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What changed in loanDepot, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of loanDepot, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+415 added−452 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-16)

Top changes in loanDepot, Inc.'s 2023 10-K

415 paragraphs added · 452 removed · 325 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

31 edited+18 added−21 removed35 unchanged
Biggest changeHuman Capital Our People As of December 31, 2022, we had 5,194 employees, all of whom are based in the United States. As of December 31, 2022, we also employed 933 full-time contractors. None of our employees are represented by a labor union and we consider our employee relations to be good.
Biggest changeWe are also subject to a variety of regulatory and contractual obligations imposed by the GSEs, Ginnie Mae, the VA, the FHA, and others. Human Capital Our People As of December 31, 2023, we had 4,250 employees, all of whom are based in the United States. As of December 31, 2023, we also employed 1,047 full-time contractors.
VA loans are federal assistance residential mortgage loans for eligible U.S. veterans and their surviving spouses that are guaranteed against default by the U.S. government. iv) Home equity loans: we originate home equity loans and lines of credit that are designed to provide homeowners access to efficient capital by accessing the equity that borrowers have accumulated in their homes.
VA loans are federal assistance residential mortgage loans for eligible U.S. veterans and their surviving spouses that are guaranteed against default by the U.S. government. iv) Home equity lines of credit: we originate home equity lines of credit that are designed to provide homeowners access to efficient capital by accessing the equity that borrowers have accumulated in their homes.
The U.S. federal, state and local laws, rules and regulations to which we are subject, among other things: • limit certain practices related to loan officer compensation; • impose licensing obligations and financial requirements on us; • limit the interest rates, finance charges and other fees that we may charge or pay; • regulate the use of credit reports and the reporting of credit information; • impose underwriting requirements; • mandate disclosures and notices to consumers; • mandate maintenance and retention of loan records; • mandate the collection and reporting of statistical data regarding applications for, originations of and purchases of mortgage loans; • regulate any direct consumer marketing techniques and practices; • require us to safeguard public and non-public information about our customers and regulate the sharing of such non-public personal information with third parties and affiliates; • regulate our privacy and cybersecurity obligations; • regulate our servicing practices, including but not limited to collection and foreclosure practices, the manner and timing for responding to consumer complaints, and the administration of escrow accounts; • require us to take precautions against money-laundering and doing business with certain government-designated parties, such as suspected terrorists and parties engaged in narcotics trafficking; • regulate the method by which appraisals are ordered and reviewed and our interaction with appraisers; and • mandate the terms and conditions under which we must offer and approve loan modification programs for our servicing customers.
The U.S. federal, state and local laws, rules and regulations to which we are subject, among other things: • limit certain practices related to loan officer compensation; • impose licensing obligations and financial requirements on us; • limit the interest rates, finance charges and other fees that we may charge or pay; • regulate the use of credit reports and the reporting of credit information; • impose underwriting requirements; • mandate disclosures and notices to consumers; 7 • mandate maintenance and retention of loan records; • mandate the collection and reporting of statistical data regarding applications for, originations of and purchases of mortgage loans; • regulate any direct consumer marketing techniques and practices; • require us to safeguard public and non-public information about our customers and regulate the sharing of such non-public personal information with third parties and affiliates; • regulate our privacy and cybersecurity obligations; • regulate our servicing practices, including but not limited to collection and foreclosure practices, the manner and timing for responding to consumer complaints, and the administration of escrow accounts; • require us to take precautions against money-laundering and doing business with certain government-designated parties, such as suspected terrorists and parties engaged in narcotics trafficking; • regulate the method by which appraisals are ordered and reviewed and our interaction with appraisers; and • mandate the terms and conditions under which we must offer and approve loan modification programs for our servicing customers.
Our risk management objectives include an effective and scalable environment and resource and process optimization, anticipation and mitigation of emerging risks, consistent application of risk framework principles, maintaining satisfactory positions with regulatory agencies, investors, lenders and other critical counterparties, maintaining adequate capital to satisfy our internal, regulatory and agency requirements, holding adequate liquidity to fund our business through both normal and stressed environments, mitigating credit risk exposure, and managing towards attractive long-term risk-adjusted returns on capital.
Our risk management objectives include an effective and scalable environment and resource and process optimization, anticipation and mitigation of emerging risks, consistent application of risk framework principles, maintaining satisfactory positions with regulatory agencies, investors, lenders and other critical counterparties, maintaining adequate capital to satisfy our internal, regulatory and agency 5 requirements, holding adequate liquidity to fund our business through both normal and stressed environments, mitigating credit risk exposure, and managing towards attractive long-term risk-adjusted returns on capital.
In particular, we are required to comply with: • Title V of the GLBA and Regulation P, which requires initial and periodic communication with consumers on privacy matters and the maintenance of privacy regarding certain consumer data in our possession; • the Fair Debt Collection Practices Act (“FDCPA”) and Regulation F, which regulates the timing and content of communications on debt collections; 7 • the TILA and Regulation Z, which, in conjunction with the RESPA under the TILA-RESPA Integrated Disclosure Rule, require certain disclosures be made to mortgagors regarding terms of mortgage financing, including but not limited to information designed to promote consumer understanding of the cost of a loan, expressed in terms of an annual percentage rate, and other credit terms including the disclosure of the number, amount and due dates or periods of scheduled repayments; TILA and Regulation Z also include the rules on loan officer compensation, require special disclosures and treatment for certain high-cost loans, require certain disclosures in connection with the servicing, assumption or refinancing of mortgage loans, provide for consumers’ right to rescind loans under certain circumstances, contain rules with respect to the ordering and review of appraisals and interaction with appraisers, and provide rules requiring a determination of the consumer’s ability to repay certain mortgage loans and providing either a safe harbor or rebuttable presumption of compliance for certain qualified mortgage loans; • the FCRA and Regulation V, which collectively regulate the use and reporting of information related to the credit history of consumers and provides a national legal standard for lenders in sharing information with affiliates and certain third parties and in providing firm offers of credit to consumers; • the ECOA and Regulation B, which prohibit discrimination on the basis of age, race and certain other characteristics in the extension of credit and requires that in certain circumstances, creditors provide appraisal-related disclosures and copies of appraisals to borrowers; • the Homeowners Protection Act, which requires the cancellation of mortgage insurance once certain equity levels are reached; • the Home Mortgage Disclosure Act and Regulation C, which require public reporting of certain loan data; • the Fair Housing Act, which prohibits discrimination in housing on the basis of race, sex, national origin, and certain other characteristics; • the SCRA, which provides certain legal protections and relief to members of the military; • RESPA and Regulation X, which governs the actions of servicers related to escrow accounts, servicing transfers, general mortgage servicing and loss mitigation practices, and other customer communications, and prohibits certain practices, such as giving or accepting a fee, kickback, or anything of value in exchange for referrals of settlement service business; • Regulation AB under the Securities Act, which requires registration, reporting and disclosure for MBS; • the Secure and Fair Enforcement for Mortgage Licensing Act, commonly known as the SAFE Act, which is designed to enhance consumer protection and reduce fraud by requiring states to establish minimum standards for the licensing and registration of state licensed mortgage loan originators; • the CCPA, which provides California consumers with new privacy rights and increases the privacy and security obligations of entities handling certain personal information of such consumers; • the Telephone Consumer Protection Act, which prohibits telemarketers, banks, debt collectors, and other companies from using an automatic dialer or robocalls to call people either at home or on their cell phones without their consent; • Dodd-Frank Act provisions prohibiting unfair, deceptive or abusive acts or practices; and • certain other provisions of the Dodd-Frank Act, which, as discussed elsewhere, is extensive in scope and authorizes the CFPB to engage in rulemaking activity and to enforce compliance with federal consumer financial laws, including TILA, RESPA, and the FDCPA.
In particular, we are required to comply with: • Title V of the GLBA and Regulation P, which requires initial and periodic communication with consumers on privacy matters and the maintenance of privacy regarding certain consumer data in our possession; • the Fair Debt Collection Practices Act (“FDCPA”) and Regulation F, which regulates the timing and content of communications on debt collections; • the TILA and Regulation Z, which, in conjunction with the RESPA under the TILA-RESPA Integrated Disclosure Rule, require certain disclosures be made to mortgagors regarding terms of mortgage financing, including but not limited to information designed to promote consumer understanding of the cost of a loan, expressed in terms of an annual percentage rate, and other credit terms including the disclosure of the number, amount and due dates or periods of scheduled repayments; TILA and Regulation Z also include the rules on loan officer compensation, require special disclosures and treatment for certain high-cost loans, require certain disclosures in connection with the servicing, assumption or refinancing of mortgage loans, provide for consumers’ right to rescind loans under certain circumstances, contain rules with respect to the ordering and review of appraisals and interaction with appraisers, and provide rules requiring a determination of the consumer’s ability to repay certain mortgage loans and providing either a safe harbor or rebuttable presumption of compliance for certain qualified mortgage loans; • the FCRA and Regulation V, which collectively regulate the use and reporting of information related to the credit history of consumers and provides a national legal standard for lenders in sharing information with affiliates and certain third parties and in providing firm offers of credit to consumers; • the ECOA and Regulation B, which prohibit discrimination on the basis of age, race and certain other characteristics in the extension of credit and requires that in certain circumstances, creditors provide appraisal-related disclosures and copies of appraisals to borrowers; • the Homeowners Protection Act, which requires the cancellation of mortgage insurance once certain equity levels are reached; • the Home Mortgage Disclosure Act and Regulation C, which require public reporting of certain loan data; • the Fair Housing Act, which prohibits discrimination in housing on the basis of race, sex, national origin, and certain other characteristics; • the SCRA, which provides certain legal protections and relief to members of the military; • RESPA and Regulation X, which governs the actions of servicers related to escrow accounts, servicing transfers, general mortgage servicing and loss mitigation practices, and other customer communications, and prohibits certain practices, such as giving or accepting a fee, kickback, or anything of value in exchange for referrals of settlement service business; • Regulation N (the Mortgage Acts and Practices Advertising Rule), which prohibits deceptive claims in mortgage advertising and other commercial communications; • Regulation AB under the Securities Act, which requires registration, reporting and disclosure for MBS; • the Secure and Fair Enforcement for Mortgage Licensing Act, commonly known as the SAFE Act, which is designed to enhance consumer protection and reduce fraud by requiring states to establish minimum standards for the licensing and registration of state licensed mortgage loan originators; 8 • the CCPA, which provides California consumers with new privacy rights and increases the privacy and security obligations of entities handling certain personal information of such consumers, as well as other state privacy laws; • the Telephone Consumer Protection Act, which prohibits telemarketers, banks, debt collectors, and other companies from using an automatic dialer or robocalls to call people either at home or on their cell phones without their consent; • Dodd-Frank Act provisions prohibiting unfair, deceptive or abusive acts or practices; and • certain other provisions of the Dodd-Frank Act, which, as discussed elsewhere, is extensive in scope and authorizes the CFPB to engage in rulemaking activity and to enforce compliance with federal consumer financial laws, including TILA, RESPA, and the FDCPA.
Products We have a broad loan product suite including conventional agency-conforming loans, conventional prime jumbo loans, FHA & VA loans, and home equity loans. i) Conventional Agency-Conforming loans: our conventional Agency-conforming loans meet the general underwriting guidelines established by Fannie Mae and Freddie Mac, and may be modified through special arrangements we have with both GSEs. ii) Conventional prime jumbo loans: comprised of our proprietary “Jumbo Advantage” product, and other white label products, these loans generally conform to the underwriting guidelines of the GSEs but exceed the maximum loan size allowed for single unit properties. iii) FHA & VA loans: FHA loans are federal assistance residential mortgage loans that insure the lender against default on the loan.
Products We have a broad loan product suite including conventional agency-conforming loans, conventional prime jumbo loans, FHA & VA loans, and home equity lines of credit. i) Conventional Agency-Conforming loans: our conventional Agency-conforming loans meet the general underwriting guidelines established by Fannie Mae and Freddie Mac, and may be modified through special arrangements we have with both GSEs. ii) Conventional prime jumbo loans: comprised of our proprietary “Jumbo Advantage” product, and other white label products, these loans generally conform to the underwriting guidelines of the GSEs but exceed the maximum loan size allowed for single unit properties. iii) FHA & VA loans: FHA loans are federal assistance residential mortgage loans that insure the lender against default on the loan.
Any document loanDepot files may be inspected, without charge, at the SEC's website at http://www.sec.gov. In addition, through our corporate website at www.investors.loandepot.com, loanDepot provides a hyperlink to a third-party SEC filing website which posts these filings as soon as reasonably practicable after such reports are filed with the SEC where they can be reviewed without charge.
In addition, through our corporate website at www.investors.loandepot.com, loanDepot provides a hyperlink to a third-party SEC filing website which posts these filings as soon as reasonably practicable after such reports are filed with the SEC where they can be reviewed without charge.
Our preliminary organic refinance consumer direct recapture rate for the year ended December 31, 2022 was 71%.
Our preliminary organic refinance consumer direct recapture rate for the year ended December 31, 2023 was 66%.
Diversity & Inclusion We achieve success by serving a diverse customer base and recruiting employees of all backgrounds and nationalities. We believe diversity & inclusion to be essential to our success and remain committed to maintaining such a focus in our hiring and retention efforts.
Diversity and Inclusion We achieve success by serving a diverse customer base and recruiting employees of all backgrounds and nationalities. We believe diversity in our workforce and an inclusive culture that supports equal opportunities 9 to be essential to our success and remain committed to maintaining such a focus in our hiring and retention efforts.
Intellectual Property As of December 31, 2022, we hold 31 registered United States trademarks and 37 United States trademark applications, including with respect to the name “loanDepot,” “mello” and other logos and various additional designs and word marks relating to the “loanDepot” name, as well as eight United States patent applications.
Intellectual Property As of December 31, 2023, we hold 32 registered United States trademarks and 26 United States trademark applications, including with respect to the name “loanDepot,” “mello” and other logos and various additional designs and word marks relating to the “loanDepot” name, as well as three issued United States patents and 11 United States patent applications.
Ancillary Business Settlement Services. LDSS is our captive title and escrow business, which we acquired in 2016. Title insurance is one of the most significant pieces of a real estate transaction, with vast potential to be digitized and better integrated with our lending operation.
Ancillary Business Settlement Services. LDSS is our captive title and escrow business. Title insurance is one of the most significant pieces of a real estate transaction, with vast potential to be digitized and better integrated with our lending operation. Real Estate Services. mello Home Services , LLC is our wholly-owned captive real estate referral business.
We launched melloInsurance Services in the third quarter of 2020. Risk Management Our experienced management team understands the importance of risk management, employing enterprise-wide risk management principles and policies to guide their decision making and business strategy.
Risk Management Our experienced management team understands the importance of risk management, employing enterprise-wide risk management principles and policies to guide their decision making and business strategy.
However, our compliance department also works alongside the production areas of our organization on a day-to-day basis, which enables our compliance function and business units to collaborate and work more efficiently. We regularly and proactively engage with our regulators to stay ahead of regulatory trends.
However, our compliance department also works alongside the production areas of our organization on a day-to-day basis, which enables our compliance function and business units to collaborate and work more efficiently.
We leverage our proprietary technology powered by mello® and automated systems which are designed to reduce errors and standardize processes. We employ an in-house team of lawyers and other professionals dedicated to legal, regulatory and compliance related matters. Our compliance functions sit independently of our production operations from a reporting perspective, which allows for autonomy.
We employ an in-house team of lawyers and other professionals dedicated to legal, regulatory and compliance related matters. Our compliance functions sit independently of our production operations from a reporting perspective, which allows for autonomy.
If our loans are found to have been originated in violation of predatory or abusive lending laws, we could incur losses, which could materially and adversely impact our results of operations, financial condition and business. 8 We are subject to compliance with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (commonly known as the PATRIOT Act), which is intended to strengthen the ability of U.S. law enforcement agencies and intelligence communities to work together to combat terrorism on a variety of fronts, and are required to establish anti-money laundering programs and file suspicious activity reports under the Bank Secrecy Act of 1970.
We are subject to compliance with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (commonly known as the PATRIOT Act), which is intended to strengthen the ability of U.S. law enforcement agencies and intelligence communities to work together to combat terrorism on a variety of fronts, and are required to establish anti-money laundering programs and file suspicious activity reports under the Bank Secrecy Act of 1970.
As of December 31, 2022, we had $864.0 million of cash and cash equivalents, along with $4.1 billion of loan funding capacity across nine credit facilities, of which $2.1 billion was outstanding. Our $4.1 billion loan funding capacity was comprised of $3.6 billion with maturities staggered throughout 2023 and $0.5 billion maturing in 2024.
As of December 31, 2023, we had $660.7 million of cash and cash equivalents, along with $3.1 billion of loan funding capacity across eight credit facilities, of which $1.9 billion was outstanding. Our $3.1 billion loan funding capacity was comprised of maturities staggered throughout 2024.
We have increased our originations market share from 1.0% in 2014 to 2.4% for the year ended December 31, 2022 1 and our strong consumer brand and proprietary technology platform have positioned us to continue gaining additional share. Supervision and Regulation We describe below the material elements of the regulatory and supervisory framework applicable to us.
We have increased our originations market share from 1.0% in 2014 to 1.4% for the year ended December 31, 2023 1 and we believe our strong consumer brand and proprietary technology platform have positioned us to continue gaining additional share.
Regulatory Compliance 5 We operate within a complex area of the financial services industry, and our business requires a significant compliance and regulatory infrastructure. We have developed an operating platform designed to meet the needs of today’s compliance and regulatory environment.
Regulatory Compliance We operate within a complex area of the financial services industry, and our business requires a significant compliance and regulatory infrastructure. We have developed an operating platform designed to meet the needs of today’s compliance and regulatory environment. We leverage our proprietary technology powered by mello® and automated systems which are designed to reduce errors and standardize processes.
As of December 31, 2022, our workforce was 53.5% female and 46.4% male, and the ethnicity of our workforce was 58.44% White, 17.75% Hispanic or Latino, 10.29% Asian, 8.76% Black or African American, and 4.75% other (which includes American Indian or Alaska Native, Native Hawaiian or Other Pacific Islander, and “Two or More Races”).
As of December 31, 2023, our workforce was 54.3% female and 45.7% male, and the ethnicity of our workforce was 58.2% White, 18.4% Hispanic or Latino, 9.4% Asian, 9.3% Black or African American, and 4.7% other (which includes American Indian or Alaska Native, Native Hawaiian or Other Pacific Islander, and “Two or More Races”).
In February 2023 we completed the transition of our servicing portfolio to our in-house platform. For the years ended December 31, 2022 and 2021 we retained servicing rights on 65% and 87% of loans sold, respectively.
Unlike origination and sale, servicing revenues are recurring in nature and repeat throughout the life of the underlying mortgage loan. In February 2023, we completed the transition of our servicing portfolio to our in-house platform. For the years ended December 31, 2023 and 2022 we retained servicing rights on 66% and 65% of loans sold, respectively.
In addition, all newly hired or promoted managers are invited to manager sessions that incorporate a few of our core values, including ethics and integrity, taking care of our people, and excellence. As part of our Diversity strategy, we include a Diversity, Equity, and Inclusion Index on our employee engagement survey.
In addition, all newly hired or promoted managers are invited to manager sessions that incorporate a few of our core values, including ethics and integrity, taking care of our people, and excellence. Training and Development We thoroughly support our people with a significant amount of ongoing education and proficiency resources.
Our goal is to be the lender of choice for consumers and the employer of choice by being a company that operates on sound principles of exceptional value, ethics, and transparency. We offer a wide variety of loan products and our in-house servicing platform complements our loan origination strategy.
We launched our business in 2010 to disrupt the legacy mortgage industry and make obtaining a mortgage a positive experience for consumers. Our goal is to be the lender of choice for consumers and the employer of choice by being a company that operates on sound principles of exceptional value, ethics, and transparency.
Servicing Servicing consists of collecting loan payments, remitting principal and interest payments to investors, managing escrow funds for the payment of mortgage-related expenses, such as taxes and insurance, performing loss mitigation activities on behalf of investors and otherwise administering our mortgage loan servicing portfolio in compliance with state and federal 4 regulations.
Additionally, we source originations through direct referrals from our partners' customer interactions and user interface. Servicing Servicing involves collecting loan payments, sending principal and interest payments to investors, managing escrow funds for mortgage-related expenses like taxes and insurance, conducting loss mitigation activities on behalf of investors, and administering our mortgage loan servicing portfolio in compliance with state and federal regulations.
We are licensed as a loan originator in all 50 states and 1 Total market originations based on data as of February 2023, from the Mortgage Bankers Association. 6 the District of Columbia and also are licensed as a loan servicer and loan broker in a number of states and jurisdictions in which such licenses are required.
Accordingly, we must comply with state licensing requirements in all of the states in which we conduct business. We are licensed as a loan originator in all 50 states and the District of Columbia and also are licensed as a loan servicer and loan broker in a number of states and jurisdictions in which such licenses are required.
In addition, we utilize third-party verification and internal audit procedures to assist with compliance on fundamental issues. We view our infrastructure and culture of compliance to be a competitive advantage, as it enables us to leverage our platform and rapidly scale our business while minimizing, as much as possible, compliance risk.
We view our infrastructure and culture of compliance to be a competitive advantage, as it enables us to leverage our platform and rapidly scale our business while minimizing, as much as possible, compliance risk. Supervision and Regulation We describe below the material elements of the regulatory and supervisory framework applicable to us.
Insurance Services. melloInsurance Services , LLC is our indirect wholly-owned captive insurance broker formed in 2019 to sell homeowners and other consumer insurance policies to loanDepot’s customers. Our purchase mortgage customers typically do not have a homeowners insurance quote when they apply for a loan with us, presenting the opportunity to offer the product with high capture rates.
Insurance Services. mello Insurance Services , LLC is our wholly-owned captive insurance broker established to sell homeowners and other consumer insurance policies to loanDepot’s customers who typically do not have a quote at the time of loan application.
We do not otherwise rely on any registered copyrights or other forms of registered intellectual property.
We do not otherwise rely on any registered copyrights or other forms of registered intellectual property. Our other intellectual property rights consist of unregistered copyrights, trade secrets, proprietary know-how and technological innovations that we have developed to maintain our competitive position.
As of December 31, 2022, we serviced 471,022 customers with $141.2 billion in UPB of residential mortgage loans; 83% of which was associated with FICO scores above 680. Our servicing portfolio is comprised of 74% conventional and 26% government mortgage loans. Our servicing portfolio and in-house capabilities complement our loan origination strategy.
As of December 31, 2023, we serviced 496,894 customers with $145.1 billion in UPB of residential mortgage loans, 82% of which was associated with FICO scores above 680.
Our joint venture relationships serve to provide an integrated mortgage product for the benefit of our partners’ customers, lower acquisition costs compared to our consumer direct and in-market channels, and yield an attractive margin to the business. Our relationship with home builders in this channel helps to deliver a high percentage of purchase originations to our platform.
Joint Ventures and Other Referral Partners: We've formed joint ventures with national home builders and affinity partners, aiming to offer integrated mortgage products. This approach reduces acquisition costs compared to our other channels. Our collaboration with home builders in this channel emphasizes a high percentage of purchase originations.
Through the use of advanced modeling algorithms, mello® applies intelligent logic-based underwriting parameters to automatically determine and validate loans and reduce cycle times. Based on each consumer’s needs and preferences, leads are directed to our in-house or in-market loan officers or our digital self-service platform.
Our proprietary technology platform, mello® , plays a role in improving the mortgage process by applying intelligent underwriting parameters for automated loan determination. This approach prioritizes efficiency and responsiveness, directing leads to either in-house or in-market loan officers, or our digital self-service platform, based on consumer needs and preferences.
At the time of the Vision 2025 announcement we established a goal to reduce our non-volume related expenses by an annualized $375 million to $400 million to be achieved primarily through headcount reduction, attrition, business process optimization, reduced marketing and third-party spending, and real estate consolidation.
Total expenses decreased $693.4 million, or 35.6%, for the year 2023 compared to 2022. Non-volume related expenses decreased from $1.5 billion in 2022 to $1.0 billion in 2023. This reduction has been primarily achieved through strategic measures such as headcount reduction, attrition, business process optimization, diminished marketing and third-party spending, and the consolidation of real estate assets.
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Item 1. Business Our Company We are a customer-centric, technology-empowered residential mortgage platform with a widely recognized consumer brand. We launched our business in 2010 to disrupt the legacy mortgage industry and make obtaining a mortgage a positive experience for consumers.
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Item 1. Business Our Company We are a leading provider of lending solutions that make the American dream of homeownership more accessible and achievable for all, especially the increasingly diverse communities of first-time homebuyers, through a broad suite of lending and real estate services that simplify one of life's most complex transactions.
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We are the fifth largest retail-focused non-bank mortgage originator and the eighth largest overall retail originator (based on data through December 31, 2022, published by Inside Mortgage Finance). Vision 2025 During 2022, we announced our Vision 2025 plan designed to address current and anticipated mortgage market conditions and position us for sustainable long-term value creation.
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We offer a wide variety of loan products and our in-house servicing platform complements our loan origination strategy. We are the fifth largest retail-focused non-bank mortgage originator and the seventh largest overall retail originator (based on data through February 29, 2024, published by Inside Mortgage Finance).
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Our Vision 2025 plan includes the following four components: Increase focus on purchase transactions while serving increasingly diverse communities across the country We plan to build on our strong foundation to continue meeting the needs of first-time homebuyers and underserved communities.
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Market Considerations During 2022 and 2023, the U.S. residential mortgage market experienced the impact of geopolitical risks and inflation, leading the Federal Reserve to raise interest rates and transition from a low-rate to a rising-rate environment. In July 2023, the Federal Reserve increased the Federal Funds rate to a range of 5.25% - 5.50%.
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We expect to increase our focus on addressing gaps in equitable housing through initiatives that expand access to credit, such as Special Purpose Credit Programs. In 2022, we partnered with National HomeCorp., a Georgia-based homebuilder specializing in affordable single-family homes, to form NHC Mortgage, a new joint venture, to provide credit to underserved communities.
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Meanwhile, the average rate for a 30-year fixed rate mortgage as reported by the St. Louis Fed continued to increase during the year and peaked in October 2023. The heightened rate environment negatively affected the affordability and loan qualification of homebuyers and decreased demand for refinancing, subsequently influencing mortgage loan origination volumes.
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Execute previously announced growth-generating initiatives We expect to capture additional revenue opportunities over time by leveraging our marketing and customer acquisition expenses across a diverse set of products and services. In February 2023 we completed the transition of our servicing portfolio to our in-house platform.
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The MBA reported a 29% decline in U.S. annual one-to-four family residential mortgage origination volume from $2.3 trillion in 2022 to $1.6 trillion in 2023, with a 54% decrease in refinance activity. As of December 2023, the MBA forecasts a 22% increase in annual one-to-four family residential mortgage origination projecting to reach $2.0 trillion by the end of 2024.
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During the fourth quarter of 2022, we launched our digital home equity line of credit (HELOC). Our data and technology-driven application process has given homeowners efficient access to their home equity while keeping lower rates on their first mortgages.
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However, existing economic conditions such as market volatility, geopolitical risks, inflation, and uncertainties in the banking sector, contribute to inherent uncertainties in estimates and assumptions. Vision 2025 In response to the challenges posed by these market dynamics, we introduced our Vision 2025 Plan in July 2022, characterized by four key elements: 1.
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Centralize management of loan originations and loan fulfillment to enhance quality and effectiveness We have streamlined and centralized our organizational structure to better position ourself for the rapidly evolving mortgage market. We have centralized our mortgage origination functions and loan fulfillment functions, digital lending and mortgage-adjacent functions. During 2022, we exited our wholesale business.
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Transforming our originations business to drive purchase money transactions with an expanded emphasis on purpose-driven lending; 2. Investing in profitable growth-generating initiatives and critical business platforms and processes to support operating leverage and best-in-class quality and delivery; 3. Aggressively right sizing our cost structure to address current and future projected market conditions; and 4. Optimizing and simplifying our organizational structure.
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Our new structure is designed to enable us to increase purchase transactions, automation, and achieve operating leverage. Aggressively rightsize cost structure We are focused on aligning our cost structure for current and expected mortgage origination volumes.
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Since the initial announcement, we have made the following strides toward the realization of Vision 2025: • Exited the wholesale channel: We completed our exit of the wholesale channel, reducing operational complexities and focusing our originations business on direct customer engagement. • Established NHC Mortgage Joint Venture: In collaboration with National HomeCorp., loanDepot formed NHC Mortgage, the latest in a series of joint ventures for loanDepot that expand the company's reach in the important purchase mortgage market and its strategic focus on increasing and sustaining homeownership in underserved communities. • Partnered with Habitat for Humanity: As a purpose-driven lender committed to helping more families realize their financial and homeownership goals, loanDepot supports the nonprofit organization on its mission to help Habitat homeowners achieve the strength, stability and independence they need to build a better life for themselves and for their families. 3 • Transitioned Servicing Portfolio: We transitioned our servicing portfolio to an in-house platform, resulting in a reduction in servicing expenses and allowing direct engagement with our customers, improving service levels and our customers’ homeownership experience. • Expanded HELOC Platform: After launching our home equity line of credit (“HELOC”) solution in late 2022, we added additional states, broadening the offering to more customers, enhancing our digital presence and customer engagement, and diversifying our revenue base. • Consolidated Retail and Corporate Locations: We have consolidated our retail and corporate locations, reducing our occupancy related expenses. • Streamlined Leadership Structure: We centralized management of loan originations and loan fulfillment under senior leaders and reduced management spans to enhance quality and effectiveness. • Aligned Cost Structure: We have made significant progress toward aligning our cost structure for improved operational efficiency.
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By the fourth quarter 2022, our actual non-volume related cost reduction totaled an annualized $519 million. The implementation of Vision 2025 and actions taken in 2022 have reduced staffing levels from 11,307 at year-end 2021 to 5,194 as of December 31, 2022. During 2022, we incurred approximately $31.6 million of real estate exit costs and $18.1 million in severance payments.
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We reduced staffing levels to 4,250 at December 31, 2023 from 5,194 at December 31, 2022 and 11,307 at December 31, 2021.
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Additionally, as part of our regular and ongoing reporting process, we determined it was necessary to complete an evaluation of our goodwill and other intangible assets during the second quarter of 2022 and recorded a non-cash impairment charge of $42.1 million. 3 Loan Origination Strategy We leverage our brand, technology, and data to serve customers through a combination of digital and direct marketing efforts and through relationships with realtors, joint ventures, and other referral partners.
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In November 2023, we announced an additional $120 million annualized cost reduction target, including $100 million in non-volume related expenses such as vendor contract termination and renegotiation, optimized marketing spending, and corporate real estate cost reductions, that we expect will benefit our 2024 results.
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Our digital-first approach leverages the power of mello® , our proprietary end-to-end technology platform, to create a streamlined experience for consumers. We built mello® from the ground up to redefine the mortgage process and function across all aspects of our business, including lead generation, applications, data integration, processing, closing, and servicing.
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Loan Origination Strategy We aim to reach a wider audience and provide a seamless customer experience through our streamlined organization and digital-first approach. Using our brand, technology, and data, we connect with customers through various channels, including digital and direct marketing, realtor relationships, joint ventures, and referral partners.
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Consumer Direct: We launched our first channel, consumer direct, in 2010 and have invested in technology and marketing capabilities to create a highly efficient origination platform. Our consumer direct platform leverages our centralized operations centers and proprietary algorithms to provide customers with a rate quote within seconds.
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Consumer Direct: Our consumer direct platform leverages our centralized operations centers and algorithms to generate rate quotes in seconds. Customers can independently complete the mortgage application process digitally, often without human interaction. Real-time assistance is available when needed from our sales force. Mortgages from our digital and call center operations are primarily focused on refinancing.
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Many of our customers choose to complete the mortgage application process themselves and are able to do so digitally with minimal or no human interaction. While customers are capable of end-to-end application processes completely online, we offer real-time assistance from our sales force when needed.
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In-Market Loan Officers: We originate loans through dedicated in-market loan officers nationwide, who build and maintain local customer relationships with real estate agents and builders and are often supplemented by leads developed from 4 our enterprise wide marketing. Our technology platform serves as a lead generation tool for these loan officers, particularly focusing on purchase originations.
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Mortgages originated through our digital marketing and call center operations tend to be predominantly refinance focused. In-Market Loan Officers: We launched our in-market loan officer channel through our acquisition of imortgage in October 2013 and grew the channel through our acquisition of Mortgage Master in January 2015.
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Our servicing portfolio is comprised of 65% Agency MSRs associated with mortgage loans that conform to the guidelines set forth by GSEs, and 28% Government MSRs associated with mortgage loans that are insured or guaranteed by government agencies, primarily through Ginnie Mae mortgage-backed securities. Our servicing portfolio and in-house capabilities complement our loan origination strategy.
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We originate loans in this channel through our dedicated in-market loan officers across the United States. Our loan officers are responsible for sourcing, engaging, and maintaining local customer relationships through real estate agents, builders, and other contacts.
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We regularly and 1 Total market originations based on data as of December 2023, from the Mortgage Bankers Association. 6 proactively engage with our regulators to stay ahead of regulatory trends. In addition, we utilize third-party verification and internal audit procedures to assist with compliance on fundamental issues.
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Our loan officers thrive within our network as our technology platform also serves as a prioritization and potential lead generation tool for customers in their geographies. This network of local real estate professionals focuses mainly on purchase originations. Joint Ventures and Other Referral Partners: We have established joint ventures with several industry partners, including national home builders and affinity partners.
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If our loans are found to have been originated in violation of predatory or abusive lending laws, we could incur losses, which could materially and adversely impact our results of operations, financial condition and business.
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We also source originations directly through our referral partner’s existing customer interactions and user interface. These integrated referral sources allow us to expand our reach and provide our services to our partners’ customer bases.
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None of our employees are represented by a labor union and we consider our employee relations to be good.
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Real Estate Services. mello Home Services , LLC is our indirect wholly-owned captive real estate referral business started in 2018.
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Available Information loanDepot files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments of such reports with the Securities and Exchange Commission ("SEC"). Any document loanDepot files may be inspected, without charge, at the SEC's website at http://www.sec.gov.
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Accordingly, we must comply with state licensing requirements in all of the states in which we conduct business.
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Our team members currently respond 84% favorable, which exceeds the benchmark 2 of 77% favorable. We are particularly proud that 87% of employees respond favorably to “All employees, regardless of their differences, are treated fairly,” compared to the benchmark 2 of 73%. Training and Development We thoroughly support our people with a significant amount of ongoing education and proficiency resources.
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Our other intellectual property rights consist of unregistered copyrights, trade secrets, proprietary know-how and technological innovations that we have developed to maintain our competitive position. 2 Benchmark based upon certain metrics provided by Perceptyx. 9 Available Information loanDepot files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments of such reports with the Securities and Exchange Commission ("SEC").

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

194 edited+35 added−62 removed372 unchanged
Biggest changeIn addition, 248,463,990 shares of Class A Common Stock may be issued upon the exercise of the exchange and /or conversion rights described elsewhere in this annual report on Form 10-K (assuming all outstanding 151,437,319 Holdco Units together with an equal number of shares of Class B Common Stock or Class C Common Stock, as applicable, in addition to our all outstanding 97,026,671 Class D Common Stock are exchanged for shares of Class A Common Stock) all of which are held by our directors, executive officers and their affiliated entities, and are subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.
Biggest changeWhile, as of March 13, 2024, we have a total of 84,732,443 shares of Class A Common Stock issued and outstanding, 240,164,058 additional shares of Class A Common Stock may be issued upon the exercise of the exchange and /or conversion rights described elsewhere in this annual report on Form 10-K (assuming all outstanding 143,137,387 Holdco Units together with an equal number of shares of Class B Common Stock or Class C Common Stock, as applicable, and all of our outstanding 97,026,671 Class D Common Stock are exchanged for shares of Class A Common Stock).
Accordingly, our estimates may change from time to time and such changes may be material to our consolidated results of operations, and the ultimate settlement of such matters may have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Accordingly, our estimates may change from time to time and such changes may be material to our consolidated results of operations, and the ultimate settlement of such matters may have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Because of the five-to-one voting ratio between our Class C and Class D Common Stock and the Class A Common Stock, the Hsieh Stockholders alone, or with the Parthenon Stockholders, collectively are expected to continue to control a majority of the combined voting power of our common stock and therefore will be able to control all matters submitted to our stockholders for approval.
Because of the five-to-one voting ratio between our Class C and Class D Common Stock and the Class A Common Stock, the Hsieh Stockholders alone, or with the Parthenon Stockholders, collectively control, and are expected to continue to control, a majority of the combined voting power of our common stock and therefore will be able to control all matters submitted to our stockholders for approval.
While our contracts vary, they generally contain provisions that require us to indemnify these parties, or repurchase these mortgage loans, if: • our representations and warranties concerning mortgage loan quality and mortgage loan characteristics are inaccurate or are otherwise breached and not remedied within any applicable cure period (usually 90 days or less) after we receive notice of the breach; • we fail to secure adequate mortgage insurance within a certain period after closing of the applicable mortgage loan; • a mortgage insurance provider denies coverage; • if the borrower defaults on the on the loan payments within a contractually defined period (early payment default); or • the mortgage loans fail to comply with underwriting or regulatory requirements.
While our contracts vary, they generally contain provisions that require us to indemnify these parties, or repurchase these mortgage loans, if: 17 • our representations and warranties concerning mortgage loan quality and mortgage loan characteristics are inaccurate or are otherwise breached and not remedied within any applicable cure period (usually 90 days or less) after we receive notice of the breach; • we fail to secure adequate mortgage insurance within a certain period after closing of the applicable mortgage loan; • a mortgage insurance provider denies coverage; • if the borrower defaults on the on the loan payments within a contractually defined period (early payment default); or • the mortgage loans fail to comply with underwriting or regulatory requirements.
Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources—Warehouse Lines and Debt Obligations.” Our ability to extend or renew existing warehouse lines, secured credit and other debt facilities, as well as obtain new warehouse lines, secured credit and other debt facilities is affected by a variety of factors including: • limitations imposed on us under our warehouse lines, secured credit facilities, and other debt agreements, including restrictive covenants and borrowing conditions, which limit our ability to raise additional debt and require that we maintain certain financial results, including minimum tangible net worth, minimum liquidity, minimum pre-tax net income, minimum debt service coverage ratio, and maximum total liabilities to tangible net worth ratio as well as require us to maintain committed warehouse lines with third party lenders; • changes in financial covenants mandated by lenders, which we may not be able to achieve; • any decrease in liquidity in the credit markets; • potential valuation changes to our mortgage loans, servicing rights or other collateral; • prevailing interest rates; • the strength of the lenders from whom we borrow, and the regulatory environment in which they operate, including proposed capital strengthening requirements; • our ability to sell our products to the Agencies; • lenders seeking to reduce their exposure to residential loans due to other reasons, including a change in such lender’s strategic plan or lines of business; and • accounting changes that may impact calculations of covenants in our warehouse lines and other debt agreements which result in our ability to continue to satisfy such covenants.
Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources—Warehouse Lines and Debt Obligations.” Our ability to extend or renew existing warehouse lines, secured credit and other debt facilities, as well as obtain new warehouse lines, secured credit and other debt facilities is affected by a variety of factors including: 40 • limitations imposed on us under our warehouse lines, secured credit facilities, and other debt agreements, including restrictive covenants and borrowing conditions, which limit our ability to raise additional debt and require that we maintain certain financial results, including minimum tangible net worth, minimum liquidity, minimum pre-tax net income, minimum debt service coverage ratio, and maximum total liabilities to tangible net worth ratio as well as require us to maintain warehouse lines with third-party lenders; • changes in financial covenants mandated by lenders, which we may not be able to achieve; • any decrease in liquidity in the credit markets; • potential valuation changes to our mortgage loans, servicing rights or other collateral; • prevailing interest rates; • the strength of the lenders from whom we borrow, and the regulatory environment in which they operate, including proposed capital strengthening requirements; • our ability to sell our products to the Agencies; • lenders seeking to reduce their exposure to residential loans due to other reasons, including a change in such lender’s strategic plan or lines of business; and • accounting changes that may impact calculations of covenants in our warehouse lines and other debt agreements which result in our ability to continue to satisfy such covenants.
Recently launched and future products could fail to attain sufficient market acceptance for many reasons, including: • our failure to predict market demand accurately or to supply products that meet market demand in a timely fashion; • negative publicity about our products’ performance or effectiveness or our customer experience; • our ability to obtain financing sources at competitive rates to support such products; • regulatory hurdles; • delays in releasing the new products to market; and • the offering or anticipated offering of competing products by our competitors.
Recently launched and future products could fail to attain sufficient market acceptance for many reasons, including: 13 • our failure to predict market demand accurately or to supply products that meet market demand in a timely fashion; • negative publicity about our products’ performance or effectiveness or our customer experience; • our ability to obtain financing sources at competitive rates to support such products; • regulatory hurdles; • delays in releasing the new products to market; and • the offering or anticipated offering of competing products by our competitors.
If either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report, investors could lose confidence in our reported financial information, which could cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC.
If either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public accounting firm 47 is unable to provide us with an unqualified report, investors could lose confidence in our reported financial information, which could cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC.
In addition, we are subject to periodic examinations by state and other regulators in the jurisdictions in which we conduct business, which can result in increases in our administrative costs and refunds to borrowers or consumers of certain fees earned by us, and we may be required to pay substantial penalties imposed by those regulators due to compliance errors, or we may lose our license or our ability to do business in the jurisdiction otherwise may be impaired.
In addition, we are subject to periodic examinations by state and other regulators in the jurisdictions in which we conduct business, which can result in increases in our administrative costs and refunds to borrowers or consumers of certain 36 fees earned by us, and we may be required to pay substantial penalties imposed by those regulators due to compliance errors, or we may lose our license or our ability to do business in the jurisdiction otherwise may be impaired.
Our insurance may not cover potential claims of this type adequately or at all, and we may be required to pay significant money damages, lose significant revenues, be prohibited from using the relevant systems, processes, 27 technologies or other intellectual property, cease offering certain products or services, alter the content of our classes, or incur significant license, royalty or technology development expenses.
Our insurance may not cover potential claims of this type adequately or at all, and we may be required to pay significant money damages, lose significant revenues, be prohibited from using the relevant systems, processes, technologies or other intellectual property, cease offering certain products or services, alter the content of our classes, or incur significant license, royalty or technology development expenses.
Separately, the TCPA requires telemarketers to maintain an internal DNC list and a policy adhering to “do-not-call” registry requirements which, in part, mandate callers to refrain from making unsolicited marketing calls to consumers who have listed their numbers on the National Do Not Call Registry, absent an inquiry or established business or personal relationship.
Separately, the 39 TCPA requires telemarketers to maintain an internal DNC list and a policy adhering to “do-not-call” registry requirements which, in part, mandate callers to refrain from making unsolicited marketing calls to consumers who have listed their numbers on the National Do Not Call Registry, absent an inquiry or established business or personal relationship.
Furthermore, such techniques change frequently and are often not recognized or detected until after they have been launched and security attacks can originate from a wide variety of sources, including third parties such as computer hackers, persons involved with organized crime or associated with external service providers, or foreign state or foreign state-supported actors.
Furthermore, such techniques change frequently and are often not recognized or detected until after they have been launched and security attacks can originate from a wide variety of sources, including employees or third parties such as computer hackers, persons involved with organized crime or associated with external service providers, or foreign state or foreign state-supported actors.
On December 24, 2020, we received a demand letter from one of the senior members of our operations team asserting, among other things, allegations of loan origination noncompliance and various employment related claims, including allegations of a hostile work environment and gender discrimination, with unspecified damages. The executive has since resigned her position with the Company.
Also, on December 24, 2020, we received a demand letter from one of the senior members of our operations team asserting, among other things, allegations of loan origination noncompliance and various employment related claims, including allegations of a hostile work environment and gender discrimination, with unspecified damages. The executive has since resigned her position with the Company.
If we are unable to do so, our ability to maintain relationships with counterparties and other third parties, operate, innovate and generate new business could be jeopardized, any of which could negatively impact our business, financial condition, and results of operations. We also 23 depend on identifying, developing and retaining top talent to innovate and lead our businesses.
If we are unable to do so, our ability to maintain relationships with counterparties and other third parties, operate, innovate and generate new business could be jeopardized, any of which could negatively impact our business, financial condition, and results of operations. We also depend on identifying, developing and retaining top talent to innovate and lead our businesses.
Also, although we re-evaluate our reserves for repurchase losses each quarter, evaluations of that sort necessarily are estimates and there remains a risk that the reserves will not be adequate. 17 Additionally, if home values decrease, our realized mortgage loan losses from mortgage loan indemnifications and repurchases may increase.
Also, although we re-evaluate our reserves for repurchase losses each quarter, evaluations of that sort necessarily are estimates and there remains a risk that the reserves will not be adequate. Additionally, if home values decrease, our realized mortgage loan losses from mortgage loan indemnifications and repurchases may increase.
For example, FICO scores, which we obtain on a substantial majority of our loans, purport only to be a measurement of the relative degree of risk a borrower represents to a lender (i.e., that a borrower with a higher score is statistically expected to be less likely to default in payment than a borrower with a lower score).
For example, FICO scores, which we obtain on a substantial majority of our loans, purport only to be a measurement of the relative degree of historical risk a borrower represents to a lender (i.e., that a borrower with a higher score is statistically expected to be less likely to default in payment than a borrower with a lower score).
Any of the foregoing events could result in violations of applicable privacy and other laws, financial loss to us or to our borrowers, loss of confidence in our security measures, customer dissatisfaction, significant litigation exposure and harm to our reputation, and diversion of management attention, all of which could adversely affect our business, financial condition and results of operations.
Any of the foregoing events could result in violations of applicable privacy and other laws, financial loss to us or to our borrowers, loss of confidence in our security measures, customer dissatisfaction, significant litigation exposure and harm to our reputation, and diversion of management attention, all of which could materially adversely affect our business, financial condition and results of operations.
A significant change in these guidelines that has the effect of decreasing the fees we charge or requires us to expend additional resources in providing mortgage loan services could decrease our revenues or increase our costs, which would adversely affect our business, financial condition and results of operations.
A significant change in these guidelines that has the effect of decreasing the fees we charge or requires us to 33 expend additional resources in providing mortgage loan services could decrease our revenues or increase our costs, which would adversely affect our business, financial condition and results of operations.
The updated minimum financial eligibility requirements modify the definitions of tangible net worth and eligible liquidity, modify 32 their minimum standard measurement and include a new risk-based capital ratio, among other changes. In September 2022, at the direction of the FHFA, Fannie Mae and Freddie Mac announced similar revisions to minimum financial eligibility requirements.
The updated minimum financial eligibility requirements modify the definitions of tangible net worth and eligible liquidity, modify their minimum standard measurement and include a new risk-based capital ratio, among other changes. In September 2022, at the direction of the FHFA, Fannie Mae and Freddie Mac announced similar revisions to minimum financial eligibility requirements.
Moreover, our hedging strategies may not be effective in mitigating the risks related to changes in interest rates and could affect our profitability and financial condition. Poorly designed strategies or improperly executed transactions could increase our risk and losses. We rely on internal models to manage risk and to make business decisions.
Moreover, our hedging strategies may not be effective in mitigating the risks related to changes in interest rates and could affect our profitability and financial condition. Poorly designed strategies or improperly executed transactions could increase our risk and losses. 16 We rely on internal models to manage risk and to make business decisions.
For example, our failure to comply with the restrictive covenants in the agreements governing our indebtedness that limit our ability to incur liens, to incur debt and to 40 sell assets, among other things, could result in an event of default that, if not cured or waived, could harm our business or prospects and could result in our bankruptcy.
For example, our failure to comply with the restrictive covenants in the agreements governing our indebtedness that limit our ability to incur liens, to incur debt and to sell assets, among other things, could result in an event of default that, if not cured or waived, could harm our business or prospects and could result in our bankruptcy.
As a result of the time and resources, including technical and staffing resources, that are 16 required to perform these processes effectively, it may not be possible to replace existing models quickly enough to ensure that they will always properly account for the impacts of recent information and actions.
As a result of the time and resources, including technical and staffing resources, that are required to perform these processes effectively, it may not be possible to replace existing models quickly enough to ensure that they will always properly account for the impacts of recent information and actions.
Because all CFPB rulemakings depend on the expenditure of CFPB funds, there is a risk that prior CFPB activities, including the promulgation of regulations impacting the mortgage market and upon which lenders, such as the Company, have relied in conducting their activities, may also be deemed unconstitutional.
Constitution. Because all CFPB rulemakings depend on the expenditure of CFPB funds, there is a risk that prior CFPB activities, including the promulgation of regulations impacting the mortgage market and upon which lenders, such as the Company, have relied in conducting their activities, may also be deemed unconstitutional.
Risks Related to our Operations Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates. 15 Our profitability is directly affected by the level of, and changes in, interest rates. The market value of closed LHFS and IRLCs generally decline as interest rates rise and increase when interest rates fall.
Risks Related to our Operations Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates. Our profitability is directly affected by the level of, and changes in, interest rates. The market value of closed LHFS and IRLCs generally decline as interest rates rise and increase when interest rates fall.
The federal government has also brought actions against lenders asserting that they submitted claims for FHA-insured loans that the lender falsely certified to HUD met FHA underwriting requirements that resulted in FHA paying out millions of dollars in insurance claims to cover the defaulted loans. See “Item 1.
The federal government has 35 also brought actions against lenders asserting that they submitted claims for FHA-insured loans that the lender falsely certified to HUD met FHA underwriting requirements that resulted in FHA paying out millions of dollars in insurance claims to cover the defaulted loans. See “Item 1.
If we fail to meet or satisfy any of these covenants, we would be in default under these agreements, 39 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.
If we fail to meet or satisfy any of these covenants, 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.
Challenges to the MERS System could materially and adversely affect our business, results of operations and financial condition. MERSCORP, Inc. maintains an electronic registry, referred to as the MERS System, which tracks servicers, ownership of servicing rights and ownership of mortgage loans in the United States. Mortgage Electronic Registration Systems, Inc.
Challenges to the MERS System could materially and adversely affect our business, results of operations and financial condition. 21 MERSCORP, Inc. maintains an electronic registry, referred to as the MERS ® System, which tracks servicers, ownership of servicing rights and ownership of mortgage loans in the United States. Mortgage Electronic Registration Systems, Inc.
Any exclusion from stock indices could result in a less active trading market for our Class A 42 Common Stock. Any actions or publications by proxy advisory firms or institutional investors critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A Common Stock.
Any exclusion from stock indices could result in a less active trading market for our Class A Common Stock. Any actions or publications by proxy advisory firms or institutional investors critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A Common Stock.
We and our third party vendors may in the future experience system disruptions and failures caused by software failure, fire, power loss, telecommunications failures, employee misconduct, human error, unauthorized intrusion, security breaches, acts of vandalism, traditional computer hackers, computer viruses and disabling devices, phishing attacks, malicious or destructive code, denial of service or information, natural disasters, health pandemics and other similar events, which may result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary or other sensitive information of ours, our employees or customers, and otherwise interrupt or delay our ability to provide services to our customers.
We and our third-party vendors have in the past and may in the future experience system disruptions and failures caused by software failure, fire, power loss, telecommunications failures, employee misconduct, human error, unauthorized intrusion, security breaches, acts of vandalism, traditional computer hackers, computer viruses and disabling devices, phishing attacks, malicious or destructive code, denial of service or information, natural disasters, health pandemics and other similar events, which may result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary or other sensitive information of ours, our employees or customers, and otherwise interrupt or delay our ability to provide services to our customers.
Decreases in interest rates can also potentially adversely affect our business as the stream of servicing fees and, correspondingly the value of servicing rights, decreases as interest rates decrease. For more information regarding how changes in interest rates may negatively affect our financial condition and results of operations, see “Item 7.
Decreases in 29 interest rates can also potentially adversely affect our business as the stream of servicing fees and, correspondingly the value of servicing rights, decreases as interest rates decrease. For more information regarding how changes in interest rates may negatively affect our financial condition and results of operations, see “Item 7.
Even if we are successful in directing a 29 foreclosure on a mortgage loan that has been repurchased, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the loan, resulting in a loss to us.
Even if we are successful in directing a foreclosure on a mortgage loan that has been repurchased, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the loan, resulting in a loss to us.
In addition, we receive compensation for servicing loans on behalf of Fannie Mae, Freddie Mac and Ginnie Mae. The future of the GSEs and the role of the Agencies in the U.S. mortgage markets are uncertain. In 2008, Fannie Mae and Freddie Mac experienced catastrophic credit losses and were placed in the conservatorship of the FHFA.
In addition, we receive compensation for servicing loans on behalf of Fannie Mae, Freddie Mac and Ginnie Mae. 32 The future of the GSEs and the role of the Agencies in the U.S. mortgage markets are uncertain. In 2008, Fannie Mae and Freddie Mac experienced catastrophic credit losses and were placed in the conservatorship of the FHFA.
If our risk management framework does not effectively identify or mitigate our risks, we could suffer unexpected losses and could be materially adversely affected. The loss of the services of our senior management could adversely affect our business. The experience of our senior management is a valuable asset to us.
If our risk management framework does not effectively identify or mitigate our risks, we could suffer unexpected losses and could be materially adversely affected. The loss of the services of our senior management could adversely affect our business. 24 The experience of our senior management is a valuable asset to us.
The techniques used to obtain unauthorized, improper or illegal access to our systems and those of our third party vendors, our data, our employees’ customers’ and loan applicants’ data or to disable, 24 degrade or sabotage service are constantly evolving, and have become increasingly complex and sophisticated.
The techniques used to obtain unauthorized, improper or illegal access to our systems and those of our third-party vendors, our data, our employees’ customers’ and loan applicants’ data or to disable, degrade or sabotage service are constantly evolving, and have become increasingly complex and sophisticated.
Our derivative instruments, which currently consist of IRLCs, forward sale contracts, interest rate swap futures, and put options on treasuries are accounted for as free-standing derivatives and are included on our consolidated balance sheet at fair market value.
Our derivative instruments, which currently consist of forward sale contracts, interest rate swap futures, and put options on treasuries are accounted for as free-standing derivatives and are included on our consolidated balance sheet at fair market value.
These legal proceedings range from actions involving a single plaintiff to class action lawsuits with potentially tens of thousands of class members. These actions and proceedings are generally based on alleged violations of consumer protection, employment, contract and other laws.
These legal proceedings range from actions involving a single plaintiff to class action lawsuits with potentially tens of thousands of class members. These actions and proceedings are generally based on alleged violations of consumer protection, employment, contract, securities and other laws.
Certain of our stockholders will have the right to engage or invest in the same or similar businesses as us. In the ordinary course of its business activities, Parthenon Capital and its affiliates may engage in activities where its interests conflict with our interests or those of our stockholders.
Certain of our stockholders will have the right to engage or invest in the same or similar businesses as us. 44 In the ordinary course of its business activities, Parthenon Capital and its affiliates may engage in activities where its interests conflict with our interests or those of our stockholders.
High profile fraudulent activity or significant increases in fraudulent activity could lead to regulatory intervention, increased 21 losses, and negatively impact our operating results, brand and reputation and lead us to take steps to reduce fraud risk, which could increase our costs.
High profile fraudulent activity or significant increases in fraudulent activity could lead to regulatory intervention, increased losses, and negatively impact our operating results, brand and reputation and lead us to take steps to reduce fraud risk, which could increase our costs.
In addition, former employers of our current, former or future employees may assert claims that such employees have improperly disclosed to us the confidential or proprietary information of these former employers. The resolution of any such disputes or litigation is difficult to predict.
In addition, former employers of our current, former or future employees may assert claims that such employees have improperly disclosed to us the confidential or proprietary 28 information of these former employers. The resolution of any such disputes or litigation is difficult to predict.
We are required to follow specific guidelines that impact the way that we originate and service Agency loans, including guidelines with respect to: • credit standards for mortgage loans; • maintaining prepayment speeds commensurate with that of our peers; • our staffing levels and other origination and servicing practices; • the fees that we may charge to consumers or pass-through to the Agencies; • our modification standards and procedures; • unanticipated changes to pricing and guarantee fees; • the amount of non-reimbursable advances; and • internal controls such as data privacy and security, compliance, quality control and internal audit.
We are required to follow specific guidelines that impact the way that we originate and service Agency loans, including guidelines with respect to: • credit standards for mortgage loans; • managing prepayment speeds commensurate with that of our peers; • our staffing levels and other origination and servicing practices; • the fees that we may charge to consumers or pass-through to the Agencies; • our modification standards and procedures; • unanticipated changes to pricing and guarantee fees; • the amount of non-reimbursable advances; and • internal controls such as data privacy and security, compliance, quality control and internal audit.
The failure on Cenlar’s part to effectively service our portfolio of MSRs in the past could result in residual, regulatory, operational and litigation risk which would adversely impact our business, financial condition, liquidity and results of operations.
The failure on Cenlar’s part to effectively service our portfolio of MSRs in the past could result in residual, regulatory, operational and litigation risk which could adversely impact our business, financial condition, liquidity and results of operations.
The Agencies, as well as their regulator FHFA, also have authority to approve or limit the number of loans that may be transferred to our servicing portfolio, which may impact our ability to grow our existing mortgage servicing operation.
The Agencies, as well as their regulator, the FHFA, also have authority to approve or limit the number of their loans that may be transferred to or from our servicing portfolio, which may impact our ability to grow our existing mortgage servicing operation.
Furthermore, we may be responsible for any legacy liabilities of businesses we acquire, including liabilities resulting from an acquisition target’s controls related to financial reporting, disclosure, and cyber and information security environment.
Furthermore, we may be responsible for any legacy 15 liabilities of businesses we acquire, including liabilities resulting from an acquisition target’s controls related to financial reporting, disclosure, and cyber and information security environment.
Our underwriting guidelines may not be able to accurately predict the likelihood of defaults on some of the mortgage loans in our portfolio. We originate and sell Agency-eligible and non-Agency-eligible residential mortgage loans.
Our underwriting guidelines may not be able to accurately predict the likelihood of defaults on some of the mortgage loans in our portfolio. 22 We originate and sell Agency-eligible and non-Agency-eligible residential mortgage loans.
Although the impact of COVID-19 on our business has been immaterial so far, such effects have contributed to a challenging macroeconomic environment, which has adversely affected our business and results of operation.
Although the impact of COVID-19 on our business has been immaterial so far, such effects contributed to a challenging macroeconomic environment, which adversely affected our business and results of operation.
The CFPB has rulemaking authority with respect to many of the federal consumer protection laws applicable to mortgage lenders and servicers, including ECOA, TILA and RESPA and the Fair Debt Collections Practices Act.
The CFPB has rulemaking authority with respect to many of the federal consumer protection laws applicable to mortgage lenders and servicers, including HMDA, ECOA, TILA and RESPA and the Fair Debt Collections Practices Act.
There may be a material negative effect on our liquidity if, as a result of timing discrepancies or otherwise, (i) the payments under the tax 43 receivable agreement exceed the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement, and/or (ii) distributions to us by LD Holdings are not sufficient to permit us to make payments under the tax receivable agreement after it has paid its taxes and other obligations.
There may be a material negative effect on our liquidity if, as a result of timing discrepancies or otherwise, (i) the payments under the tax receivable agreement exceed the actual benefits we realize in respect of the tax attributes subject to the tax receivable 45 agreement, and/or (ii) distributions to us by LD Holdings are not sufficient to permit us to make payments under the tax receivable agreement after it has paid its taxes and other obligations.
Once we have the unilateral right to repurchase the delinquent loan, we have 19 effectively regained control over the loan and we must recognize the loan on our balance sheet and recognize a corresponding financial liability.
Once we have the unilateral right to repurchase the delinquent loan, we have effectively regained control over the loan and we must recognize the loan on our balance sheet and recognize a corresponding financial liability.
Additional discussion of the risks summarized in this risk factor summary can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Form 10-K and our other filings with the SEC, before making an investment decision regarding our common stock: • We may not achieve some or all of the expected benefits of our Vision 2025 plan and our initiatives may adversely affect our business. • Our loan production volume decreased significantly as a result of certain market factors. • Our ability to execute on our Vision 2025 Plan will depend, among other things, on our ability to maintain an operating platform and management system sufficient to conduct our business. • If new products, services, enhancements or expansions do not achieve sufficient market acceptance or do not result in anticipated efficiencies and revenues, our financial results and competitive position could be harmed. • The success and growth of our business will depend upon our ability to adapt to and implement technological changes. • If we fail to promote and maintain our brands in a cost-effective manner, or if we experience negative publicity, we may lose market share and our revenue may decrease. • We rely on warehouse lines of credit and other sources of capital and liquidity to meet the financing requirements of our business. • Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates. • In-house servicing of loans carries with it increased operational and compliance costs as we become directly responsible for complying with regulatory requirements. • Cyberattacks, information or security breaches and technology disruptions or failures, of ours or of our third party vendors, could damage our business operations, increase our costs adversely affect our business. • The outcome of legal proceedings to which we are a party. • Our mortgage loan origination revenues are highly dependent on macroeconomic and U.S. residential real estate market conditions, including interest rates levels. • Changing federal, state and local laws, as well as changing regulatory enforcement policies and priorities. • The multi-class structure of our common stock may adversely affect the trading market for our Class A Common Stock and will limit or preclude your ability to influence corporate matters. • The multi-class structure of our common stock results in the Hsieh Stockholders holding a majority of the voting power of our capital stock. • We are a “controlled company” and, as a result, qualify for, and intend to rely on, exemptions from certain corporate governance requirements. • Our business could be impacted by a potential proxy contest for the election of directors at our 2023 Annual Meeting of Stockholders. • Certain provisions in our certificate of incorporation and our by-laws that may delay or prevent a change of control, and the requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members and officers. 11 Risks Related to our Business and Strategy We may not achieve some or all of the expected benefits of our Vision 2025 plan and our initiatives may adversely affect our business .
Additional discussion of the risks summarized in this risk factor summary can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Form 10-K and our other filings with the SEC, before making an investment decision regarding our common stock: • We may not achieve some or all of the expected benefits of our Vision 2025 plan and our initiatives may adversely affect our business. • Our loan production volume decreased significantly as a result of certain market factors. • Our ability to execute on our Vision 2025 Plan will depend, among other things, on our ability to maintain an operating platform and management system sufficient to conduct our business. • If new products, services, enhancements or expansions do not achieve sufficient market acceptance or do not result in anticipated efficiencies and revenues, our financial results and competitive position could be harmed. • The success and growth of our business will depend upon our ability to adapt to and implement technological changes. • If we fail to promote and maintain our brands in a cost-effective manner, or if we experience negative publicity, we may lose market share and our revenue may decrease. • We rely on warehouse lines of credit and other sources of capital and liquidity to meet the financing requirements of our business. • Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates. • In-house servicing of loans carries with it increased operational and compliance costs as we become directly responsible for complying with regulatory requirements. • Cyberattacks, information or security breaches and technology disruptions or failures, of ours or of our third-party vendors, could damage our business operations, increase our costs adversely affect our business. • The outcome of legal proceedings to which we are a party. • Our mortgage loan origination revenues are highly dependent on macroeconomic and U.S. residential real estate market conditions, including interest rates levels. • Changing federal, state and local laws, as well as changing regulatory enforcement policies and priorities. • The multi-class structure of our common stock may adversely affect the trading market for our Class A Common Stock and will limit or preclude your ability to influence corporate matters. • The multi-class structure of our common stock results in the Hsieh Stockholders holding a majority of the voting power of our capital stock. • We are a “controlled company” and, as a result, qualify for, and intend to rely on, exemptions from certain corporate governance requirements. • Certain provisions in our certificate of incorporation and our by-laws that may delay or prevent a change of control, and the requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members and officers. 11 Risks Related to our Business and Strategy We may not achieve some or all of the expected benefits of our Vision 2025 plan and our initiatives may adversely affect our business .
Subject to certain exemptions, the TCPA makes it unlawful for any person within the United States, or any person outside the United States if the recipient is within the United States, to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any ATDS or an artificial or prerecorded voice to any cellular telephone number or other number for which the called party is charged.
Subject to certain exemptions, the TCPA makes it unlawful for any person within the United States, or any person outside the United States if the recipient is within the United States, to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any ATDS or an artificial or prerecorded or AI generated voice to any cellular telephone number or other number for which the called party is charged.
Failure to meet stipulations of servicing guidelines can result in the assessment of fines and loss of reimbursement of loan-related advances, expenses, interest and servicing fees.
Failure to meet stipulations of servicing guidelines can result in the assessment of fines and loss of 19 reimbursement of loan-related advances, expenses, interest and servicing fees.
Hsieh exercises sole voting power, and Parthenon Capital Partners (the “Parthenon Stockholders”), who together with the Hsieh Stockholders hold in the aggregate approximately 94.4% of the voting power of our capital stock, which may limit or preclude your ability to influence corporate matters, including the election of directors and the approval of any change of control transaction.
Hsieh exercises sole voting power, and Parthenon Capital Partners (the “Parthenon Stockholders”), who together with the Hsieh Stockholders hold in the aggregate approximately 94.1% of the voting power of our capital stock, which may limit or preclude your ability to influence corporate matters, including the election of directors and the approval of any change of control transaction.
Some states have enacted, or may enact, similar laws or regulations, which in some cases impose restrictions and requirements 35 greater than those in HOEPA.
Some states have enacted, or may enact, similar laws or regulations, which in some cases impose restrictions and requirements greater than those in HOEPA.
Our current servicing operations also could be required to address any past servicing failures on behalf of Cenlar, which also could result in regulatory, operational and litigation risk. In-house servicing of loans carries with it increased operational and compliance costs as we become directly responsible for complying with regulatory requirements.
Our current servicing operations also could be required to address any past servicing concerns on behalf of Cenlar, which also could result in regulatory, operational and litigation risk. In-house servicing of loans carries with it increased operational and compliance costs as we become directly responsible for complying with regulatory requirements.
These included both intentional actions Cenlar takes in running their businesses such as management of staffing levels and the number of customers serviced, and the occurrence of external events, including, but not limited to regulatory changes, enforcement actions, and natural disasters that may have posed challenges to Cenlar.
These included both intentional actions Cenlar took in running their businesses such as management of staffing levels and the number of customers serviced, and the occurrence of external events, including, but not limited to regulatory changes, enforcement actions, and natural disasters that may have posed challenges to Cenlar.
The CFPB has also taking the position that it has authority under the Consumer Financial Protection Act to identify, prohibit and prosecute discrimination as an unfair, deceptive, or abusive act or practice to target discriminatory conduct, even where fair lending laws, such as ECOA, may not apply.
The CFPB has also taken the position that it has authority under the Consumer Financial Protection Act to identify, prohibit and prosecute discrimination as an unfair, deceptive, or abusive act or practice to target discriminatory conduct, even where fair lending laws, such as ECOA, may not apply.
As a result of such macroeconomic conditions, including elevated interest rates, loan origination activity significantly declined in fiscal 2022 and is expected to remain muted through 2023. This has resulted in a substantial decrease in our revenues and we incurred a net loss in fiscal 2022.
As a result of such macroeconomic conditions, including elevated interest rates, loan origination activity significantly declined in fiscal 2023 and is expected to remain muted through 2024. This has resulted in a substantial decrease in our revenues and we incurred a net loss in fiscal 2023.
We also cannot guarantee that we will not have to undertake additional staffing reductions or strategic reorganization activities in the future. Furthermore, staffing reductions that occurred in fiscal 2022 could create an additional risk of claims being made on behalf of affected employees.
We also cannot guarantee that we will not have to undertake additional staffing reductions or strategic reorganization activities in the future. Furthermore, staffing reductions that occurred in fiscal 2023 could create an additional risk of claims being made on behalf of affected employees.
The process of developing new technologies and products is complex, and if we are unable to successfully innovate and continue to deliver a superior client experience, the demand for our products and services may decrease our growth and operational costs may increase.
The process of developing new technologies and products is complex, and if we are unable to successfully innovate and continue to deliver a superior client experience, the demand for our products and services may decrease as operational costs may increase.
In light of the inherent uncertainties involved in litigation and other legal proceedings, it is not always possible to determine a reasonable estimate of the amount of a probable 22 loss, and we may estimate a range of possible loss for consideration in its estimates.
In light of the inherent uncertainties involved in litigation and other legal proceedings, it is not always possible to determine a reasonable estimate of the amount of a probable 23 loss, and we may estimate a range of possible loss for consideration in its estimates.
As interest rates rise, refinancing volumes generally decrease as fewer consumers are incentivized to refinance their mortgages. As interest rates rose in 2022, refinancing volumes decreased. As a result, our revenues decreased substantially and we experienced net losses for fiscal 2022.
As interest rates rise, refinancing volumes generally decrease as fewer consumers are incentivized to refinance their mortgages. As interest rates rose in 2022 and 2023, refinancing volumes decreased. As a result, our revenues decreased substantially and we experienced net losses for fiscal years 2022 and 2023.
Our Class C and Class D Common Stock have five votes per share, and our Class A Common Stock, has one vote per share. The Hsieh Stockholders and Parthenon Stockholders hold our Class C and Class D Common Stock which together aggregate to approximately 94.5% of the voting power of our outstanding capital stock.
Our Class C and Class D Common Stock have five votes per share, and our Class A Common Stock, has one vote per share. The Hsieh Stockholders and Parthenon Stockholders hold our Class A, Class C and Class D Common Stock which together aggregate to approximately 94.1% of the voting power of our outstanding capital stock.
The foregoing provision will not apply to claims arising under the Securities Act, the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or other federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction.
The foregoing provision does not apply to claims arising under the Securities Act, the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or other federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction.
As restrictions on resale ended, the market price of our shares of Class A Common Stock could drop significantly if the holders of restricted shares sell them or are perceived by the market as intending to sell them.
As restrictions on resale end, the market price of our shares of Class A Common Stock could drop significantly if the holders of restricted shares sell them or are perceived by the market as intending to sell them.
Agency-eligible loans are underwritten in accordance with guidelines defined by the Agencies, as well as additional requirements in some cases, designed to predict a borrower’s ability and willingness to repay. In spite of these standards, our underwriting guidelines may not always correlate with mortgage loan defaults.
Agency-eligible loans are underwritten in accordance with guidelines defined by the Agencies, as well as additional requirements in some cases, designed to predict a borrower’s ability and willingness to repay and reduce origination risk. In spite of these standards, our underwriting guidelines may not always correlate with mortgage loan defaults.
The TCPA provides a private right of action under which a plaintiff, including a plaintiff in a class action, may recover actual monetary loss or $500 for each call or text made in violation of the prohibitions on calls made using an “artificial or pre-recorded voice” or ATDS.
The TCPA provides a private right of action under which a plaintiff, including a plaintiff in a class action, may recover actual monetary loss or $500 for each call or text made in violation of the prohibitions on calls made using an “artificial or pre-recorded voice”, AI generated voice, or ATDS.
The trading market for our Class A Common Stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our Class A Common Stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline.
The trading market for our Class A Common Stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our Class A Common Stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline.
Additionally, we may elect not to refinance an existing customer’s mortgage loan due to a number of reasons, including the customer’s inability to meet our eligibility requirements.
Additionally, we may elect not to refinance an existing customer’s mortgage loan due to a number of reasons, including, but not limited to, the customer’s inability to meet our eligibility requirements.
The CFPB has been active in investigations and enforcement actions and, when necessary, has issued civil money penalties to parties the CFPB determines have violated the laws and regulations it enforces.
The CFPB has been active in investigations and enforcement actions and, when necessary, has assessed civil money penalties to parties the CFPB determines have violated the laws and regulations it enforces.
Financial Statements and Supplementary Data.” The multi- class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of our initial offering (including the Hsieh Stockholders), who hold 57.6% of the voting power of our capital stock which includes the voting power of equity interests of other directors and officers currently held in vehicles for which Mr.
Financial Statements and Supplementary Data.” The multi- class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of our initial offering (including the Hsieh Stockholders), who hold 54.7% of the voting power of our capital stock which includes the voting power of equity interests of other directors and officers currently held in vehicles for which Mr.
As our servicing portfolio continues to age, defaults might increase as the loans get older, which may increase our costs of servicing and could be detrimental to our business.
As our servicing portfolio continues to age, defaults might increase as the loans age, which may increase our costs of servicing and could be detrimental to our business.
Accordingly, were such a class certified or if we are unable to successfully defend such a suit, then TCPA and/or FTSA damages could have a material adverse effect on our results of operations and financial condition. Changes in tax laws may adversely affect us, which may result in adverse effects on our financial condition.
Accordingly, were such a class certified or if we are unable to successfully defend such a suit, then TCPA and/or damages under equivalent state laws could have a material adverse effect on our results of operations and financial condition. Changes in tax laws may adversely affect us, which may result in adverse effects on our financial condition.
A substantial portion of our aggregate mortgage loan origination is secured by properties concentrated in the states of California, Florida and Texas, and properties securing a substantial portion of our outstanding UPB of mortgage loan servicing rights portfolio are located in California, Florida, Texas, Virgina, Washington and New York.
A substantial portion of our aggregate mortgage loan origination is secured by properties concentrated in the states of California, Texas and Florida, and properties securing a substantial portion of our outstanding UPB of mortgage loan servicing rights portfolio are located in California, Texas, Florida, Virgina, Washington and Arizona.
The Hsieh Stockholders currently hold approximately 57.6% of the voting power of our outstanding capital stock and therefore, for so long as they continue to hold a majority of the voting power, will be able to control all matters submitted to our stockholders for approval (other than items subject to a super majority vote or a separate class vote.
The Hsieh Stockholders currently hold approximately 54.7% of the voting power of our outstanding capital stock and therefore, for so long as they continue to hold a majority of the voting power, will be able to control all matters submitted to our stockholders for approval (other than items subject to a super majority vote or a separate class vote).
In addition, the Continuing LLC Members (including the Hsieh Stockholders) own 46.2% of the Holdco Units. Because they hold their ownership interest in our business through LD Holdings, rather than us, these existing unitholders may have conflicting interests with holders of our Class A Common Stock.
In addition, the Continuing LLC Members (including the Hsieh Stockholders) own 43.7% of the Holdco Units. Because they hold their ownership interest in our business through LD Holdings, rather than us, these existing unitholders may have conflicting interests with holders of our Class A Common Stock.
Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including: • the requirement that a majority of the board of directors consists of independent directors; • the requirement that our director nominees be selected, or recommended for our board of directors’ selection, by a nominating and governance committee comprised solely of independent directors with a written charter addressing the nomination process; • the requirement that the compensation of our executive officers be determined, or recommended to our board of directors for determination, by a compensation committee comprised solely of independent directors; and • the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees. 41 We currently rely on all of these exemptions.
Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including: • the requirement that a majority of the board of directors consists of independent directors; • the requirement that our director nominees be selected, or recommended for our board of directors’ selection, by a nominating and governance committee comprised solely of independent directors with a written charter addressing the nomination process; • the requirement that the compensation of our executive officers be determined, or recommended to our board of directors for determination, by a compensation committee comprised solely of independent directors; and • the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.
Furthermore, we also must comply with regulations in connection with doing business and offering loan products over the internet, including various state and federal e-signature rules mandating that certain disclosures be made, and certain steps be followed in order to obtain and authenticate e-signatures, with which we have limited experience.
Furthermore, we also must comply with regulations in connection with doing business and offering loan products over the internet, including various state and federal e-signature rules mandating that certain disclosures be made, and certain steps be followed in order to obtain and authenticate e-signatures.
The Federal Communications Commission (“FCC”) and the FTC have increased their enforcement of the Telephone Consumer Protection Act (“TCPA”) and the Telemarketing Sales Rule. 37 The TCPA, Telemarketing Sales Rule and related laws and regulations govern, among other things, communications via telephone and text and the use of automatic telephone dialing systems (“ATDS”) and artificial and prerecorded voices.
The Federal Communications Commission (“FCC”) and the FTC have increased their enforcement of the Telephone Consumer Protection Act (“TCPA”) and the Telemarketing Sales Rule. The TCPA, Telemarketing Sales Rule and related laws and regulations govern, among other things, communications via telephone and text and the use of automatic telephone dialing systems (“ATDS”) and artificial and prerecorded or AI generated voices.
An event of default, an adverse action by a regulatory authority or a general deterioration in the economy that constricts the availability of credit, similar to the market conditions in 2007 through 2010, may increase our cost of funds and make it difficult or impossible for us to renew existing warehouse lines, secured credit or other debt facilities or obtain new warehouse lines, secured credit or debt facilities, any of which would have a material adverse effect on our business and results of operations, and would result in substantial diversion of our management’s attention.
An event of default, an adverse action by a regulatory authority or a general deterioration in the economy that constricts the availability of credit, similar to the financial crisis that occurred between 2007 and 2011, the market conditions may increase our cost of funds and make it difficult or impossible for us to renew existing warehouse lines, secured credit or other debt facilities or obtain new warehouse lines, secured credit or debt facilities, any of which would have a material adverse effect on our business and results of operations, and would result in substantial diversion of our management’s attention.
If we receive requests for advances in excess of amounts that we are able to fund at that time, we may not be able to fund these advance requests, which could materially and adversely affect our mortgage loan servicing activities and our status as an approved servicer by Fannie Mae and Freddie Mac and result in our termination as an issuer and approved servicer by Ginnie Mae.
If we are required to advance funds in excess of amounts that we are able to fund at that time, we may not be able to fund these advance requests, which could materially and adversely affect our mortgage loan servicing activities and our status as an approved servicer by Fannie Mae and Freddie Mac and result in our termination as an issuer and approved servicer by Ginnie Mae.
To date, no such class has been certified. If in the future we are found to have violated the TCPA, or FTSA, the amount of damages and potential liability could be extensive and adversely impact our business.
To date, no such class has been certified. If in the future we are found to have violated the TCPA, FTSA or other state law equivalent, the amount of damages and potential liability could be extensive and adversely impact our business.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition, we lease over 100 licensed sales office locations, in most states across the United States. None of our leases extend beyond 10 years and the financial commitments are immaterial to the scope of our operations.
Biggest changeIn addition, we lease over 100 licensed sales office locations in most states across the United States. None of our leases extend beyond 10 years. Refer to Note 9 - Leases in the Notes to Consolidated Financial Statements for further information on our leases.
Item 2. Properties Facilities and Real Estate Our corporate headquarters are located at 6651 Irvine Center Drive, Irvine, CA 92618, in a three building development totaling 118,312 square feet of leased office space. This location houses our corporate offices, our largest sales and processing team, and our support services and operations.
Item 2. Properties Facilities and Real Estate Our corporate headquarters are located at 6561 Irvine Center Drive, Irvine, CA 92618, in a three-building development totaling 118,312 square feet of leased office space. This location houses our corporate offices, our largest sales and processing team, and our support services and operations.
We lease five additional facilities: one in Scottsdale, Arizona; one in Southfield, Michigan; one in Rochester, New York and two in Plano, Texas. Our Scottsdale location house operations, technology, and sales teams; the Rochester location houses Closing USA and our Plano locations include employees from nearly all aspects of our business, including our servicing department.
We lease four additional facilities: one in Scottsdale, Arizona; one in Southfield, Michigan; and two in Plano, Texas. Our Scottsdale location houses operations, technology, and sales teams. Our Southfield location houses sales and support. Our Plano locations include employees from nearly all aspects of our business, including our servicing department.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFor a further discussion of our material legal proceedings,see Note 20 - Commitments and Contingencies of the Notes to Consolidated Financial Statements included in “Item 8 Financial Statements and Supplementary Data.” Additionally, below we have described certain other significant legal proceedings.
Biggest changeFor a further discussion of our material legal proceedings, including proceedings related to the Cybersecurity 51 Incident, see Note 19 - Commitments and Contingencies and Note 21 - Subsequent Events of the Notes to Consolidated Financial Statements included in “Item 8 Financial Statements and Supplementary Data.” Item 4. Mine Safety Disclosures Not applicable. 52 PART II.
Removed
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.
Removed
The two actions were consolidated and the court appointed a lead plaintiff in May 2022. A consolidated amended complaint was filed in June 2022, 49 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 was filed on August 24, 2022.
Removed
On October 11, 2022, plaintiffs filed an opposition to the Company’s motion to dismiss. The Company’s reply was submitted on November 10, 2022. On January 24, 2023, the Court granted, in part, and denied, in part, the Company’s motion to dismiss. The Company’s answer to the consolidated amended complaint was filed on March 3, 2023.
Removed
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.
Removed
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.
Removed
These derivative actions subsequently were consolidated into a single action (the “California Action”). The California Action was stayed pending resolution of a motion to dismiss in the putative securities class action. On January 24, 2023, the Court ruled on the motion to dismiss in the putative securities class action.
Removed
The Parties will meet and confer on how the California Action should proceed in light of the ruling 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”).
Removed
The Delaware Action was stayed pending resolution of a motion to dismiss in the putative securities class action. On January 24, 2023, the Court ruled on the motion to dismiss in the putative securities class action. The Parties will meet and confer on how the Delaware Action should proceed in light of the ruling in the putative securities class action.
Removed
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 4. Mine Safety Disclosures Not applicable. 50 PART II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeOn December 1, 2022, we issued to stockholders 223,467 shares of Class A common stock upon the conversion of the same number of shares of our Class C common stock and corresponding Holdco Units held by such stockholders.
Biggest changeOn December 1, 2023, we issued to stockholders 1,697,060 shares of Class A common stock upon the conversion of the same number of shares of our Class C common stock and corresponding Holdco Units held by such stockholders Issuer Purchases of Equity Securities None. Item 6. [RESERVED]
“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” Unregistered Sales of Equity Securities Shares of the Company's Class B common stock or Class C common stock may each be converted, together with a corresponding Holdco Unit, as applicable, at any time and from time to time at the option of the holder of such share of Class B 51 common stock or Class C common stock, as applicable, for one fully paid and non-assessable share of Class A common stock.
“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” Unregistered Sales of Equity Securities 53 Shares of the Company's Class B common stock or Class C common stock may each be converted, together with a corresponding Holdco Unit, as applicable, at any time and from time to time at the option 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.
The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. As of March 14, 2023, there were 0 stockholders of record of our Class B common stock.
The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. As of March 13, 2024, there were 0 stockholders of record of our Class B common stock.
On November 1, 2022, we issued to stockholders 1,669,822 shares of Class A common stock upon the conversion of the same number of shares of our Class C common stock and corresponding Holdco Units held by such stockholders.
On November 1, 2023, we issued to stockholders 1,045,755 shares of Class A common stock upon the conversion of the same number of shares of our Class C common stock and corresponding Holdco Units held by such stockholders.
On October 1, 2022, we issued to stockholders 2,430,231 shares of Class A common stock upon the conversion of the same number of shares of our Class C common stock and corresponding Holdco Units held by such stockholders.
On October 1, 2023, we issued to stockholders 442,688 shares of Class A common stock upon the conversion of the same number of shares of our Class C common stock and corresponding Holdco Units held by such stockholders.
Our Class B common stock, Class C common stock, and Class D common stock are neither listed nor traded. Holders As of March 14, 2023, there were 57 stockholders of record of our Class A common stock.
Our Class B common stock, Class C common stock, and Class D common stock are neither listed nor traded. Holders As of March 13, 2024, there were 44 stockholders of record of our Class A common stock.
As of March 14, 2023, there were 57 stockholders of record of our Class C common stock. As of March 14, 2023, there were 4 stockholders of record of our Class D common stock.
As of March 13, 2024, there were 47 stockholders of record of our Class C common stock. As of March 13, 2024, there were 4 stockholders of record of our Class D common stock.
Removed
In December 2022, 35,822 shares were purchased from employees to pay for taxes related to restricted stock vesting under the terms of an employee share-based compensation plan. Issuer Purchases of Equity Securities None. Item 6. [RESERVED] 52

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWe 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 of servicing rights. 54 Year Ended December 31, (Dollars in thousands except per share amounts) 2022 2021 2020 Financial statement data Total revenue $ 1,255,796 $ 3,724,704 $ 4,312,174 Total expenses 1,945,773 3,058,187 2,296,816 Net (loss) income (610,385) 623,146 2,013,110 (Loss) Earnings per share of Class A and Class D common stock Basic $ (1.75) $0.87 N/A Diluted $ (1.75) $0.87 N/A Non-GAAP financial measures (1) Adjusted total revenue $ 1,216,041 $ 3,739,182 $ 4,253,276 Adjusted net (loss) income (475,850) 555,576 1,486,137 Adjusted (LBITDA) EBITDA (472,064) 869,368 2,084,905 Adjusted diluted (loss) earnings per share N/A N/A N/A Loan origination and sales Loan originations by purpose: Purchase $ 29,333,525 $ 39,321,538 $ 28,301,076 Refinance 24,444,931 97,679,209 72,459,075 Total loan originations $ 53,778,456 $ 137,000,747 $ 100,760,151 Loan originations (units) 161,496 392,737 297,450 Licensed loan officers 1,902 3,373 2,612 Loans sold: Servicing-retained $ 38,461,896 $ 117,934,385 $ 87,186,118 Servicing-released 20,855,416 18,148,290 10,353,541 Total loans sold $ 59,317,312 $ 136,082,675 $ 97,539,659 Loans sold (units) 175,633 392,213 289,512 Gain on sale margin 1.63 % 2.61 % 4.13 % Pull through weighted gain on sale margin 1.94 3.07 3.65 IRLCs $ 68,553,340 $ 166,263,478 $ 160,984,531 IRLCs (units) 211,647 506,176 471,723 Pull through weighted lock volume $ 45,164,915 $ 116,628,597 $ 114,205,923 Servicing metrics Total servicing portfolio (unpaid principal balance) $ 141,170,931 $ 162,112,965 $ 102,931,258 Total servicing portfolio (units) 471,022 524,992 342,600 60+ days delinquent ($) $ 1,421,722 $ 1,510,261 $ 2,162,585 60+ days delinquent (%) 1.01 % 0.93 % 2.10 % Servicing rights at fair value, net (2) $ 2,025,136 $ 1,999,402 $ 1,124,302 Weighted average servicing fee (3) 0.30 % 0.29 % 0.31 % Multiple (3)(4) 5.2x 4.4x 3.2x (1) Refer to the section titled “Non-GAAP Financial Measures” for a discussion and reconciliation of our Non-GAAP financial measures.
Biggest changeYear Ended December 31, (Dollars in thousands) 2023 2022 2021 IRLCs $ 32,155,455 $ 68,553,340 $ 166,263,478 IRLCs (units) 105,143 211,647 506,176 Pull through weighted lock volume $ 21,475,262 $ 45,164,915 $ 116,628,597 Pull through weighted gain on sale margin 2.75 1.94 3.07 Loan originations by purpose: Purchase $ 16,474,927 $ 29,333,525 $ 39,321,538 Refinance 6,196,804 24,444,931 97,679,209 Total loan originations $ 22,671,731 $ 53,778,456 $ 137,000,747 Gain on sale margin 2.60 % 1.63 % 2.61 % Loan originations (units) 76,847 161,496 392,737 Licensed loan officers 1,573 1,902 3,373 Loans sold: Servicing-retained $ 15,222,156 $ 38,461,896 $ 117,934,385 Servicing-released 7,918,029 20,855,416 18,148,290 Total loans sold (1) $ 23,140,185 $ 59,317,312 $ 136,082,675 Loans sold (units) 77,372 175,633 392,213 Servicing metrics Total servicing portfolio (unpaid principal balance) $ 145,090,199 $ 141,170,931 $ 162,112,965 Total servicing portfolio (units) 496,894 471,022 524,992 60+ days delinquent ($) (2) $ 1,392,606 $ 1,421,722 $ 1,510,261 60+ days delinquent (%) 0.96 % 1.01 % 0.93 % Servicing rights at fair value, net (3) $ 1,985,718 $ 2,025,136 $ 1,999,402 Weighted average servicing fee (4) 0.29 % 0.30 % 0.29 % Multiple (4)(5) 5.0x 5.2x 4.4x (1) Original principal balance (2) The UPB of loans that are 60 or more days past due as of the dates presented, according to the contractual due date, or are in foreclosure.
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.
Rising interest rates cause our expected mortgage loan servicing revenues to increase due to a decline in mortgage loan prepayments which extends the average life of our servicing portfolio and increases the value of our servicing rights. Conversely, as interest rates decrease, our LHFS and IRLCs generally increase in value while our Hedging Instruments decrease in value.
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.
Pull through weighted rate lock volume is the 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.
Change in fair value of servicing rights, net include (i) fair value gains or losses net of Hedging Instrument gains or losses; (ii) fallout and decay, 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 . Change in fair value of servicing rights, net include (i) fair value gains or losses net of Hedging Instrument gains or losses; (ii) fallout and decay, which includes principal amortization and prepayments; and (iii) realized gains or losses on the sales of servicing rights.
We compensate for these limitations by using Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted 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.
We compensate for these limitations by using Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted 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.
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.
Some of these limitations are: • they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments; 64 • 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.
At this time, we currently believe that our cash on hand, as well as the sources of liquidity described above, will be sufficient to maintain our current operations and fund our loan operations and capital commitments for the next twelve months.
At this time, we currently believe that our cash on hand, as well as the sources of liquidity described above, will be sufficient to maintain our current operations and fund our loan originations capital commitments for the next twelve months.
In a declining interest rate environment, borrowers tend to refinance their mortgage loans, which increases prepayment speed and causes our expected mortgage loan 53 servicing revenues to decrease, which reduces the average life of our servicing portfolio and decreases the value of our servicing rights.
In a declining interest rate environment, borrowers tend to refinance their mortgage loans, which increases prepayment speed and causes expected mortgage loan servicing revenues to decrease, which reduces the average life of our servicing portfolio and decreases the value of our servicing rights.
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 interest expense on non-funding debt), taxation, the age and book depreciation of facilities (affecting relative depreciation expense), the amortization of intangibles, and other cost or benefit items which may vary for different companies for reasons unrelated to operating performance.
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 interest expense on non-funding debt), taxation, the age and book depreciation of facilities (affecting relative depreciation expense), and other cost or benefit items which may vary for different companies for reasons unrelated to operating performance.
Financial Statements and Supplementary Data.” At December 31, 2022, the most critical of these significant accounting policies were policies related to the fair value of loans held for sale, servicing rights, and derivative financial instruments. As of the date of this report, there have been no significant changes to the Company's critical accounting policies or estimates.
Financial Statements and Supplementary Data.” At December 31, 2023, the most critical of these significant accounting policies were policies related to the fair value of loans held for sale, servicing rights, and derivative financial instruments. As of the date of this report, there have been no significant changes to the Company's critical accounting policies or estimates.
Off-Balance Sheet Arrangements As of December 31, 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.
Off-Balance Sheet Arrangements As of December 31, 2023, 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.
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.
We refer to such 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.
Interest Rates Our mortgage loan refinancing volumes (and to a lesser degree, our purchase volumes), balance sheets, and results of operations are influenced by changes in interest rates and how we effectively manage the related interest rate risk.
Our mortgage loan refinancing volumes (and to a lesser degree, our purchase volumes), balance sheet, and results of operations are influenced by changes in interest rates and how we effectively manage the related interest rate risk.
Refer to Note 5- Derivative Financial Instruments and Hedging Activities and Note 20 - Commitments & Contingencies of the Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” for further discussion on derivatives and other contractual commitments..
Refer to Note 5- Derivative Financial Instruments and Hedging Activities and Note 19 - Commitments & Contingencies of the Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” for further discussion on derivatives and other contractual commitments.
A comparative discussion of results for 2021 compared to 2020 is provided in the "Results of Operations" section within the Company’s Annual Report of loanDepot, Inc. on Form 10-K for the year ended December 31, 2021.
A comparative discussion of results for 2022 compared to 2021 is provided in the "Results of Operations" section within the Company’s Annual Report of loanDepot, Inc. on Form 10-K for the year ended December 31, 2022.
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 $232.5 million or 64.2%, decrease in origination income was the result of lower loan origination volume. Servicing Fee Income .
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 $64.5 million, or 49.7%, decrease in origination income was the result of lower loan origination volume. Servicing Fee Income .
These non-GAAP measures include our Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share, and Adjusted EBITDA (LBITDA).
These non-GAAP measures include our Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share (if dilutive), and Adjusted EBITDA (LBITDA).
However, rising interest rates during periods of inflationary pressures can make real assets, including real estate, an attractive investment. Demand for real estate may result in ongoing support for purchase mortgages and increasing home price appreciation creating borrower equity that may result in increasing opportunities for cash-out refinancings or home equity loans.
However, rising interest rates during periods of inflationary pressures can make real assets, including real estate, an attractive investment. Demand for real estate may result in ongoing support for purchase mortgages and home price appreciation creating borrower equity that could result in opportunities for cash-out refinancings or home equity lines of credit.
We expect that we will need to further amend or obtain waivers in order to maintain compliance with such financial covenants. Our lenders are not required to grant any such amendments or waivers and may determine not to do so. As of December 31, 2022, following certain amendments, we were in full compliance with all financial covenants.
As of December 31, 2023, we were in full compliance with all financial covenants. However, we expect that we will need to amend or obtain waivers in order to maintain compliance with such financial covenants in 2024. Our lenders are not required to grant any such amendments or waivers and may determine not to do so.
(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 sheets. (3) Agency only.
(3) 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 sheets. (4) Excludes other Non-Agency.
(4) Amounts represent the fair value of servicing rights, net, divided by the weighted average annualized servicing fee. 55 Results of Operations The following table sets forth our consolidated financial statement data for 2022 compared to 2021 .
(5) Amounts represent the fair value of servicing rights, net, divided by the weighted average annualized servicing fee. 56 Results of Operations The following table sets forth our consolidated financial statement data for 2023 compared to 2022 .
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.
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 also exclude stock compensation expense, which is a non-cash expense, management fees, IPO expenses, gains or losses on extinguishment of debt and disposal of fixed assets, non-cash goodwill impairment, and 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.
We also exclude stock-based compensation expense, which is a non-cash expense, gains or losses on extinguishment of debt and disposal of fixed assets, non-cash goodwill impairment, and other impairment charges to intangible assets and operating lease right-of-use assets, as well as certain costs associated with our restructuring efforts, as management does not consider these costs to be indicative of our performance or results of operations.
When we draw on our warehouse and securitization facilities we must pledge eligible loan collateral. Our warehouse line providers require us to make a capital investment, or “haircut.” upon financing the loan, which is generally based on product types and the market value of the loans. The haircuts are normally recovered from sales proceeds.
Our warehouse line providers require us to make a capital investment, or “haircut.” upon financing the loan, which is generally based on product types and the market value of the loans. The haircuts are normally recovered from sales proceeds.
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. 63 Recent Accounting Pronouncements Refer to Note 1- Recent Accounting Pronouncements of the Notes to Consolidated Financial Statements included in “Item 8.
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. Refer to “Item 7A.
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 of the Notes to Consolidated Financial Statements included in “Item 8.
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.
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.
These facilities, which we refer to as gestation facilities, are a component of our financing strategy and are off-balance sheet arrangements. 63 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.
Reconciliation of Net (Loss) Income to Adjusted Net (Loss) Income (Dollars in thousands) (Unaudited): Year Ended December 31, 2022 2021 2020 Net (loss) income attributable to loanDepot, Inc. $ (273,020) $ 113,524 $ — Net (loss) income from the pro forma conversion of Class C common shares to Class A common shares (1) (337,365) 509,622 2,013,110 Net (loss) income (610,385) 623,146 2,013,110 Adjustments to the benefit (provision) for income taxes (2) 92,337 (132,502) (516,485) Tax-effected net (loss) income (518,048) 490,644 1,496,625 Change in fair value of servicing rights, net of hedging gains and losses (3) (39,755) 14,478 (58,898) Change in fair value - contingent consideration — (77) 32,650 Stock-based compensation expense and management fees 20,583 67,304 9,565 IPO expenses — 6,041 2,560 Gain on extinguishment of debt (10,528) — — Loss on disposal of fixed assets 12,594 — — Goodwill impairment 40,736 — — Other impairment 17,500 — — Tax effect of adjustments (4) 1,068 (22,814) 3,635 Adjusted net (loss) income (475,850) 555,576 1,486,137 (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.
Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) (Dollars in thousands) (Unaudited): Year Ended December 31, 2023 2022 2021 Net loss attributable to loanDepot, Inc. $ (110,142) $ (273,020) $ 113,524 Net loss from the pro forma conversion of Class C common shares to Class A common shares (1) (125,370) (337,365) 509,622 Net loss (235,512) (610,385) 623,146 Adjustments to the benefit (provision) for income taxes (2) 32,872 92,337 (132,502) Tax-effected net loss from the pro forma conversion of Class C common shares to Class A common stock (202,640) (518,048) 490,644 Change in fair value of servicing rights, net of hedging gains and losses (3) 45,692 (39,755) 14,478 Change in fair value - contingent consideration — — (77) Stock-based compensation expense and management fees (4) 21,993 20,583 67,304 IPO expenses — — 6,041 Restructuring charges (5) 11,811 25,126 — Gain on extinguishment of debt (1,690) (10,528) — Loss on disposal of fixed assets 1,430 12,594 — Goodwill impairment — 40,736 — Other impairment 925 17,500 — Tax effect of adjustments (6) (19,964) (5,809) (22,814) Adjusted net loss $ (142,443) $ (457,601) $ 555,576 (1) Reflects net loss to Class A common stock and Class D common stock from the pro forma exchange of Class C common stock.
In addition to the above contractual obligations, we also have interest rate lock commitments, forward sale contracts, loan loss obligation for sold loans and obligation for sold MSRs.
(2) Represents lease obligations for office space under non-cancelable operating lease agreements. In addition to the above contractual obligations, we also have interest rate lock commitments, forward sale contracts, loan loss obligation for sold loans and obligation for sold MSRs.
GAAP measures. 64 Reconciliation of Total Revenue to Adjusted Total Revenue (Dollars in thousands) (Unaudited): Year Ended December 31, 2022 2021 2020 Total net revenue $ 1,255,796 $ 3,724,704 $ 4,312,174 Change in fair value of servicing rights, net of hedging gains and losses (1) (39,755) 14,478 (58,898) Adjusted total revenue $ 1,216,041 $ 3,739,182 $ 4,253,276 (1) Represents the change in the fair value of servicing rights attributable to changes in assumptions, net of hedging gains and losses.
Reconciliation of Total Revenue to Adjusted Total Revenue (Dollars in thousands) (Unaudited): Year Ended December 31, 2023 2022 2021 Total net revenue $ 974,022 $ 1,255,796 $ 3,724,704 Change in fair value of servicing rights, net of hedging gains and losses (1) 45,692 (39,755) 14,478 Adjusted total revenue $ 1,019,714 $ 1,216,041 $ 3,739,182 (1) Represents the change in the fair value of servicing rights attributable to changes in assumptions, net of hedging gains and losses.
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 overall market share.
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.
Financial Statements and Supplementary Data” for a discussion of recently issued accounting guidance. Non-GAAP Financial Measures To provide investors with information in addition to our results as determined by GAAP, we disclose certain non-GAAP measures to assist investors in evaluating our financial results.
Financial Statements and Supplementary Data.” Reconciliation of Non-GAAP Financial Measures To provide investors with information in addition to our results as determined by GAAP, we disclose certain non-GAAP measures to assist investors in evaluating our financial results.
Other income includes our pro rata share of the net earnings from joint ventures and fee income from title, escrow and settlement services for mortgage loan transactions performed by LDSS.
Other income includes our pro rata share of the net earnings from joint ventures and fee income from title, escrow, settlement services for mortgage loan transactions performed by LDSS, fair value gains or losses on trading securities, and bank interest income on cash balances.
However, we will continue to review our liquidity needs in light of current and anticipated mortgage market conditions and we have taken various steps to align our cost structure with current and expected mortgage origination volumes.
However, we will continue to review our liquidity needs in light of current and anticipated mortgage market conditions and we have taken various steps to align our cost structure with current and expected mortgage origination volumes. Financial Covenants Our lenders require us to comply with various financial covenants including tangible net worth, liquidity, leverage ratios and profitability.
(2) Represents the change in the fair value of servicing rights attributable to changes in assumptions, net of hedging gains and losses.
(2) Represents the change in the fair value of servicing rights due to changes in valuation inputs or assumptions, net of gains or losses from derivatives hedging servicing rights.
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.
This is somewhat offset by purchase loan originations sourced from our joint ventures which typically experience their highest level of activity during November and December as home builders focus on completing and selling homes prior to year- 54 end.
Gain on sale margin represents the total of (i) gain on origination and sale of loans, net, and (ii) origination income, net, divided by loan origination volume during period.
We believe the volume of our IRLCs is another measure of our overall market share. 55 Gain on sale margin represents the total of (i) gain on origination and sale of loans, net, and (ii) origination income, net, divided by loan origination volume during period.
We exclude from each of these non-GAAP financial measures the change in fair value of MSRs and related hedging gains and losses as they add volatility and are not indicative of the Company’s operating performance or results of operation.
We exclude from these non-GAAP financial measures the change in fair value of MSRs and related hedging gains and losses as they represent non-cash, unrealized adjustments resulting from changes in valuation assumptions, mostly due to changes in market interest rates, and are not indicative of the Company’s operating performance or results of operation.
Our primary sources of revenue are derived from the origination of conventional and government mortgage loans, servicing conventional and government mortgage loans, and providing ancillary services. Key Factors Influencing Our Results of Operations Market and Economic Environment The consumer lending market and the associated loan origination volumes for mortgage loans are influenced by interest rates and economic conditions.
Our primary sources of revenue are derived from the origination of conventional and government mortgage loans, servicing conventional and government mortgage loans, and providing ancillary services. Residential Real-Estate Market The residential real-estate market and associated mortgage loan origination volumes are influenced by economic factors such as interest rates, housing prices, and unemployment rates.
Sources and Uses of Cash Our primary sources of liquidity have been as follows: (i) funds obtained from our warehouse 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. 60 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 and other lines of credit; (v) payment of interest expense under debt obligations; (vi) payment of operating expenses; (vii) repayment of warehouse 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 to holders of 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; and (xiv) costs relating to servicing.
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 and other lines of credit; (v) payment of interest expense under debt obligations; (vi) payment of operating expenses; (vii) repayment of warehouse 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) repurchases of loans under representation and warranty breaches; and (xii) costs relating to servicing.
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 $5.8 billion or 70.8% decrease reflects $59.3 billion in loan sales, partially offset by $53.8 billion in loan originations. Derivative Assets, at Fair Value.
Loans held for sale, at fair value, primarily consist of fixed and variable rate, 15- to 30-year term first-lien loans secured by residential property. The decrease of $240.5 million, or 10.1%, reflects $23.1 billion in loan sales, partly offset by $22.7 billion in loan originations, and a $64.9 million increase in fair value. Servicing Rights, at Fair Value.
As of December 31, 2022, we had a total of $11.0 million in restricted cash posted as collateral with our warehouse and securitization facilities, of which $4.3 million was the minimum requirement. 61 In addition to our warehouse lines, we fund our balance sheet through our secured and unsecured debt obligations.
As of December 31, 2023, we had a total of $7.0 million in restricted cash posted as collateral with our warehouse and securitization facilities, of which $4.3 million was the minimum requirement. Debt Obligations MSR facilities and Term Notes provide financing for our servicing portfolio investments.
Year Ended December 31, 2022 2021 2020 Statutory U.S. federal income tax rate 21.00 % 21.00 % 21.00 % State and local income taxes (net of federal benefit) 6.37 5.00 4.74 Effective income tax rate 27.37 % 26.00 % 25.74 % (3) Represents the change in the fair value of servicing rights attributable to changes in assumptions, net of hedging gains and losses.
Adjustments to the benefit (provision) for income taxes reflect the income tax rates below, and the pro forma assumption that loanDepot, Inc. owns 100% of LD Holdings. 65 Year Ended December 31, 2023 2022 2021 Statutory U.S. federal income tax rate 21.00 % 21.00 % 21.00 % State and local income taxes (net of federal benefit) 5.22 6.37 5.00 Combined federal and state rate (less federal benefit) 26.22 % 27.37 % 26.00 % (3) Represents the change in the fair value of servicing rights due to changes in valuation inputs or assumptions, net of gains or losses from derivatives hedging servicing rights.
The decrease of $5.3 billion or 71.2% was the result of loan sales outpacing originations by $5.5 billion during the year ended December 31, 2022, partially offset by an increase in loans funded with cash. Derivative Liabilities, at Fair Value.
The decrease of $199.5 million, or 9.3%, was the result of loan sales outpacing originations by $468.5 million during the year ended December 31, 2023, partially offset by an increase in financing for loans that were previously funded with cash. Accounts payable, accrued expenses and other liabilities.
We forecast the need to have adequate liquid funds available to operate and grow our business. As of December 31, 2022, unrestricted cash and cash equivalents were $864.0 million and committed and uncommitted available capacity under our warehouse and other lines of credit was $1.8 billion.
As of December 31, 2023, unrestricted cash and cash equivalents were $660.7 million and committed and uncommitted available capacity under our warehouse and other lines of credit was $1.2 billion.
The decrease reflects lower demand for mortgage loans from the rapid increase in interest rates. Total revenue decreased $2.5 billion from a 61.3% decrease in pull-through weighted lock volume that resulted in a $2.5 billion decrease in gain on origination and sale of loans.
Total revenue decreased $281.8 million from a 52.5% decrease in pull-through weighted lock volume that resulted in a $224.0 million decrease in gain on origination and sale of loans. Income Net Interest Income.
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, IRLCs, servicing rights and mandatory trades, forward sales contracts, interest rate swap futures and put options.
The majority of our assets are subject to interest rate risk, including LHFS, IRLCs, servicing rights, forward sales contracts, interest rate swap futures and put options.
Reconciliation of Net (Loss) Income to Adjusted (LBITDA) EBITDA (Dollars in thousands) (Unaudited): Year Ended December 31, 2022 2021 2020 Net (loss) income $ (610,385) $ 623,146 $ 2,013,110 Interest expense — non-funding debt (1) 124,060 79,564 48,001 Income tax (benefit) expense (79,592) 43,371 2,248 Depreciation and amortization 42,195 35,541 35,669 Change in fair value of servicing rights, net of hedging gains and losses (2) (39,755) 14,478 (58,898) Change in fair value - contingent consideration — (77) 32,650 Stock compensation expense and management fees 20,583 67,304 9,565 IPO expenses — 6,041 2,560 Loss on disposal of fixed assets 12,594 — — Goodwill impairment 40,736 — — Other impairment 17,500 — — Adjusted (LBITDA) EBITDA $ (472,064) $ 869,368 $ 2,084,905 (1) Represents other interest expense, which includes gain on extinguishment of debt and amortization of debt issuance costs, in the Company’s consolidated statement of operations.
Reconciliation of Adjusted Diluted Weighted Average Shares Outstanding to Diluted Weighted Average Shares Outstanding (Dollars in thousands except per share) (Unaudited) Year Ended December 31, 2023 2022 2021 Net (loss) income attributable to loanDepot, Inc. $ (110,142) $ (273,020) $ 113,524 Adjusted net (loss) income (142,443) (457,601) 555,576 Share Data: Diluted weighted average shares of Class A and Class D common stock outstanding 174,906,063 156,030,350 129,998,894 Assumed pro forma conversion of Class C shares to Class A common stock 147,789,060 163,541,101 192,465,222 Adjusted diluted weighted average shares outstanding 322,695,123 319,571,451 322,464,116 Reconciliation of Net (Loss) Income to Adjusted (LBITDA) EBITDA (Dollars in thousands) (Unaudited): Year Ended December 31, 2023 2022 2021 Net (loss) income $ (235,512) $ (610,385) $ 623,146 Interest expense — non-funding debt (1) 174,103 124,060 79,564 Income tax (benefit) expense (42,796) (79,592) 43,371 Depreciation and amortization 41,261 42,195 35,541 Change in fair value of servicing rights, net of hedging gains and losses (2) 45,692 (39,755) 14,478 Change in fair value - contingent consideration — — (77) Stock compensation expense and management fees 21,993 20,583 67,304 IPO expenses — — 6,041 Restructuring charges 11,811 25,126 — Loss on disposal of fixed assets 1,430 12,594 — Goodwill impairment — 40,736 — Other impairment 925 17,500 — Adjusted EBITDA (LBITDA) $ 18,907 $ (446,938) $ 869,368 (1) Represents other interest expense, which includes gain on extinguishment of debt and amortization of debt issuance costs, in the Company’s consolidated statement of operations.
The $44.5 million or 55.9% increase in other interest expense was the result of an $898.0 million increase in average balances and higher rates on secured credit facilities, partially offset by a $10.5 million gain on extinguishment of debt from the repurchase of $97.5 million of the 2028 Senior Notes during the first quarter of 2022. Income Tax Expense (Benefit).
The $50.0 million or 40.3% increase in other interest expense was the result of higher rates on secured credit facilities, and an $8.8 million decrease in gain on extinguishment of Senior Notes. Income Tax Expense (Benefit).
Marketing and Advertising Expense. The $230.8 million or 49.4% decrease in marketing expense reflects cost savings measures affecting national television campaigns, lead aggregators, and print ads. As interest rates increased we adjusted our marketing strategy to attract more purchase and cash-out refinance volume.
As of December 31, 2023, we had 4,250 employees, as compared to 5,194 employees as of December 31, 2022. Marketing and Advertising Expense. The $103.9 million or 43.9% decrease in marketing expense reflects cost savings measures affecting lead aggregators. With the elevated interest rates, we adapted our marketing strategy to target increased purchase and cash-out refinance volume.
The decrease of $46.0 million or 46.4% in servicing expense reflects our shift to in-house servicing. Other Interest Expense.
In early 2023, we completed the transition of our servicing portfolio to our in-house platform. The decrease of $25.4 million or 47.9% in servicing expense reflects our shift to in-house servicing and a decrease in non-performing servicing expense. Other Interest Expense.
Approximately 77% of the mortgage loans that we originated during the year ended December 31, 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.
Moreover, there may be reduced demand from investors to acquire our mortgage loans in the secondary market, further impacting our liquidity. Approximately 76% of the mortgage loans that we originated during the year ended December 31, 2023 were sold in the secondary mortgage market either directly to Fannie Mae and Freddie Mac or securitized into MBS guaranteed by Ginnie Mae.
The $1.1 billion decline in total expense reflects previously announced cost savings initiatives in personnel, marketing, and servicing expense as well as volume-related reductions from the decline in loan originations.
The decrease is attributable to a $693.4 million decline in total expenses, including personnel, marketing, and servicing expense as well as volume-related reductions from the decline in loan originations.
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. As interest rates increase, rate and term refinancings become less attractive to consumers.
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. During 2022 and 2023, the Federal Reserve implemented a series of rate adjustments, resulting in a cumulative increase of 5.25 percentage points in the Federal Funds rate.
Benefit for income taxes of $79.6 million for the year ended December 31, 2022, as compared to expense of $43.4 million for the year ended December 31, 2021 reflects net losses, partially offset by non-deductible impairment of goodwill and other intangible assets for the year ended December 31, 2022 compared to net income for the year ended December 31, 2021. 58 Balance Sheet Highlights December 31, Change $ Change % (Dollars in thousands) 2022 2021 ASSETS Cash and cash equivalents $ 863,956 $ 419,571 $ 444,385 105.9 % Restricted cash 116,545 201,025 (84,480) (42.0) Accounts receivable, net 145,279 56,183 89,096 158.6 Loans held for sale, at fair value 2,373,427 8,136,817 (5,763,390) (70.8) Derivative assets, at fair value 39,411 194,665 (155,254) (79.8) Servicing rights, at fair value 2,037,447 2,006,712 30,735 1.5 Trading securities, at fair value 94,243 72,874 21,369 29.3 Property and equipment, net 92,889 104,262 (11,373) (10.9) Operating lease right-of-use assets 35,668 55,646 (19,978) (35.9) Prepaid expenses and other assets 155,982 140,315 15,667 11.2 Loans eligible for repurchase 634,677 363,373 271,304 74.7 Investments in joint ventures 20,410 18,553 1,857 10.0 Goodwill and intangible assets, net — 42,317 (42,317) (100.0) Total assets 6,609,934 11,812,313 (5,202,379) (44.0) LIABILITIES AND EQUITY Warehouse and other lines of credit 2,146,602 7,457,199 (5,310,597) (71.2) Accounts payable, accrued expenses and other liabilities 488,696 624,444 (135,748) (21.7) Derivative liabilities, at fair value 67,492 37,797 29,695 78.6 Liability for loans eligible for repurchase 634,677 363,373 271,304 74.7 Operating lease liability 61,675 71,932 (10,257) (14.3) Debt obligations, net 2,289,319 1,628,208 661,111 40.6 Total equity 921,473 1,629,360 (707,887) (43.4) Total liabilities and equity $ 6,609,934 $ 11,812,313 $ (5,202,379) (44.0) Cash and Cash Equivalents.
The decrease in benefit for income taxes of $36.8 million reflects lower net losses, partially offset by non-deductible impairment of goodwill and other intangible assets for the year ended December 31, 2022. 59 Balance Sheet Highlights December 31, Change $ Change % (Dollars in thousands) 2023 2022 ASSETS Cash and cash equivalents $ 660,707 $ 863,956 $ (203,249) (23.5) % Restricted cash 85,149 116,545 (31,396) (26.9) Loans held for sale, at fair value 2,132,880 2,373,427 (240,547) (10.1) Derivative assets, at fair value 93,574 39,411 54,163 137.4 Servicing rights, at fair value 1,999,763 2,037,447 (37,684) (1.8) Trading securities, at fair value 92,901 94,243 (1,342) (1.4) Property and equipment, net 70,809 92,889 (22,080) (23.8) Operating lease right-of-use assets 29,433 35,668 (6,235) (17.5) Loans eligible for repurchase 711,371 634,677 76,694 12.1 Investments in joint ventures 20,363 20,410 (47) (0.2) Other assets 254,098 301,261 (47,163) (15.7) Total assets 6,151,048 6,609,934 (458,886) (6.9) LIABILITIES AND EQUITY Warehouse and other lines of credit 1,947,057 2,146,602 (199,545) (9.3) Accounts payable, accrued expenses and other liabilities 379,971 488,696 (108,725) (22.2) Derivative liabilities, at fair value 84,962 67,492 17,470 25.9 Liability for loans eligible for repurchase 711,371 634,677 76,694 12.1 Operating lease liability 49,192 61,675 (12,483) (20.2) Debt obligations, net 2,274,011 2,289,319 (15,308) (0.7) Total equity 704,484 921,473 (216,989) (23.5) Total liabilities and equity $ 6,151,048 $ 6,609,934 $ (458,886) (6.9) Loans Held for Sale, at Fair Value.
We continue to utilize certain online lead aggregators, search engine optimization, pay-per-click, banner advertising and organic content to generate organic online leads. 57 Direct Origination Expense. Direct origination expense reflects the unreimbursed portion of direct out-of-pocket expenses that we incur in the loan origination process, including underwriting, appraisal, credit report, loan document and other expenses paid to non-affiliates.
Direct origination expense reflects the unreimbursed portion of direct out-of-pocket expenses that we incur in the loan origination process, including underwriting, appraisal, credit report, loan document and other expenses paid to non-affiliates. The $53.7 million or 44.4% decrease in direct origination expense was the result of decreased loan originations during the period. General and Administrative Expense .
We do not recognize these transfers as sales for accounting purposes. During 2022, our loans remained on warehouse lines for an average of 18 days. Our warehouse facilities are generally short-term borrowings with original maturities between one and two years. Our securitization facilities are generally two or three year terms.
During the year ended December 31, 2023, our loans remained on warehouse lines for an average of 18 days. Our warehouse facilities are generally short-term borrowings and our securitization facility, with an original three-year term, is scheduled to mature in October 2024.
The increase in net interest income reflects higher rates on LHFS. 56 Gain on Origination and Sale of Loans, Net .
The decrease in net interest income reflects our cost of funds, which are tied to short-term interest rates, increasing more than the yield on our LHFS, which are tied to long-term interest rates. 57 Gain on Origination and Sale of Loans, Net .
We also completed the exit of our wholesale business. In early 2023, we completed the transition of our servicing portfolio to our in-house platform lowering our servicing expense, and we launched our digital HELOC platform. Key Performance Indicators We manage and assess the performance of our business by evaluating a variety of metrics.
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.
Year Ended December 31, Change $ Change % (Dollars in thousands) 2022 2021 REVENUES: Net interest income $ 49,307 $ 44,021 $ 5,286 12.0 % Gain on origination and sale of loans, net 748,540 3,213,351 (2,464,811) (76.7) Origination income, net 129,736 362,257 (232,521) (64.2) Servicing fee income 449,150 393,680 55,470 14.1 Change in fair value of servicing rights, net (194,357) (445,862) 251,505 56.4 Other income 73,420 157,257 (83,837) (53.3) Total net revenues 1,255,796 3,724,704 (2,468,908) (66.3) EXPENSES: Personnel expense 1,027,008 1,929,752 (902,744) (46.8) Marketing and advertising expense 236,828 467,590 (230,762) (49.4) Direct origination expense 120,854 193,264 (72,410) (37.5) General and administrative expense 265,680 214,965 50,715 23.6 Occupancy expense 35,306 38,443 (3,137) (8.2) Depreciation and amortization 42,195 35,541 6,654 18.7 Servicing expense 53,106 99,068 (45,962) (46.4) Other interest expense 124,060 79,564 44,496 55.9 Goodwill impairment 40,736 — 40,736 100.0 Total expenses 1,945,773 3,058,187 (1,112,414) (36.4) (Loss) income before income taxes (689,977) 666,517 (1,356,494) (203.5) Income tax (benefit) expense (79,592) 43,371 (122,963) (283.5) Net (loss) income (610,385) 623,146 (1,233,531) (198.0) Net (loss) income attributable to noncontrolling interests (337,365) 509,622 (846,987) (166.2) Net (loss) income attributable to loanDepot, Inc. $ (273,020) $ 113,524 $ (386,544) (340.5) Net loss of $610.4 million for 2022 reflects a decrease of $1.2 billion from net income of $623.1 million for 2021.
Year Ended December 31, Change $ Change % (Dollars in thousands) 2023 2022 REVENUES: Net interest income $ 3,118 $ 49,307 $ (46,189) (93.7) % Gain on origination and sale of loans, net 524,521 748,540 (224,019) (29.9) Origination income, net 65,209 129,736 (64,527) (49.7) Servicing fee income 492,811 449,150 43,661 9.7 Change in fair value of servicing rights, net (184,417) (194,357) 9,940 5.1 Other income 72,780 73,420 (640) (0.9) Total net revenues 974,022 1,255,796 (281,774) (22.4) EXPENSES: Personnel expense 573,010 1,027,008 (453,998) (44.2) Marketing and advertising expense 132,880 236,828 (103,948) (43.9) Direct origination expense 67,141 120,854 (53,713) (44.4) General and administrative expense 212,732 265,680 (52,948) (19.9) Occupancy expense 23,516 35,306 (11,790) (33.4) Depreciation and amortization 41,261 42,195 (934) (2.2) Servicing expense 27,687 53,106 (25,419) (47.9) Other interest expense 174,103 124,060 50,043 40.3 Goodwill impairment — 40,736 (40,736) NM Total expenses 1,252,330 1,945,773 (693,443) (35.6) Loss before income taxes (278,308) (689,977) 411,669 59.7 Income tax benefit (42,796) (79,592) 36,796 46.2 Net loss (235,512) (610,385) 374,873 61.4 Net loss attributable to noncontrolling interests (125,370) (337,365) 211,995 62.8 Net loss attributable to loanDepot, Inc. $ (110,142) $ (273,020) $ 162,878 (59.7) Net loss of $235.5 million for 2023 reflects a decrease of $374.9 million compared to net loss of $610.4 million for 2022.
(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.
(2) loanDepot, Inc. is subject to federal, state and local income taxes.
We fund substantially all of the mortgage loans we close through borrowings under our warehouse and other lines of credit. Our mortgage origination liquidity could 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.
We utilize both committed and uncommitted loan funding facilities and we evaluate our needs under these facilities based on forecasted volume of loan originations and sales. Our liquidity could be affected as lenders may reassess their exposure to the mortgage origination industry and potentially limit access to uncommitted mortgage warehouse financing or increase associated costs.
The volume of mortgage loan originations associated with home purchases is generally affected by broader economic factors as well as the overall strength of the economy, housing prices, and interest rate fluctuations. Increases in interest rates may affect affordability and the ability for potential home buyers to qualify for a mortgage loan.
Seasonality has less of an impact on mortgage loan refinancing volumes, which are primarily driven by fluctuations in mortgage loan interest rates. Increases in interest rates may affect affordability and the ability for potential home buyers to qualify for a mortgage loan. As interest rates increase, rate and term refinancings become less attractive to consumers.
Gain on origination and sale of loans, net was comprised of the following components: Year Ended December 31, Change $ Change % (Dollars in thousands) 2022 2021 (Discount) premium from loan sales $ (933,545) $ 1,882,557 $ (2,816,102) (149.6) % Servicing rights 647,716 1,610,596 (962,880) (59.8) Fair value losses on IRLC and LHFS (342,141) (571,137) 228,996 40.1 Fair value gains from Hedging Instruments 1,237,522 505,236 732,286 144.9 Discount points, rebates and lender paid costs 275,981 (206,716) 482,697 233.5 Provision for loan loss obligation for loans sold (136,993) (7,185) (129,808) (1806.7) Total gain on origination and sale of loans, net $ 748,540 $ 3,213,351 $ (2,464,811) (76.7) The decrease in gain on origination and sale of loans, net was primarily driven by a reduction in volume and margins due to higher interest rates and lower demand, partially offset by fair value gains from Hedging Instruments.
Gain on origination and sale of loans, net was comprised of the following components: Year Ended December 31, Change $ Change % (Dollars in thousands) 2023 2022 Discount from loan sales $ (135,943) $ (933,547) $ 797,604 85.4 % Fair value of servicing rights additions 277,387 647,716 (370,329) (57.2) Fair value gains (losses) on IRLC and LHFS 89,290 (342,141) 431,431 126.1 Fair value (losses) gains from Hedging Instruments (4,149) 1,237,524 (1,241,673) (100.3) Discount points, rebates and lender paid costs 306,115 275,981 30,134 10.9 Provision for loan loss obligation for loans sold (8,179) (136,993) 128,814 94.0 Total gain on origination and sale of loans, net $ 524,521 $ 748,540 $ (224,019) (29.9) Gain on origination and sale of loans, net includes several key components.
The $72.4 million or 37.5% decrease in direct origination expense was the result of decreased loan originations during the period. General and Administrative Expense . General and administrative expense includes professional fees, data processing expense, communications expense, and other operating expenses.
General and administrative expense includes professional fees, data processing expense, communications expense, and other operating expenses.
The availability and cost of funds to us can vary depending on market 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.
Unsecured debt obligations as of December 31, 2023 consisted of Senior Notes totaling $1.0 billion net of $7.8 million of deferred financing costs. Periodically, and in accordance with applicable laws and regulations, we may take actions to reduce or repurchase our debt. These actions can include redemptions, tender offers, cash purchases, prepayments, refinancing, exchange offers, open market or privately-negotiated transactions.
The amount of debt, if any, that may be reduced or repurchased will depend on various factors, such as market conditions, trading levels of our debt, our cash positions, our compliance with debt covenants, and other considerations.
The decision on amount of debt to be reduced or repurchased depends 62 on several factors, including market conditions, trading levels of our debt, our cash positions, compliance with debt covenants, and other relevant considerations. During 2023, we repurchased $5.4 million of Senior Notes at 67.5% of par which resulted in a $1.7 million gain on extinguishment of debt.
The increase of $55.5 million or 14.1% in servicing income between periods was the result of an increase of $14.9 billion in the average UPB of our servicing portfolio due to servicing-retained loan sales and an increase in the weighted average service fee. Change in Fair Value of Servicing Rights, Net .
The increase of $43.7 million, or 9.7%, in servicing income between periods was the result of higher ancillary income due to an increase in interest income earned on custodial funds as a result of higher short-term interest rates, partially offset by a decrease in servicing fees resulting from a decrease of $6.1 billion in the average UPB of our servicing portfolio and a decline in servicing fee income related to excess servicing sales during 2023.
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 December 31, 2022, we maintained revolving lines of credit with nine counterparties providing warehouse and securitization facilities with borrowing capacity totaling $4.1 billion of which $1.4 billion was committed.
We also sell loans to many private investors. As of December 31, 2023, we maintained revolving lines of credit with eight counterparties providing warehouse and other securitization facilities with a total borrowing capacity of $3.1 billion, of which $901.0 million was committed.
The $30.7 million or 1.5% increase included $647.7 million in capitalized servicing rights from the sale of loans on a servicing-retained basis and a $363.1 million increase in estimated fair value due to a decrease in prepayment speed assumptions from increased interest rates, partially offset by a $754.6 million decrease in servicing rights from the sale of $43.3 billion in UPB of servicing rights and $230.4 million of principal amortization and prepayments. 59 Trading Securities, at Fair Value.
The $37.7 million, or 1.8%, decrease comprised a $180.7 million reduction from the sale of $181.8 million in UPB and $149.2 million from principal amortization and prepayments, partially offset by $277.4 million of capitalized servicing rights from servicing-retained loan sales, and an increase in fair value. Warehouse and Other Lines of Credit.
Warehouse Lines and Debt Obligations Warehouse lines are discussed in Note 12- Warehouse and Other Lines of Credit and debt obligations are discussed in Note 13- Debt Obligations of the Notes to Consolidated Financial Statements contained in “Item 8.
Our accounting policies are described in Note 1 - Description of Business, Presentation and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in “Item 8.
Secured debt obligations as of December 31, 2022 included secured credit facilities and Term Notes that totaled $1.3 billion net of $1.4 million of deferred financing costs. Secured credit facilities are secured by Ginnie Mae, Fannie Mae, or Freddie Mac MSRs, certain servicing advance receivables, or trading securities.
MSR facilities are secured by Ginnie Mae, Fannie Mae, or Freddie Mac MSRs, which amounted to $1.3 billion as of December 31, 2023 and Term Notes are secured by specific participation certificates relating to Ginnie Mae MSRs totaling $617.9 million as of the same date. Securities financing facilities provide financing for the retained interest securities associated with our securitizations.
The increase in our provision for loan loss obligations for loans sold reflects increased repurchases and severity for loans that were originated at interest rates lower than current market rates. Origination Income, Net . Origination income, net, reflects the fees that we earn, net of lender credits we pay, from originating loans.
The $224.0 million or 29.9% decrease in gain on origination and sale of loans, net was primarily attributable to lower volume due to higher interest rates and lower demand. Origination Income, Net . Origination income, net, reflects the fees that we earn, net of lender credits we pay, from originating loans.
As part of our balance sheet and capital management strategies, we suspended our regular quarterly dividend effective March 31, 2022 and for the foreseeable future. 62 Contractual Obligations and Commitments Our estimated contractual obligations as of December 31, 2022 are as follows: Payments Due by Period (Dollars in thousands) Total Less than 1 Year 1-3 years 3-5 Years More than 5 Years Warehouse lines $ 2,146,602 $ 1,646,602 $ 500,000 $ — $ — Debt obligations (1) Secured credit facilities 1,098,853 750,871 347,982 — — Term Notes 200,000 200,000 — — — Senior Notes 1,002,475 — 500,000 — 502,475 Operating lease obligations (2) 69,146 23,576 29,895 13,433 2,242 Naming and promotional rights agreements 88,319 14,193 44,126 12,000 18,000 Total contractual obligations $ 4,605,395 $ 2,635,242 $ 1,422,003 $ 25,433 $ 522,717 (1) Amounts exclude deferred financing costs (2) Represents lease obligations for office space under non-cancelable operating lease agreements.
Contractual Obligations and Commitments Our estimated contractual obligations as of December 31, 2023 are as follows: Payments Due by Period (Dollars in thousands) Total Less than 1 Year 1-3 years 3-5 Years More than 5 Years Warehouse lines $ 1,947,057 $ 1,947,057 $ — $ — $ — Debt obligations (1) Secured credit facilities 1,087,418 744,046 343,372 — — Term Notes 200,000 — 200,000 — — Senior Notes 997,125 — 497,750 499,375 — Operating lease obligations (2) 55,113 19,201 24,473 11,323 116 Naming and promotional rights agreements 73,919 21,595 28,324 12,000 12,000 Total contractual obligations $ 4,360,632 $ 2,731,899 $ 1,093,919 $ 522,698 $ 12,116 (1) Amounts exclude deferred financing costs.
Total originations were $53.8 billion for the year ended December 31, 2022, as compared to $137.0 billion for the year ended December 31, 2021, representing a decrease of $83.2 billion or 60.7%. Revenues Net Interest Income. Net interest income is earned on LHFS offset by interest expense on amounts borrowed under warehouse lines to finance such loans until sold.
Total originations were $22.7 billion for the year ended December 31, 2023, compared to $53.8 billion for the year ended December 31, 2022, representing a decrease of $31.1 billion or 57.8%, reflecting decreased demand for mortgage loans due to the elevated rates.
The decrease of $83.8 million or 53.3% in other income between periods was primarily the result of a decrease of $86.3 million in escrow and title fee income due to decreased mortgage loan settlement services. Expenses Personnel Expense. Personnel expense includes salaries, commissions, incentive compensation, benefits, and other employee costs.
Personnel expense includes salaries, commissions, incentive compensation, benefits, and other employee costs. The $454.0 million or 44.2% decrease in personnel expense included volume-related declines in commissions of $188.9 million. The remaining decrease of $265.1 million was attributable to lower salaries & benefits.
Our $4.1 billion of capacity as of December 31, 2022 was comprised of $3.6 billion with maturities staggered throughout 2023 and $0.5 billion maturing in 2024. As of December 31, 2022, we had $2.1 billion of borrowings outstanding and $1.8 billion of additional availability under our facilities.
As of December 31, 2023, we had $1.9 billion in outstanding borrowings and $1.2 billion in additional availability under our facilities. Warehouse and other lines of credit are further discussed in Note 11- Warehouse and Other Lines of Credit. When we draw on our warehouse and securitization facilities we must pledge eligible loan collateral.
The decrease was primarily attributed to a net loss of $610.4 million and dividends and distributions totaling $88.3 million.
The decrease of $217.0 million, or 23.5%, was primarily attributed to a net loss of $235.5 million and the repurchase of treasury shares, at cost of $3.2 million to net settlement and withholding tax on vested RSUs.
Removed
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.
Added
The associated increase in mortgage interest rates has impacted mortgage loan origination volumes, impacting affordability and qualification for homebuyers. Total loan originations for 2023 were $22.7 billion, a decrease of $31.1 billion, or 58% compared to $53.8 billion for 2022. The primary driver of this decrease was refinance volume, which decreased by $18.2 billion, or 75%.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+0 added−2 removed16 unchanged
Biggest changeThe following tables summarize the estimated change in fair value of our financial assets and liabilities measured at fair value as of December 31, 2022, given hypothetical parallel shifts in interest rates: As of December 31, 2022 Shift in interest rates Down 25 bps Up 25 bps ($ in thousands) Fair value: LHFS $ 2,390,543 $ 2,354,328 Servicing rights, net 2,005,138 2,041,973 IRLCs, net 36,789 8,157 Net derivative (liabilities) assets, excluding IRLCs (64,571) (31,828) Total fair value $ 4,367,899 $ 4,372,630 Change in fair value (%): LHFS 0.7 % (0.8) % Servicing rights, net (1.0) 0.8 IRLCs, net 56.0 (65.4) Net derivative (liabilities) assets, excluding IRLCs (25.0) 38.4 Total change in fair value (0.1) — 68
Biggest changeThe following tables summarize the estimated change in fair value of our financial assets and liabilities measured at fair value as of December 31, 2023, given hypothetical parallel shifts in interest rates: December 31, 2023 Down 25 bps Up 25 bps Change in fair value (%): LHFS 0.5 % (0.6) % Servicing rights, net (1.3) 1.1 IRLCs, net 18.0 (21.1) Net derivative (liabilities) assets, excluding IRLCs 19.8 (107.9) Total change in fair value — (1.0) 68
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.
In general, we manage such risk 67 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.
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 66 foreseeable future.
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.
We used December 31, 2022 market rates on our instruments to perform the sensitivity analysis on our financial assets and liabilities measured at fair value. The interest rate sensitivity analysis assumes instantaneous, parallel shifts in interest rate yield curves. These sensitivities are hypothetical and presented for illustrative purposes only.
We used December 31, 2023 market rates on our instruments to perform the sensitivity analysis on our financial assets and liabilities measured at fair value. The interest rate sensitivity analysis assumes instantaneous, parallel shifts in interest rate yield curves. These sensitivities are hypothetical and presented for illustrative purposes only.
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.
Management expects these Hedging Instruments will experience changes in fair value opposite to those of the IRLCs, LHFS, and servicing rights thereby reducing earnings volatility. We take into account various factors and strategies in determining the portion of IRLCs, LHFS, and servicing rights to economically hedge.
The average term for outstanding interest rate lock commitments at December 31, 2022 was 39 days; and our average holding period of the loan from funding to sale was 26 days for the year ended December 31, 2022. We manage the interest rate risk associated with our outstanding IRLCs, LHFS and servicing rights by entering into Hedging Instruments.
The average term for outstanding interest rate lock commitments at December 31, 2023 was 43 days; and our average holding period of the loan from funding to sale was 32 days for the year ended December 31, 2023. We manage the interest rate risk associated with our outstanding IRLCs, LHFS, and servicing rights by entering into Hedging Instruments.
During the years ended December 31, 2022 and 2021, we incurred no losses due to nonperformance by any of our counterparties. 67 Prepayment Risk Prepayment risk is affected by interest rates (and their inherent risk) and borrowers’ actions relative to their underlying loans.
During the year ended December 31, 2023 and 2022, 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.
Item 7A. 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.
Item 7A. 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.
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.
The primary market risks to which we are exposed include interest rate risk, credit risk, prepayment risk and inflation risk. 66 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.
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.
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. Credit Risk We are subject to credit risk in connection with our loan sale transactions.
IRLCs represent an agreement to extend credit to a potential customer, whereby the interest rate on the loan is set prior to funding.
IRLCs represent an agreement to extend credit to a potential customer, whereby the interest rate on the loan is set prior to funding. Both IRLCs and LHFS are subject to changes in interest rates from the date of the commitment through the sale of the loan into the secondary market.
Removed
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.
Removed
Risk Factors—Risks Related to our Operations - “ 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.

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