three months ended June 30, 2022. Based upon the results of this evaluation, an impairment charge of $1.4 million was recognized.
NOTE 8 – VARIABLE INTEREST ENTITIES
The determination of whether the assets and liabilities of the VIEs are consolidated in the consolidated balance sheets or not consolidated in the consolidated balance sheets depends on the terms of the related transaction and the Company’s continuing involvement, (if any)if any, with the VIE. The Company is deemed the primary beneficiary and therefore consolidates VIEs for which it has both (a) the power, through voting rights or similar rights, to direct the activities that most significantly impact the VIE's economic performance, and (b) benefits, as defined, from the VIE. The Company determines whether it holds a significant variable interest in a VIE based on a consideration of both qualitative and quantitative factors regarding the nature, size, and form of its involvement with the VIE. The Company assesses whether it is the primary beneficiary of a VIE on an ongoing basis.
The following table presentsCompany did not provide any non-contractual financial support to VIEs for the Company’s involvement in consolidatedsix months ended June 30, 2022 and nonconsolidated VIEs in which the Company holds variable interests.
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 |
| | Net carrying amount of total assets | | Carrying amount of total liabilities | | Maximum exposure to loss in non-consolidated VIEs |
Consolidated variable interest entities | | | | | | |
Mortgage loans & restricted cash | | $ | 2,214,663 | | | $ | 2,200,000 | | | N/A |
GNMA mortgage servicing rights | | 355,565 | | | 213,791 | | | N/A |
| | $ | 2,570,228 | | | $ | 2,413,791 | | | |
Non-consolidated variable interest entities | | | | | | |
Joint Ventures | | $ | 10,414 | | | $ | 7,439 | | | $ | 17,332 | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | December 31, 2020 |
| | Net carrying amount of total assets | | Carrying amount of total liabilities | | Maximum exposure to loss in non-consolidated VIEs |
Consolidated variable interest entities | | | | | | |
Mortgage loans & restricted cash | | $ | 1,765,855 | | | $ | 1,699,803 | | | N/A |
GNMA mortgage servicing rights | | 300,465 | | | 213,640 | | | N/A |
| | $ | 2,066,320 | | | $ | 1,913,443 | | | |
Non-consolidated variable interest entities | | | | | | |
Joint Ventures | | $ | 15,342 | | | $ | 11,818 | | | $ | 17,528 | |
| | | | | | |
year ended December 31, 2021.
Consolidated VIEs
The Company is generally determined to be the primary beneficiary in VIEs established fora holding company, its securitization activities when it has a controlling financialsole material asset is its equity interest in LD Holdings and as the VIE, primarily due to its servicing activities and because it holds a beneficial interest in the VIE that could be potentially significant (in certain cases). The consolidated VIEs included in the consolidated balance sheets represent separate entities with whichsole managing member of LD Holdings, the Company indirectly operates and controls all of LD Holdings’ business and affairs. LD Holdings is involved. The third-party investors inconsidered a VIE and the obligationsfinancial results of consolidated VIEs have legal recourse onlyLD Holdings and its subsidiaries are consolidated. A portion of net earnings or loss is allocated to noncontrolling interest to reflect the assetsentitlement of the VIEs and do not have such recourse to the Company, except for the customary representation and warranty provisions. In addition, the cash flows from the assets are restricted only to pay such liabilities. Thus, the Company’s economic exposure to loss from outstanding third-party financing related to consolidated VIEs is limited to the carrying value of the consolidated VIE assets. Generally, all assets of consolidated VIEs, presented below based upon the legal transfer of the underlying assets in order to reflect legal ownership, are restricted for the benefit of the beneficial interest holders.Continuing LLC Members.
The Company originatesis involved in several types of securitization and services mortgage loans. Mortgage loansfinancing transactions that utilize special purpose entities (“SPEs”). The Company’s principal use of SPEs is to obtain liquidity by securitizing certain of its financial and non-financial assets. SPEs involved in the Company’s securitization and other financing transactions are primarily sold to GSEs who then securitize these loans as previously discussed. often considered VIEs.
The Company executes private-label securitizationsconsolidates securitization facilities that finance mortgage loans held for sale, and SPEs established as trusts to finance mortgage loansservicing rights and mortgage servicing rights.advance receivables. The associated securitization entities are consolidated on the consolidated balance sheets.
In executing a securitization transaction, the Company sells assets (financial and non-financial) to a securitization or trust, for cash, and other retained interests. The securitization entity is funded through the issuance ofwhich issues beneficial interests in the securitized assets. The beneficial interests take the form of either notes and/or trust certificates, which are sold to investors and/or retained by the Company. These beneficial interests are collateralized by the transferred assets and entitle the investors to specified cash flows generated fromtherefrom. The Company may retain beneficial interests in the underlying assets. In addition to providing a source of liquidity and cost-efficient funding, securitizing these assets also reduces thesold. The Company’s crediteconomic exposure to the borrowers beyond any economic interest the Company may retain.
Each securitization is governed by various legal documents that limit and specify the activities of the securitization entity. The securitization entityloss from outstanding third-party financing is generally allowedlimited to acquire the financial assets, to issue beneficial interests to investors to fund the acquisitioncarrying value of the assets financed. The Company has retained risks in the securitizations including customary representations and warranties. For securitization facilities, the Company, as seller, has an option to prepay and to enter into derivativesredeem outstanding classes of issued notes at the Company’s discretion after a set time period has elapsed. The Company generally has discretion regarding when or other yield maintenance contractsif it will exercise these options, but would do so only when it was in the Company’s best interest. The Company’s exposure to hedge or mitigate certain risks related to the assets or beneficial interests of the entity. Athese entities is primarily through its role as seller, servicer, is appointed pursuant to the underlying legal documents to service the assets the securitization entity holds and the beneficial interests it issues.administrator. Servicing functions include, but are not limited to, general collection activity on current and noncurrent accounts, loss mitigation efforts including repossession and sale of collateral, as well as preparing and furnishing statements summarizing the asset and beneficial interest performance. These servicing responsibilities constitute continued involvement in the transferred assets.
Cash flows from the assets transferred into the securitization entity represent the sole source for payment of distributions on the beneficial interests issued by the securitization entity and for payments to the parties that perform services for the securitization entity, such as the servicer or the trustee.
statements. The Company may hold retained beneficial interests in the securitizations including, but not limited to, subordinated securities and residuals; and other residual interests. These retained interests may represent a form of significant continuing economic interests. Certain of these retained interests provide credit enhancement to the trust as they may absorb credit losses or other cash shortfalls.
The Companyalso holds certain conditional repurchase options specific to these securitizations that allow it to repurchase assets from the securitization entity.
The majorityCompany sells mortgage loans to investors through private label securitizations which are accounted for either as sales or secured borrowings. The Company may retain economic interests in the securitized and sold assets, which are generally retained in the form of senior or subordinated interests, residual interests, and/or servicing rights. The Company evaluates its interests in each private label securitization for classification as a VIE. The Company accounts for a securitization as a sale when it has relinquished control over the transferred financial assets and does not hold other interests in the VIE that individually, or in the aggregate, would absorb more than an insignificant amount of the securitizations provideVIE’s expected losses or receive more than an insignificant amount of the VIE’s expected residual returns. The Company as seller, with a prepaymenthas an option to redeem outstanding classes of issued notes atexercise a cleanup call to purchase the Company’s discretion after a set time period has elapsed. The repurchase priceremaining mortgage loans and any trust property when the remaining aggregate principal balance is typically the discounted securitization balanceless than 10% of the initial aggregate principal balance.
The table below presents a summary of the carrying value and balance sheet classification of assets plus accrued interest when applicable. The Company generally has discretion regarding when or if it will exercise these options, but would do so only when it isand liabilities in the Company’s best interest.securitization and SPE VIEs
In addition to customary representation and warranty provisions, the mortgage servicing rights and warehouse securitizations permit the securitization trust to have recourse to the Company, as such the Company retains certain risks. In each securitization, representation and warranty provisions generally require the Company to repurchase assets or indemnify the investor or other party for incurred losses to the extent it is determined that the assets were ineligible or were otherwise defective at the time of sale. The Company did not provide any non-contractual financial support to these entities for the three months ended March 31, 2021 and 2020.22
| | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 | | |
| | | | | | |
Assets | | | | | | |
Loans held for sale, at fair value | | $ | 1,800,968 | | | $ | 2,557,490 | | | |
Restricted cash | | 67,998 | | | 100,494 | | | |
Servicing rights, at fair value | | 484,393 | | | 400,678 | | | |
Prepaid expenses and other assets | | 37,349 | | | 17,756 | | | |
| | $ | 2,390,708 | | | $ | 3,076,418 | | | |
| | | | | | |
Liabilities | | | | | | |
Warehouse and other lines of credit | | $ | 1,800,000 | | | $ | 2,600,000 | | | |
Debt obligations, net: | | | | | | |
MSR Facilities | | 114,711 | | | 15,000 | | | |
Servicing advance facilities | | 32,739 | | | 15,070 | | | |
Term notes | | 199,415 | | | 199,133 | | | |
| | | | | | |
| | $ | 2,146,865 | | | $ | 2,829,203 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Non-Consolidated VIEs
The nature, purpose, and activities of non-consolidated VIEs currently encompass the Company’s useinvestments in retained interests from securitizations and joint ventures. The table below presents a summary of the nonconsolidated VIEs for which the Company holds variable interests.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Carrying value | | Maximum exposure to loss | | Total assets in VIEs |
| | Assets | | Liabilities | | |
Retained interests | | $ | 105,308 | | | $ | — | | | $ | 105,308 | | | $ | 2,376,297 | |
Investments in joint ventures | | 18,408 | | | — | | | 18,408 | | | 15,061 | |
| | $ | 123,716 | | | $ | — | | | $ | 123,716 | | | |
| | | | | | | | |
| | December 31, 2021 |
| | Carrying value | | Maximum exposure to loss | | Total assets in VIEs |
| | Assets | | Liabilities | | |
Retained interests | | $ | 72,874 | | | $ | — | | | $ | 72,874 | | | $ | 1,424,857 | |
Investments in joint ventures | | 18,553 | | | — | | | 18,553 | | | 20,783 | |
| | $ | 91,427 | | | $ | — | | | $ | 91,427 | | | |
| | | | | | | | |
| | | | | | | | |
Retained interests
In 2022 and 2021, the Company completed the sale and securitization of non-owner occupied residential mortgage loans. Pursuant to the credit risk retention requirements, the Company, as sponsor, is required to retain at least a 5% economic interest in the credit risk of the assets collateralizing the securitization transactions. The retained interests represent a variable interest in the securitizations. The Company determined it was not the primary beneficiary of the VIE. The Company’s continuing involvement is limited to customary servicing obligations as servicing administrator associated with retained servicing rights and the receipt of principal and interest associated with the retained interests. The investors and the securitization trusts have no recourse to the Company’s assets; holders of the securities issued by each trust can look only to the loans owned by the trust for payment. The retained interests held by the Company are subject principally to the credit risk stemming from the underlying transferred loans. The securitization trusts used to effect these transactions are variable interest entities that the Company does not consolidate. The Company remeasures the carrying value of its retained interests at each reporting date to reflect their current fair value which is included in trading securities, at fair value on the consolidated balance sheets, with corresponding gains or losses included in other income on the consolidated income statements. As of June 30, 2022, the remaining principal balance of loans transferred to these securitization trusts was $2.4 billion of which $0.5 million was 90 days or more past due.
Investments in joint venture entitiesventures
The Company’s joint ventures include investments with home builders,builder s, real estate brokers, and commercial real estate companies to provide loan origination services and real estate settlement services to the customers referred to the joint ventures by the Company’s joint venture partners. The Company is generally not determined to be the primary beneficiary in its joint venture VIEs because it does not have the power, through voting rights or similar rights, to direct the activities that most significantly impact the economic performance of the VIE. The Company’s pro rata share of net earnings of joint ventures was $2.2$4.2 million and $1.3$6.2 million for the three and six months ended March 31,June 30, 2022, respectively, and $2.9 million and $5.1 million for the three and six months ended June 30, 2021, respectively, and 2020, respectively.is included in other income in the consolidated statements of operations.
NOTE 9 – WAREHOUSE AND OTHER LINES OF CREDIT
At March 31, 2021,June 30, 2022, the Company iswas a party to 14 revolving lines of credit with lenders providing $10.3$9.9 billion of warehouse and revolving creditsecuritization facilities. The warehouse and revolving credit facilities are used to fund, and are secured by, residential mortgage loans held for sale. The facilities are repaid using proceeds from the sale of loans. Interest is generally payable monthly in arrears or on the repurchase date of a loan, and outstanding principal is payable upon receipt of loan sale proceeds or on the repurchase date of a loan. Outstanding principal related to a particular loan must also be repaid after the expiration of a contractual period of time or, if applicable, upon the occurrence of certain events of default with respect to the underlying loan. Interest expense on warehouse and revolving lines of credit is recorded to interest expense on the consolidated statements of operations.
The warehouse and revolving lines of credit are repaid using proceeds from the sale of loans. The base interest rates on the Company’s warehouse linesfacilities bear interest at 30-day LIBOR, or other alternative base rate such as SOFR, plus a margin. Some of the linesfacilities carry additional fees in the form of annual facility fees charged on the total line amount, commitment fees charged on the committed portion of the line, and non-usage fees charged when monthly usage falls below a certain utilization percentage. The weighted averageAs of June 30, 2022, the interest rate at March 31, 2021 totaled 2.22%was comprised of the applicable base rate plus a spread ranging from 1.02% to 2.25%. The Company’s warehouse lines are scheduled to expire through 2021 under one year terms and all lines are subject to renewal based on an annual credit review conducted by the lender. The Company’s securitization facilities’ notes have two to three year terms and are due May 2021, October 2021, October 2022, December 2023, and February 2024.
The base interest ratesrate for all warehouse lines of credit arefacilities is subject to increase based upon the characteristics of the underlying loans collateralizing the lines of credit, including, but not limited to product type and number of days held for sale. CertainThe warehouse lines are scheduled to expire through 2023 under one or two year terms. The securitization facilities are scheduled to expire through 2024 under two to three year terms. All warehouse lines and other lines of credit are subject to renewal based on an annual credit review conducted by the lender.
Certain warehouse line lenders require the Company at all times, to maintain cash accounts with minimum required balances.balances at all times. As of March 31, 2021June 30, 2022 and December 31, 2020,2021, there was $7.5$7.0 million and $6.7$8.0 million, respectively, held in these accounts which are recorded as a component of restricted cash on the consolidated balance sheets.
Under the terms of these warehouse lines, the Company is required to maintain various financial and other covenants. TheseAs of June 30, 2022, the Company amended certain warehouse lines related to certain profitability covenants, following which the Company was in compliance with those financial covenants include, but are not limited to, maintaining (i) minimum tangible net worth, (ii) minimum liquidity, (iii) a minimum current ratio, (iv) a maximum distribution requirement, (v) a maximum leverage ratio, (vi) pre-tax net incomecovenants.
requirements and (vii) a maximum warehouse capacity ratio. As of March 31, 2021, the Company was in compliance with all warehouse lending related covenants.
Securitization Facilities
In October 2018, the Company issued notes through a securitization facility (“2018 Securitization Facility”) backed by a revolving warehouse line of credit. The 2018 Securitization Facility is secured by newly originated, first-lien, fixed rate residential mortgage loans eligible for purchase by the GSEs as well as non-GSE eligible jumbo mortgage loans. The 2018 Securitization Facility issued $300.0 million in notes and certificates that bear interest at 30-day LIBOR plus a margin. The 2018 Securitization Facility will terminate on the earlier of (i) the two-year anniversary of the initial purchase date, (ii) the Company exercising its right to optional prepayment in full and (iii) the date of the occurrence and continuance of an event of default. In October 2019, the Company repaid $100.0 million in notes and certificates of the 2018 Securitization Facility. In October 2020, the Company repaid the remaining $200.0 million in notes and certificates.
In May 2019, the Company issued notes through a new securitization facility (“2019-1 Securitization Facility”) backed by a revolving warehouse line of credit. The 2019-1 Securitization Facility is secured by newly originated, first-lien, fixed rate or adjustable rate, residential mortgage loans which are originated in accordance with the criteria of Fannie Mae or Freddie Mac for the purchase of mortgage loans or in accordance with the criteria of Ginnie Mae for the guarantee of securities backed by mortgage loans. The 2019-1 Securitization Facility issued $300.0 million in notes and certificates that bear interest at 30-day LIBOR plus a margin. The 2019-1 Securitization Facility will terminate on the earlier of (i) the two-year anniversary of the initial purchase date, (ii) the Company exercising its right to optional prepayment in full and (iii) the date of the occurrence and continuance of an event of default.
In October 2019, the Company issued notes through an additional securitization facility (“2019-2 Securitization Facility”) backed by a revolving warehouse line of credit. The 2019-2 Securitization Facility is secured by newly originated, first-lien, fixed rate or adjustable rate, residential mortgage loans which are originated in accordance with the criteria of Fannie Mae or Freddie Mac for the purchase of mortgage loans or in accordance with the criteria of Ginnie Mae for the guarantee of securities backed by mortgage loans. The 2019-2 Securitization Facility issued $300.0 million in notes and certificates that bear interest at 30-day LIBOR plus a margin. The 2019-2 Securitization Facility will terminate on the earlier of (i) the two-year anniversary of the initial purchase date, (ii) the Company exercising its right to optional prepayment in full and (iii) the date of the occurrence and continuance of an event of default.
In October 2020, the Company issued notes through an additionala securitization facility (“2020-1 Securitization Facility”) backed by a revolving warehouse line of credit. The 2020-1 Securitization Facility is secured by newly originated, first-lien, residential mortgage loans eligible for purchase by Fannie Mae and Freddie Mac for the purchase of mortgage loans or in accordance with the criteria of Ginnie Mae for the guarantee of securities backed by mortgage loans. The 2020-1 Securitization Facility issued $600.0 million in notes and certificates that bear interest at 30-day LIBOR, or other alternative base rate such as SOFR, plus a margin. The 2020-1 Securitization Facility will terminate on the earlier of (i) the two-year anniversary of the initial purchase date, (ii) the Company exercising its right to optional prepayment in full and (iii) the date of the occurrence and continuance of an event
of default. In March 2022, the Company exercised its right to optional prepayment in full and terminated the 2020-1 Securitization Facility.
In December 2020, the Company issued notes through a newan additional securitization facility (“2020-2 Securitization Facility”) backed by a revolving warehouse line of credit. The 2020-2 Securitization Facility is secured by newly originated, first-lien, fixed rate residential mortgage loans eligible for purchase by the GSEs or in accordance with the criteria of Ginnie Mae for the guarantee of securities backed by mortgage loans. The 2020-2 Securitization Facility issued $500.0 million in notes and certificates that bear interest at 30-day LIBOR, or other alternative base rate such as SOFR, plus a margin. The 2020-2 Securitization Facility will terminate on the earlier of (i) the three year anniversary of the initial purchase date, (ii) the Company exercising its right to optional prepayment in full and (iii) the date of the occurrence and continuance of an event of default. In March 2022, the Company exercised its right to optional prepayment and paid-off $200.0 million in notes and certificates. At June 30, 2022, $300.0 million was outstanding in the 2020-2 Securitization Facility.
In February 2021, the Company issued notes and a class of owner trust certificates through an additional securitization facility (“2021-1 Securitization Facility”) backed by a revolving warehouse line of credit. The 2021-1 Securitization Facility is secured by newly originated, first-lien, fixed-rate or adjustable-rate, residential mortgage loans which are originated in accordance with the criteria of Fannie Mae and Freddie Mac for the purchase of mortgage loans or in accordance with the criteria of Ginnie Mae for the guarantee of securities backed by mortgage loans. The 2021-1 Securitization Facility issued $500.0 million in notes that bear interest at 30-day LIBOR, or other alternative base rate such as SOFR, plus a margin. The 2021-1 Securitization Facility will terminate on
the earlier of (i) the three-year anniversary of the initial purchase date, (ii) the Company exercising its right to optional prepayment in full and (iii) the date of the occurrence and continuance of an event of default.
In April 2021, the Company issued notes and a class of owner trust certificates through an additional securitization facility (“2021-2 Securitization Facility”) backed by a revolving warehouse line of credit. The 2021-2 Securitization Facility is secured by newly originated, first-lien, fixed-rate or adjustable-rate, residential mortgage loans which are originated in accordance with the criteria of Fannie Mae and Freddie Mac for the purchase of mortgage loans or in accordance with the criteria of Ginnie Mae for the guarantee of securities backed by mortgage loans. The 2021-2 Securitization Facility issued $500.0 million in notes that bear interest at 30-day LIBOR, or other alternative base rate such as SOFR, plus a margin. The 2021-2 Securitization Facility will terminate on the earlier of (i) the three-year anniversary of the initial purchase date, (ii) the Company exercising its right to optional prepayment in full and (iii) the date of the occurrence and continuance of an event of default.
In October 2021, the Company issued notes and a class of owner trust certificates through an additional securitization facility (“2021-3 Securitization Facility”) backed by a revolving warehouse line of credit. The 2021-3 Securitization Facility is secured by newly originated, first-lien, fixed-rate or adjustable-rate, residential mortgage loans which are originated in accordance with the criteria of Fannie Mae and Freddie Mac for the purchase of mortgage loans or in accordance with the criteria of Ginnie Mae for the guarantee of securities backed by mortgage loans. The 2021-3 Securitization Facility issued $500.0 million in notes that bear interest at 30-day LIBOR, or other alternative base rate such as SOFR, plus a margin. The 2021-3 Securitization Facility will terminate on the earlier of (i) the three-year anniversary of the initial purchase date, (ii) the Company exercising its right to optional prepayment in full, and (iii) the date of the occurrence and continuance of an event of default.
The following table presents certain information on warehouse borrowings:borrowings and the outstanding balance as of June 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Outstanding Balance |
| | Committed Amount | | Uncommitted Amount | | Total Facility Amount | Expiration Date | March 31, 2021 | | December 31, 2020 | | |
Facility 1(1) | | $ | 1,000,000 | | | $ | 1,000,000 | | | $ | 2,000,000 | | 10/29/2021 | $ | 1,876,708 | | | $ | 1,665,005 | | | |
Facility 2(2) | | 0 | | | 600,000 | | | 600,000 | | 9/27/2021 | 496,200 | | | 226,891 | | | |
Facility 3(3) | | 0 | | | 350,000 | | | 350,000 | | 4/20/2021 | 289,582 | | | 206,863 | | | |
Facility 4 | | 100,000 | | | 300,000 | | | 400,000 | | 7/9/2021 | 336,378 | | | 335,096 | | | |
Facility 5(4) | | 0 | | | 200,000 | | | 200,000 | | N/A | 121 | | | 0 | | | |
Facility 6(5) | | 100,000 | | | 1,000,000 | | | 1,100,000 | | 10/11/2021 | 751,429 | | | 626,741 | | | |
Facility 7(6) | | 0 | | | 2,000,000 | | | 2,000,000 | | 5/5/2021 | 1,244,566 | | | 919,068 | | | |
Facility 8(7) | | 300,000 | | | 0 | | | 300,000 | | 5/14/2021 | 300,000 | | | 300,000 | | | |
Facility 9(7) | | 300,000 | | | 0 | | | 300,000 | | 10/23/2021 | 300,000 | | | 299,803 | | | |
Facility 10 | | 0 | | | 850,000 | | | 850,000 | | N/A | 748,460 | | | 358,761 | | | |
Facility 11(7) | | 600,000 | | | 0 | | | 600,000 | | 10/25/2022 | 600,000 | | | 600,000 | | | |
Facility 12(7) | | 500,000 | | | 0 | | | 500,000 | | 12/17/2023 | 500,000 | | | 500,000 | | | |
Facility 13 | | 0 | | | 600,000 | | | 600,000 | | 8/25/2021 | 359,462 | | | 259,247 | | | |
Facility 14(8) | | 0 | | | 0 | | | 0 | | 2/10/2021 | 6,544 | | | 279,954 | | | |
| | | | | | | | | | | | |
Facility 15 | | 500,000 | | | 0 | | | 500,000 | | 2/2/2024 | 500,000 | | | 0 | | | |
Total | | $ | 3,400,000 | | | $ | 6,900,000 | | | $ | 10,300,000 | | | $ | 8,309,450 | | | $ | 6,577,429 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | Outstanding Balance |
| | Committed Amount | | Uncommitted Amount | | Total Facility Amount | Expiration Date | June 30, 2022 | | December 31, 2021 | | |
Facility 1(1) | | $ | 400,000 | | | $ | 1,100,000 | | | $ | 1,500,000 | | 10/29/2022 | $ | 643,618 | | | $ | 851,088 | | | |
Facility 2(2) | | — | | | 600,000 | | | 600,000 | | 9/26/2022 | 160,471 | | | 295,743 | | | |
Facility 3 | | — | | | 500,000 | | | 500,000 | | 4/18/2023 | 146,580 | | | 459,018 | | | |
Facility 4 | | — | | | 900,000 | | | 900,000 | | 11/14/2022 | 325,842 | | | 266,230 | | | |
Facility 5(2) | | — | | | 200,000 | | | 200,000 | | N/A | 852 | | | 391 | | | |
Facility 6(2) | | 100,000 | | | 1,000,000 | | | 1,100,000 | | 10/10/2022 | 149,623 | | | 583,449 | | | |
Facility 7(3) | | 750,000 | | | 750,000 | | | 1,500,000 | | 5/5/2023 | 609,506 | | | 1,410,367 | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Facility 8 | | — | | | 750,000 | | | 750,000 | | N/A | 148,592 | | | 361,783 | | | |
Facility 9(4)(5) | | — | | | — | | | — | | 10/25/2022 | — | | | 600,000 | | | |
Facility 10(4) | | 300,000 | | | — | | | 300,000 | | 12/17/2023 | 300,000 | | | 500,000 | | | |
Facility 11(2)(6) | | — | | | 500,000 | | | 500,000 | | 9/23/2022 | 76,629 | | | 263,516 | | | |
| | | | | | | | | | | | |
Facility 12(4) | | 500,000 | | | — | | | 500,000 | | 2/2/2024 | 500,000 | | | 500,000 | | | |
Facility 13(4) | | 500,000 | | | — | | | 500,000 | | 4/23/2024 | 500,000 | | | 500,000 | | | |
Facility 14 | | — | | | 500,000 | | | 500,000 | | 9/22/2022 | 203,630 | | | 365,614 | | | |
Facility 15(4) | | 500,000 | | | — | | | 500,000 | | 10/21/2024 | 500,000 | | | 500,000 | | | |
Total | | $ | 3,050,000 | | | $ | 6,800,000 | | | $ | 9,850,000 | | | $ | 4,265,343 | | | $ | 7,457,199 | | | |
(1)The total facility is available both to fund loan originations and also provide liquidity under a gestation facility to finance recently sold MBS up to the MBS settlement date.
(2)In addition to the warehouse line, the lender provides a separate gestation facility to finance recently sold MBS up to the MBS settlement date.
(3)In April 2021, this facility was extended for 30 days.
(4)In addition to the warehouse line, the lender provides a separate gestation facility to finance recently sold MBS up to the MBS settlement date.
(5)In addition to the warehouse line, the lender provides a separate gestation facility to finance recently sold MBS up to the MBS settlement date.
(6)In addition to the outstanding balance secured by mortgage loans, the Company has $15.0$114.7 million outstanding to finance servicing rights included within debt obligations in the consolidated balance sheets. In May 2021, the expiration date of this facility was extended to May 21, 2021.
(7)(4)Securitization backed by a revolving warehouse facility to finance newly originated first-lien fixed and adjustable rate mortgage loans.
(8)(5)The Company did not renew thisThis facility was prepaid and repaid the remaining balanceterminated in April 2021.March 2022.
(6)This facility was prepaid and terminated in July 2022.
27
The following table presents certain information on warehouse borrowings:
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | | 2022 | | 2021 | | 2022 | | 2021 |
Maximum outstanding balance during the period | Maximum outstanding balance during the period | | $ | 9,109,780 | | | $ | 3,846,596 | | | Maximum outstanding balance during the period | | $ | 6,407,547 | | | $ | 9,180,276 | | | $ | 7,672,559 | | | $ | 9,180,276 | |
Average balance outstanding during the period | Average balance outstanding during the period | | 7,507,914 | | | 3,288,591 | | | Average balance outstanding during the period | | 4,928,772 | | | 8,164,737 | | | 5,605,996 | | | 7,838,140 | |
Collateral pledged (loans held for sale) | Collateral pledged (loans held for sale) | | 8,514,329 | | | 3,510,797 | | | Collateral pledged (loans held for sale) | | 4,408,362 | | | 8,919,427 | | | 4,408,362 | | | 8,919,427 | |
Weighted average interest rate during the period | Weighted average interest rate during the period | | 2.34 | % | | 3.24 | % | | Weighted average interest rate during the period | | 2.60 | % | | 2.21 | % | | 2.27 | % | | 2.27 | % |
NOTE 10 – DEBT OBLIGATIONS
The following table presents certain information onthe outstanding debt.debt as of June 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 | | | | |
Secured debt obligations, net: | | | | | | | | |
Secured credit facilities | | | | | | | | |
MSR facilities | | $ | 1,105,630 | | | $ | 262,250 | | | | | |
Securities financing facilities | | 98,900 | | | 66,439 | | | | | |
Servicing advance facilities | | 32,739 | | | 15,070 | | | | | |
Total secured credit facilities | | 1,237,269 | | | 343,759 | | | | | |
Term Notes | | 199,415 | | | 199,133 | | | | | |
| | | | | | | | |
Total secured debt obligations, net | | 1,436,684 | | | 542,892 | | | | | |
Unsecured debt obligations, net: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Senior Notes | | 990,456 | | | 1,085,316 | | | | | |
| | | | | | | | |
Total debt obligations, net | | $ | 2,427,140 | | | $ | 1,628,208 | | | | | |
| | | | | | | | | | | | | | | | | | |
| | Outstanding Balance | | |
| | March 31, 2021 | | December 31, 2020 | | | | |
Secured debt obligations, net: | | | | | | | | |
Secured credit facilities | | $ | 0 | | | $ | 0 | | | | | |
2020-VF1 Notes | | 8,720 | | | 7,571 | | | | | |
GMSR VFN | | 15,000 | | | 15,000 | | | | | |
Term notes | | 198,791 | | | 198,640 | | | | | |
Total secured debt obligations, net | | 222,511 | | | 221,211 | | | | | |
Unsecured debt obligations, net: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Senior notes | | 1,082,578 | | | 491,255 | | | | | |
Total unsecured debt obligations, net | | 1,082,578 | | | 491,255 | | | | | |
Total debt obligations, net | | $ | 1,305,089 | | | $ | 712,466 | | | | | |
Certain of the Company’s secured debt obligations require us to satisfy financial covenants including minimum levels of profitability, tangible net worth, liquidity, and maximum levels of consolidated leverage. The Company obtained amendments or received waivers relating to certain profitability covenants. As a result, the Company was in compliance with all such financial covenants as of June 30, 2022.
Secured Credit Facilities
Original Secured Credit Facility. credit facilities include revolving facilities collateralized by MSRs, trading securities, and servicing advances.
MSR Facilities
The
In October 2014, the Company entered into a $25.0 million revolving secured credit facility (the “Original Secured Credit Facility”) in October 2014 to finance servicing rights and for other working capital needs and general corporate purposes. The Company has entered into subsequent amendments with the lender both increasingto increase and decreasingdecrease the size of the facility. At March 31, 2021, capacity underfacility and extend the facility was $150.0 million.maturity date. The Original Secured Credit Facilityfacility is secured by Freddie Mac mortgage servicing rights matures inwith a fair value of $365.7 million as of June 202130, 2022 and accrues interest at a base rate per annum of 30-day LIBOR, or other alternative base rate such as SOFR, plus a margin per annum.margin. As of March 31, 2021,June 30, 2022, there was 0$268.0 million outstanding balanceon this facility with a maturity of June 2023. At June 30, 2022, capacity under the Original Secured Credit Facility. The Company has pledged $817.5 million in fair value of servicing rights as collateral to secure outstanding advances under the Original Secured Credit Facility.facility was $268.0 million. Advances for servicing rights are determined using a borrowing base formula calculated against the fair market value of the pledged servicing rights. Under the Original Secured Credit Facility, the Company is required to satisfy certain financial covenants, including minimum tangible net worth, minimum liquidity, maximum leverage and debt service coverage. As of March 31,
In December 2021, the Company entered into a credit facility agreement which provides $300.0 million in borrowing capacity, with an option to increase up to $500.0 million upon mutual consent, available to the Company. The facility is secured by Freddie Mac mortgage servicing rights with a fair value of $600.9 million as of June 30, 2022, and bears interest at 30-day LIBOR, or other alternative base rate such as SOFR, plus a margin per annum. At June 30, 2022, there was $300.0 million outstanding on this facility and $0.4 million in compliance with all such covenants.unamortized deferred financing costs.
In January 2022, the Company entered into a credit facility agreement which provides $500.0 million in borrowing capacity. The facility is secured by Fannie Mae mortgage servicing rights with a fair value of $711.2 million as of June 30, 2022 and bears interest at SOFR, or other alternative base rate, plus a margin per annum. At June 30, 2022, there was $425.0 million outstanding on this facility and $1.7 million in unamortized deferred financing costs.
Second Secured Credit Facility.
In August 2017, the Company entered into the GMSR Trust to finance Ginnie Mae mortgage servicing rights owned by the Company pursuant to the terms of a base indenture. The Company amended one of its warehouse line facilities to provide a $50.0 million sub-limit to financepledged participation certificates representing beneficial interests in Ginnie Mae mortgage servicing rights and for other working capital needs and general corporate purposes (the “Second Secured Credit Facility”)to the GMSR Trust. The Company is party to an acknowledgment agreement with Ginnie Mae whereby it may, from time to time pursuant to the terms of any supplemental indenture, issue to institutional investors variable funding notes or one or more series of term notes, in May 2015. In March 2021, we terminatedeach case secured by the sub-limit on this facility.participation
certificates. In August 2017, the Company, issued a variable funding note in the initial amount of $65.0 million with a maximum amount of $150.0 million. The variable funding note bears interest at 30-day LIBOR, or other alternative base rate such as SOFR, plus a margin per annum. The Company has entered into subsequent agreements to amend certain terms of the variable funding note and extend the maturity date. In October 2021, the maturity date was extended to November 2022. As of June 30, 2022, there was $114.7 million in variable funding notes outstanding.
2020-VF1 Notes
Securities Financing Facilities
The Company has entered into master repurchase agreements to finance retained interest securities related to its securitizations. The securities financing facilities have an advance rate between 60% and 90% based on classes of the securities and accrue interest at a rate of 90-day LIBOR, or other alternative base rate such as SOFR, plus a margin. The securities financing facilities are secured by the trading securities which represent our retained interests in the credit risk of the assets collateralizing certain securitization transactions. As of June 30, 2022, the trading securities had a fair value of $105.3 million on the consolidated balance sheets and there was $98.9 million in securities financing facilities outstanding.
Servicing Advance Facilities
In September 2020, the Company, through its indirect-wholly owned subsidiary loanDepot Agency Advance Receivables Trust (the “Advance Receivables Trust”), entered into a variable funding note facility for the financing of servicing advance receivables with respect to residential mortgage loans serviced by it on behalf of Fannie Mae and Freddie Mac. Pursuant to an indenture, the Advance Receivables Trust issuedcan issue up to $130.0 million in variable funding notes (the “2020-VF1 Notes”). The 2020-VF1 Notes accrue interest at 30-day LIBOR, or other alternative base rate such as SOFR, plus a margin per annum and mature in September 20212022 (unless earlier redeemed in accordance with their terms). The 2020-VF1 Notes are secured by LDLLC's rights to reimbursement for advancesservicing advance receivables made pursuant to Fannie Mae and Freddie Mac requirements.requirements and mature in September 2022 (unless earlier redeemed in accordance with their terms). At March 31, 2021,June 30, 2022, there was $8.7$18.9 million in the advanced receivables trust outstanding, net of $0.7 million in deferred financing costs. Under this facility, the Company is required to satisfy certain financial covenants including minimum levels of tangible net worth and liquidity and maximum levels of consolidated leverage. As of March 31, 2021, the Company was in compliance with all such covenants.2020-VF1 Notes outstanding.
GMSR VFN
The Company entered into a master repurchase agreement with one of its wholly-owned subsidiaries, loanDepot GMSR Master Trust (“GMSR Trust”) in August 2017 to finance Ginnie Mae mortgage servicing rights (the “GNMA MSRs”) owned by the Company (the “GNMA MSR Facility”) pursuant to the terms of a base indenture (the “GNMA MSR Indenture”). The Company pledged participation certificates representing beneficial interests in GNMA MSRs to the GMSR Trust. The Company is party to an acknowledgment agreement with Ginnie Mae whereby we may, from time to time pursuant to the terms of any supplemental indenture, issue to institutional investors variable funding notes or one or more series of term notes, in each case secured by the participation certificates relating to the GNMA MSRs held by the GMSR Trust. In August 2017,November 2021, the Company, through the GMSR Trust issued a2 new series of variable funding note (the “GMSR VFN”)notes for the financing of principal and interest advance receivables and servicing advance receivables with respect to residential mortgage loans serviced by it on behalf of Ginnie Mae. Pursuant to an indenture, the Company can issue up to $150.00 million in the initial amount of $65.0 million. The maximum amount of the GMSR VFN is $150.0 million. The GMSR VFN isvariable funding notes secured by GNMA MSRsprincipal and bearsinterest advance reimbursement or servicing advance reimbursement amounts. The variable funding notes bear interest at 30-day LIBOR, or other alternative base rate such as SOFR, plus a margin per annum. The Company amended the GMSR VFN in September 2018 to amend certain terms and extend the maturity date to September 2020. The Company amended the GMSR VFN again to extend the maturity date to October 2021. At March 31, 2021,As of June 30, 2022, there was $15.0$14.3 million outstanding balance on the variable funding notes and $0.5 million in GMSR VFN outstanding. Under this facility, the Company is required to satisfy certain financial covenants. As of March 31, 2021, the Company was in compliance with all such covenants.unamortized deferred financing costs.
Term Notes
In November 2017,October 2018, the Company throughissued the Series 2018-GT1 Term Notes (“Term Notes”) under the GMSR Trust, issued an aggregate principal amount of $110.0 million in secured term notes (the “Term Notes”).Trust. The Term Notes wereare secured by certain participation certificates relating to GNMA MSRs pursuant toGinnie Mae mortgage servicing rights that also secure the GNMA MSR Facility. In October 2018, the GMSR Trust was amended and restated for the purposevariable funding notes described above with a fair value of issuing the Series 2018-GT1 Term Notes.$484.4 million as of June 30, 2022. The Term Notes accrue interest at 30-day LIBOR, or other alternative base rate such as SOFR, plus a margin per annum and mature in October 2023 or, if extended pursuant to the terms of the related indenture supplement, October 2025 (unless earlier redeemed in accordance with their terms). The Company issuedAt June 30, 2022, there was $200.0 million in Term Notes outstanding and used the proceeds to pay off $110.0$0.6 million in outstanding GMSR Term Notes. At March 31, 2021, there was $198.8 million in Term Notes outstanding, net of $1.2 million inunamortized deferred financing costs. Under this facility, the Company is required to satisfy certain financial covenants. As of March 31, 2021, the Company was in compliance with all such covenants.
Senior Notes
In October 2020, the Company issued $500.0 million in aggregate principal amount of 6.50% senior unsecured notes due 2025, (the “2025 Senior Notes”). The 2025 Senior Notes will mature on November 1, 2025. Interest on the 2025 Senior
Notes accrues at a rate of 6.50% per annum, payable semi-annually in arrears on May 1 and November 1 of each year. At any time prior to November 1, 2022, wethe Company may redeem some or all of the 2025 Senior Notes at a price equal to 100% of the principal amount of the 2025 Senior Notes, plus accrued and unpaid interest, if any, to, but not including, the date of redemption plus a make-whole premium. WeThe Company may also redeem the 2025 Senior Notes, at our option, in whole or in part, at any time on or after November 1, 2022 at various redemption prices. In addition, subject to certain conditions at any time prior to November 1, 2022, wethe Company may redeem up to 40% of the principal amount of the 2025 Senior Notes with the proceeds of certain equity offerings at a redemption price of 106.50% of the principal amount of the 2025 Senior Notes, together with accrued and unpaid interest,
if any, to, but not including, the date of redemption. At March 31, 2021,June 30, 2022, there was $491.7$500.0 million in 2025 Senior Notes outstanding net of $8.3and $5.9 million in unamortized deferred financing costs.
In March 2021, the Company issued $600.0 million in aggregate principal amount of 6.125% senior unsecured notes due 2028 (the “2028 Senior Notes” and together with the 2025 Senior Notes, the "Senior Notes"). The 2028 Senior Notes will mature on April 1, 2028. Interest on the 2028 Senior Notes accrues at a rate of 6.125% per annum, payable semi-annually in arrears on April 1 and October 1 of each year. At any time prior to April 1, 2024, wethe Company may redeem some or all of the 2028 Senior Notes at a price equal to 100% of the principal amount of the 2028 Senior Notes, plus accrued and unpaid interest, if any, to, but not including, the date of redemption plus a make-whole premium. WeThe Company may also redeem the 2028 Senior Notes, at our option, in whole or in part, at any time on or after April 1, 2024 at various redemption prices. In addition, subject to certain conditions at any time prior to April 1, 2024, wethe Company may redeem up to 40% of the principal amount of the 2028 Senior Notes with the proceeds of certain equity offerings at a redemption price of 106.125% of the principal amount of the 2028 Senior Notes, together with accrued and unpaid interest, if any, to, but not including, the date of redemption. During the first quarter of 2022, the Company repurchased $97.5 million of 2028 Senior Notes at an average purchase price of 87.9% of par which resulted in a $10.5 million gain on extinguishment of debt recorded in other interest expense on the consolidated statement of operations. At March 31, 2021,June 30, 2022, there was $590.9$502.5 million in 2028 Senior Notes outstanding net of $9.1and $6.1 million in unamortized deferred financing costs.
Interest Expense
Interest expense on all outstanding debt obligations with variable rates is paid based on 30-day or 90-day LIBOR, or other alternative base rate such as SOFR, plus a margin ranging from 2.90%0.70% - 4.75%3.50%.
NOTE 11 – INCOME TAXES
The components of the provision for income taxes are summarized below.
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
Total income before income taxes and non-controlling interest | $ | 446,130 | | | $ | 88,996 | | | | | |
Provision for income taxes | 18,277 | | | 0 | | | | | |
Effective tax provision rate | 4.1 | % | | 0 | % | | | | |
The Company’s income tax expense varies from the expense that would be expected based on statutory rates due principally to its organizational structure. Prior to the IPO, income taxes for LD Holdings at the consolidated level were primarily federal, state, and local taxes for ACT, a C Corporation. As part of the completion of the IPO, the Company became a C Corporation subject to federal, state, and local income taxes with respect to its share of net taxable income of LD Holdings.
As of MarchJune 30, 2022 and December 31, 2021, the Company had a deferred tax asset before any valuation allowance of $48 thousand$0.1 million and $0.4 million, respectively, and a deferred tax liability of $203.9 million.$155.1 million and $193.4 million, respectively. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. The deferred tax liability as of MarchJune 30, 2022 and December 31, 2021 relatesrelate to temporary differences in the book basis as compared to the tax basis of loanDepot, Inc.’s investment in LD Holdings, net of tax benefits from future deductions for payments made under the TRAa Tax Receivable Agreement (“TRA”) as a result of the offering transaction.IPO. Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and the Company’s effective tax rate in the future. Deferred income taxes are measured using the applicable tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on the tax rates that have been enacted at the reporting date. The Company measured its deferred tax assets and liabilities at March 31, 2021June 30, 2022 and December 31, 20202021 using the combined federal and state rate (less federal benefit) of 26%. The Company establishes a valuation allowance when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. As of March 31, 2021,June 30, 2022, the Company did 0tnot have a valuation allowance on any deferred tax assets as the Company believes it is more-likely-than-not that the Company will realize the benefits of the deferred tax assets. The Company recognized a TRA liability of $8.6$48.8 million and $32.9 million as of MarchJune 30, 2022 and December 31, 2021, respectively, which represents the Company’s estimate of the aggregate amount that it will pay under the TRA, as a result of the offering transaction, refer to Note 16-15- Commitments and Contingencies, for further information on the TRA.TRA liability.
NOTE 12 – RELATED PARTY TRANSACTIONS
In conjunction with its joint ventures, the Company entered into agreements to provide services to the joint ventures for which it receives and pays fees. Services for which the Company earns fees comprise loan processing and administrative services (legal, accounting, human resources, data processing and management information, assignment processing, post-closing, underwriting, facilities management, quality control, management consulting, risk management, promotions, public relations, advertising and compliance with credit agreements). The Company has entered into forward commitments with certain joint ventures to fund loans at specified interest rates for certain loan product types over a set period of time. The Company receives the commitment fee at the time of the commitment and earns the fee at the time of loan funding, The Company also originates eligible mortgage loans referred to it by the joint ventures for which the Company pays the joint ventures a broker fee.
Fees earned, costs incurred, and amounts payable to or receivable from joint ventures were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Loan processing and administrative services fee income | | $ | 4,548 | | | $ | 3,754 | | | $ | 7,878 | | | $ | 7,107 | |
Commitment fee income | | 1,255 | | | — | | | 1,255 | | | — | |
Fee income from joint ventures | | $ | 5,803 | | | $ | 3,754 | | | $ | 9,133 | | | $ | 7,107 | |
| | | | | | | | |
Loan origination broker fees expense | | $ | 29,797 | | | $ | 22,258 | | | $ | 49,926 | | | $ | 40,708 | |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2021 | | 2020 | | | | |
Loan processing and administrative services fee income | | $ | 3,353 | | | $ | 2,609 | | | | | |
Loan origination broker fees expense | | 18,450 | | | 13,946 | | | | | |
| | | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
Amounts (payable) receivable from joint ventures | | $ | (3,909) | | | $ | 2,196 | |
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Amounts (payable) receivable from joint ventures | | $ | (7,922) | | | $ | 1,855 | |
The Company paid management fees to a shareholder of the Company of $0.2 million during the six months ended June 30, 2021. The Company employed certain individuals who provided services to a shareholder whose salaries totaled $0.1 million during the three and $0.3six months ended June 30, 2022 and $0.1 million and $0.2 million during three and six months ended June 30, 2021, respectively. The Company paid consulting fees to a shareholder of the Company of $41,000 during the three months ended March 31, 2021 and 2020, respectively, and $0.2 million and $0.3 million to a Unitholder of the Company during the three months ended March 31, 2021 and 2020, respectively. The Company employed certain employees that provided services to a Unitholder whose salaries totaled $0.1 million and $0.1 million during the three months ended March 31, 2021 and 2020, respectively.June 30, 2021.
NOTE 13 – EQUITY
As a result of the IPO and reorganization discussed in Note 1- Description of Business, Presentation and Summary of Significant Accounting Policies, the financial statements for the periods prior to the IPO were adjusted to combine the previously separate entities for presentation.
Prior to the IPO, the Company completed a reorganization by which it changed its equity structure to create a single class of LLC Units in LD Holdings. Prior to that transaction, the capital structure consisted of different classes of membership interests held by Continuing LLC Members. The LLC Units were then exchanged on a 1-for-one basis for Holdco Units and Class C common stock. The Continuing LLC Members have the right to exchange 1 Holdco Unit and 1 share of Class B common stock or Class C common stock, as applicable, together for cash or one share of Class A common stock at the Company’s election, subject to customary conversion rate adjustments for stock splits, stock dividends, and reclassifications.
The Company consolidates the financial results of LD Holdings and reports noncontrolling interest related to the interests held by the Continuing LLC Members.
The noncontrolling interest was $1.2of $0.7 billion and $1.7$1.1 billion as of March 31, 2021June 30, 2022 and December 31, 2020,2021, respectively, represented the economic interest in LD Holdings held by the Continuing LLC Members. As Continuing LLC Members convert shares, noncontrolling interest is adjusted to proportionately reduce the economic interest in LD Holdings with an offset to
additional paid-in-capital on the consolidated statements of equity. The following table summarizes the ownership of LD Holdings as of March 31, 2021.June 30, 2022.
| | | | | | | | |
Holding Member Interests: | Holdco Units | Ownership Percentage |
loanDepot, Inc. | 160,619,719 | 51.35% |
Continuing LLC Members | 152,191,394 | 48.65% |
Total | 312,811,113 | 100.00% |
| | | | | | | | |
Holding Member Interests: | Holdco Units | Ownership Percentage |
loanDepot, Inc. | 126,337,387 | 41.28% |
Continuing LLC Members | 179,746,190 | 58.72% |
Total | 306,083,577 | 100.00% |
NOTE 14 – STOCK-BASED COMPENSATION
The stock-based compensation expense recognized on all share-based awards was $59.8 million for the three months ended March 31, 2021. Forfeitures during the three months ended March 31, 2020 resulted in a $0.1 million reversal of stock-based compensation expense. As of March 31, 2021, there was $27.0 million of unrecognized compensation related to all unvested awards.
LDI Awards
Effective upon the completion of the IPO, the Company adopted the 2021 Plan. The 2021 Plan allows for the grant of stock options, restricted stock, RSUs, and stock appreciation rights. The Company reserved a total of 16,250,000 shares of common stock for issuance pursuant to the 2021 Plan, which amount shall be increased on the first day of each fiscal year during the term of the 2021 Plan commencing with the 2022 fiscal year by (1) 2% of the total number of shares of common stock outstanding on the last day of the immediately preceding fiscal year, or (ii) a lesser amount determined by the Company's board of directors. There are currently only RSUs granted under the 2021 Plan. The following is a summary of RSU activity for the three months ended March 31, 2021.
| | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | |
| 2021 | | | |
| Shares | | Weighted Average Grant Date Fair Value | | | | | |
| | | | |
| | | | |
Unvested - beginning of period | 0 | | | $ | 0 | | | | | | |
Granted | 2,925,000 | | | 26.45 | | | | | | |
Vested | (2,215,687) | | | 26.45 | | | | | | |
| | | | | | | | |
Unvested - end of period | 709,313 | | | 26.45 | | | | | | |
Total compensation expense for the LDI awards was $59.1 million for the three months ended March 31, 2021. Unrecognized compensation expense related to these RSUs was $18.3 million and is expected to be recognized over a weighted average period of 4.8 years.
Holdco Units
Prior to the IPO, the Company’s 2009 Incentive Equity Plan, 2012 Incentive Equity Plan, and 2015 Incentive Equity Plan (collectively, the “Plans”) provided for the granting of Class Z, Class Y, Class X, and Class W Common Units of LD Holdings to employees, managers, consultants, and advisors of the Company and its subsidiaries. Participants that received grants or purchased Class Z, Class Y, Class X, or Class W Common Units of LD Holdings pursuant to the Plans were required to become a party to the Limited Liability Company Agreement.
As part of the IPO and reorganization discussed in Note 1- Description of Business, Presentation, and Summary of Significant Accounting Policies, any outstanding units were equitably adjusted and replaced with a single new class of LLC Units that were exchanged on a 1-for-one basis for Class A Holdco Units. No further awards will be granted under the Plans as both the Plans and LLC Agreement were terminated.
The following table presents a summary of the changes in awards subsequent to the conversion into Class A Holdco Units for the three months ended March 31, 2021:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2021 | | |
| | Shares | | Weighted Average Grant Date Fair Value | | | | |
| | | | |
| | | | |
Unvested - beginning of period | | 19,632,883 | | | $ | 0.500 | | | | | |
| | | | | | | | |
Vested | | (709,961) | | | 0.500 | | | | | |
| | | | | | | | |
Unvested - end of period | | 18,922,922 | | | 0.490 | | | | | |
The following table presents a summary of the changes in Class Z, Class Y, Class X, Class W and Class V Common Units for the three months ended March 31, 2020 and for the period January 1, 2021 through February 10, 2021, prior to the conversion to Class A Holdco Units described above.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | January 1, 2021 through February 10, 2021 | | Three Months Ended March 31, |
| | | 2020 |
| | Shares | | Weighted Average Grant Date Fair Value | | Shares | | Weighted Average Grant Date Fair Value |
| | | | |
| | | | |
Unvested - beginning of period | | 610,497,758 | | | $ | 0.016 | | | 100,679,480 | | | $ | 0.006 | |
| | | | | | | | |
Vested | | (12,656,379) | | | 0.016 | | | (1,129,648) | | | 0.006 | |
Forfeited/Cancelled | | (3,552,286) | | | 0.016 | | | (10,008,240) | | | 0.013 | |
Unvested - end of period | | 594,289,093 | | | 0.016 | | | 89,541,592 | | | 0.005 | |
Total compensation expense associated with the Holdings Units was $0.8 million for the three months ended March 31, 2021. Forfeitures during the three months ended March 31, 2020 resulted in a reversal of stock compensation expense of $0.1 million.
At March 31, 2021 and December 31, 2020, the total unrecognized compensation cost related to unvested unit grants was $8.7 million and $9.5 million, respectively. This cost is expected to be recognized over the next 3.9 years.
NOTE 1514 – Earnings per ShareEARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share of Class A common stock and Class D common stock is computed by dividing net income (loss) attributable to loanDepot, Inc. by the weighted-average number of shares of Class A common stock and Class D common stock, respectively, outstanding during the period. Diluted earnings (loss) per share of Class A common stock and Class D common stock is computed by dividing net income (loss) attributable to loanDepot, Inc. by the weighted-average number of shares of Class A common stock and Class D common stock respectively, outstanding adjusted to give effect to potentially dilutive securities.
Earnings per share information has not been presented for the three months ended March 31, 2020. The basic and diluted earnings per share period for the threesix months ended March 31,June 30, 2021 represents only the period fromafter February 11, 2021, to March 31, 2021, which represents the period wherein the Company had outstanding Class A common stock and Class D common stock. There was 0no Class B common stock outstanding as of March 31,June 30, 2022 and 2021.
The following table sets forth the calculation of basic and diluted earnings (loss) per share for the periods following the reorganization and IPO for Class A common stock and Class D common stock:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
| March 31, 2021 | | | | | | | | | | | | | |
| Class A | | Class D | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income attributable to loanDepot, Inc. | $ | 2,108 | | | $ | 42,767 | | | $ | 44,875 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income allocated to common stockholders - basic | 2,108 | | | 42,767 | | | 44,875 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average shares - basic | 5,907,740 | | | 119,865,057 | | | 125,772,797 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings per share - basic | $ | 0.36 | | | $ | 0.36 | | | $ | 0.36 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income allocated to common stockholders - diluted | $ | 2,108 | | | $ | 42,767 | | | $ | 44,875 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average diluted common shares outstanding | 5,907,740 | | | 119,865,057 | | | 125,772,797 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings per share - diluted | $ | 0.36 | | | $ | 0.36 | | | $ | 0.36 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2022 | | June 30, 2022 |
| Class A | | Class D | | Total | | Class A | | Class D | | Total |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net loss attributable to loanDepot, Inc. | $ | (37,266) | | | $ | (63,662) | | | $ | (100,928) | | | $ | (45,531) | | | $ | (90,137) | | | $ | (135,669) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Weighted average shares - basic | 56,795,709 | | | 97,026,671 | | | 153,822,380 | | | 49,138,217 | | | 97,276,918 | | | 146,415,135 | |
| | | | | | | | | | | |
Loss per share - basic | $ | (0.66) | | | $ | (0.66) | | | $ | (0.66) | | | $ | (0.93) | | | $ | (0.93) | | | $ | (0.93) | |
| | | | | | | | | | | |
Diluted loss per share: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net loss allocated to common stockholders - diluted | $ | (37,266) | | | $ | (63,662) | | | $ | (100,928) | | | $ | (45,531) | | | $ | (90,137) | | | $ | (135,668) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Weighted average shares - diluted | 56,795,709 | | | 97,026,671 | | | 153,822,380 | | | 49,138,217 | | | 97,276,918 | | | 146,415,135 | |
| | | | | | | | | | | |
Loss per share - diluted | $ | (0.66) | | | $ | (0.66) | | | $ | (0.66) | | | $ | (0.93) | | | $ | (0.93) | | | $ | (0.93) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2021 | | June 30, 2021 |
| Class A | | Class D | | Total | | Class A | | Class D | | Total |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net income attributable to loanDepot, Inc. | $ | 678 | | | $ | 7,883 | | | $ | 8,561 | | | $ | 3,633 | | | $ | 49,803 | | | $ | 53,436 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Weighted average shares - basic | 10,038,195 | | | 116,688,681 | | | 126,726,876 | | | 8,592,536 | | | 117,800,413 | | | 126,392,949 | |
| | | | | | | | | | | |
Earnings per share - basic | $ | 0.07 | | | $ | 0.07 | | | $ | 0.07 | | | $ | 0.42 | | | $ | 0.42 | | | $ | 0.42 | |
| | | | | | | | | | | |
Diluted income per share: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net income allocated to common stockholders - diluted | $ | 678 | | | $ | 7,883 | | | $ | 8,561 | | | $ | 3,633 | | | $ | 49,803 | | | $ | 53,436 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Weighted average shares - diluted | 10,038,195 | | | 116,688,681 | | | 126,726,876 | | | 8,592,536 | | | 117,800,413 | | | 126,392,949 | |
| | | | | | | | | | | |
Earnings per share - diluted | $ | 0.07 | | | $ | 0.07 | | | $ | 0.07 | | | $ | 0.42 | | | $ | 0.42 | | | $ | 0.42 | |
For the three and six months ended June 30, 2022, 165,281,304 and 173,245,208 shares of Class C common stock were evaluated for the assumed exchange of noncontrolling interests and determined to be anti-dilutive, and thus were excluded from the computation of diluted loss per share.
For the three and six months ended June 30, 2022, 14,221,221 and 11,914,870 of Class A RSUs and nonqualified stock options were determined to be anti-dilutive, and thus excluded from the computation of diluted loss per share.
For the three months ended June 30, 2021, 196,741,703 shares of Class C common stock were evaluated for the assumed exchange of noncontrolling interests and determined to be anti-dilutive, and thus were excluded from the computation of diluted earnings per share. For the period from February 11, 2021 to March 31,June 30, 2021, 198,537,418197,366,213 shares of Class C common stock were evaluated for the assumed exchange of noncontrolling interests and determined to be anti-dilutive, and thus were excluded from the computation of diluted earnings per share.
For the three months ended June 30, 2021, 808,090 of RSUs were determined to be anti-dilutive, and thus excluded from the computation of diluted earnings per share. For the period from February 11, 2021 to March 31,June 30, 2021, 636,934748,185 of RSUs were determined to be anti-dilutive, and thus excluded from the computation of diluted earnings per share.
NOTE 16 –15– COMMITMENTS AND CONTINGENCIES
Escrow Services
In conducting its operations, the Company, through its wholly-owned subsidiaries, LD EscrowLDSS and ACT, routinely hold customers' assets in escrow pending completion of real estate financing transactions. These amounts are maintained in segregated bank accounts and are offset with the related liabilities resulting in no amounts reported in the accompanying
consolidated balance sheets. In the fourth quarter of 2019, LD Escrow transitioned its operations to LDSS. The balances held for the Company’s customers totaled $350.2$14.7 million and $377.3$21.1 million at March 31, 2021June 30, 2022 and December 31, 2020,2021, respectively.
Legal Proceedings
The Company is a defendant in, or a party to, a number of legal actions and proceedings that arise in the ordinary course of business. In some of these actions and proceedings, claims for monetary damages are asserted against the Company. These matters include actions alleging improper lending practices, improper servicing, quiet title actions, improper foreclosure practices, violations of consumer protection laws, etc. and on account of consumer bankruptcies. In many of these actions, the Company may not be the real party of interest (because the Company is not the servicer of the loan or the holder of the note) but it may appear in the pleadings because it is in the chain of title to property over which there may be a dispute. Such matters are turned over tomay be indemnified and managed by the servicer ofappropriate party, which is generally the loan for those loans the Company does not service.Company’s subservicer. In other cases, such
as lien avoidance cases brought in bankruptcy, the Company is insured by title insurance, and the case is turned over to the title insurer who tenders ourthe Company’s defense. In some of these actions and proceedings, claims for monetary damages are asserted against the Company. In view of the inherent difficulty of predicting the outcome of such legal actions and proceedings, the Company generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss related to each pending matter may be, if any.
The Company seeks to resolve all litigation and regulatory matters in the manner management believes is in the best interest of the Company and contests liability, allegations of wrongdoing, and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with outstanding legal and regulatory proceedings utilizing the latest information available. Any estimated loss is subject to significant judgment and is based upon currently available information, a variety of assumptions, and known and unknown uncertainties. Where available information indicates that it is probable a liability has been incurred and the Company can reasonably estimate the amount of the loss, an accrued liability is established. The actual costs of resolving these proceedings may be substantially higher or lower than the amounts accrued.
The Company currently is defending 2 putative Telephone Consumer Protection Act (“TCPA”) class actions. The Company denies the allegations in these cases and is vigorously defending both matters. In one matter, one of three claims is now defunct because of a recent Supreme Court ruling addressing the same issue pled in this matter. The Company intends to file dispositive motions to dismiss the remaining claims, which, if granted, would result in a finding of no liability and dismissal of the action. The Company is also engaged in discussions to settle the remaining claims on an individual basis. In the second matter, the Company intends to file a motion to defeat class certification and also is engaged in settlement negotiations. Given the lawsuits are at the early stages and not yet at the class certification stage, the Company is unable to estimate a range of possible loss with any degree of reasonable certainty.Employment Litigation
On December 24, 2020, the Company received a demand letter from one of the senior members of its operations team alleging, among other things, loan origination noncompliance and various employment related claims, including hostile work environment and gender discrimination, with unspecified damages. The Company’s investigation ofexecutive has since resigned her position with the claims is ongoing.Company. The parties have agreed to participateparticipated in pre-litigation mediation whichin May 2021. The parties did not resolve the matter at mediation and a complaint was filed with the Superior Court of the State of California, County of Orange on September 21, 2021 and an amended complaint was filed on December 21, 2021. In response, on February 2, 2022 the Company anticipates will take placefiled a demurrer to the complaint with the Superior Court of the State of California, County of Orange, for failing to state facts sufficient to constitute a cause of action while still vigorously denying the claims within the complaint. On March 24, 2022, the plaintiff filed her opposition to loanDepot’s demurrer. On March 29, 2022, the Company filed its reply to Plaintiff’s opposition. A hearing was held on the Company’s demurrer on May 12, 2022, at the Superior Court of the State of California, County of Orange. The court sustained the Company’s demurrer in late-May 2021. full. On June 30, 2022, the Company filed its answer and affirmative defenses to the amended complaint. The plaintiff seeks damages in excess of $75 million. The Company believes this lawsuit is without merit and intends to vigorously defend against it.
While the Company’s management does not believe these allegations have merit, should the executive file a formal lawsuit against the Company, itdefending such allegations could result in substantial costs and a diversion of management’s attention and resources.
The ultimate outcome of the other legal proceedings is uncertain, and the amount of any future potential loss is not considered probable or estimable. The Company will incur defense costs and other expenses in connection with these legal proceedings. If the final resolution of any legal proceedings is unfavorable, it could have a material adverse effect on the Company’s business and financial condition.
Based on the Company’s current understanding of these pending legal actions and proceedings, management does not believe that judgments or settlements arising from pending or threatened legal matters, individually or in the aggregate, will have a material adverse effect on the consolidated financial position, operating results or cash flows of the Company. However, unfavorable resolutions could affect the consolidated financial position, results of operations or cash flows for the years in which they are resolved.
Compliance Matters
During the fourth quarter of 2019, an increase in mortgage originations resulted in an increase in title orders and loan settlements, creating personnel and operational pressures within the Company. The Company increased staffing, adjusted schedules, and enhanced processes, but still experienced constraints in order to meet settlement timelines. Specifically, there was an increase in the number of days between receipt of funds from the originating lender and disbursement of those funds to pay off those loan transactions. In 2019, the Company initiated a review to refund consumers for any overage in per diem charges due to delays based on loan program and state property requirements. The Company established an accrual of $4.8 million as of December 31, 2019 for its estimate of the remaining refunds. As of January 2021, the Company had completed its review and processed refunds that totaled $4.2 million of which $3.9 million were completed throughout 2020 and the remaining $0.3 million in January 2021. As a result of this event and in order to prevent recurrence, the Company has decreased the number of states in which they accept orders in order to manage pipelines and routinely review key performance indicators along with pipeline estimates from their customers.
Regulatory Requirements
The Company is subject to various capital requirements by the U.S. Department of Housing and Urban Development (“HUD”); lenders of the warehouse lines of credit; and secondary markets investors. Failure to maintain minimum capital requirements could result in the inability to participate in HUD-assisted mortgage insurance programs, to borrow funds from warehouse line lenders or to sell or service mortgage loans. As of March 31, 2021,June 30, 2022, the Company was in compliance with its selling and servicing capital requirements.
Commitments to Extend Credit
The Company enters into IRLCs with customers who have applied for residential mortgage loans and meet certain credit and underwriting criteria. These commitments expose the Company to market risk if interest rates change and the loan is not economically hedged or committed to an investor. The Company is also exposed to credit loss if the loan is originated and not sold to an investor and the customer does not perform. The collateral upon extension of credit typically consists of a first deed of trust in the mortgagor’s residential property. Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon. Total commitments to originate loans as of March 31, 2021June 30, 2022 and December 31, 20202021 approximated $24.5$7.7 billion and $31.5$12.7 billion, respectively. These loan commitments are treated as derivatives and are carried at fair value, refer to Note 7-6- Derivative Financial Instruments and Hedging Activities for further information on derivatives.
Loan Repurchase ReserveLoss Obligation for Sold Loans
When the Company sells mortgage loans, it makes customary representations and warranties to the purchasers about various characteristics of each loan such as the origination and underwriting guidelines, including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local law. The Company’s wholeCompany establishes a loan sale agreements generally require it to repurchase loansreserve for losses associated with repurchase loan obligations if the Company breached a representation or warranty given to the loan purchaser. Additionally, the Company has repurchase obligations for personal loans facilitated through its banking relationship in the case where personal identification fraud is discovered at the inception of the loan.
The Company’s loan repurchase reserveloss obligation for sold loans is reflected in accounts payableincludes an estimate for losses associated with early payoffs and accrued expenses.early payment defaults. There have been charge-offs associated with early payoffs, early payment defaults and losses related to representations, warranties, and other provisions for the three and six months ended March 31, 2021June 30, 2022 and 2020.
The activity related to the loan loss obligation for sold loans is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Balance at beginning of period | | $ | 41,159 | | | $ | 30,052 | | | $ | 29,877 | | | $ | 33,591 | |
Provision for loan loss obligations | | 82,373 | | | (533) | | | 95,619 | | | 267 | |
Charge-offs | | (37,659) | | | (2,893) | | | (39,623) | | | (7,232) | |
Balance at end of period | | $ | 85,873 | | | $ | 26,626 | | | $ | 85,873 | | | $ | 26,626 | |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2021 | | 2020 | | | | |
Balance at beginning of period | | $ | 33,591 | | | $ | 17,677 | | | | | |
Provision for loan losses | | 800 | | | 9,730 | | | | | |
Payments, realized losses and other | | (4,339) | | | (1,678) | | | | | |
Balance at end of period | | $ | 30,052 | | | $ | 25,729 | | | | | |
Obligation for Sold MSRs
The Company recognizes sales of mortgage servicing rights as sales if title passes, if substantially all risks and rewards of ownership have irrevocably passed to the purchaser, and any protection provisions retained by the Company are minor and can be reasonably estimated. If a sale is recognized and only minor protection provisions exist, a liability for the estimated obligation associated with those provisions is recorded in accounts payable, accrued expenses and other liabilities on the consolidated balance sheet. The Company establishes a reserve related to the reimbursement of the purchase price for any loans that are prepaid in full within 90 days of the MSR sale transaction. The obligation for sold MSRs was $9.8 million and $0.4 million as of June 30, 2022 and December 31, 2021, respectively
TRA Liability
TheAs part of the IPO and reorganization, the Company has entered into a TRA with Parthenon Stockholders and certain Continuing LLC Members, whereby loanDepot, Inc. will be obligated to pay such parties or their permitted assignees, 85% of the amount of cash tax savings, if any, in U.S. federal, state, and local taxes that loanDepot, Inc. realizes, or is deemed to realize as a result of future tax benefits from increases in tax basis. The TRA liability is accounted for as a contingent liability with amounts accrued when deemed probable and estimable. The Company recognized a TRA liability of $8.6$48.8 million and $32.9 million as of MarchJune 30, 2022 and December 31, 2021, respectively, which represents the Company’s estimate of the aggregate amount that it will pay under the TRA as a result of the offering transaction. The amounts payable under the TRA will vary depending on a number of factors, such as the amount and timing of taxable income attributable to loanDepot, Inc.
NOTE 1716 – REGULATORY CAPITAL AND LIQUIDITY REQUIREMENTS
The Company, through certain subsidiaries, is required to maintain minimum net worth, liquidity and other financial requirements specified in certain of its selling and servicing agreements, including:
•Ginnie Mae single-family issuers. The eligibility requirements include net worth of $2.5 million plus 0.35% of outstanding Ginnie Mae single-family obligations and a liquidity requirement equal to the greater of $1.0 million or 0.10% of outstanding Ginnie Mae single-family securities.
•Fannie Mae and Freddie Mac. The eligibility requirements for seller/servicers include tangible net worth of $2.5 million plus 0.25% of the Company’s total single-family servicing portfolio, excluding loans subserviced for others and a liquidity requirement equal to 0.35% of the aggregate UPB serviced for the agencies plus 2.0% of total nonperforming agency servicing UPB in excess of 6%.
•HUD. The eligibility requirements include a minimum adjusted net worth of $1,000,000$1.0 million plus 1% of the total volume in excess of $25,000,000$25.0 million of FHA Single Family Mortgages originated, underwritten, serviced, and/or purchased during the prior fiscal year, up to a maximum required adjusted net worth of $2,500,000.$2.5 million.
•Fannie Mae, Freddie Mac and Ginnie Mae. The Company is also required to hold a ratio of Adjusted/Tangible Net Worth to Total Assets greater than 6%.
To the extent that these requirements are not met, the Company may be subject to a variety of regulatory actions which could have a material adverse impact on our results of operations and financial condition. The most restrictive of the minimum net worth and capital requirements require the Company to maintain a minimum adjusted net worth balance of $103.8$120.4 million as of March 31, 2021. As of March 31, 2021, theJune 30, 2022. The Company was in compliance with the net worth, liquidity and other financial requirements of its selling and servicing requirements.
requirements as of June 30, 2022.
NOTE 18 – SUBSEQUENT EVENTS
Special Dividend
On April 21, 2021, the Company declared a special cash dividend on its Class A common stock and Class D common stock. LD Holdings declared a simultaneous special cash dividend on its units. The aggregate amount of the special dividend to be paid by the Company and distribution to be made by LD Holdings is $200.0 million, or $0.612 per share or $0.615 per unit, as applicable (the “Special Dividend”). The Special Dividend will be paid on May 18, 2021 to the Company’s stockholders and LD Holdings’ members of record as of the close of business on May 3, 2021.
Mello Warehouse Securitization Trust 2021-2
On April 23, 2021, Mello Warehouse Securitization Trust 2021-2 (the “Trust”) and LDLLC as servicer, both subsidiaries of the Company, entered into an indenture (the “Indenture”) with U.S. Bank National Association, as indenture trustee, note calculation agent, standby servicer and initial securities intermediary. Pursuant to the Indenture, the Trust issued $500.0 million of notes (the “MWST Notes”). The MWST Notes are backed by a revolving warehouse line of credit, secured by newly originated, first-lien, fixed rate or adjustable rate, residential mortgage loans which are originated in accordance with the criteria of Fannie Mae or Freddie Mac for the purchase of mortgage loans or in accordance with the criteria of Ginnie Mae for the guarantee of securities backed by mortgage loans and other eligibility criteria set forth in the Master Repurchase Agreement, dated as of April 23, 2021 between LDLLC as seller and the Trust, as buyer (the “MRA”). LDLLC's obligations under the MRA are guaranteed by the Issuer under a separate guaranty in favor of the Trust, dated as of April 23, 2021 (the “Guaranty”). Each class of MWST Notes bears interest at 30-day LIBOR plus the applicable margin as defined in the Indenture. The MWST Notes will terminate on the earlier of (i) the three-year anniversary of the initial purchase date, (ii) loanDepot.com, LLC exercising its right to optional prepayment in full or (iii) an event of default which results in the acceleration of the obligations under the Indenture.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion andprovides an analysis of ourthe Company's financial condition, cash flows and results of operations from management's perspective and should be read in conjunction with our consolidated financial statements and the accompanying notes included under Part I. Item 1 of this report. The results of operations described below are not necessarily indicative of the results to be expected for any future periods. This discussion includes forward-looking information that involves risks and assumptions which could cause actual results to differ materially from management’s expectations. See our cautionary language at the beginning of this report under “Special Note Regarding Forward-Looking Statements” and for a more complete discussion of the factors that could affect our future results refer to Part II. “Item 1A. Risk Factors” and elsewhere in this Form 10-Q and Part I, Item 1A "Risk Factors" in our 20202021 Form 10-K. Capitalized terms used but not otherwise defined herein have the meanings set forth in the our Form 10-K.
Overview
loanDepot is a customer-centric and technology-enabled residential mortgage platform. We launched our business in 2010 to provide mortgage loan solutions to consumers who were dissatisfied with the services offered by banks and other traditional market participants. Since our inception, we have significantly expanded our origination platform both in terms of size and capabilities. Our primary sources of revenue are derived from the origination of conventional and government mortgage loans, servicing conventional and government mortgage loans, and providing a growing suite of ancillary services.
The Company's common stock began trading on Thethe New York Stock Exchange on February 11, 2021 under the ticker symbol "LDI." ThisThe initial public offering consisted of 3,850,000 shares of Class A common stock, $0.001 par value per share, at an offering price of $14.00 per share, pursuant to a Registration Statement on Form S-1.
A summary of our critical accounting policies and estimates is included in Critical Accounting Policies and Estimates.
Key Factors Influencing Our Results of Operations
Market and Economic Environment
According to the Federal Reserve, residential mortgages represent the largest segment of the broader United States consumer finance market. In 2020, annual one-to-four family residential mortgage origination volume reached $3.8 trillion, with an average volume of $2.3 trillion over the last five years. According to the Mortgage Bankers Association, there was approximately $11.3 trillion of residential mortgage debt outstanding in the United States as of March 31, 2021 that is forecasted to increase to $12.4 trillion by the end of 2022.
The consumer lending market and the associated loan origination volumes for mortgage loans are influenced by interest rates and economic conditions. While borrower demand for consumer credit has typically remained strong in most economic environments, general market conditions, including the interest rate environment, unemployment rates, home price appreciation and consumer confidence may affect borrower willingness to seek financing and investor desire and ability to invest in loans. For example, a significant interest rate increase or rise in unemployment could cause potential borrowers to defer seeking financing as they wait for interest rates to stabilize or the general economic environment to improve. Additionally, if the economy weakens and actual or expected default rates increase, loan investors may postpone or reduce their investments in loan products.
The volume of mortgage loan originations associated with home purchases is generally less affected by interest rate fluctuations and more sensitive to broader economic factors as well as the overall strength of the economy, housing prices, and housing prices.interest rate fluctuations. Increases in interest rates may affect affordability and the ability for potential home buyers to qualify for a mortgage loan. Purchase mortgage loan origination volume can be subject to seasonal trends as home sales typically rise during the spring and summer seasons and decline in the fall and winter seasons. This is somewhat offset by purchase loan originations sourced from our joint ventures which experience their highest level of activity during November and December as home builders focus on completing and selling homes prior to year-end. Seasonality has less of an impact on mortgage loan refinancing volumes, which are primarily driven by fluctuations in mortgage loan interest rates.
Impact of the COVID-19 Pandemic
The financial markets demonstrated significant volatility due to the economic impacts of COVID-19 as interest rates fell to historic lows during 2020 which resulted in increased mortgage refinance originations and favorable margins during 2020. Our efficient and scalable platform has enabled us to respond quickly to the increased market demand. We have highlighted below the key steps we have undertaken since the onset of the pandemic to position our platform for continued success:
•Maintained higher liquidity levels from an increase in cash from retained earnings.
•Increased our total loan funding capacity with our current lending partners.
•Stepped up protocols related to verification of key metrics such as employment and income to ensure the highest quality underwriting standards are maintained.
•Transitioned our workforce to working remotely as of March 19, 2020.
As a servicer, we are required to advance principal and interest to the investor for up to four months on GSE backed mortgages and longer on other government agency backed mortgages on behalf of clients who have entered a forbearance plan. As of March 31, 2021, approximately 1.4%, or $1.9 billion UPB, of our servicing portfolio was in active forbearance. While these advance requirements may be significant at higher levels of forbearance, we believe we are very well-positioned in terms of our liquidity. We will continue evaluating the capital markets as well, which would further supplement our liquidity should the need arise.
Fluctuations in Interest Rates
Our mortgage loan refinancing volumes (and to a lesser degree, our purchase volumes), balance sheetsheets, and results of operations are influenced by changes in interest rates and how we effectively manage the related interest rate risk. As interest rates decline, mortgage loan refinance volumes tend to increase, while an increasing interest rate environment may cause a decrease in refinance volumes and purchase volumes. In addition, the majority of our assets are subject to interest rate risk, including LHFS, which consist of mortgage loans held on our consolidated balance sheetsheets for a short period of time after
origination until we are able to sell them, IRLCs, servicing rights and mandatory trades, forward sales contracts, interest rate swap futures and put options that we enter into to manage interest rate risk created by IRLCs and uncommitted LHFS. 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 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 decline, our LHFS 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 speed and causes our expected mortgage loan servicing revenues to decrease, which reduces the average life of our servicing portfolio and decreases the value of our servicing rights. The 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.
When interest rates rise, rate and term refinancings become less attractive to consumers after a historically long period of low interest rates. However, rising interest rates are also indicative of overall economic growth and inflation that shouldmay create more opportunities with respect to cash-out refinancings. In addition, inflation which may result from increases in asset prices and stronger economicthese periods of growth (leading to higher consumer confidence) typically should generate more purchase-focused transactions requiring loans and greaterloans. Sustained periods of home price appreciation should result in increasing opportunities for home equity loans,loans.
Current Market Conditions
According to the MBA’s Mortgage Finance Forecast published July 18, 2022, there was approximately $13.0 trillion of residential mortgage debt outstanding in the United States at June 30, 2022 which we expect mayis forecasted to increase to $13.8 trillion by June 30, 2023. Annual one-to-four family residential mortgage origination volumes are expected to decrease by 44% to $2.2 trillion by December 31, 2023. The primary driver of this decrease is refinance volume, which is expected to decrease by $1.8 trillion, partially offset at leastby a $58.0 billion expected increase in part, any declinepurchase volume. The significant reductions in rateoverall mortgage transaction volumes and term refinancingshigher interest rates have resulted in and are expected to continue to result in a rising interest rate environment.significant decrease in our mortgage production activities, which, as described below, has adversely impacted, and is expected to continue to impact, our results of operations, liquidity and financial condition.
Due to current market conditions, we have implemented the Vision 2025 plan. The plan’s four primary elements are to: 1) Increase focus on purchase transactions while serving increasingly diverse communities across the country, 2) Execute previously announced growth-generating initiatives, 3) Centralize management of loan originations and loan fulfillment to enhance quality and effectiveness, and 4) Right-size our cost structure.
As part of the plan, we have also made the determination to exit the wholesale business. This will allow us to further reduce expenses, consolidate operations, increase margins, and better meet our goals of becoming a purpose driven organization with direct customer engagement throughout the entire lending process.
Key Performance Indicators
We manage and assess the performance of our business by evaluating a variety of metrics. Selected key performance metrics include loan originations and sales and servicing metrics.
Loan Origination and Sales
Loan originations and sales by volume and units are a measure of how successful we are at growing sales of mortgage loan products and a metric used by management in an attempt to isolate how effectively we are performing. We believe that
originations and sales are an indicator of our market penetration in mortgage loans and that this provides useful information because it allows investors to better assess the underlying growth ratestrength of our core business. Loan originations and sales include brokered loan originations not funded by the Company.us. We enter into IRLCs to originate loans, at specified interest rates, with customers who have applied for a mortgage and meet certain credit and underwriting criteria. We believe the volume of our IRLCs is another measure of our growth in originations.overall market share.
Gain on sale margin represents the sumtotal of (i) gain on saleorigination and originationsale of loans, net, and (ii) origination income, net, divided by total loan originations fororigination volume during period. Gain on the period.origination and sale of loans, net was adjusted to exclude the
change in fair value of forward sale contracts, including pair-offs, hedging MSRs, which are now included in the change in fair value of servicing rights, net on the consolidated statements of operations. We determined that this change would more appropriately reflect the hedged item and better align with industry practices. Gain on origination and sale of loans, net and change in fair value of servicing rights, net, in the current and prior periods along with the related disclosures have been adjusted to reflect this reclassification.
Pull through weighted gain on sale margin represents the total of (i) gain on origination and sale of loans, net, and (ii) origination income, net, divided by the pull through weighted rate lock volume. Pull through weighted rate lock volume is the unpaid principal balance of loans subject to interest rate lock commitments, net of a pull-through factor for the loan funding probability.
Servicing Metrics
Servicing metrics include the unpaid principal balance of our servicing portfolio and servicing portfolio units, which represent the number of mortgage loan customers we service. We believe that the net additions to our portfolio and number of units are indicators of the growth of our mortgage loans serviced and our servicing income, but may be offset by sales from time to time, of servicing rights.
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | | 2020 | | (Dollars in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Financial statement data | Financial statement data | | | | | | Financial statement data | | | | | | | | |
Total revenue | Total revenue | | $ | 1,316,008 | | | $ | 486,121 | | | Total revenue | | $ | 308,639 | | | $ | 779,914 | | | $ | 811,949 | | | $ | 2,095,922 | |
Total expenses | Total expenses | | 869,878 | | | 397,125 | | | Total expenses | | 560,657 | | | 749,405 | | | 1,166,913 | | | 1,619,283 | |
Net income | | 427,853 | | | 88,996 | | | |
Net (loss) income | | Net (loss) income | | (223,822) | | | 26,284 | | | (315,141) | | | 454,137 | |
| Earnings per share of Class A and Class D common stock: | | | |
(Loss) earnings per share of Class A and Class D common stock: | | (Loss) earnings per share of Class A and Class D common stock: | |
Basic | Basic | | $ | 0.36 | | | N/A | | Basic | | $ | (0.66) | | | $ | 0.07 | | | $ | (0.93) | | | $ | 0.42 | |
Diluted | Diluted | | $ | 0.36 | | | N/A | | Diluted | | $ | (0.66) | | | $ | 0.07 | | | $ | (0.93) | | | $ | 0.42 | |
| Non-GAAP financial measures(1) | Non-GAAP financial measures(1) | | | Non-GAAP financial measures(1) | |
Adjusted total revenue | Adjusted total revenue | | $ | 1,241,256 | | | $ | 500,240 | | | Adjusted total revenue | | $ | 273,273 | | | $ | 825,330 | | | $ | 777,877 | | | $ | 2,066,770 | |
Adjusted net income | | 319,391 | | | 78,599 | | | |
Adjusted EBITDA | | 457,913 | | | 126,184 | | | |
Adjusted Diluted EPS | | 0.98 | | | N/A | | |
Adjusted net (loss) income | | Adjusted net (loss) income | | (167,855) | | | 57,504 | | | (249,587) | | | 377,031 | |
Adjusted (LBITDA) EBITDA | | Adjusted (LBITDA) EBITDA | | (191,510) | | | 109,264 | | | (265,916) | | | 567,361 | |
Adjusted diluted (loss) earnings per share | | Adjusted diluted (loss) earnings per share | | N/A | | N/A | | N/A | | N/A |
| Loan origination and sales | Loan origination and sales | | | Loan origination and sales | |
Loan originations by channel: | Loan originations by channel: | | | Loan originations by channel: | |
Retail | Retail | | $ | 33,427,789 | | | $ | 11,677,343 | | | Retail | | $ | 10,877,875 | | | $ | 27,881,773 | | | $ | 27,357,265 | | | $ | 61,309,562 | |
Partner | Partner | | 8,051,362 | | | 3,498,244 | | | Partner | | 5,117,180 | | | 6,612,393 | | | 10,188,521 | | | 14,663,755 | |
Total | Total | | $ | 41,479,151 | | | $ | 15,175,587 | | | Total | | $ | 15,995,055 | | | $ | 34,494,166 | | | $ | 37,545,786 | | | $ | 75,973,317 | |
| Loan originations by purpose: | Loan originations by purpose: | | | Loan originations by purpose: | |
Purchase | Purchase | | $ | 7,916,512 | | | $ | 4,393,856 | | | Purchase | | $ | 9,500,164 | | | $ | 10,382,964 | | | $ | 17,530,930 | | | $ | 18,299,476 | |
Refinance | Refinance | | 33,562,639 | | | 10,781,731 | | | Refinance | | 6,494,891 | | | 24,111,202 | | | 20,014,856 | | | 57,673,841 | |
Total | Total | | $ | 41,479,151 | | | $ | 15,175,587 | | | Total | | $ | 15,995,055 | | | $ | 34,494,166 | | | $ | 37,545,786 | | | $ | 75,973,317 | |
Loan originations (units) | Loan originations (units) | | 111,400 | | | 50,459 | | | Loan originations (units) | | 47,311 | | | 100,153 | | | 112,262 | | | 211,553 | |
|
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | | 2020 | | (Dollars in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Licensed loan officers: | Licensed loan officers: | | | Licensed loan officers: | |
Retail | Retail | | 2,568 | | | 2,127 | | | Retail | | 2,587 | | | 2,818 | | | 2,587 | | | 2,818 | |
Partner | Partner | | 239 | | | 201 | | | Partner | | 320 | | | 267 | | | 320 | | | 267 | |
Total | Total | | 2,807 | | | 2,328 | | | Total | | 2,907 | | | 3,085 | | | 2,907 | | | 3,085 | |
| Loans sold: | Loans sold: | | | Loans sold: | |
Servicing retained | Servicing retained | | $ | 37,435,791 | | | $ | 8,831,907 | | | Servicing retained | | $ | 10,568,649 | | | $ | 30,981,299 | | | $ | 27,691,365 | | | $ | 68,417,090 | |
Servicing released | Servicing released | | 2,492,886 | | | 6,439,801 | | | Servicing released | | 7,342,889 | | | 3,309,151 | | | 13,088,211 | | | 5,802,037 | |
Total | Total | | $ | 39,928,677 | | | $ | 15,271,708 | | | Total | | $ | 17,911,538 | | | $ | 34,290,450 | | | $ | 40,779,576 | | | $ | 74,219,127 | |
Loans sold (units) | Loans sold (units) | | 108,687 | | | 50,589 | | | Loans sold (units) | | 51,862 | | | 98,342 | | | 120,011 | | | 207,029 | |
| Gain on sale margin | Gain on sale margin | | 2.71 | % | | 3.50 | % | | Gain on sale margin | | 1.16 | % | | 2.28 | % | | 1.62 | % | | 2.66 | % |
Gain on sale margin - retail | Gain on sale margin - retail | | 3.25 | | | 3.67 | | | Gain on sale margin - retail | | 1.03 | | | 2.50 | | | 1.76 | | | 2.91 | |
Gain on sale margin - partner | Gain on sale margin - partner | | 1.85 | | | 1.42 | | | Gain on sale margin - partner | | 1.45 | | | 1.32 | | | 1.26 | | | 1.61 | |
| Pull through weighted gain on sale margin | Pull through weighted gain on sale margin | | 3.35 | | | 2.99 | | | Pull through weighted gain on sale margin | | 1.50 | | | 2.64 | | | 1.89 | | | 3.19 | |
| IRLCs | IRLCs | | $ | 45,762,661 | | | $ | 27,037,271 | | | IRLCs | | $ | 19,596,763 | | | $ | 42,065,981 | | | $ | 49,588,215 | | | $ | 87,828,642 | |
IRLCs (units) | IRLCs (units) | | 131,551 | | | 87,757 | | | IRLCs (units) | | 58,855 | | | 130,894 | | | 149,875 | | | 262,445 | |
| Pull through weighted lock volume | | Pull through weighted lock volume | | $ | 12,412,894 | | | $ | 29,787,081 | | | $ | 32,212,939 | | | $ | 63,249,436 | |
| Servicing metrics | Servicing metrics | | | Servicing metrics | |
Total servicing portfolio (unpaid principal balance) | Total servicing portfolio (unpaid principal balance) | | $ | 129,709,892 | | | $ | 42,445,155 | | | Total servicing portfolio (unpaid principal balance) | | $ | 155,217,012 | | | $ | 138,767,860 | | | $ | 155,217,012 | | | $ | 138,767,860 | |
Total servicing portfolio (units) | Total servicing portfolio (units) | | 414,540 | | | 168,320 | | | Total servicing portfolio (units) | | 507,231 | | | 446,606 | | | 507,231 | | | 446,606 | |
60+ days delinquent ($) | 60+ days delinquent ($) | | $ | 2,125,573 | | | $ | 425,407 | | | 60+ days delinquent ($) | | $ | 1,511,871 | | | $ | 1,976,658 | | | $ | 1,511,871 | | | $ | 1,976,658 | |
60+ days delinquent (%) | 60+ days delinquent (%) | | 1.64 | % | | 1.00 | % | | 60+ days delinquent (%) | | 0.97 | % | | 1.42 | % | | 0.97 | % | | 1.42 | % |
Servicing rights at fair value, net(2) | Servicing rights at fair value, net(2) | | $ | 1,766,088 | | | $ | 431,864 | | | Servicing rights at fair value, net(2) | | $ | 2,204,593 | | | $ | 1,776,395 | | | $ | 2,204,593 | | | $ | 1,776,395 | |
Weighted average servicing fee | | 0.30 | % | | 0.34 | % | | |
Multiple(3) | | 4.7 | | | 3.9 | | | |
Weighted average servicing fee (3) | | Weighted average servicing fee (3) | | 0.29 | % | | 0.30 | % | | 0.29 | % | | 0.30 | % |
Multiple(3) (4) | | Multiple(3) (4) | | 5.1 | | | 4.5 | | | 5.1 | | | 4.5 | |
(1)Refer to the section titled “Non-GAAP Financial Measures” for a discussion and reconciliation of our Non-GAAP financial measures.
(2)Amount represents the fair value of servicing rights, net of servicing liabilities, which are included in accounts payable, accrued expenses, and other liabilities in the consolidated balance sheet.sheets.
(3)Agency only.
(4)Amounts represent the fair value of servicing rights, net, divided by the weighted average annualized servicing fee.
Results of Operations
Description
The following table sets forth our consolidated financial statement data for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | | Change $ | | Change % |
(Dollars in thousands) | | 2022 | | 2021 | | | | | | | | | | | |
| | (Unaudited) | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
REVENUES: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net interest income | | $ | 22,799 | | | $ | 7,026 | | | | | | | | | | | | $ | 15,773 | | | 224.5 | % |
Gain on origination and sale of loans, net | | 146,562 | | | 692,479 | | | | | | | | | | | | (545,917) | | | (78.8) | |
Origination income, net | | 39,108 | | | 92,624 | | | | | | | | | | | | (53,516) | | | (57.8) | |
Servicing fee income | | 117,326 | | | 94,742 | | | | | | | | | | | | 22,584 | | | 23.8 | |
Change in fair value of servicing rights, net | | (33,507) | | | (145,098) | | | | | | | | | | | | 111,591 | | | 76.9 | |
Other income | | 16,351 | | | 38,141 | | | | | | | | | | | | (21,790) | | | (57.1) | |
Total net revenues | | 308,639 | | | 779,914 | | | | | | | | | | | | (471,275) | | | (60.4) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
EXPENSES: | | | | | | | | | | | | | | | | | |
Personnel expense | | 296,569 | | | 470,125 | | | | | | | | | | | | (173,556) | | | (36.9) | |
Marketing and advertising expense | | 60,837 | | | 114,133 | | | | | | | | | | | | (53,296) | | | (46.7) | |
Direct origination expense | | 33,996 | | | 50,017 | | | | | | | | | | | | (16,021) | | | (32.0) | |
General and administrative expense | | 63,927 | | | 48,654 | | | | | | | | | | | | 15,273 | | | 31.4 | |
Occupancy expense | | 9,388 | | | 9,283 | | | | | | | | | | | | 105 | | | 1.1 | |
Depreciation and amortization | | 11,323 | | | 8,686 | | | | | | | | | | | | 2,637 | | | 30.4 | |
Servicing expense | | 10,741 | | | 27,241 | | | | | | | | | | | | (16,500) | | | (60.6) | |
Other interest expense | | 33,140 | | | 21,266 | | | | | | | | | | | | 11,874 | | | 55.8 | |
Goodwill impairment | | 40,736 | | | — | | | | | | | | | | | | 40,736 | | | NM |
Total expenses | | 560,657 | | | 749,405 | | | | | | | | | | | | (188,748) | | | (25.2) | |
| | | | | | | | | | | | | | | | | |
(Loss) income before income taxes | | (252,018) | | | 30,509 | | | | | | | | | | | | (282,527) | | | (926.0) | |
| | | | | | | | | | | | | | | | | |
Income tax (benefit) expense | | (28,196) | | | 4,225 | | | | | | | | | | | | (32,421) | | | (767.4) | |
| | | | | | | | | | | | | | | | | |
Net (loss) income | | (223,822) | | | 26,284 | | | | | | | | | | | | (250,106) | | | (951.6) | |
| | | | | | | | | | | | | | | | | |
Net (loss) income attributable to noncontrolling interests | | (122,894) | | | 17,723 | | | | | | | | | | | | (140,617) | | | (793.4) | |
| | | | | | | | | | | | | | | | | |
Net (loss) income attributable to loanDepot, Inc. | | $ | (100,928) | | | $ | 8,561 | | | | | | | | | | | | $ | (109,489) | | | (1,278.9) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
The results for the three months ended June 30, 2022 reflected an increase in mortgage rates which resulted in a decrease in our profit margins. The decrease of Components of Results of Operations
Our primary sources of revenue include$250.1 million, or 951.6% in net income is primarily from a $545.9 million decrease in gain on the origination and sale of loans, net, partially offset by a $188.7 million decrease in total expenses. The increased interest rate environment resulted in a decrease in margins and volume of mortgage loan originations and IRLCs from the comparable 2021 period.
Revenues
Net Interest Income. Net interest income is earned on LHFS offset by interest expense on amounts borrowed under warehouse and other lines of credit to finance such loans until sold. The increase in net interest income reflected higher yields on LHFS, partially offset by a $3.0 billion decrease in the average balance of LHFS.
Gain on Origination and Sale of Loans, Net. Gain on origination and sale of loans, net, was comprised of the following components:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | Three Months Ended June 30, | | Change $ | | Change % |
(Dollars in thousands) | | 2022 | | 2021 | | |
(Discount) premium from loan sales | | $ | (437,194) | | | $ | 407,314 | | | $ | (844,508) | | | (207.3) | % |
Servicing rights | | 180,455 | | | 427,458 | | | (247,003) | | | (57.8) | |
Fair value gains on IRLC and LHFS | | 96,224 | | | 231,956 | | | (135,732) | | | (58.5) | |
Fair value gains (losses) from Hedging Instruments | | 317,683 | | | (346,179) | | | 663,862 | | | 191.8 | |
| | | | | | | | |
Discount points, rebates and lender paid costs | | 71,767 | | | (28,603) | | | 100,370 | | | 350.9 | |
| | | | | | | | |
(Provision for) recovery of loan loss obligation for loans sold | | (82,373) | | | 533 | | | (82,906) | | | (15,554.6) | |
Total gain on origination and sale of loans, net | | $ | 146,562 | | | $ | 692,479 | | | $ | (545,917) | | | (78.8) | |
| | | | | | | | |
• (Discount) premium from loan sales represent the net premium or discount we receive or pay in excess of the loan principal amount and certain fees charged by investors upon sale of the loans. The decrease in premiums from loan sales was a result of lower volume and margins due to increasing interest rates subsequent to loan origination income, and servicing fee income. Changes induring the three months ended June 30, 2022 compared to decreasing rates during the three months ended June 30, 2021.
• Servicing rights represent the fair value of our LHFS, servicing rights from loans sold on a servicing-retained basis. The 57.8% decrease in servicing rights was driven by the 65.9% decrease in volume of loans sold on a servicing-retained basis.
•Fair value gains on IRLC and derivatives also impactLHFS decreased $135.7 million or 58.5%. The decrease in gains was primarily due to the decrease in volume, partially offset by increasing interest rates during the three months ended June 30, 2022 compared to decreasing rates during the three months ended June 30, 2021.
• Fair value gains on Hedging Instruments represent the net unrealized gains or losses on mandatory trades, forward sales contracts, interest rate swap futures, and put options hedging IRLCs and LHFS as well as realized gains or losses from pair-off settlements. The increase of $663.9 million reflects changes in interest rates during the period.
•Discount points, rebates, and lender paid costs represent discount points collected, rebates paid to borrowers, and lender paid costs for the origination of loans (including broker fee compensation paid to independent wholesale brokers and brokerage fees paid to our revenues. joint ventures for referred loans). The increase of $100.4 million or 350.9% was driven by an increase in discount points collected and a decrease in lender paid costs.
•Provision for loan loss obligation related to loans sold represents the provision to establish our estimated liability for loan losses that we may experience as a result of a breach of representation or warranty provided to the purchasers or insurers of loans that we have sold. The increase of $82.9 millionwas driven by increased market rates which have reduced the fair value of loans subject to repurchase that were originated in prior periods at lower interest rates.
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 $53.5 million or 57.8% decrease in origination income was the result of a 53.6% decrease in loan origination volumes.
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 $22.6 million or 23.8% in servicing income was the result of an increase of$20.5 billion in the average UPB of our servicing portfolio due to an increase in servicing-retained loan sales.
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. Change in fair value of servicing rights, net
was a loss of $33.5 million for the three months ended June 30, 2022, as compared to $145.1 million for the three months ended June 30, 2021; the decrease in loss reflects $80.8 million in fair value gains, net of hedging losses and a $39.4 million decrease in the collection and realization of cash flows from lower prepayments due to the increasing rate environment for the three months ended June 30, 2022.
Other Income. Other income reflects theincludes our pro rata share of the net earnings from our joint ventures and fee income from title, escrow and settlement services for mortgage loan transactions performed by LDSS, and fair value changes in our trading securities.The decrease of $21.8 million or 57.1% was primarily the result of a decrease of $18.4 million in escrow and title fee income due to decreased mortgage loan settlement services and fair value losses of $6.3 million on our trading securities due to the increasing rate environment.
Expenses
Personnel Expense. Personnel expense reflects employee compensation related to salaries, commissions, incentive compensation, benefits, and other employee costs. The $173.6 million or 36.9% decrease was the result of a decrease of $131.8 million in commissions due to the decreases in loan origination volumes and decreases in salaries and benefits expense of $41.7 million as a result of reduced headcount. As of June 30, 2022, we had 8,540 employees compared to 11,572 employees as of June 30, 2021, representing a decrease of 26.2%.
Marketing and Advertising Expense. Marketing and advertising expense primarily reflects online advertising costs, including fees paid to search engines, television, print and radio, distribution partners, master service agreements with brokers, and desk rental agreements with realtors. The $53.3 million or 46.7% decrease in marketing expense was driven by a reduction in national television campaigns and purchased leads.
Servicing Expense. Servicing expense reflects in-house servicing costs as well as amounts that we pay to our sub-servicers to service our mortgage loan servicing portfolio.The $16.5 million or 60.6% decrease in subservicing expense reflects our shift to in-house servicing.
Other Interest Expense. The $11.9 million or 55.8% increase in other interest expense was the result of a $1.0 billion increase in average outstanding debt obligations primarily resulting from a $942.7 million increase in MSR facilities.
Income Tax Expense (Benefit). Benefit for income taxes was $28.2 million for the three months ended June 30, 2022, as compared to expense of $4.2 million for the three months ended June 30, 2021 reflects net losses, partially offset by non-deductible impairment of goodwill and other intangible assets for the three months ended June 30, 2022 compared to net income for the three months ended June 30, 2021.
services performed by our consolidated subsidiary, LDSS. Net interest income is interest income earned on our LHFS, net of interest expense on amounts borrowed under warehouse lines to finance such loans until sold.
Our primary expenses include those for personnel, marketing and advertising, direct origination, subservicing fees paid to subservicers of our MSR portfolio, and other general and administrative expenses such as professional fees, data processing, and communication expenses.
The following table sets forth our consolidated results of operations for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | | Change $ | | Change % |
(Dollars in thousands) | | 2021 | | 2020 | | | | | | | | | | | |
| | (Unaudited) | | | | | |
REVENUES: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net interest income (expense) | | $ | 1,233 | | | $ | 2,360 | | | | | | | | | | | | $ | (1,127) | | | (47.8) | % |
Gain on origination and sale of loans, net | | 1,020,646 | | | 492,485 | | | | | | | | | | | | 528,161 | | | 107.2 | |
Origination income, net | | 101,599 | | | 38,613 | | | | | | | | | | | | 62,986 | | | 163.1 | |
Servicing income | | 82,568 | | | 36,563 | | | | | | | | | | | | 46,005 | | | 125.8 | |
Change in fair value of servicing rights, net | | 69,294 | | | (100,287) | | | | | | | | | | | | 169,581 | | | (169.1) | |
Other income | | 40,668 | | | 16,387 | | | | | | | | | | | | 24,281 | | | 148.2 | |
Total net revenues | | 1,316,008 | | | 486,121 | | | | | | | | | | | | 829,887 | | | 170.7 | |
EXPENSES: | | | | | | | | | | | | | | | | | |
Personnel expense | | 603,735 | | | 240,199 | | | | | | | | | | | | 363,536 | | | 151.3 | |
Marketing and advertising expense | | 109,626 | | | 57,312 | | | | | | | | | | | | 52,314 | | | 91.3 | |
Direct origination expense | | 46,976 | | | 26,503 | | | | | | | | | | | | 20,473 | | | 77.2 | |
General and administrative expense | | 51,317 | | | 29,630 | | | | | | | | | | | | 21,687 | | | 73.2 | |
Occupancy expense | | 9,988 | | | 9,892 | | | | | | | | | | | | 96 | | | 1.0 | |
Depreciation and amortization | | 8,454 | | | 9,372 | | | | | | | | | | | | (918) | | | (9.8) | |
Subservicing expense | | 26,611 | | | 13,247 | | | | | | | | | | | | 13,364 | | | 100.9 | |
Other interest expense | | 13,171 | | | 10,970 | | | | | | | | | | | | 2,201 | | | 20.1 | |
Total expenses | | 869,878 | | | 397,125 | | | | | | | | | | | | 472,753 | | | 119.0 | |
Income before income taxes | | 446,130 | | | 88,996 | | | | | | | | | | | | 357,134 | | | 401.3 | |
Provision for income taxes | | 18,277 | | | — | | | | | | | | | | | | 18,277 | | | n/m |
Net income | | 427,853 | | | 88,996 | | | | | | | | | | | | 338,857 | | | 380.8 | |
Net income attributable to noncontrolling interests | | 382,978 | | | 88,996 | | | | | | | | | | | | 293,982 | | | 330.3 | |
Net income attributable to loanDepot, Inc. | | $ | 44,875 | | | $ | — | | | | | | | | | | | | $ | 44,875 | | | n/m |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Three
Six Months Ended March 31, 2021June 30, 2022 Compared to ThreeSix Months Ended March 31, 2020June 30, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | | | | Change $ | | Change % |
(Dollars in thousands) | | 2022 | | 2021 | | | | | | | | | | | |
| | (Unaudited) | | | | | |
REVENUES: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net interest income | | $ | 35,874 | | | $ | 8,259 | | | | | | | | | | | | $ | 27,615 | | | 334.4 | % |
Gain on origination and sale of loans, net | | 509,692 | | | 1,826,054 | | | | | | | | | | | | (1,316,362) | | | (72.1) | |
Origination income, net | | 98,181 | | | 194,223 | | | | | | | | | | | | (96,042) | | | (49.4) | |
Servicing fee income | | 228,385 | | | 177,309 | | | | | | | | | | | | 51,076 | | | 28.8 | |
Change in fair value of servicing rights, net | | (101,890) | | | (188,733) | | | | | | | | | | | | 86,843 | | | 46.0 | |
Other income | | 41,707 | | | 78,810 | | | | | | | | | | | | (37,103) | | | (47.1) | |
Total net revenues | | 811,949 | | | 2,095,922 | | | | | | | | | | | | (1,283,973) | | | (61.3) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
EXPENSES: | | | | | | | | | | | | | | | | | |
Personnel expense | | 642,563 | | | 1,073,861 | | | | | | | | | | | | (431,298) | | | (40.2) | |
Marketing and advertising expense | | 162,350 | | | 223,759 | | | | | | | | | | | | (61,409) | | | (27.4) | |
Direct origination expense | | 87,153 | | | 96,993 | | | | | | | | | | | | (9,840) | | | (10.1) | |
General and administrative expense | | 113,675 | | | 99,972 | | | | | | | | | | | | 13,703 | | | 13.7 | |
Occupancy expense | | 18,784 | | | 19,270 | | | | | | | | | | | | (486) | | | (2.5) | |
Depreciation and amortization | | 21,867 | | | 17,139 | | | | | | | | | | | | 4,728 | | | 27.6 | |
Servicing expense | | 32,252 | | | 53,851 | | | | | | | | | | | | (21,599) | | | (40.1) | |
Other interest expense | | 47,533 | | | 34,438 | | | | | | | | | | | | 13,095 | | | 38.0 | |
Goodwill impairment | | 40,736 | | | — | | | | | | | | | | | | 40,736 | | | 100.0 |
Total expenses | | 1,166,913 | | | 1,619,283 | | | | | | | | | | | | (452,370) | | | (27.9) | |
(Loss) income before income taxes | | (354,964) | | | 476,639 | | | | | | | | | | | | (831,603) | | | (174.5) | |
| | | | | | | | | | | | | | | | | |
Income tax (benefit) expense | | (39,823) | | | 22,502 | | | | | | | | | | | | (62,325) | | | (277.0) | |
| | | | | | | | | | | | | | | | | |
Net (loss) income | | (315,141) | | | 454,137 | | | | | | | | | | | | (769,278) | | | (169.4) | |
| | | | | | | | | | | | | | | | | |
Net (loss) income attributable to noncontrolling interests | | (179,472) | | | 400,701 | | | | | | | | | | | | (580,173) | | | (144.8) | |
| | | | | | | | | | | | | | | | | |
Net (loss) income attributable to loanDepot, Inc. | | $ | (135,669) | | | $ | 53,436 | | | | | | | | | | | | $ | (189,105) | | | (353.9) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net income was $427.9 millionResults for the threesix months ended March 31, 2021, anJune 30, 2022 reflected a sharp increase in mortgage rates which resulted in a decrease to our profit margins. The decrease of $338.9$769.3 million, compared to aor 169.4% in net income is primarily from a $1.3 billion decrease in gain on origination and sale of $89.0loans, net, partially offset by a $452.4 million for the three months ended March 31, 2020. Total originations were $41.5 billion for the three months ended March 31, 2021, as compared to $15.2 billion for the three months ended March 31, 2020, representing an increase of $26.3 billion or 173.3%. Of thedecrease in total originations for the three months ended March 31, 2021, our Retail and Partner Channels originated $33.4 billion and $8.1 billion, respectively, as compared to $11.7 billion and $3.5 billion, respectively, for the three months ended March 31, 2020. We generated additional revenue and net income growth related toexpenses. The increased IRLCs and mortgage loan originations across all business channels. Our operating results were positively influenced by an attractive mortgage loan origination market during the three months ended March 31, 2021 during which interest rates remained low as a result of the COVID-19 global pandemic. The low interest rate environment resulted in an increasea decrease in IRLCsmargins and volume of mortgage loan origination volumesoriginations and IRLCs from the comparable 20202021 period.
Revenues
Net Interest Income. The increase in net interest income reflected higher yields on LHFS, partially offset by a $1.3 billion decrease in average LHFS.
Gain on Origination and Sale of Loans, Net. Gain on origination and sale of loans, net was $1.0 billion for the three months ended March 31, 2021, as compared to $492.5 million for the three months ended March 31, 2020, representing an increase of $528.2 million or 107.2%. Gain on origination and sale of loans, net, was comprised of the following components:
| | | | | | | | | | | | | | |
| | |
| | Three Months Ended March 31, |
(Dollars in thousands) | | 2021 | | 2020 |
Premium from loan sales | | $ | 470,572 | | | $ | 376,829 | |
Servicing rights | | 529,544 | | | 114,118 | |
Unrealized (losses) gains from derivative assets and liabilities - IRLCs | | (400,268) | | | 186,528 | |
Unrealized gains (losses) from Hedging Instruments | | 609,654 | | | (156,547) | |
Realized gains (losses) from Hedging Instruments | | 715,297 | | | (210,908) | |
Discount points, rebates and lender paid costs | | (114,855) | | | (18,871) | |
Mark to market (loss) gain on loans held for sale | | (178,844) | | | 54,519 | |
Provision for loan loss obligation for loans sold | | (800) | | | (9,730) | |
| | $ | 1,020,646 | | | $ | 492,485 | |
43
Changes in the components of gain on origination and sale of loans, net, during the three months ended March 31, 2021 and 2020 were comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | Six Months Ended June 30, | | Change $ | | Change % |
(Dollars in thousands) | | 2022 | | 2021 | | |
(Discount) premium from loan sales | | $ | (673,291) | | | $ | 877,887 | | | $ | (1,551,178) | | | (176.7) | % |
Servicing rights | | 450,215 | | | 957,002 | | | (506,787) | | | (53.0) | |
Fair value losses on IRLC and LHFS | | (297,534) | | | (347,155) | | | 49,621 | | | 14.3 | |
Fair value gains from Hedging Instruments | | 994,087 | | | 482,045 | | | 512,042 | | | 106.2 | |
| | | | | | | | |
Discount points, rebates and lender paid costs | | 131,834 | | | (143,458) | | | 275,292 | | | 191.9 | |
| | | | | | | | |
Provision for loan loss obligation for loans sold | | (95,619) | | | (267) | | | (95,352) | | | (35,712.4) | |
| | $ | 509,692 | | | $ | 1,826,054 | | | $ | (1,316,362) | | | (72.1) | |
| | | | | | | | |
• $470.6 million in net premiums realized upon the saleDiscounts on loan sales of loans to investors for the three months ended March 31, 2021, as compared to $376.8$673.3 million for the threesix months ended March 31, 2020, representing an increase of $93.7 million or 24.9%. TheJune 30, 2022 reflect lower margins from the sharper increase in net premiums realized upon the sale of loansinterest rates subsequent to investors was a result of the increasedloan origination and sale volume between periods;the resulting decrease in volume;
• $529.5 millionThe 53.0% decrease in retained servicing rights from loans sold to investors on a servicing-retained basis for the three months ended March 31, 2021, as compared to $114.1 million for the three months ended March 31, 2020, representing an increase of $415.4 million or 364.0%, which was driven by an increasea decrease in volume of loans sold on a servicing-retained basis to $37.4 billion duringfor the threesix months ended March 31, 2021,June 30, 2022 as compared to $8.8 billionthe six months ended June 30, 2021;
• The decrease of $49.6 million or 14.3% in fair value losses on IRLC and LHFS was due to changes in interest rates between periods as well as decreased volumes for the threesix months ended March 31, 2020 and increases in estimated servicing multiples and servicing fees between periods;June 30, 2022 compared to the six months ended June 30, 2021;
• $400.3The increase of $512.0 million of unrealized lossesin fair value gains from IRLCs forHedging Instruments reflects higher pair-off gains from the threeincrease in interest rates during the six months ended March 31, 2021, as comparedJune 30, 2022;
• The increase of $275.3 million or 191.9% in discount points, rebates and lender paid costs was driven by an increase in discount points collected and a decrease in lender paid costs.
• The increase of $95.4 million in provision for loan loss obligations was driven by increased market rates which have reduced the fair value of loans subject to $186.5repurchase that were originated in prior periods at lower interest rates.
Origination Income, Net. The decrease in origination income, net, of $96.0 million or 49.4% is consistent with the decrease in loan origination volumes.
Servicing Fee Income. The $51.1 million or 28.8% increase was the result of unrealized gains foran increase of$33.7 billion in the three months ended March 31, 2020, representingaverage UPB of our servicing portfolio.
Change in Fair Value of Servicing Rights, Net. The decrease in net loss of $86.8 million was driven by an $80.4 million decrease in the collection and realization of cash flows due to lower prepayments from the increasing rate environment.
Other Income. The decrease of $37.1 million or 47.1% was primarily the result of a decrease of $586.8$27.1 million or 314.6%.in escrow and title fee income due to increased mortgage loan settlement services and $13.9 million in fair value losses on trading securities from rising interest rates.
Expenses
Personnel Expense. The decrease was primarilyof $431.3 million reflects a $278.4 million decrease in commissions due to rising interest rates that reduced the value of IRLCs as well as increased funding volume duringdecrease in loan origination volumes and a decrease in salaries and benefits due to the three months ended March 31, 2021, as compared to a decline26.2% decrease in interest rates that increased the value of IRLCs during the three months ended March 31, 2020;headcount.
• $1.3 billionMarketing and Advertising Expense. The decrease of realized and unrealized gains$61.4 million or 27.4% was driven by fewer television ads from Hedging Instruments for the three months ended March 31, 2021, as compareda reduction in national campaigns.
Servicing Expense. The decrease of $21.6 million or 40.1% between periods reflects our shift to $367.5in-house servicing.
Other Interest Expense. The $13.1 million of realized and unrealized losses for the three months ended March 31, 2020. Theor 38.0% increase in realized and unrealized gainsother interest expense was primarily due to the increases in interest rates during the first quarter of 2021 that resulted in an increase in the value of our Hedging Instruments along with increased notional amounts for Hedging Instruments from increased origination volumes during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020;
• $114.9 million of rebates paid to borrowers and lender paid costs, net of discount points collected from borrowers for the origination of loans for the three months ended March 31, 2021, as compared to $18.9 million for the three months ended March 31, 2020, representing an increase of $96.0 million or 508.6%. The increase is related to the increase in origination volumes between periods;
• $178.8 million of fair value losses on LHFS for the three months ended March 31, 2021, as compared to $54.5 million of fair value gains for the three months ended March 31, 2020. The increase is primarily attributable to increasing interest rates for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020 coupled with a higher average balance of LHFS during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020; and
• $0.8 million of provision for loan loss obligations recorded for loans sold during the three months ended March 31, 2021, as compared to $9.7 million for the three months ended March 31, 2020, representing a decrease of $8.9 million or 91.8%. The provision for loan loss obligations for the three months ended March 31, 2021 reflects an $8.0 million reversal due to a decrease in repurchase requests and a decrease in severity of losses for repurchased loans. The provision for loan loss obligations for the three months ended March 31, 2020 reflects an addition of $5.0 million for the COVID pandemic and decreased pricing on repurchased loans.
Origination Income, Net. Origination income, net, was $101.6 million for the three months ended March 31, 2021, as compared to $38.6 million for the three months ended March 31, 2020, representing an increase of $63.0 million or 163.1%. The increase in origination income, net, between periods was primarily the result of an increase in loan originationthe average balance of our MSR facilities and other loan fees attributable toSenior Notes, partially offset by a $10.5 million gain on extinguishment of debt from the growth in loan origination volumes.repurchase of $97.5 million of the 2028 Senior Notes during the first quarter of 2022.
Servicing FeeProvision for Income Taxes. . Servicing feeThe benefit for income was $82.6taxes of $39.8 million for the threesix months ended March 31, 2021,June 30, 2022, as compared to $36.6expense of $22.5 million for the threesix months ended March 31, 2020, representing an increaseJune 30, 2021 reflects net losses, partially offset by non-deductible impairment of $46.0 million or 125.8%. The increase in servicing fee income between periods was the result of an increase of$73.1 billion in the average UPB of our servicing portfolio due to an increase in servicing-retained loan sales. Our average servicing portfolio increased to $112.3 billiongoodwill and other intangible assets for the threesix months ended March 31, 2021, asJune 30, 2022 compared to $39.2 billionnet income for the threesix months ended March 31, 2020.
Change in Fair Value of Servicing Rights, Net. Change in fair value of servicing rights, net was a gain of $69.3 million for the three months ended March 31, 2021, as compared to a loss of $100.3 million for the three months ended March 31, 2020, representing an increase of $169.6 million or 169.1%. The change in fair value of servicing rights, net was the result of the increase in size of our servicing portfolio which contributed to:
• $187.5 million in unrealized fair value gains, net of hedging losses, on servicing rights for the three months ended March 31, 2021, as compared to losses of $67.1 million, net of hedging gains for the three months ended March 31, 2020, primarily due to a decrease in prepayment speed assumptions resulting from increased interest rates during the three months ended March 31, 2021 compared to the declining rate environment for the three months ended March 31, 2020;
• $118.1 million in realized losses resulting from fallout and decay of the portfolio during the three months ended March 31, 2021 compared to $33.0 million for the three months ended March 31, 2020; and
• $0.1 million in realized losses on sales of servicing rights associated with the sale of $6.7 million in UPB during the three months ended March 31, 2021, as compared to a $0.1 million loss associated with the sale of $19.5 million in UPB during the three months ended March 31, 2020.
Other Income. Other income was $40.7 million for the three months ended March 31, 2021, as compared to $16.4 million for the three months ended March 31, 2020, representing an increase of $24.3 million or 148.2%. The increase between periodsJune 30, 2021.
Balance Sheet Highlights
June 30, 2022Compared to December 31, 2021
The following table sets forth our consolidated balance sheets as of the dates indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | June 30, 2022 | | December 31, 2021 | | Change $ | | Change % | | |
| | (Unaudited) | | | | | | | | |
ASSETS | | | | | | | | | | |
Cash and cash equivalents | | $ | 954,930 | | | $ | 419,571 | | | $ | 535,359 | | | 127.6 | % | | |
Restricted cash | | 194,645 | | | 201,025 | | | (6,380) | | | (3.2) | | | |
Accounts receivable, net | | 91,766 | | | 56,183 | | | 35,583 | | | 63.3 | | | |
Loans held for sale, at fair value | | 4,656,338 | | | 8,136,817 | | | (3,480,479) | | | (42.8) | | | |
Derivative assets, at fair value | | 153,607 | | | 194,665 | | | (41,058) | | | (21.1) | | | |
Servicing rights, at fair value | | 2,213,700 | | | 2,006,712 | | | 206,988 | | | 10.3 | | | |
Trading securities, at fair value | | 105,308 | | | 72,874 | | | 32,434 | | | 44.5 | | | |
Property and equipment, net | | 111,443 | | | 104,262 | | | 7,181 | | | 6.9 | | | |
Operating lease right-of-use assets | | 48,443 | | | 55,646 | | | (7,203) | | | (12.9) | | | |
Prepaid expenses and other assets | | 140,145 | | | 140,315 | | | (170) | | | (0.1) | | | |
Loans eligible for repurchase | | 506,454 | | | 363,373 | | | 143,081 | | | 39.4 | | | |
Investments in joint ventures | | 18,408 | | | 18,553 | | | (145) | | | (0.8) | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Goodwill and intangible assets, net | | — | | | 42,317 | | | (42,317) | | | (100.0) | | | |
Total assets | | $ | 9,195,187 | | | $ | 11,812,313 | | | $ | (2,617,126) | | | (22.2) | | | |
| | | | | | | | | | |
LIABILITIES & EQUITY | | | | | | | | | | |
Warehouse and other lines of credit | | $ | 4,265,343 | | | $ | 7,457,199 | | | $ | (3,191,856) | | | (42.8) | | | |
Accounts payable, accrued expenses and other liabilities | | 643,144 | | 624,444 | | 18,700 | | | 3.0 | | | |
Derivative liabilities, at fair value | | 72,758 | | 37,797 | | 34,961 | | | 92.5 | | | |
Liability for loans eligible for repurchase | | 506,454 | | 363,373 | | 143,081 | | | 39.4 | | | |
Operating lease liability | | 66,485 | | 71,932 | | (5,447) | | | (7.6) | | | |
Debt obligations, net | | 2,427,140 | | 1,628,208 | | 798,932 | | 49.1 | | | |
Total liabilities | | 7,981,324 | | | 10,182,953 | | | (2,201,629) | | | (21.6) | | | |
Total equity | | 1,213,863 | | | 1,629,360 | | | (415,497) | | | (25.5) | | | |
Total liabilities and equity | | $ | 9,195,187 | | | $ | 11,812,313 | | | $ | (2,617,126) | | | (22.2) | | | |
Cash and Cash Equivalents. The$535.4 million or 127.6% increase in cash and cash equivalents included $388.0 million in proceeds from the bulk sale of MSRs and increased utilization of MSR facilities, partially offset by the repurchase of $97.5 million of 2028 Senior Notes and $117.1 million of dividends and distributions.
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 $3.5 billion or 42.8% decrease was primarily the result of an increase of $24.2 million$40.8 billion in escrow and title fee income due to increased mortgage loan settlement services.
Expensessales, offset by $37.5 billion in originations.
Personnel Expense.Derivative Assets, at Fair Value. Personnel expense was $603.7 million for the three months ended March 31, 2021, as compared to $240.2 million for the three months ended March 31, 2020, representing an increase of $363.5The $41.1 million or 151.3%. The increase between periods was primarily the result of an increase of $174.9 million in commissions due to the increases in loan origination volumes, coupled with increases in salaries and benefits expense due to the increase in headcount associated with the growth of our lending operation to support the increased loan origination volumes. As of March 31, 2021, we had 11,037 employees, as compared to 6,932 employees as of March 31, 2020, representing a 59.2% year-over-year increase.
Marketing and Advertising Expense. Marketing and advertising expense was $109.6 million for the three months ended March 31, 2021, as compared to $57.3 million for the three months ended March 31, 2020, representing an increase of $52.3 million or 91.3%. The increase between periods was primarily the result of additional acquired leads, national television campaigns, and partnerships with Major League Baseball (MLB) and the Miami Marlins to increase brand awareness. During the three months ended March 31, 2021, loanDepot was named the presenting sponsor of the American and National League Championship Series and named the Official Mortgage Provider of both MLB and the Miami Marlins. The Company also secured exclusive naming rights for loanDepot park, the home of the Miami Marlins and world-class special events.
Direct Origination Expense. Direct origination expense was $47.0 million for the three months ended March 31, 2021, as compared to $26.5 million for the three months ended March 31, 2020, representing an increase of $20.5 million or 77.2%. The increase between periods was directly attributable to increased costs for underwriting, credit reports, appraisals, loan documents and other loan origination costs associated with increased loan origination volumes during the period.
General and Administrative Expense. General and administrative expense was $51.3 million for the three months ended March 31, 2021, as compared to $29.6 million for the three months ended March 31, 2020, representing an increase of $21.7 million or 73.2%. The increase between periods21.1% decrease was primarily the result of a $9.2$92.5 million increasedecrease in professional services and consulting, a $4.8 million increaseIRLCs assets from IPO related expenses, and a $5.0 million increasethe decrease in office and equipment expense related to data, communication, and software subscriptions associated with increases in personnel.
Subservicing Expense. Subservicing expense was $26.6 million for the three months ended March 31, 2021, as compared to $13.2 million for the three months ended March 31, 2020, representing an increase of $13.4 million or 100.9%. The increase between periods was the result of the $73.1 billion increase in our average servicing portfolio to $112.3 billion for the three months ended March 31, 2021, as compared to $39.2 billion for the three months ended March 31, 2020.
Other Interest Expense. Other interest expense was $13.2 million for the three months ended March 31, 2021, as compared to $11.0 million for the three months ended March 31, 2020, representing an increase of $2.2 million or 20.1%. The increase between periods was the result of $363.2 million or 66.0% increase in average outstanding debt obligations, from a $1.1 billion increase in Senior Notes,IRLC volume, partially offset by a $120.4$51.4 million decrease in Secured Credit Facilities, a $250.0 million decrease from repayment of our Unsecured Term Loan, and a $75.0 million decrease from repayment of our Convertible Debt. The increase in average outstanding debt obligations were partially offset by decreases in 30-day LIBOR between periods.
Provision for Income Taxes. Provision for income taxes was $18.3Hedging Instruments from increasing interest rates. At June 30, 2022, derivative assets included Hedging Instruments with fair value of $61.7 million for the three months ended March 31, 2021, as compared to no provision for the three months ended March$10.3 million at December 31, 2020. Prior to the IPO, income taxes for LD Holdings at the consolidated level were primarily federal, state, and local taxes for ACT, a C Corporation. As part of the completion of the IPO, the Company became a C Corporation subject to federal, state, and local income taxes with respect to its share of net taxable income of LD Holdings.2021.
Financial Condition
March 31, 2021Compared to December 31, 2020
The following table sets forth our consolidated balance sheet as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | March 31, 2021 | | December 31, 2020 | | Change $ | | Change % | | |
| | (Unaudited) | | | | | | | | |
ASSETS | | | | | | | | | | |
Cash and cash equivalents | | $ | 630,457 | | | $ | 284,224 | | | $ | 346,233 | | | 121.8 | % | | |
Restricted cash | | 121,389 | | | 204,465 | | | (83,076) | | | (40.6) | | | |
Accounts receivable, net | | 84,047 | | | 138,122 | | | (54,075) | | | (39.2) | | | |
Loans held for sale, at fair value | | 8,787,756 | | | 6,955,424 | | | 1,832,332 | | | 26.3 | | | |
Derivative assets, at fair value | | 760,519 | | | 647,939 | | | 112,580 | | | 17.4 | | | |
Servicing rights, at fair value | | 1,772,099 | | | 1,127,866 | | | 644,233 | | | 57.1 | | | |
| | | | | | | | | | |
Property and equipment, net | | 91,007 | | | 85,002 | | | 6,005 | | | 7.1 | | | |
Operating lease right-of-use asset | | 63,207 | | | 66,433 | | | (3,226) | | | (4.9) | | | |
Prepaid expenses and other assets | | 84,804 | | | 77,241 | | | 7,563 | | | 9.8 | | | |
Loans eligible for repurchase | | 842,970 | | | 1,246,158 | | | (403,188) | | | (32.4) | | | |
Investments in joint ventures | | 17,332 | | | 17,528 | | | (196) | | | (1.1) | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Goodwill and intangible assets, net | | 42,698 | | | 42,826 | | | (128) | | | (0.3) | | | |
Total assets | | $ | 13,298,285 | | | $ | 10,893,228 | | | $ | 2,405,057 | | | 22.1 | | | |
| | | | | | | | | | |
LIABILITIES & EQUITY | | | | | | | | | | |
Warehouse and other lines of credit | | $ | 8,309,450 | | | $ | 6,577,429 | | | $ | 1,732,021 | | | 26.3 | | | |
Accounts payable, accrued expenses and other liabilities | | 890,826 | | 446,370 | | 444,456 | | | 99.6 | | | |
Derivative liabilities, at fair value | | 95,188 | | 168,169 | | (72,981) | | | (43.4) | | | |
Operating lease liability | | 80,804 | | 86,023 | | (403,188) | | | (32.4) | | | |
Liability for loans eligible for repurchase | | 842,970 | | 1,246,158 | | (5,219) | | | (6.1) | | | |
Debt obligations, net | | 1,305,089 | | 712,466 | | 592,623 | | 83.2 | | | |
Total liabilities | | 11,524,327 | | 9,236,615 | | 2,287,712 | | 24.8 | | | |
Equity | | 1,773,958 | | 1,656,613 | | 117,345 | | 7.1 | | | |
Total liabilities and equity | | $ | 13,298,285 | | | $ | 10,893,228 | | | $ | 2,405,057 | | | 22.1 | | | |
Assets
Cash and Cash Equivalents. Cash and cash equivalents were $630.5 million as of March 31, 2021, as compared to $284.2 million as of December 31, 2020, representing an increase of $346.2 million or 121.8%. The increase between periods was primarily the result of net income generated in the three months ended March 31, 2021 from increased loan origination and sale volumes, net proceeds from warehouse borrowing and other lines of credit and debt obligations, partially offset by dividends, and distributions.
Restricted Cash. Restricted cash was $121.4 million as of March 31, 2021, as compared to $204.5 million as of December 31, 2020 representing a decrease of $83.1 million or 40.6%. The decrease between periods was primarily the result of decreases in restricted cash pledged as collateral for our warehouse lines.
Accounts Receivable, Net. Accounts receivable, net, was $84.0 million as of March 31, 2021, as compared to $138.1 million as of December 31, 2020, representing a decrease of $54.1 million or 39.2%. The decrease between periods was primarily due to a decrease in margin call receivable.
Loans Held for Sale, at Fair Value. Loans held for sale, at fair value, were $8.8 billion as of March 31, 2021, as compared to $7.0 billion as of December 31, 2020, representing an increase of $1.8 billion or 26.3%. The increase during the three months ended March 31, 2021 was primarily the result of originations of loans totaling $41.5 billion, offset by $39.9 billion in sales.
Derivative Assets, at Fair Value. Derivative assets, at fair value, were $760.5 million as of March 31, 2021, as compared to $647.9 million as of December 31, 2020, representing an increase of $112.6 million or 17.4%. The increase between periods was primarily the result of a $441.7 million increase in Hedging Instruments entered into as a result of increased loan commitments associated with the growth in our lending operation and increased interest rates during the first quarter of 2021, partially offset by a $335.6 million decrease in IRLCs. At March 31, 2021, derivative assets included IRLCs with fair values and notional amounts of $311.8 million and $18.5 billion, respectively, compared to $647.3 million and $31.4 billion, respectively, at December 31, 2020.
Servicing Rights, at Fair Value. Servicing rights, at fair value, were $1.8 billion as of March 31, 2021, as compared to $1.1 billion as of December 31, 2020, representing an increase of $644.2The $207.0 million or 57.1%. The10.3% increase between periods was primarily the result of $529.5included $450.2 million in capitalized servicing rights from the sale of loans on a servicing retainedservicing-retained basis and a $231.0$297.8 million increase in estimated fair value due to a decrease in prepayment speed assumptions resulting from increased interest rates, during the first quarter of 2021 compared to the fourth quarter of 2020, partially offset by a $0.7$399.3 million decrease in servicing rights from the sale of $6.7 million$24.7 billion in UPB of servicing rights and a $118.1$143.5 million decrease due toof principal amortization and prepayments during the three months ended March 31, 2021.prepayments.
Loans Eligible for Repurchase.Trading Securities. Loans eligible for repurchase were $0.8 billion as of March 31, 2021, as compared to $1.2 billion as of December 31, 2020, representing a decrease of $403.2The $32.4 million or 32.4%. The decrease between periods44.5% increase was due to repurchasesMello Mortgage Capital Acceptance securitizations completed in 2022. We retained a five percent economic interest in the credit risk of Ginnie Mae serviced loans that were 90 days or more delinquent that totaled $472.5 million.the assets collateralizing the securitization pursuant to the U.S. credit risk retention rules.
LiabilitiesGoodwill and Equityintangible assets, net. The impact of rising interest rates on the mortgage industry and the Company’s recent stock performance triggered an interim evaluation of goodwill and other intangible assets. Based upon the results of these evaluations, a non-cash impairment charge of $42.1 million was recognized to write off the balance of goodwill and other intangible assets. The impairment charge was driven predominantly by stock market valuations and the price of our common stock, which adversely impacted the valuation of our goodwill and other intangible assets as of June 30, 2022. As of June 30, 2022, the entire balance of goodwill and other intangible assets had been written off.
Warehouse and Other Lines of Credit. Warehouse and other linesThe decrease of credit were $8.3 billion as of March 31, 2021, as compared to $6.6 billion as of December 31, 2020, representing an increase of $1.7$3.2 billion or 26.3%. The increase between periods42.8% was primarily the result of loan sales outpacing originations outpacing sales by $1.6$3.2 billion during the threesix months ended March 31, 2021. For the three months ended March 31, 2021, we originated and sold $41.5 billion and $39.9 billion, respectively, in loans. Our borrowing capacity under our Warehouse Lines increased to $10.3 billion at March 31, 2021 from $8.1 billion at December 31, 2020.
Accounts Payable, Accrued Expenses and Other Liabilities. Accounts payable, accrued expenses and other liabilities were $890.8 million as of March 31, 2021, as compared to $446.4 million as of December 31, 2020, representing an increase of $444.5 million or 99.6%. The increase between periods was primarily the result of a $203.9 million deferred tax liability related to temporary differences in the book basis as compared to the tax basis of loanDepot, Inc.’s investment in LD Holdings as a result of the IPO and a $285.1 million increase in margin call payable.June 30, 2022.
Derivative Liabilities, at Fair Value. Derivative liabilities, at fair value, were $95.2 million asThe increase of March 31, 2021, as compared to $168.2 million as of December 31, 2020, representing a decrease of $73.0$35.0 million or 43.4%.The decrease92.5% reflects a decline$30.5 million increase in forward commitmentIRLCs and a $4.4 million increase in Hedging Instrument liabilities due to the rising rate environment during the first quarterincreasing interest rates.
Debt Obligations, net. The increase of 2021,$798.9 million or 49.1% included an increase in secured credit facilities of $894.2 million, partially offset by increases in interest rate lock liabilities and option future liabilities. At March 31, 2021, the notional value and fair valuerepurchase of forward loan sale commitments was $1.5$97.5 million and $2 thousand, compared to $54.4 billion and $163.6 million at December 31, 2020.
Liability for Loans Eligible for Repurchase. Liability for loans eligible for repurchase was $0.8 billion as of March 31, 2021, as compared to $1.2 billion as of December 31, 2020, representing a decrease of $403.2 million or 32.4%. The decrease between periods was due to repurchases of Ginnie Mae serviced loans that were 90 days or more delinquent that totaled $472.5 million.
Debt Obligations. Debt obligations were $1.3 billion as of March 31, 2021, as compared to $712.5 million as of December 31, 2020, representing an increase of $592.6 million or 83.2%. The increase between periods was primarily due to the $600.0 million increase from issuance of theour 2028 Senior Notes.
Equity. Total equity was $1.8$1.2 billion and $1.7$1.6 billion at March 31, 2021as of June 30, 2022 and December 31, 2020,2021, respectively. The $117.3decrease was attributed to net loss of $315.1 million, or 7.1% increase reflects net income of $427.9 milliondividends and stock based compensation of $59.5 million, partially offset by distributions totaling $166.6$89.4 million, and reductionsdecrease to additional paid in capital of $203.7$17.7 million forrelated to deferred taxes, and the repurchase of treasury shares, at cost of $0.2 million to net settle and withhold tax liabilities and other tax adjustments associated with the IPO and reorganization transaction.on vested RSUs, partially offset by stock-based compensation of $7.0 million.
Liquidity and Capital Resources
Liquidity
Our liquidity reflects our ability to meet our current obligations (including our operating expenses and, when applicable, the retirement of our debt and margin calls relating to our Hedging Instruments, warehouse and other lines of credit, and Secured Credit Facilities),secured credit facilities, fund new originations and purchases, meet servicing requirements, and make investments as we identify them. We forecast the need to have adequate liquid funds available to operate and grow our business. As of March 31, 2021,June 30, 2022, unrestricted cash and cash equivalents were $630.5$954.9 million and committed and uncommitted available capacity under our warehouse and other lines of credit was $2.0$5.5 billion.
We fund substantially all of the mortgage loans we close through borrowings under our warehouse lines. Given the broad impactand other lines of the COVID-19 pandemic on the financial markets, our future ability to borrow money to fund our current and future loan production is unknown.credit. Our mortgage origination liquidity could also be affected as our lenders reassess their exposure to the mortgage origination industry and either curtail access to uncommitted mortgage warehouse financing capacity or impose higher costs to access such capacity. Our liquidity may be further constrained as there may be less demand by investors to acquire our mortgage loans in the secondary market. Even if such demand exists, we face a substantially higher repurchase risk as a result of the COVID-19 pandemic stemming from our clients inability to repay the underlying loans. In response to the COVID-19 pandemic, we have increased our cash position and total loan funding capacity with our current and new lending partners.
As a servicer, we are required to advance principal and interest to the investor for up to four months on GSE backed mortgages and longer on other government agency backed mortgages on behalf of clients who have entered a forbearance plan. As of March 31, 2021,June 30, 2022, approximately 1.4%0.4%, or $1.9 billion$587.8 million UPB, of our servicing portfolio was in active forbearance compared to 2.4%, or $2.4 billion as of December 31, 2020.forbearance. While these advance requirements may be significant athave decreased from the higher levels during 2020, the economic impact of COVID-19 could continue to result in additional advance requirements related to forbearance we believe we are very well-positioned in terms of our liquidity. In September 2020, we entered into a variable funding note facility for the financing of servicing advance receivables with respect to residential mortgage loans serviced by us on behalf of Fannie Mae and Freddie Mac. We will continue evaluating the capital markets as well, which would further supplement our liquidity should the need arise.plans.
Sources and Uses of Cash
Our primary sources of liquidity have been as follows: (i) funds obtained from our warehouse lines;and other lines of credit; (ii) proceeds from debt obligations; (iii) proceeds received from the sale and securitization of loans; (iv) proceeds from the sale of servicing rights; (v) loan fees from the origination of loans; (vi) servicing fees; (vii) title and escrow fees from settlement services; (viii) real estate referral fees; and (ix) interest income from LHFS.
Our primary uses of funds for liquidity have included the following: (i) funding mortgage loans; (ii) funding loan origination costs; (iii) payment of warehouse line haircuts required at loan origination; (iv) payment of interest expense on warehouse lines;and other lines of credit ; (v) payment of interest expense under debt obligations; (vi) payment of operating expenses; (vii) repayment of warehouse lines;and other lines of credit; (viii) repayment of debt obligations; (ix) funding of servicing advances; (x) margin calls on warehouse and other lines of credit or Hedging Instruments; (xi) payment of tax distributions and other amounts due to the holders of common units;Holdco Units; (xii) payments of cash dividends or distributions subject to the discretion of our board of directors, (xiii) repurchases of loans under representation and warranty breaches; (xiv) earnout payments from acquisitions; and (xv)(xiv) costs relating to servicing and subservicing.
We rely on the secondary mortgage market as a source of long-term capital to support our mortgage lending operations. Approximately 93%78% of the mortgage loans that we originated during the threesix months ended March 31, 2021June 30, 2022 were sold in the
secondary mortgage market to Fannie Mae or Freddie Mac or, in the case of MBS guaranteed by Ginnie Mae, are mortgage loans insured or guaranteed by the FHA or VA. We also sell loans to many private investors.
At this time, we currently believe that there are no material market trends that would affect our access to long-term or short-term borrowingscash on hand, as well as the sources of liquidity described above, will be sufficient to maintain our current operations or that would likely cause us to cease to be in compliance with applicable covenants for our indebtedness or that would inhibit our ability toand fund our loan operations and capital commitments for the next twelve months. However, should those trends change, we believewill continue to review our liquidity needs in light of current and anticipated mortgage market conditions and we could retain less or sell additional servicing rights, scale back growth or take other actionshave taken various steps to mitigate any significant increase in demands onalign our liquidity.cost structure with current and expected mortgage origination volumes.
Warehouse and Other Lines of Credit and Debt Obligations
Warehouse and other lines of credit are discussed in Note 9- Warehouse and Other Lines of Credit and debt obligations are discussed in Note 10- Debt Obligations of the Notes to Consolidated Financial Statements contained in Item 1.
Our lenders require us to comply with various financial covenants including tangible net worth, liquidity, leverage ratios and profitability. As a result of our second quarter losses, we were required to amend certain of our warehouse lines or amend and obtain waivers of profitability related financial covenants in certain of our debt obligations. We expect that we will need to further amend or obtain waivers during fiscal 2022 in order to maintain compliance with such financial covenants. Our lenders are not required to grant any such amendments, extensions or waivers and may determine not to do so. As of June 30, 2022, following certain amendments or waivers, 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.
We finance most of our loan originations on a short-term basis using our warehouse lines.and other lines of credit. Under our warehouse lines,these facilities, we agree to transfer certain loans to our counterparties against the transfer of funds by them, with a simultaneous agreement by the counterparties to transfer the loans back to us at the date loans are sold, or on demand by us, against the transfer of funds from us. We do not recognize these transfers as sales for accounting purposes. We typically repurchase theOn average, loans are repurchased within 6 to 1519 days of funding. Our warehouse linesfacilities are generally short-term borrowings which mature in less thanwith original maturities between one year with the exception of ourand two years. Our securitization facilities which have terms of two and three years.year terms. 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.
As of March 31, 2021,June 30, 2022, we had $10.3maintained revolving lines of credit with fourteen counterparties providing warehouse and securitization facilities with borrowing capacity totaling $9.9 billion of capacity under our warehouse lines, of which $3.4$3.1 billion was committed. Our $10.3$9.9 billion of capacity as of March 31, 2021June 30, 2022 was comprised of $8.7$6.1 billion with maturities staggered throughout 2021, $600.0 million maturing in 2022, $500.0 million$2.3 billion maturing in 2023, and $500.0 million$1.5 billion maturing in 2024. As of March 31, 2021, we maintained warehouse lines with fourteen counterparties. Our warehouse lines typically have terms of one year and are routinely renewed annually. As of March 31, 2021,June 30, 2022, we had $8.3$4.3 billion of borrowings outstanding under these facilities and $2.0$5.5 billion of additional availability under our facilities.
When we draw on theour warehouse lines,and securitization facilities we must pledge eligible loan collateral andcollateral. Our warehouse line providers require us to make a capital investment, or “haircut,“haircut.” upon financing the loans,loan, which is generally determined by the type of collateral provided and the warehouse line terms. Our warehouse line providers require a haircut based on product
types and the market value of the loans. The haircuts are normally recovered from sales proceeds. With the expected future increase in loan origination volumes, we will be required to use additional capital for haircuts and increase our restricted cash balances with our warehouse lenders. As of March 31, 2021,June 30, 2022, we had $69.8$90.8 million in restricted cash posted as additional collateral with our warehouse lenders and securitization facilities, as comparedfacilities.
In addition to $190.6 million as of December 31, 2020.
Interest on our warehouse lines, varies by facilitywe fund our balance sheet through our secured and dependsunsecured debt obligations. The availability and cost of funds to us can vary depending on the typemarket conditions. From time to time, and subject to any applicable laws or regulations, we may take steps to reduce or repurchase our debt through redemptions, tender offers, cash purchases, prepayments, refinancing, exchange offers, open market or privately-negotiated transactions. The amount of loandebt, if any, that is being financedmay be reduced or the periodrepurchased will depend on various factors, such as market conditions, trading levels of time that a loan is transferred to our warehouse line counterparty. As of March 31, 2021, interest expense underdebt, our warehouse lines was generally based on 30-day LIBOR plus a margin and in some cases a minimum interest rate and certain commitment and utilization fees apply. Interest is generally payable monthly in arrears or on the repurchase date of a loan, and outstanding principal is payable upon receipt of loan sale proceeds or on the repurchase date of a loan. Outstanding principal related to a particular loan must also be repaid after the expiration of a contractual period of time or, if applicable, upon the occurrence of certain events of default with respect to the underlying loan.
Our warehouse lines require us to comply with various financial covenants including tangible net worth, liquidity, leverage ratios and net income. As of March 31, 2021, we were incash positions, our compliance with all of our warehouse lending covenants. Although these financialdebt 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 successfully operate our business and obtain the financing necessary to achieve that purpose.other considerations.
Secured debt obligations as of March 31, 2021June 30, 2022 totaled $222.5 million$1.4 billion net of $1.9$3.2 million of deferred financing costs, as compared to $221.2$542.9 million net of $2.4$2.7 million of deferred financing costs as of December 31, 2020.2021. Secured debt obligations as of March 31, 2021 and December 31, 2020June 30, 2022 included our 2020-VF1 Notes, GMSR VFN,secured credit facilities and Term Notes. The 2020-VF1 NotesSecured credit facilities included MSR facilities, securities financing facilities, and servicing advance facilities. MSR facilities are secured by loanDepot.com, LLC’s rights to reimbursement for advancesGinnie Mae, Fannie Mae, and Freddie Mac MSRs. Securities financing facilities are secured by trading securities which represent our retained interest in the credit risk of the assets collateralizing certain securitization transactions. Servicing advance facilities are secured by servicing advance receivables made pursuant to Fannie Mae, and Freddie
Mac requirements and mature in September 2021 (unless earlier redeemed in accordance with their terms). The GMSR VFN is secured byor Ginnie Mae mortgagerequirements or other principal and interest or servicing rights and matures in October 2021.advance reimbursement amounts. The Term Notes are secured by certain participation certificates relating to Ginnie Mae mortgage servicing rights pursuant to the terms of a base indenture and mature in October 2023. The 2020-VF1 Notes, GMSR VFN, and Term Notes accrue interest at 30-day LIBOR plus a margin per annum. Our secured debt obligations require us to satisfy certain financial covenants and we were in compliance with all such covenants as of March 31, 2021 and December 31, 2020.indenture.
Unsecured debt obligations as of March 31, 2021June 30, 2022 totaled $1.1$1.0 billion net of $17.4$12.0 million of deferred financing costs, as compared to $491.3 million,$1.1 billion, net of $8.7$14.7 million of deferred financing costs as of December 31, 2020.2021. Unsecured debt obligations as of March 31, 2021June 30, 2022 and December 31, 20202021 consisted of our Senior Notes. The increase in unsecured debt obligations was due toDuring the issuancefirst quarter of the2022, we repurchased $97.5 million of 2028 Senior Notes.Notes at an average purchase price of 87.9% of par which resulted in a $10.5 million gain on extinguishment of debt recorded in other interest expense on the consolidated statement of operations.
Dividends and Distributions
During the threesix months ended March 31, 2021,June 30, 2022, we paid dividends and distributions of $166.6$117.1 million.
On April 21,December 13, 2021, we declared a specialregular cash dividend of $0.08 per share on our Class A common stock and Class D common stock. The board of directors of LD Holdings, a subsidiary of the Company declared authorized a simultaneous special cash dividenddistribution on its units. The aggregate amount of the special dividend to be paid by the Company and LD Holdings is $200.0 million, or $0.612 per share or $0.615 per unit, as applicable (the “Special Dividend”). The Special Dividend will bewas paid on MayJanuary 18, 20212022 to the Company’sCompany's stockholders and LD Holdings’ members of record as of the close of business on MayJanuary 3, 2021.2022.
On March 14, 2022, we declared a regular cash dividend of $0.08 per share on our Class A common stock and Class D common stock. The board of directors of LD Holdings authorized a simultaneous cash distribution on its units. The dividend was paid on April 18, 2022 to the Company's stockholders of record as of the close of business on April 4, 2022.
Cash dividends are subject to the discretion of our board of directors and our compliance with applicable law, and depend on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, including the satisfaction of our obligations under the TRA, restrictions in our debt agreements, business prospects and other factors that our board of directors may deem relevant.
Our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their jurisdiction of organization or agreements of our subsidiaries, including agreements governing our indebtedness. Future agreements may also limit our ability to pay dividends.
Margin CallsAs part of our balance sheet and capital management strategies, we suspended our regular quarterly dividend effective March 31, 2022 and for the foreseeable future.
Our warehouse lines, secured credit facilities, and certain derivative financial instruments contain margin call provisions that, under specific market conditions and terms, require us to transfer cash or, in some instances, additional assets in an amount sufficient to eliminate any margin deficit. Under our warehouse lines, secured credit facilities and certain derivative financial instruments, a margin deficit will generally result from any decline in the market value (as determined by the applicable lender) of the assets subject to the related financing agreement. Upon notice from the applicable lender, we will generally be required to satisfy the margin call on the day of such notice or within one business day thereafter, depending on the timing of the notice.
Contractual Obligations and Commitments
Our estimated contractual obligations as of March 31, 2021June 30, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period(1) |
(Dollars in thousands) | | Total | | Less than 1 Year | | 1-3 years | | 3-5 Years | | More than 5 Years |
Warehouse lines | | $ | 8,309,450 | | | $ | 6,709,450 | | | $ | 1,600,000 | | | $ | — | | | $ | — | |
Secured credit facilities | | 224,401 | | | 24,401 | | | 200,000 | | | — | | | — | |
| | | | | | | | | | |
| | | | | | | | | | |
Operating lease obligations | | 95,495 | | | 28,187 | | | 39,128 | | | 18,702 | | | 9,478 | |
Naming and promotional rights agreements | | 136,827 | | | 24,720 | | | 44,168 | | | 39,939 | | | 28,000 | |
Total contractual obligations | | $ | 1,556,723 | | | $ | 77,308 | | | $ | 283,296 | | | $ | 558,641 | | | $ | 637,478 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
(Dollars in thousands) | | Total | | Less than 1 Year | | 1-3 years | | 3-5 Years | | More than 5 Years |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Warehouse and other lines of credit | | $ | 4,265,343 | | | $ | 2,465,343 | | | $ | 1,800,000 | | | $ | — | | | $ | — | |
Debt obligations (1) | | | | | | | | | | |
Secured credit facilities | | 1,239,841 | | | 814,841 | | | 425,000 | | | — | | | — | |
Term Notes | | 200,000 | | | — | | | 200,000 | | | — | | | — | |
Senior Notes | | 1,002,475 | | | — | | | — | | | 500,000 | | | 502,475 | |
| | | | | | | | | | |
Operating lease obligations (2) | | 76,948 | | | 15,760 | | | 41,120 | | | 13,262 | | | 6,806 | |
Naming and promotional rights agreements | | 103,048 | | | 18,851 | | | 43,008 | | | 20,189 | | | 21,000 | |
Total contractual obligations | | $ | 6,887,655 | | | $ | 3,314,795 | | | $ | 2,509,128 | | | $ | 533,451 | | | $ | 530,281 | |
(1) Amounts exclude deferred financing costs.
51
(2) Represents lease obligations for office space under non-cancelable operation lease agreements.
In addition to the above contractual obligations, we also hadhave interest rate lock commitments to originate loans of $24.5 billion as of March 31, 2021.and forward sale contracts. Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon and, therefore, those commitments have been excluded from the table above. Refer to Note 6- Derivative Financial Instruments and Hedging Activities of the Notes to Consolidated Financial Statements contained in Item 1 for further discussion on derivatives.
Off-Balance Sheet Arrangements
As of March 31, 2021,June 30, 2022, we were party to mortgage loan participation purchase and sale agreements, pursuant to which we have access to uncommitted facilities that provide liquidity for recently sold MBS up to the MBS settlement date. These facilities, which we refer to as gestation facilities, are a component of our financing strategy and are off-balance sheet arrangements.arrangements provided by certain warehouse lenders.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP, which requires us to make judgments, estimates and assumptions that affect: (i) the reported amounts of our assets and liabilities; (ii) the disclosure of our contingent assets and liabilities at the end of each reporting period; and (iii) the reported amounts of revenues and expenses during each reporting period. We continually evaluate these judgments, estimates and assumptions based on our own historical experience, knowledge and assessment of current business and other conditions and our expectations regarding the future based on available information which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application. Our accounting policies are described in Note 1 to the consolidated financial statements included in the Company's 20202021 Form 10-K. At December 31, 2020,2021, the most critical of these significant accounting policies were policies related to the fair value of financial instruments, loans held for sale, servicing rights, and derivative financial instruments, and loan repurchase reserve.instruments. As of the date of this report, there have been no significant changes to the Company's critical accounting policies or estimates.
When reading our consolidated financial statements, you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions.
Recent Accounting Pronouncements
Refer to Note 2 – Recent Accounting Pronouncements to the consolidated financial statements included elsewhere in this report for a discussion of recently issued accounting guidance.
Reconciliation of Non-GAAP Measures
To provide investors with information in addition to our results as determined by GAAP, we disclose Adjusted Total Revenue, Adjusted Net Income, Adjusted Diluted EPS, and Adjusted EBITDA ascertain non-GAAP measures.measures to assist investors in evaluating our financial results. We believe Adjusted Total Revenue, Adjusted Net Income, Adjusted Diluted EPS, and Adjusted EBITDAthese non-GAAP measures provide useful information to investors regarding our results of operations because each measure assists both investors and management in analyzing and benchmarking the performance and value of our business. They facilitate company-to-company operating performance comparisons by backing out potential differences caused by variations in hedging strategies, changes in valuations, capital structures (affecting net interest expense)expense on non-funding debt), taxation, the age and book depreciation of facilities (affecting relative depreciation expense) and, the amortization of intangibles, which may vary for different companies for reasons unrelated to operating performance, as well asand certain historical cost (benefit)or benefit items which may vary for different companies for reasons unrelated to operating performance. These non-GAAP measures are notinclude our Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share, and Adjusted EBITDA (LBITDA). We exclude from each of these non-GAAP financial measures calculated in accordance with GAAP and should not be considered as a substitute for revenue, net income, or any other operating performance measure calculated in accordance with GAAP, and may not be comparable to a similarly titled measure reported by other companies.
We define “Adjusted Total Revenue” as total revenues, net of the change in fair value of servicing rights and the related hedging gains and losses. We define “Adjusted Net Income” as tax-effected earnings before change in fair value of contingent consideration, stock compensation expense and management fees, IPO expense, and the change in fair value of MSRs net of theand related hedging gains and losses as they add volatility and the tax effects of those adjustments. We define “Adjusted Diluted EPS” as Adjusted Net Income divided by the diluted weighted average number of shares of Class A common stock and Class D common stock outstanding for the applicable period, which assumes the pro forma exchange of all outstanding Class C common shares for shares of Class A common stock. We define “Adjusted EBITDA” as earnings before interest expense and amortization of debt issuance costs on non-funding debt, income taxes, depreciation and amortization, change in fair value of MSRs, netare not indicative of the related hedging gains and losses, change in fair valueCompany’s operating performance or results of contingent consideration,operation. We also exclude stock compensation expense, andwhich is a non-cash expense, management fees, IPO expenses, gains or losses on extinguishment of debt, non-cash goodwill impairment, and IPO expenses.other impairment charges to intangible assets and operating lease right-of-use assets as management does not consider these costs to be indicative of our performance or results of operations. Adjusted EBITDA (LBITDA) includes interest expense on funding facilities, which are recorded as a component of “net interest income (expense)”, as these expenses are a direct operating expense driven by loan origination volume. By contrast, interest expense on our non-funding debt is a function of our capital structure and is therefore excluded from Adjusted EBITDA (LBITDA). Adjustments for income taxes are made to reflect historical results of operations on the basis that it was taxed as a corporation under the Internal Revenue Code, and therefore subject to U.S. federal, state and local income taxes. We exclude from each of theseThese non-GAAP measures the change in fair value of MSRs and related hedging gains and losses as this represents a non-cash non-realized adjustment to our total revenues, reflecting changes in assumptions including discount rates and prepayment speed assumptions, mostly due to changes in market interest rates, which is not indicative of our performance or results of operations. We also exclude stock compensation expense, which is a non-cash expense, management fees and IPO expenses as management does not consider these costs to be indicative of our performance or results of operations. Adjusted EBITDA includes interest expense on funding facilities, which are recorded as a component of “net interest income (expense),” as these expenses are a direct operating expense driven by loan origination volume. By contrast, interest and amortization expense on non-funding debt is a function of our capital structure and is therefore excluded from Adjusted EBITDA.
Adjusted Total Revenue, Adjusted Net Income, Adjusted Diluted EPS, and Adjusted EBITDA have limitations as analytical tools, and you should not consider thembe considered in isolation or as a substitute for analysis of our results asrevenue, net income, or any other operating performance measure calculated in accordance with GAAP, and may not be comparable to a similarly titled measure reported under U.S. GAAP.by other companies. Some of these limitations are:
•they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments;
•Adjusted EBITDA (LBITDA) does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and Adjusted Total Revenue, Adjusted Net Income (Loss), and Adjusted EBITDA (LBITDA) do not reflect any cash requirement for such replacements or improvements; and
•they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows.
Because of these limitations, Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted EPS,Earnings (Loss) Per Share, and Adjusted EBITDA (LBITDA) are not intended as alternatives to total revenue, net income (loss), net income (loss) attributable to the Company, or Diluted EPSEarnings (Loss) Per Share or as an indicator of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted EPS,Earnings (Loss) Per Share, and Adjusted
EBITDA (LBITDA) along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. See below for a reconciliation of these non-GAAP measures to their most comparable U.S. GAAP measures.
| | | | | | | | | | | | | | | | |
Reconciliation of Total Revenue to Adjusted Total Revenue (Dollars in thousands) (Unaudited): | | Three Months Ended |
| March 31, 2021 | | | | March 31, 2020 |
Total net revenue | | $ | 1,316,008 | | | | | $ | 486,121 | |
Change in fair value of servicing rights(1) | | (231,208) | | | | | 86,186 | |
Net losses (gains) from derivatives hedging servicing rights | | 43,527 | | | | | (19,171) | |
Realized and unrealized losses (gains) from derivative assets and liabilities(2) | | 112,929 | | | | | (52,896) | |
Change in fair value of servicing rights net of hedging gains and losses(3) | | (74,752) | | | | | 14,119 | |
Adjusted total revenue | | $ | 1,241,256 | | | | | $ | 500,240 | |
(1)Included in change in fair value of servicing rights, net in the Company’s consolidated statements of operations.
(2)Included in gain on origination and sale of loans, net in the Company’s consolidated statements of operations, as shown below:
| | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) (Unaudited): | | Three Months Ended |
| | March 31, 2021 | | | | March 31, 2020 |
| Unrealized gains from derivative assets and liabilities | | $ | 209,386 | | | | | $ | 29,981 | |
| Less: Unrealized gains (losses) from derivative assets and liabilities—IRLC and LHFS | | 328,322 | | | | | (20,517) | |
| Unrealized (losses) gains from derivative assets and liabilities—servicing rights | | (118,936) | | | | | 50,498 | |
| Realized gains (losses) from derivative assets and liabilities | | 105,643 | | | | | (54,361) | |
| Less: Realized gains (losses) from derivative assets and liabilities—IRLC and LHFS | | 99,636 | | | | | (56,759) | |
| Realized gains (losses) from derivative assets and liabilities—servicing rights | | 6,007 | | | | | 2,398 | |
| Realized and unrealized (losses) gains from derivative assets and liabilities - servicing rights | | $ | (112,929) | | | | | $ | 52,896 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation of Total Revenue to Adjusted Total Revenue (Dollars in thousands) (Unaudited): | | Three Months Ended | | Six Months Ended |
| June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Total net revenue | | $ | 308,639 | | | $ | 779,914 | | | $ | 811,949 | | | $ | 2,095,922 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Change in fair value of servicing rights net, of hedging gains and losses(1) | | (35,366) | | | 45,416 | | | (34,072) | | | (29,152) | |
Adjusted total revenue | | $ | 273,273 | | | $ | 825,330 | | | $ | 777,877 | | | $ | 2,066,770 | |
(3)(1)Represents the change in the fair value of servicing rights attributable to changes in assumptions, net of hedging gains and losses.
| | | | | | | | | | | | | | | | |
Reconciliation of Net Income to Adjusted Net Income (Dollars in thousands) (Unaudited): | | Three Months Ended |
| March 31, 2021 | | | | March 31, 2020 |
Net income attributable to loanDepot, Inc. | | $ | 44,875 | | | | | $ | — | |
Net income from the pro forma conversion of Class C common shares to Class A common shares(1) | | 382,978 | | | | | 88,996 | |
Net income | | 427,853 | | | | | 88,996 | |
| | | | | | |
| | | | | | |
Adjustments to the provision for income taxes(2) | | (101,221) | | | | | (22,907) | |
Tax-effected net income | | 326,632 | | | | | 66,089 | |
Change in fair value of servicing rights, net of hedging gains and losses(3) | | (74,752) | | | | | 14,119 | |
Change in fair value - contingent consideration | | — | | — | | | | 2,507 | |
Stock compensation expense and management fees | | 60,076 | | | | | 220 | |
IPO expenses | | 4,834 | | | | | — | |
Tax effect of adjustments(4) | | 2,601 | | | | | (4,336) | |
Adjusted net income | | $ | 319,391 | | | | | $ | 78,599 | |
51
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) (Dollars in thousands) (Unaudited): | | Three Months Ended | | Six Months Ended |
| June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Net (loss) income attributable to loanDepot, Inc. | | $ | (100,928) | | | $ | 8,561 | | | $ | (135,669) | | | $ | 53,436 | |
Net (loss) income from the pro forma conversion of Class C common shares to Class A common shares(1) | | (122,894) | | | 17,723 | | | (179,472) | | | 400,701 | |
Net (loss) income | | (223,822) | | | 26,284 | | | (315,141) | | | 454,137 | |
| | | | | | | | |
| | | | | | | | |
Adjustments to the benefit (provision) for income taxes(2) | | 31,952 | | | (4,684) | | | 46,663 | | | (105,905) | |
Tax-effected net (loss) income | | (191,870) | | | 21,600 | | | (268,478) | | | 348,232 | |
Change in fair value of servicing rights, net of hedging gains and losses(3) | | (35,366) | | | 45,416 | | | (34,072) | | | (29,152) | |
| | | | | | | | |
Stock-based compensation expense and management fees | | 4,712 | | | 2,126 | | | 7,021 | | | 62,202 | |
IPO expenses | | — | | | 1,261 | | | — | | | 6,095 | |
Gain on extinguishment of debt | | — | | | — | | | (10,528) | | (10,528) | | — | |
Goodwill impairment | | 40,736 | | | — | | | 40,736 | | | 0.0 |
Other impairment | | 5,963 | | | — | | | 5,963 | | | 0.0 |
Tax effect of adjustments(4) | | 7,970 | | | (12,899) | | | 9,771 | | | (10,346) | |
Adjusted net (loss) income | | $ | (167,855) | | | $ | 57,504 | | | $ | (249,587) | | | $ | 377,031 | |
| | | | | | | | |
(1)Reflects net income (loss) to Class A common stock and Class D common stock from the pro forma exchange of Class C common stock as of March 31, 2021.stock.
(2)loanDepot, Inc. is subject to federal, state and local income taxes. Adjustments to income tax (benefit) reflect the effective income tax rates below, and the pro forma assumption that loanDepot, Inc. owns 100% of LD Holdings.
| | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | March 31, 2021 | | | | March 31, 2020 |
| Statutory U.S. federal income tax rate | | 21.00 | % | | | | 21.00 | % |
| State and local income taxes (net of federal benefit) | | 5.43 | | | | | 4.74 | |
| Effective income tax rate | | 26.43 | % | | | | 25.74 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | Six Months Ended |
| | June 30, 2022 | | June 30, 2021 | June 30, 2022 | | June 30, 2021 |
| Statutory U.S. federal income tax rate | | 21.00 | % | | 21.00 | % | 21.00 | % | | 21.00 | % |
| State and local income taxes (net of federal benefit) | | 5.00 | | | 5.43 | | 5.00 | | | 5.43 | |
| Effective income tax rate | | 26.00 | % | | 26.43 | % | 26.00 | % | | 26.43 | % |
(3)Amounts representRepresents the change in the fair value of servicing rights attributable to changes in assumptions, net of hedging gains and losses.
(4)Amounts represent the income tax effect of (a) change in fair value of servicing rights, net of hedging gains and losses, (b) change in fair value of contingent consideration (c) stock compensation expense and management fees, (c) IPO expense, and (d) IPO expensegain on extinguishment of debt at the aforementioned effective income tax rates.
| | | | | | | | | | | | |
Reconciliation of Adjusted Diluted Weighted Average Shares Outstanding to Diluted Weighted Average Shares Outstanding (1)
($ in thousands except per share)
(Unaudited)
| | Three Months Ended |
| March 31, 2021 | | | | |
| | |
Net income attributable to loanDepot, Inc. | | $ | 44,875 | | | | | |
Adjusted net income | | 319,391 | | | | | |
| | | | | | |
Share Data: | | | | | | |
Diluted weighted average shares of Class A and Class D common stock outstanding | | 125,772,797 | | | | | |
Assumed pro forma conversion of Class C shares to Class A common stock (2)
| | 198,537,418 | | | | | |
Adjusted diluted weighted average shares outstanding | | 324,310,215 | | | | |
| | | | | | |
Diluted EPS | | $ | 0.36 | | | | | |
Adjusted Diluted EPS | | 0.98 | | | | | |
52
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation of Adjusted Diluted Weighted Average Shares Outstanding to Diluted Weighted Average Shares Outstanding (Dollars in thousands except per share) (Unaudited) | | Three Months Ended | | Six Months Ended |
| June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Net (loss) income attributable to loanDepot, Inc. | | $ | (100,928) | | | $ | 8,561 | | | $ | (135,669) | | | $ | 53,436 | |
Adjusted net (loss) income | | (167,855) | | | 57,504 | | | (249,587) | | | 377,031 | |
| | | | | | | | |
Share Data: | | | | | | | | |
Diluted weighted average shares of Class A and Class D common stock outstanding | | 153,822,380 | | | 126,726,876 | | | 146,415,135 | | | 126,392,949 | |
Assumed pro forma conversion of weighted average Class C shares to Class A common stock (1) | | 165,281,304 | | | 196,741,703 | | | 173,245,208 | | | 197,366,213 | |
Adjusted diluted weighted average shares outstanding | | 319,103,684 | | 323,468,579 | | 319,660,343 | | 323,759,162 |
| | | | | | | | |
Diluted (loss) earnings per share | | $ | (0.66) | | | $ | 0.07 | | | $ | (0.93) | | | $ | 0.42 | |
Adjusted diluted (loss) earnings per share (2) | | N/A | | N/A | | N/A | | N/A |
(1)This non-GAAP measures was not applicable for the three months ending March 31, 2020 as the IPO and reorganization transaction had not yet occurred.
(2)Reflects the assumed pro forma conversion of all outstanding shares of Class C common stock to Class A common stock.
(2)Omitted adjusted diluted (loss) earnings per share measures that included the impact of assumed exchange of shares to the extent the exchange was antidilutive.
| | | | | | | | | | | | | | | | |
Reconciliation of Net Income to Adjusted EBITDA (Dollars in thousands) (Unaudited): | | Three Months Ended |
| March 31, 2021 | | | | March 31, 2020 |
Net income | | $ | 427,853 | | | | | $ | 88,996 | |
Interest expense — non-funding debt (1) | | 13,171 | | | | | 10,970 | |
Income tax expense | | 18,277 | | | | | — | |
Depreciation and amortization | | 8,454 | | | | | 9,372 | |
Change in fair value of servicing rights, net of hedging gains and losses (2) | | (74,752) | | | | | 14,119 | |
Change in fair value - contingent consideration | | — | | | | | 2,507 | |
Stock compensation expense and management fees | | 60,076 | | | | | 220 | |
IPO expenses | | 4,834 | | | | | — | |
Adjusted EBITDA | | $ | 457,913 | | | | | $ | 126,184 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation of Net Income (Loss) to Adjusted EBITDA (LBITDA) (Dollars in thousands) (Unaudited): | | Three Months Ended | | Six Months Ended |
| June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Net (loss) income | | $ | (223,822) | | | $ | 26,284 | | | $ | (315,141) | | | $ | 454,137 | |
Interest expense — non-funding debt(1) | | 33,140 | | | 21,266 | | | 47,533 | | | 34,438 | |
Income tax (benefit) expense | | (28,196) | | | 4,225 | | | (39,823) | | | 22,502 | |
Depreciation and amortization | | 11,323 | | | 8,686 | | | 21,867 | | | 17,139 | |
Change in fair value of servicing rights, net of hedging gains and losses(2) | | (35,366) | | | 45,416 | | | (34,072) | | | (29,152) | |
| | | | | | | | |
Stock-based compensation expense and management fees | | 4,712 | | | 2,126 | | | 7,021 | | | 62,202 | |
IPO expenses | | — | | | 1,261 | | | — | | | 6,095 | |
Goodwill impairment | | 40,736 | | | — | | | 40,736 | | | — | |
Other impairment | | 5,963 | | | — | | | 5,963 | | | — | |
Adjusted (LBITDA) EBITDA | | $ | (191,510) | | | $ | 109,264 | | | $ | (265,916) | | | $ | 567,361 | |
(1)Represents other interest expense, which includeincludes gain on extinguishment of debt and amortization of debt issuance costs, in the Company'sCompany’s consolidated statement of operations.
(2)Represents the change in the fair value of servicing rights attributable to changes in assumptions, net of hedging gains and losses.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we are exposed to various risks which can affect our business, results and operations. The primary market risks to which we are exposed include interest rate risk, credit risk, prepayment risk and inflation risk.
We manage our interest rate risk and the price risk associated with changes in interest rates pursuant to the terms of an Interest Rate Risk Management Policy which (i) quantifies our interest rate risk exposure, (ii) lists the derivatives eligible for use as Hedging Instruments and (iii) establishes risk and liquidity tolerances.
Interest Rate Risk
Our principal market exposure is to interest rate risk as our business is subject to variability in results of operations due to fluctuations in interest rates. We anticipate that interest rates will remain our primary benchmark for market risk for the foreseeable future. Changes in interest rates affect our assets and liabilities measured at fair value, including LHFS, IRLCs, servicing rights and Hedging Instruments. In a declining interest rate environment, we would expect our results of operations to be positively impacted by higher loan origination volumes and loan margins. However, we would expect our results of operations to be negatively impacted by higher actual and projected loan prepayments related to our loan servicing portfolio and a decrease in the value of our servicing rights. As interest rates decline, our LHFS and IRLCs generally increase in value while our Hedging Instruments utilized to hedge against interest rate risk decrease in value. In a rising interest rate environment, we would expect a negative impact on the results of operations of our production activities and a positive impact on the results of operations of our servicing activities (principally through an increase in the fair value of our servicing rights). As interest rates increase, our LHFS and IRLCs generally decrease in value while our Hedging Instruments typically increase in value. The interaction between the results of operations of our various activities is a core component of our overall interest rate risk strategy. See “—Sensitivity Analysis” for tabular analysis on the impact of changes in interest rates on our financial assets and liabilities measured at fair value.
IRLCs represent an agreement to extend credit to a potential customer, whereby the interest rate on the loan is set prior to funding. Our LHFS, which are held in inventory awaiting sale into the secondary market, and our IRLCs, are subject to changes in interest rates from the date of the commitment through the sale of the loan into the secondary market. Accordingly, we are exposed to interest rate risk and related price risk during the period from the date of the lock commitment through (i) the lock commitment cancellation or expiration date, or (ii) the date of sale into the secondary mortgage market. LoanThe average term for outstanding interest rate lock commitments generally range between 10 and 60at June 30, 2022 was 41 days; and our average holding period of the loan from funding to sale was 13.225 days during the threesix months ended March 31, 2021.June 30, 2022.
We manage the interest rate risk associated with our outstanding IRLCs, LHFS and servicing rights by entering into Hedging Instruments. Management expects these Hedging Instruments will experience changes in fair value opposite to changes in fair value of the IRLCs and LHFS, thereby reducing earnings volatility. We take into account various factors and strategies in determining the portion of IRLCs, LHFS and servicing rights that we want to economically hedge. Our expectation of how many of our IRLCs will ultimately close is a key factor in determining the notional amount of Hedging Instruments used in hedging the position. See “Item 1A. Risk Factors—Risks Related to Our Business—Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates.”
Credit Risk
We are subject to credit risk in connection with our loan sale transactions. While our contracts vary, we provide representations and warranties to purchasers and insurers of the mortgage loans sold that typically are in place for the life of the loan. In the event of a breach of these representations and warranties, we may be required to repurchase a mortgage loan or indemnify the purchaser, and any subsequent loss on the mortgage loan may be borne by us. The representations and warranties require adherence to applicable origination and underwriting guidelines (including those of Fannie Mae, Freddie Mac and Ginnie Mae), including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements and compliance with applicable federal, state and local law.
We record a provision for losses relating to such representations and warranties as part of our loan sale transactions. The level of the liability for losses from representations and warranties is difficult to estimate and requires considerable management judgment. The level of loan repurchase losses is dependent on economic factors, trends in property values, investor repurchase demand strategies and other external conditions that may change over the lives of the underlying loans. We evaluate the adequacy of our liability for losses from representations and warranties based on our loss experience and our assessment of incurred losses relating to loans that we have previously sold and which remain outstanding at the balance sheet date. As our portfolio of loans sold subject to representations and warranties grows and as economic fundamentals change, such adjustments can be material. However, we believe that our current estimates adequately approximate the losses incurred on our sold loans subject to such representations and warranties.
Additionally, we are exposed to credit risk associated with our customers from our LHFS as well as credit risks related to our counterparties including our subservicer, Hedging Instrument counterparties and other significant vendors. Our ability to operate profitably is dependent on both our access to capital to finance our assets and our ability to profitably originate, sell and service loans. Our ability to hold loans pending sale and/or securitization depends, in part, on the availability to us of adequate financing lines of credit at suitable interest rates and favorable advance rates.
In general, we manage such risk by selecting only counterparties that we believe to be financially strong, dispersing the risk among multiple counterparties, placing contractual limits on the amount of unsecured credit extended to any single counterparty and entering into netting agreements with the counterparties, as appropriate. During the threesix months ended March 31,June 30, 2022 and 2021, and 2020, we incurred no losses due to nonperformance by any of our counterparties.
Prepayment Risk
Prepayment risk is affected by interest rates (and their inherent risk) and borrowers’ actions relative to their underlying loans. To the extent that the actual prepayment speed on the loans underlying our servicing rights differs from what we projected when we initially recognized them and when we measured fair value as of the end of each reporting period, the carrying value of our investment in servicing rights will be affected. In general, an increase in prepayment expectations will decrease our estimates of the fair value of the servicing right, thereby reducing expected servicing income. We monitor the servicing portfolio to identify potential refinancings and the impact that would have on associated servicing rights.
Inflation Risk
Almost all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors will influence our performance more than inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Additionally, our financial statements are prepared in accordance with GAAP and our activities and balance sheetsheets are measured with reference to historical cost and/or fair value without considering inflation.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of March 31, 2021,June 30, 2022, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we and certain of our subsidiaries are involved in various lawsuits in state or federal courts regarding violations of state or federal statutes, regulations or common law related to matters arising out of the ordinary course of business. We are not currently subject to any otherFor a further discussion of our material legal proceedings. Seeproceedings, see Note 1615 - Commitments and Contingencies of the Notes to Consolidated Financial Statements included in “Item 1 Financial Statements.” Additionally, below we have described certain other significant legal proceedings.
Securities Class Action Litigation.
Beginning in September 2021, two putative class action lawsuits were filed in the United States District Court for the Central District of California asserting claims under the U.S. securities laws against the Company, certain of its directors, and certain of its officers regarding certain disclosures made in connection with the Company’s IPO. The two actions were consolidated and the court appointed a lead plaintiff in May 2022. A consolidated amended complaint was filed in June 2022, which, in addition to challenging disclosures made in connection with the IPO, alleges that certain disclosures made after the IPO were false and/or misleading. The Company’s motion to dismiss is due on August 24, 2022. The plaintiffs seek unspecified monetary damages. The Company believes this lawsuit is without merit and intends to vigorously defend against it. The Company does not believe that a loss is probable or that the amount of loss is reasonably estimable in this matter at this time.
Stockholder Derivative Litigation.
Beginning in October 2021, four shareholder derivative complaints were filed in the United States District Court for the Central District of California against certain of the Company’s directors and officers, alleging, among things, that these defendants breached their fiduciary duties by causing the Company to make the disclosures being challenged in the putative securities class action described above and seeking unspecified monetary damages for the Company and that the Company make certain changes to its corporate governance. These derivative actions subsequently were consolidated into a single action (the “California Action”). The California Action is stayed pending resolution of a motion to dismiss in the putative securities class action. Beginning in March 2022, two
substantially similar shareholder derivative complaints were filed in the United States District Court for the District of Delaware, and then were consolidated into a single action (the “Delaware Action”). The Delaware Action is stayed pending resolution of a motion to dismiss in the putative securities class action. The Company believes these lawsuits are without merit. The Company does not believe that a loss is probable or that the amount of loss is reasonably estimable in this matter at this time.
Item 1A. Risk Factors
ThereOther than the risk factor set forth below, there have been no material changes or updates toin the risk factors that were previously disclosed indiscussed under Part I. "Item 1A. Risk Factors" of our 20202021 Form 10-K filed with the SEC on March 16, 2021.18, 2022.
Macroeconomic headwinds, including inflation and higher interest rates, have negatively impacted our operations and financial results and may further negatively impact us. While we are implementing initiatives such as our Vision 2025 plan to better position the Company, these initiatives may not effectively mitigate the effects of deterioration in the macroeconomic environment.
Our operations and financial performance are affected by factors including macroeconomic conditions such as inflation fluctuations, interest rates, consumer confidence and demand. We generate a sizeable portion of our revenues from refinance and purchase mortgages. As interest rates have risen, refinancing volumes have decreased as fewer consumers were incentivized to refinance their mortgages. As a result, our revenues have decreased substantially and we experienced net losses for the six months ended June 30, 2022. In addition, investors may seek to have us repurchase additional loans in the current environment, and because repurchased loans are typically resold at a discount to their repurchase price and unpaid principal balance we have experienced increased losses on repurchased loans or loans subject to repurchase originated at interest rates lower than currently prevailing rates. An increase in repurchase volumes of loans originated at lower interest rates could materially adversely affect our business, financial condition and results of operations.
As a result of our second quarter losses, we were required to amend certain of our warehouse lines or amend and obtain waivers of profitability related financial covenants in certain of our debt obligations for the quarter and we expect that we will need to execute additional amendments or obtain additional waivers from certain of our lending counterparties related to our profitability covenants or other similar financial covenants in the future including for the third quarter. There can be no assurance that such amendments or waivers will be received, in which case we would be in default under these agreements, and our lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral and enforce their interests against existing collateral, as well as triggering cross default provisions under other financing facilities which could materially adversely affect our financial condition and results of operations.
In July 2022, we announced our Vision 2025 plan designed to address current and anticipated mortgage market conditions by reducing staffing levels to approximately 6,500 by year-end 2022 and implementing business process optimization and other cost saving measures. We may not realize, in full or in part, the anticipated benefits, savings and improvements in our operations from our restructuring efforts due to unforeseen difficulties, delays or unexpected costs. If we are unable to realize the expected operational efficiencies and cost savings through headcount reduction, attrition, business process optimization, reduced marketing and third-party spending, and real estate consolidation, our operating results, financial condition, cash flows and competitive position may be materially adversely affected. We also cannot guarantee that we will not have to undertake additional staffing reductions or strategic reorganization activities in the future.
Furthermore, planned staffing reductions could create an additional risk of claims being made on behalf of affected employees. Any alleged violation of applicable wage laws or other labor-or employment-related laws could result in complaints by current or former employees, adverse media coverage, investigations and damages or penalties which could have a materially adverse effect on our reputation, business, operating results and prospects. In addition, responding to any such proceeding may result in a significant diversion of management’s attention and resources, significant defense costs and other professional fees.
Finally, we may be exposed to unanticipated consequences of our staffing reductions, including attrition beyond the planned reductions, increased difficulties in our day-to-day operations, including as a result of a loss of continuity, loss of accumulated knowledge and/or efficiency, reduced employee morale and reduced ability to attract
and retain qualified personnel. Employees who were not affected by our planned staffing reductions may seek alternate employment, which may force us to rely on third-party contract support creating unplanned additional expense or harm our productivity.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In connectionShares of the Company's Class B common stock or Class C common stock may each be converted, together with a corresponding Holding Unit, as applicable, at any time and from time to time at the consummationoption of the holder of such share of Class B common stock or Class C common stock, as applicable, for one fully paid and non-assessable share of Class A common stock. Each share of the Company’s initial public offeringClass D common stock may be converted into one fully paid and non-assessable share of Class A common stock at any time at the Company issued tooption of the Parthenon Stockholders 121,368,600 sharesholder of such share of Class D common stock. There is no cash or other consideration paid by the holder converting such shares and, accordingly, there is no cash or other consideration received by the Company. The shares of Class A common stock $0.001 par value per share in exchange of LD Investment Holdings, Inc.’s equity interests in LD Holdings. Additionally,issued by the Company in such conversions are exempt from registration pursuant to Section 3(a)(9) of the Securities Act.
On April 1, 2022, we issued 201,422,212to stockholders 1,259,307 shares of Class A common stock upon the conversion of the same number of shares of our Class C common stock $0.001 par value per share to certain of the continuing members under the LLC Agreement. The issuances in this paragraph were made in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended.and corresponding Holding Units held by such stockholders.
On May 2, 2022, we issued to stockholders 17,726,451 shares of Class A common stock upon the conversion of the same number of shares of our Class C common stock and corresponding Holding Units held by such stockholders.
In May 2022, 20,174 shares were purchased from employees to pay for taxes related to restricted stock vesting under the terms of an employee share-based compensation plan.
On June 1, 2022, we issued to stockholders 667,899 shares of Class A common stock upon the conversion of the same number of shares of our Class C common stock and corresponding Holding Units held by such stockholders.
In June 2022, 11,921 shares were purchased from employees to pay for taxes related to restricted stock vesting under the terms of an employee share-based compensation plan.
On July 1, 2022, we issued to stockholders 455,797 shares of Class A common stock upon the conversion of the same number of shares of our Class C common stock and corresponding Holding Units held by such stockholders.
In July 2022, 25,177 shares were purchased from employees to pay for taxes related to restricted stock vesting under the terms of an employee share-based compensation plan.
58
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The following documents are filed as a part of this report:
| | | | | |
Exhibit No. | Description |
3.1 | |
3.2 | |
10.1* | |
10.2 | |
10.3* | |
10.4* | |
10.5* | |
10.6 | |
4.210.7 | Indenture,Amendment No. 6, dated June 28, 2022, to the Second Amended and Restated Master Repurchase Agreement, dated as of March 26, 2021,January 2, 2018, by and among LD Holdings Groupbetween Jefferies Funding, LLC, the guarantors party theretoas buyer, and Wilmington Trust, National Association,loanDepot.com, LLC, as trustee (Form of 6.125% Senior Notes due 2028 included as Exhibit A thereto).seller. (incorporated herein by reference to exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 1, 2021). |
10.1 | Stockholders Agreement, dated as of February 16, 2021, by and among loanDepot, Inc., Parthenon Investors III, L.P., PCap Associates, Parthenon Capital Partners Fund, L.P., Parthenon Investors IV, L.P., Parthenon Capital Partners Fund II, L.P. PCP Managers, L.P., The JLSSAA, Trust established September 4, 2014, JLSA, LLC, Trilogy Mortgage Holdings, Inc., Trilogy Management Investors Six, LLC, Trilogy Management Investors Seven, LLC and Trilogy Management Investors Eight, LLC (incorporated herein by reference to exhibitExhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 16,July 5, 2021). |
10.210.8*+ | Tax ReceivableSecond Amended and Restated Master Repurchase Agreement, dated as of June 30, 2022, by and among TIAA, FSB, formerly known as EverBank, as administrative agent for the Buyers and as a buyer, Signature Bank, as a buyer, and loanDepot.com, LLC, as the seller. |
10.9* | Amendment No. 2, dated July 26, 2022, by and between Bank of America, N.A. and loanDepot.com, LLC to the Second Amended and Restated Mortgage Loan Purchase Agreement, dated as of February 16, 2021, by and among loanDepot, Inc., LD Holdings Group LLC and the other parties thereto (incorporated herein by reference to exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 16, 2021).2, 2022 |
10.3 | |
10.4+ | |
10.5+ | |
10.6+ | |
| | | | | |
10.7+ | |
10.8+ | |
10.910.10* | Amendment No. 6,4, dated March 1, 2021,July 26, 2022, by and among Credit Suisse First Boston Mortgage CapitalBank of America, N.A., loanDepot BA Warehouse, LLC Credit Suisse AG, a company incorporated in Switzerland, acting through its Cayman Island Branch, Alpine Securitization LTD., and loanDepot.com, LLC to the Second Amended and Restated Master Repurchase Agreement, dated as of March 10, 2017 (incorporated herein by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 4, 2021).August 20, 2021. |
10.110.11* | |
10.12*+ | |
10.110.13* | EighthFifteenth Amendment, dated as of March 2, 2021,July 29, 2022, by and between TIAA, FSBNexbank and loanDepot.com, LLCloanDepot, Inc. to the Sixth Amended and Restated LoanCredit and Security Agreement, dated November 28, 2018 (incorporated herein by reference to exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 4, 2021). |
10.1 | |
10.1 | |
10.1 | |
31.1* | |
31.2* | |
32.1* | |
32.2* | |
101.0 | XBRL Document |
101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | XBRL Taxonomy Extension Schema Document. |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
| | | | | |
Exhibit No. | Description |
104.0 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
+ Management contract or compensatory plan or arrangement
* Filed herewith
+ Confidential information has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed pursuant to Item 601(b)(10) of Regulation S-K. Certain schedules, exhibits and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K or constitutes a clearly unwarranted invasion of personal privacy pursuant to Item 601(a)(6) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the staff of the Securities and Exchange Commission upon request.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| LOANDEPOT, INC. |
| | |
| | |
Dated: MayAugust 10, 20212022 | By: | /s/ Anthony HsiehFrank Martell |
| Name: | Anthony HsiehFrank Martell |
| Title: | President and Chief Executive Officer |
| | |
Dated: MayAugust 10, 20212022 | By: | /s/ Patrick Flanagan |
| Name: | Patrick Flanagan |
| Title: | Chief Financial Officer |
| | |
| | |