10q10k10q10k.net

What changed in Velocity Financial, Inc.'s 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of Velocity Financial, Inc.'s 2023 and 2024 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 2024 report.

+273 added−258 removedSource: 10-K (2025-03-12) vs 10-K (2024-03-15)

Top changes in Velocity Financial, Inc.'s 2024 10-K

273 paragraphs added · 258 removed · 221 edited across 4 sections

Item 1. Business

Business — how the company describes what it does

44 edited+5 added−4 removed43 unchanged
Biggest changeIn addition, as a servicer of Ginnie Mae loans, Century is required to maintain a minimum net worth, and Century is in compliance with this requirement as of December 31, 2023. 1 Market Uncertainties Our operational and financial performance will depend on certain market developments, including any lingering impact of the COVID-19 pandemic, or other highly contagious or infectious disease, the Russia/Ukraine war, the Gaza-Israel conflict, a global recession, heightened stress in residential or commercial real estate, securitization markets, corporate debt markets, and macroeconomic conditions and market fundamentals, which can all potentially impact our business performance.
Biggest changeMarket Uncertainties Our operational and financial performance will depend on certain market developments, including the actions of the Federal Reserve, the ongoing Russia/Ukraine war and conflicts in the Middle East, a possible global recession, heightened stress in the real estate and corporate debt markets, macroeconomic conditions and market fundamentals, which can all affect each of these factors and potentially impact our business performance.
We apply the same asset-driven underwriting process to all of the loans in our portfolio, regardless of whether we originate or acquire these loans. Our credit and underwriting philosophy encompasses individual borrower and property due diligence, taking into consideration several factors.
We apply the same asset-driven underwriting process to all the loans in our portfolio, regardless of whether we originate or acquire these loans. Our credit and underwriting philosophy encompasses individual borrower and property due diligence, taking into consideration several factors.
On January 22, 2020, we completed the initial public offering (“IPO”) of our common stock, par value $0.01 per share (our “common stock”). Shares of our common stock trade on the New York Stock Exchange under the symbol “VEL.” On December 28, 2021, the Company acquired an 80% ownership interest in Century Health & Housing Capital, LLC (“Century”) .
On January 22, 2020, we completed the initial public offering (“IPO”) of our common stock, par value $0.01 per share (our “common stock”). Shares of our common stock trade on the New York Stock Exchange under the symbol “VEL.” 1 On December 28, 2021, the Company acquired an 80% ownership interest in Century Health & Housing Capital, LLC (“Century”) .
The size of the mortgage broker market presents an attractive opportunity for us to capture significant growth with very small increases in the share of mortgage brokers that recognize our platform capabilities and utilize us as a preferred lender in our core market. 3 Develop New Products Our primary product is a 30-year fixed-rate amortizing term loan.
The size of the mortgage broker market presents an attractive opportunity for us to capture significant growth with very small increases in the share of mortgage brokers that recognize our platform capabilities and utilize us as a preferred lender in our core market. Develop New Products Our primary product is a 30-year fixed-rate amortizing term loan.
Our internet website and the information contained therein or connected to or linked from our internet web site are not incorporated information and do not constitute a part of this Annual Report or any amendment thereto. 7
Our internet website and the information contained therein or connected to or linked from our internet web site are not incorporated information and do not constitute a part of this Annual Report or any amendment thereto.
GAAP treatment considers each REMIC as a variable interest entity that is required to be consolidated in our financial statements, accounting for the securitization as a secured borrowing.
GAAP treatment considers each REMIC as a variable interest entity (“VIE”) that is required to be consolidated in our financial statements, accounting for the securitization as a secured borrowing.
We primarily originate investor loans secured by 1-4 unit residential rental properties, as well as loans for multi-family, mixed use and commercial properties. We originate loans nationwide across our extensive network of independent mortgage brokers and direct borrower relationships, which we have built and refined over the 19 years since our inception.
We primarily originate investor loans secured by 1-4 unit residential rental properties, as well as loans for multi-family, mixed use and commercial properties. We originate loans nationwide across our extensive network of independent mortgage brokers and direct borrower relationships, which we have built and refined over the 20 years since our inception.
Our primary growth strategy is predicated on organically continuing to serve and build loyalty within our network of mortgage brokers, while also expanding our network with new mortgage brokers through targeted marketing and improved brand awareness. We believe our reputation and 19-year history within our core market position us well to capture future growth opportunities.
Our primary growth strategy is predicated on organically continuing to serve and build loyalty within our network of mortgage brokers, while also expanding our network with new mortgage brokers through targeted marketing and improved brand awareness. We believe our reputation and 20-year history within our core market position us well to capture future growth opportunities.
Our Experienced Management Team Led by co-founder and Chief Executive Officer Christopher Farrar, our management team averages more than 25 years of experience in the financial services and real estate lending industries, including extensive experience in commercial and residential lending, structured finance and capital markets.
Our Experienced Management Team Led by co-founder and Chief Executive Officer Christopher Farrar, our management team averages more than 26 years of experience in the financial services and real estate lending industries, including extensive experience in commercial and residential lending, structured finance and capital markets.
Through our charitable donations and Velocity Volunteers, we pick local charitable causes and projects to support and encourage our employees to donate their time and needed materials. Our Corporate Information and History Velocity Financial, Inc. is a corporation incorporated under the law of the State of Delaware.
Through our charitable donations and Velocity Volunteers, we select local charitable causes and projects to support and encourage our employees to donate their time and needed materials. Our Corporate Information and History Velocity Financial, Inc. is a corporation incorporated under the law of the State of Delaware.
Our access to 19 years of proprietary data allows us to perform analytics that inform our lending decisions efficiently and effectively, which we believe is a strong competitive advantage. Large In-Place Portfolio with Attractive, Long-Term Financing We believe our in-place portfolio provides a significant and stable income stream for us to invest in future earnings growth.
Our access to 20 years of proprietary data allows us to perform analytics that inform our lending decisions efficiently and effectively, which we believe is a strong competitive advantage. 2 Large In-Place Portfolio with Attractive, Long-Term Financing We believe our in-place portfolio provides a significant and stable income stream for us to invest in future earnings growth.
As of December 31, 2023, substantially all our employees have been able, and continue, to work remotely. We and our employees are also committed to improving the communities in which we work and live.
As of December 31, 2024, substantially all our employees have been able, and continue, to work remotely. We and our employees are also committed to improving the communities in which we work and live.
With the acquisition of Century, we are now a licensed Ginnie Mae (GNMA) issuer/servicer that provides government-insured Federal Housing Administration (FHA) mortgage financing for multifamily housing, senior housing and long-term care/assisted living facilities. As a licensed Ginnie Mae issuer/servicer, we are subject to GNMA's regulations.
With the acquisition of Century, we are now a licensed Ginnie Mae issuer/servicer that provides government-insured FHA mortgage financing for multifamily housing, senior housing and long-term care/assisted living facilities. As a licensed Ginnie Mae issuer/servicer, we are subject to GNMA’s regulations.
Once we have originated between approximately $175 million and $300 million in new loans, we securitize the loans through a real estate mortgage investment conduit, or REMIC, structure and issue the bonds to third parties through individual trust vehicles.
Once we have originated between approximately $200 million and $350 million in new loans, we securitize the loans through a real estate mortgage investment conduit, or REMIC, structure and issue the bonds to third parties through individual trust vehicles.
All our securitizations are issued as private placements pursuant to Rule 144A under the Securities Act and utilize a REMIC structure except for the 2022 MC1 and 2023-RTL1 transactions which were issued as bonds treated as debt for tax purposes. The REMIC transactions can create significant U.S. GAAP versus tax differences. The U.S.
All our securitizations are issued as private placements pursuant to Rule 144A under the Securities Act and utilize a REMIC structure except for the 2022 MC1 and 2023-RTL1 transactions which were issued as bonds treated as debt for tax purposes. The REMIC transactions can create significant U.S. Generally Accepted Accounting Principles (“GAAP”) versus tax differences. The U.S.
As of December 31, 2023, our portfolio of loans held for investment totaled $4.1 billion of unpaid principal balance, or UPB, on properties in 45 states and the District of Columbia.
As of December 31, 2024, our portfolio of loans held for investment totaled $5.1 billion of unpaid principal balance, or UPB, on properties in 45 states and the District of Columbia.
These loans comprised 90.0% of our loan originations during the year ended December 31, 2023. This product is used by borrowers to finance stabilized long-term real estate investments. We believe this product has strong receptivity in our market, as evidenced by our success in growing loan originations over time.
These loans comprised 85.2% of our loan originations during the year ended December 31, 2024. This product is used by borrowers to finance stabilized long-term real estate investments. We believe this product has strong receptivity in our market, as evidenced by our success in growing loan originations over time.
Our failure to maintain or obtain licenses may restrict our investment options and could harm our business. Human Capital Resources As of December 31, 2023, we had a total of 253 employees, an increase of 30% from the prior year . None of our employees are represented by a labor union.
Our failure to maintain or obtain licenses may restrict our investment options and could harm our business. Human Capital Resources As of December 31, 2024, we had a total of 309 employees, an increase of 22% from the prior year . None of our employees are represented by a labor union.
A significant number of our employees are AEs, representing 27% of our workforce at year-end.
A significant number of our employees are AEs, representing 30% of our workforce at year-end.
Our Portfolio Loans Held for Investment Our typical investor real estate loan is secured by a first lien on the underlying property with the added protection of a personal guarantee and, based on the loans in our portfolio as of December 31, 2023, has an average balance of approximately $389,000.
Our Portfolio Loans Held for Investment Our typical investor real estate loan is secured by a first lien on the underlying property with the added protection of a personal guarantee and, based on the loans in our portfolio as of December 31, 2024, has an average balance of approximately $391 thousand.
There is significant opportunity for us to further penetrate the approximately 3,086 mortgage brokers with whom we have done business over the last five years. Approximately 88% of loan originators originated five or fewer loans with us during the year ended December 31, 2023.
There is significant opportunity for us to further penetrate the approximately 3,770 mortgage brokers with whom we have done business over the last five years. Approximately 89% of loan originators originated five or fewer loans with us during the year ended December 31, 2024.
In December 2021, we added a new HUD multi-family and healthcare loan product offering with our acquisition of a majority interest in Century. Opportunistically Acquire Portfolios of Loan and Acquire Strategically-Aligned Businesses We continually assess opportunities to acquire portfolios of loans that meet our investment criteria.
In December 2021, we added a new Department of Housing and Urban Development (“HUD”) multi-family and healthcare loan product offering with our acquisition of a majority interest in Century. Opportunistically Acquire Portfolios of Loans and Acquire Strategically-Aligned Businesses We continually assess opportunities to acquire portfolios of loans that meet our investment criteria.
We continue to opportunistically pursue inorganic growth strategies such as acquiring portfolios of loans that meet our investment criteria and acquisitions of businesses that align with our strategic vision. We make loans for business purposes only, which we believe limits our exposure to the regulatory constraints of consumer lending. We do not make consumer loans or lend on raw land.
We continue to opportunistically pursue inorganic growth strategies such as acquiring portfolios of loans that meet our investment criteria and acquisitions of businesses that align with our strategic vision. We make loans for business purposes only, which we believe limits our exposure to the regulatory constraints of consumer lending.
For example, in 2013, in response to the increased demand for rental properties, we moved aggressively into the market for 1-4 unit residential rental loans, which comprised 54.9% of our held for investment loan portfolio as of December 31, 2023.
For example, in 2013, in response to the increased demand for rental properties, we moved aggressively into the market for 1-4 unit residential rental loans, which comprised 52.5% of our held for investment loan portfolio as of December 31, 2024.
We have been originating and acquiring loans in our core market since our inception in 2004, making us a recognizable brand with a proven ability to execute. Additionally, we have successfully executed thirty-one securitizations of our investor real estate loans, issuing $6.4 billion in principal amount of securities between 2011 and the year ended December 31, 2023.
We have been originating and acquiring loans in our core market since our inception in 2004, making us a recognizable brand with a proven ability to execute. Additionally, we have successfully executed 37 securitizations of our investor real estate loans, issuing $8.0 billion in principal amount of securities between 2011 and the year ended December 31, 2024.
We are the sole beneficial interest holder of each of the trusts, through our wholly-owned subsidiaries. Proceeds from the issuance of the securities are then used to pay down the balances on our warehouse facilities. As of December 31, 2023, we had successfully executed thirty-one securitizations of our investor real estate loans, issuing $6.4 billion in principal amount of securities.
We are the sole beneficial interest holder of each of the trusts, through our wholly-owned subsidiaries. Proceeds from the issuance of the securities are then used to pay down the balances on our warehouse facilities. As of December 31, 2024, we had successfully executed 37 securitizations of our investor real estate loans, issuing $8.0 billion in principal amount of securities.
During the years ended December 31, 2023 and 2022, we originated 2,955 and 4,135 loans to be held for investment totaling $1.1 billion and $1.7 billion, respectively. As of December 31, 2023, 86.1% of our loans held for investment, as measured by UPB, were fully-amortizing over 30 years.
During the years ended December 31, 2024 and 2023, we originated 4,532 and 2,955 loans to be held for investment totaling $1.8 billion and $1.1 billion, respectively. As of December 31, 2024, 91.4% of our loans held for investment, as measured by UPB, were fully-amortizing over 30 years.
Typically, the mortgage broker that originates the loan that we make, fund or acquire is licensed or exempt from licensing in the state where the loan is made. We also hold a Federal Housing Administration, or FHA, Title II approval from the Department of Housing and Urban Development, which permits us to make certain government-insured loans.
Typically, the mortgage broker that originates the loan that we make, fund or acquire is licensed or exempt from licensing in the state where the loan is made. We also hold a FHA Title II approval from HUD, which permits us to make certain government-insured loans.
Shares of our common stock trade on the New York Stock Exchange under the symbol “VEL.” Our corporate office is located at 30699 Russell Ranch Road, Suite 295, Westlake Village, California 91362, and the telephone number of our office is (818) 532-3700. Our internet address is www.velfinance.com.
Shares of our common stock trade on the New York Stock Exchange under the symbol “VEL.” Our corporate office is located at 2945 Townsgate Road, Suite 110, Westlake Village, California 91361, and the telephone number of our office is (818) 532-3700. Our internet address is www.velfinance.com.
We have a keen understanding of this securitization market, including complicated structural issues, investor expectations and rating agency requirements. We executed our twenty-sixth through thirty-first securitizations in 2023.
We have a keen understanding of this securitization market, including complicated structural issues, investor expectations and rating agency requirements. We executed our thirty-second through thirty-seventh securitizations in 2024.
We believe that represents a small portion of the mortgage originators in the United States, which consisted of approximately 885,933 state-licensed mortgage originators as of June 30, 2023, according to the Nationwide Multistate Licensing System.
We believe that represents a small portion of the mortgage originators in the United States, which consisted of approximately 848,067 state-licensed mortgage originators as of September 30, 2024, according to the Nationwide Multistate Licensing System.
Census Bureau, from 1965 through 2023, the U.S. home rentership rate (the inverse of the home ownership rate) has averaged approximately 35%. According to an estimate published by Zillow in September 2023, the value of the U.S. residential housing sector is over $52 trillion. Ownership of residential properties for rent has historically been concentrated among smaller investors.
Census Bureau, the U.S. home rentership rate (the inverse of the home ownership rate) has averaged approximately 34%. According to an estimate published by Redfin in August 2024, the value of the U.S. residential housing sector is over $49 trillion. Ownership of residential properties for rent has historically been concentrated among smaller investors.
The 2022 Term Loan bears interest at a fixed rate of 7.125% and matures on March 15, 2027. In August 2023, we completed our first securitization collateralized by our short-term loan product with $81.6 million in securities issued.
The 2022 Term Loan bears interest at a fixed rate of 7.125% and matures on March 15, 2027. In August 2023, we completed our first securitization collateralized by our short-term loan product with $81.6 million in securities issued. In February 2024, we entered into a five-year $75.0 million syndicated corporate debt agreement (“the 2024 Term Loan”).
While we have not adopted any diversity quotas, 68% of our employees are men and 32% are women. We are committed to the health, safety, and wellness of our employees. In response to the pandemic, we implemented precautionary policies and significant operational changes to protect and support our employees, including remote working.
While we have not adopted any diversity quotas, 62% of our employees are men and 38% are women. We are committed to the health, safety, and wellness of our employees, through implementing precautionary policies and significant operational changes to protect and support our employees, including remote work.
Of the 10,424 loans held for investment as of December 31, 2023, 99.1% of the portfolio, as measured by UPB, was attributable to our loan origination business, while the remaining 0.9% of the portfolio, or 56 loans, totaling $35.2 million in UPB, was related to acquisitions.
Of the 12,932 loans held for investment as of December 31, 2024, 99.5% of the portfolio, as measured by UPB, was attributable to our loan origination business, while the remaining 0.5% of the portfolio, or 68 loans, totaling $35.4 million in UPB, was related to acquisitions.
Additionally, as of December 31, 2023, borrowers personally guaranteed 100.0% of the loans in our held for investment portfolio and had a weighted average credit score at origination of 718, excluding the 1.4% of loans for which a credit score is not available. 4 The following charts illustrate the composition of our loans held for investment as of December 31, 2023: (*) Percentages may not sum to 100% due to rounding.
Additionally, as of December 31, 2024, borrowers personally guaranteed 100.0% of the loans in our held for investment portfolio and had a weighted average credit score at origination of 704, excluding the 1.3% of loans for which a credit score is not available.
We generated $124.3 million in portfolio related net interest income for the year ended December 31, 2023, representing a 3.34% net interest margin during the year. 2 Our In-House Asset Management Results in Successful Loss Mitigation Direct management of individual loans is critical to avoiding or minimizing credit losses and we work with our third-party primary servicers with whom we have developed strong relationships to emphasize disciplined loan monitoring and early contact with delinquent borrowers to resolve delinquencies.
Our In-House Asset Management Results in Successful Loss Mitigation Direct management of individual loans is critical to avoiding or minimizing credit losses and we work with our third-party primary servicers with whom we have developed strong relationships to emphasize disciplined loan monitoring and early contact with delinquent borrowers to resolve delinquencies.
(1) Portfolio stratifications based on unpaid principal balance for loans held for investment as of December 31, 2023. (2) Represents LTV at origination for population of loans held for investment as of December 31, 2023. In instances where LTV at origination is not available for an acquired loan, the LTV reflects our best estimate of value at time of acquisition.
(2) Represents LTV at origination for population of loans held for investment as of December 31, 2024. In instances where LTV at origination is not available for an acquired loan, the LTV reflects our best estimate of value at time of acquisition. (3) Approximately 2% of our loans held for investment have an LTV greater than 75%.
The loans are mainly financed with long-term fixed-rate debt, resulting in a spread that could increase over time, but not decrease. As a result, our in-place portfolio generally benefits from rising interest rates.
The loans are mainly financed with long-term fixed-rate debt, resulting in a spread that could increase over time, but not decrease. As a result, our in-place portfolio spread generally benefits from rising interest rates. We generated $159.6 million in portfolio related net interest income for the year ended December 31, 2024, representing a 3.56% net interest margin during the year.
Depending on market conditions, we may increase leverage on our investments with an amount of debt we deem prudent, subject to applicable risk retention rules.
The 2024 Term Loan bears interest at 9.875% and matures on February 15, 2029. Depending on market conditions, we may increase leverage on our investments with an amount of debt we deem prudent, subject to applicable risk retention rules.
We believe that fully-amortizing loans face a lower risk of default than balloon loans, as the final payment due under the balloon loan may require the borrower to refinance or sell the property.
We believe that fully-amortizing loans face a lower risk of default than balloon loans, as the final payment due under the balloon loan may require the borrower to refinance or sell the property. 4 We target investor real estate loans with loan-to-value ratios, or LTVs, between 60% and 75% at origination as we believe that borrower equity of 25% to 40% provides significant protection against credit losses.
We generally prefer to lend in larger metropolitan statistical areas. 5 Our Financing Strategy We typically finance our new loan originations using warehouse facilities.
We typically do not lend on any property located in a city with a population less than 25,000 and outside a 25-mile radius of a city with a population in excess of 100,000. We generally prefer to lend in larger metropolitan statistical areas. 5 Our Financing Strategy We typically finance our new loan originations using warehouse facilities.
Century is a licensed Ginnie Mae issuer/servicer that provides government-insured Federal Housing Administration (FHA) mortgage financing for multifamily housing, senior housing and long-term care/assisted living facilities. Century originates loans through its borrower-direct origination channel and services the loans through its in-house servicing platform, which enables the formation of long-term relationships with its clients and drives strong portfolio retention.
Century originates loans through its borrower-direct origination channel and services the loans through its in-house servicing platform, which enables the formation of long-term relationships with its clients and drives strong portfolio retention. Century earns origination fees from originating loans, and servicing fees from mortgage servicing rights on its servicing portfolio.
We believe this presents a compelling opportunity for us to capture incremental volume from our existing broker network. Expand Our Network with New Mortgage Brokers We believe that our targeted sales effort, combined with consistent high-quality execution, positions us well to continue adding to the network of mortgage brokers that rely on us to serve their borrower clients.
Expand Our Network with New Mortgage Brokers We believe that our targeted sales effort, combined with consistent high-quality execution, positions us well to continue adding to the network of mortgage brokers that rely on us to serve their borrower clients. 3 Despite the adverse macroeconomic conditions caused by inflation and rising interest rates, we funded 4,328 loans sourced by 1,415 different mortgage brokers during the year ended December 31, 2024.
Removed
Century earns origination fees and servicing fees from the mortgage servicing rights on its servicing portfolio. Century is a consolidated subsidiary of the Company as of completion of the acquisition.
Added
Century is a licensed Government National Mortgage Association (“Ginnie Mae” or “GNMA”) issuer/servicer that provides government-insured Federal Housing Administration (“FHA”) mortgage financing for multifamily housing, senior housing and long-term care/assisted living facilities.
Removed
Despite the adverse macroeconomic conditions caused by inflation and rising interest rates, we funded 2,930 loans sourced by 1,046 different mortgage brokers during the year ended December 31, 2023.
Added
Century is a consolidated subsidiary of the Company as of completion of the acquisition. In addition, as a servicer of Ginnie Mae loans, Century is required to maintain a minimum net worth; and was in compliance with this requirement as of December 31, 2024.
Removed
We target investor real estate loans with loan-to-value ratios, or LTVs, between 60% and 75% at origination as we believe that borrower equity of 25% to 40% provides significant protection against credit losses. As of December 31, 2023, our loans held for investment had a weighted average LTV at origination of 67.7%.
Added
We believe this presents a compelling opportunity for us to capture incremental volume from our existing broker network.
Removed
(3) The approximately 2% portion of our loans held for investment with an LTV greater than 75% consists primarily of acquired loans. We typically do not lend on any property located in a city with a population less than 25,000 and outside a 25-mile radius of a city with a population in excess of 100,000.
Added
As of December 31, 2024, our loans held for investment had a weighted average LTV at origination of 66.6%.
Added
The following charts illustrate the composition of our loans held for investment as of December 31, 2024: (*) Percentages may not sum to 100% due to rounding. (1) Portfolio stratifications based on unpaid principal balance for loans held for investment as of December 31, 2024.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

1 edited+0 added−0 removed3 unchanged
Biggest changeOur Chief Information Officer (the "CIO") is primarily responsible for this cybersecurity component, reporting directly to the Chief Executive Officer, who periodically reports to our Board of Directors. To date, risks from cybersecurity threats or incidents have not materially affected our company.
Biggest changeOur Chief Information Officer (the “CIO”) is primarily responsible for this cybersecurity component, reporting directly to the Chief Executive Officer, who periodically reports to our Board of Directors. To date, risks from cybersecurity threats or incidents have not materially affected our company.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

1 edited+0 added−0 removed3 unchanged
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed on The New York Stock Exchange under the symbol VEL. As of February 16, 2024, there were approximately 1,560 beneficial holders of our common stock.
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed on The New York Stock Exchange under the symbol VEL. As of March 1, 2025, there were approximately 3,056 beneficial holders of our common stock.

Item 7. Management's Discussion & Analysis

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

175 edited+47 added−33 removed61 unchanged
Biggest changeThe following table illustrates the activity in our allowance for loan losses over the periods indicated: December 31, ($ in thousands) 2023 2022 2021 Allowance for credit losses: Beginning balance $ 4,893 $ 4,262 $ 5,845 Provision for (reversal of) loan losses 1,915 1,152 (292 ) Charge-offs (2,039 ) (521 ) (1,291 ) Ending balance $ 4,769 $ 4,893 $ 4,262 Total loans held for investment (UPB), excluding FVO (1) $ 2,804,541 $ 3,243,854 $ 2,498,466 Allowance for credit losses / loans held for investment, excluding FVO 0.17 % 0.15 % 0.17 % (1) Reflects the UPB of loans held for investment excluding loans held for investment at fair value (FVO). 18 Credit Quality – Loans Held for Investment and Loans Held for Investment at Fair Value The following table provides delinquency information on our loans held for investment and loans held for investment at fair value by UPB as of the dates indicated: ($ in thousands) December 31, 2023 (A) COVID-19 Forbearance December 31, 2022 (A) COVID-19 Forbearance December 31, 2021 (A) COVID-19 Forbearance Performing/Accruing: Current $ 3,354,197 82.7 % $ 116,060 $ 2,969,989 84.6 % $ 120,884 $ 2,068,023 82.7 % $ 188,466 30-59 days past due 231,590 5.7 11,993 186,051 5.3 33,668 127,046 5.1 36,579 60-89 days past due 75,587 1.9 4,336 63,657 1.8 6,902 31,629 1.3 8,262 90+ days past due — — — — — — — — — Total performing loans 3,661,374 90.3 132,389 3,219,697 91.7 161,454 2,226,698 89.1 233,307 Nonperforming/Nonaccrual: 17,746 0.4 1,562 17,852 0.5 1,116 19,533 0.8 5,325 90+ days past due 24,398 0.6 — 32,566 0.9 1,681 35,787 1.4 8,510 Bankruptcy 35,993 0.9 3,705 22,435 0.6 7,272 20,038 0.8 6,242 In foreclosure 316,425 7.8 36,915 219,936 6.3 29,482 197,742 7.9 39,045 Total nonperforming loans 394,562 9.7 42,182 292,789 8.3 39,551 273,100 10.9 59,122 Total loans held for investment $ 4,055,936 100.0 % $ 174,571 $ 3,512,486 100.0 % $ 201,005 $ 2,499,798 100.0 % $ 292,429 (A) Balance includes $174.6 million UPB of loans held for investment as of December 31, 2023, $201.0 million as of December 31, 2022, and $292.4 million as of December 31, 2021 in our COVID-19 forbearance program.
Biggest changeCredit Quality – Loans Held for Investment The following table provides delinquency information on our loans held for investment by UPB as of the dates indicated: December 31, 2024 (A) COVID-19 Forbearance December 31, 2023 (A) COVID-19 Forbearance December 31, 2022 (A) COVID-19 Forbearance ($ in thousands) Performing/Accruing: Current $ 4,169,830 82.5 % $ 82,459 $ 3,354,197 82.7 % $ 116,060 $ 2,969,989 84.6 % $ 120,884 30-59 days past due 241,300 4.7 19,452 231,590 5.7 11,993 186,051 5.3 33,668 60-89 days past due 105,369 2.1 858 75,587 1.9 4,336 63,657 1.8 6,902 90+ days past due — — — — — — — — Total performing loans 4,516,499 89.3 102,769 3,661,374 90.3 132,389 3,219,697 91.7 161,454 Nonperforming/Nonaccrual: 23,697 0.5 2,787 17,746 0.4 1,562 17,852 0.5 1,116 90+ days past due 51,144 1.0 2,237 24,398 0.6 — 32,566 0.9 1,681 Bankruptcy 60,042 1.2 3,895 35,993 0.9 3,705 22,435 0.6 7,272 In foreclosure 404,555 8.0 31,139 316,425 7.8 36,915 219,936 6.3 29,482 Total nonperforming loans 539,438 10.7 40,058 394,562 9.7 42,182 292,789 8.3 39,551 Total loans held for investment $ 5,055,937 100.0 % $ 142,827 $ 4,055,936 100.0 % $ 174,571 $ 3,512,486 100.0 % $ 201,005 (A) Balance includes $142.8 million UPB of loans held for investment at amortized cost as of December 31, 2024, $174.6 million as of December 31, 2023, and $201.0 million as of December 31, 2022 in our COVID-19 forbearance program. 19 Loans that are 90 days or more past due, in bankruptcy, in foreclosure, or not accruing interest are considered nonperforming loans.
We primarily originate and manage investor loans secured by 1-4 unit residential rental and commercial properties, which we refer to collectively as investor real estate loans. Our primary source of revenue is interest income earned on our loan portfolio.
We primarily originate and manage investor loans secured by 1-4 unit residential rental and commercial properties, which we collectively refer to as investor real estate loans. Our primary source of revenue is interest income earned on our loan portfolio.
Our historical experience shows that refinance loans have higher loss rates than loans for property acquisitions. Product type includes residential 1-4 unit property and traditional commercial property. Our historical experience shows that traditional commercial property loans have higher loss rates than residential 1-4 unit property. Short Term loans have a maturity of one to two years from origination.
Our historical experience shows that refinance loans have higher loss rates than loans for property acquisitions. Product type includes residential 1-4 unit property and traditional commercial property. Our historical experience shows that traditional commercial property loans have higher loss rates than residential 1-4 unit property loans. Short term loans have a maturity of one to two years from origination.
However, some of our competitors may be better positioned to market their services and financing programs because of their ability to offer more favorable rates and terms and other services. Availability and Cost of Funding Our primary funding sources have historically included cash from operations, warehouse facilities, term securitized debt, corporate debt, and equity.
However, some of our competitors may be better positioned to market their services and financing programs because of their ability to offer more favorable rates, terms, and other services. Availability and Cost of Funding Our primary funding sources have historically included cash from operations, warehouse facilities, term securitized debt, corporate debt, and equity.
Year Ended December 31, ($ in thousands) 2023 2022 $ Change % Change Compensation and employee benefits $ 48,344 $ 30,458 $ 17,886 58.7 % Origination expenses 518 3,985 (1) (3,467 ) (87.0 )% Securitization expenses 12,923 — 12,923 — Loan servicing 17,631 12,298 5,333 43.4 % Professional fees 4,599 4,179 420 10.1 % Rent and occupancy 1,927 1,748 179 10.2 % Real estate owned, net 6,153 (70 ) 6,223 (8,890.0 )% Other operating expenses 8,524 9,166 (1) (642 ) (7.0 )% Total operating expenses $ 100,619 $ 61,764 $ 38,855 62.9 % (1) Certain accounts included in other operating expenses for the year ended December 31, 2022 have been reclassified to origination expenses to conform to current period presentation.
Year Ended December 31, 2023 2022 $ Change % Change ($ in thousands) Compensation and employee benefits $ 48,344 $ 30,458 $ 17,886 58.7 % Origination expenses 518 3,985 (1) (3,467 ) (87.0 ) Securitization expenses 12,923 — 12,923 — Loan servicing 17,631 12,298 5,333 43.4 Professional fees 4,599 4,179 420 10.1 Rent and occupancy 1,927 1,748 179 10.2 Real estate owned, net 6,153 (70 ) 6,223 8,890.0 Other operating expenses 8,524 9,166 (1) (642 ) (7.0 ) Total operating expenses $ 100,619 $ 61,764 $ 38,855 62.9 % (1) Certain accounts included in other operating expenses for the year ended December 31, 2022 have been reclassified to origination expenses to conform to current period presentation.
Compensation and Employee Benefits . Compensation and employee benefits increased from $30.5 million during the year ended December 31, 2022 to $48.3 million during year ended December 31, 2023.
Compensation and Employee Benefits . Compensation and employee benefits increased from $30.5 million during the year ended December 31, 2022 to $48.3 million during the year ended December 31, 2023.
Cash and Cash Equivalents During the year ended December 31, 2023, we used approximately $129 thousand of net cash and cash equivalents from operations, investing and financing activities.
During the year ended December 31, 2023, we used approximately $129 thousand of net cash and cash equivalents from operations, investing and financing activities.
Operating Expenses We incur operating expenses from compensation and benefits related to our employee base, rent and other occupancy costs associated with our leased facilities, our third-party primary loan servicing vendors, professional fees to the extent we utilize third-party legal, consulting and advisory firms, and costs associated with the resolution and disposition of real estate owned, among other items.
Operating Expenses We incur operating expenses from compensation and benefits related to our employee base, rent and other occupancy costs associated with our leased facilities, our third-party primary loan servicing vendors, professional fees to the extent we utilize third-party legal, consulting and advisory firms, costs associated with the resolution and disposition of real estate owned, and securitization expenses, among other items.
Long term loans have a maturity of up to 30 years from origination. We estimate the allowance for loan losses using relevant available information, from internal and external sources, relating to historical performance, current conditions, and reasonable and supportable macroeconomic forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses.
Long term loans have a maturity of up to 30 years from origination. We estimate the allowance for credit losses using relevant available information, from internal and external sources, relating to historical performance, current conditions, and reasonable and supportable macroeconomic forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses.
Securitization expenses are $12.9 million for the year ended December 31, 2023. Securitization expenses are due to the election of fair value option accounting on securitized debt issued in 2023. Securitization expenses on FVO securitized debt are expensed as incurred as opposed to being deferred and amortized for securitized debt carried at amortized cost. Loan Servicing .
Securitization expenses were $12.9 million for the year ended December 31, 2023. Securitization expenses are due to the election of fair value option accounting on securitized debt issued in 2023. Securitization expenses on FVO securitized debt are expensed as incurred as opposed to being deferred and amortized for securitized debt carried at amortized cost. Loan Servicing .
Based on analyses of the loan portfolio’s historical performance, we concluded that loan purpose and product types are the most significant risk factors in determining our expectation of future loan losses. Loan purpose considers whether a borrower is acquiring the property or refinancing an existing property.
Based on analyses of the loan portfolio’s historical performance, we concluded that loan purpose and product types are the most significant risk factors in determining our expectation of future credit losses. Loan purpose considers whether a borrower is acquiring the property or refinancing an existing property.
Costs related to issuance of our securitized debt. Loan Servicing. Costs related to our third-party servicers. Professional Fees. Costs related to professional services, such as external audits, legal fees, tax, compliance and outside consultants. Rent and Occupancy. Costs related to occupying our locations, including rent, maintenance and property taxes. Real Estate Owned, Net.
Costs related to issuance of our securitized debt. 25 Loan Servicing. Costs related to our third-party servicers. Professional Fees. Costs related to professional services, such as external audits, legal fees, tax, compliance and outside consultants. Rent and Occupancy. Costs related to occupying our locations, including rent, maintenance and property taxes. Real Estate Owned, Net.
The allowance for loan losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when we believe the uncollectibility of a loan balance is confirmed.
The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when we believe the uncollectibility of a loan balance is confirmed.
Other operating expenses decreased from $9.2 million for the year ended December 31, 2022 to $8.5 million for the year ended December 31, 2023, mainly due to a decrease in marketing and advertising expense. Income Tax Expense. Income tax expense was $18.8 million and $12.0 million for the year ended December 31, 2023 and 2022, respectively.
Other operating expenses decreased from $9.2 million for the year ended December 31, 2022 to $8.5 million for the year ended December 31, 2023 mainly due to a decrease in marketing and advertising expense. Income Tax Expense. Income tax expense was $18.8 million and $12.0 million for the years ended December 31, 2023 and 2022, respectively.
Professional fees remained relatively consistent from $4.2 million for the year ended December 31, 2022 to $4.6 million for the year ended December 31, 2023. Rent and Occupancy . Rent and occupancy expenses remained relatively consistent between $1.9 million and $1.7 million during the years ended December 31, 2023 and 2022, respectively. Net Expenses of Real Estate Owned .
Professional fees remained relatively consistent from $4.2 million for the year ended December 31, 2022 to $4.6 million for the year ended December 31, 2023. Rent and Occupancy . Rent and occupancy expenses remained relatively consistent between $1.9 million and $1.7 million for the years ended December 31, 2023 and 2022, respectively. Net Expenses of Real Estate Owned .
Portfolio Yield Portfolio yield is an annualized measure of the total interest income earned on our loan portfolio as a percentage of average loans over the given period. Interest income includes interest earned on performing loans, 21 cash interest received on nonperforming loans, default interest and prepayment fees.
Portfolio Yield Portfolio yield is an annualized measure of the total interest income earned on our loan portfolio as a percentage of average loans over the given period. Interest income includes interest earned on performing loans, cash interest received on nonperforming loans, default interest and prepayment fees.
Provision for Loan Losses Effective January 1, 2020 , we adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments replacing the incurred loss accounting approach with the current expected credit loss (CECL) approach.
Provision for Credit Losses Effective January 1, 2020 , we adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments replacing the incurred loss accounting approach with the current expected credit loss (CECL) approach.
Year Ended December 31, ($ in thousands) 2023 2022 $ Change % Change Net interest income - portfolio related $ 124,307 $ 112,620 $ 11,687 10.4 % Interest expense - corporate debt 16,556 29,472 (12,916 ) (43.8 ) % Net interest income 107,751 83,148 24,603 29.6 % Provision for loan losses 1,915 1,152 763 66.2 % Net interest income after provision for loan losses $ 105,836 $ 81,996 $ 23,840 29.1 % Interest Expense — Corporate Debt .
Year Ended December 31, 2023 2022 $ Change % Change ($ in thousands) Net interest income - portfolio related $ 124,307 $ 112,620 $ 11,687 10.4 % Interest expense - corporate debt 16,556 29,472 (12,916 ) (43.8 ) Net interest income 107,751 83,148 24,603 29.6 Provision for credit losses 1,915 1,152 763 66.2 Net interest income after provision for credit losses $ 105,836 $ 81,996 $ 23,840 29.1 % Interest Expense — Corporate Debt.
The gain or loss that we ultimately realize on the sale of our loans held for sale is primarily determined by the terms of the originated loans, current market interest rates and the sales price of the loans.
The gain or loss that we ultimately realize on the sale of our loans held for sale is primarily determined by the terms of the originated loans, current market interest rates and the sale price of the loans.
If we fail to meet any of the covenants or otherwise default under the facilities, the lenders have the right to terminate their facility and require immediate repayment, which may require us to sell our loans at less than optimal terms. As of December 31, 2023, we were in compliance with these covenants.
If we fail to meet any of the covenants, or otherwise default under the facilities, the lenders have the right to terminate their facility and require immediate repayment, which may require us to sell our loans at less than optimal terms. As of December 31, 2024, we were in compliance with these covenants.
Our allowance for loan losses is based on an analysis of historical loan loss data from January 1, 2017 through December 31, 2023, adjusted for macroeconomic forecasts. We strive to minimize actual credit losses through our rigorous screening and underwriting process, life of loan portfolio management and special servicing practices.
Our allowance for credit losses is based on an analysis of historical credit loss data from January 1, 2017 through December 31, 2024, adjusted for macroeconomic forecasts. We strive to minimize actual credit losses through our rigorous screening and underwriting process, life of loan portfolio management and special servicing practices.
Corporate debt interest expense decreased by $12.9 million from $29.5 million for the year ended December 31, 2022 to $16.6 million for the year ended December 31, 2023 primarily due to the $12.8 million prepayment fee and write-off of unamortized debt issuance costs associate with the payoff of our previous corporate debt in March 2022.
Corporate debt interest expense decreased by $12.9 million from $29.5 million for the year ended December 31, 2022 to $16.6 million for the year ended December 31, 2023 primarily due to the $12.8 million prepayment fee and write-off of unamortized debt issuance costs associated with the payoff of our previous corporate debt in March 2022.
Tables summarizing the investor real estate loans securitized, securities issued, securities retained by the Company at the time of the securitization, and as of December 31, 2023 and 2022, the stated maturity for each securitized debt, the outstanding bond balances, and the weighted average rate on the securities for the Trusts as of December 31, 2023 and 2022, are included in Item 15.
Tables summarizing the investor real estate loans securitized, securities issued, securities retained by the Company at the time of the securitization, and as of December 31, 2024 and 2023, the stated maturity for each securitized debt, the outstanding bond balances, and the weighted average rate on the securities for the Trusts as of December 31, 2024 and 2023, are included in Item 15.
While we use available information to estimate our required allowance for loan losses, future additions to the allowance for loan losses may be necessary based on changes in estimates resulting from economic and other conditions. We made the accounting policy election not to measure an allowance for loan losses for accrued interest receivables.
While we use available information to estimate our required allowance for credit losses, future additions to the allowance for credit losses may be necessary based on changes in estimates resulting from economic and other conditions. We made the accounting policy election not to measure an allowance for credit losses for accrued interest receivables.
The Warrants are exercisable at any time and from time to time, in whole or in part, by the holders until April 5, 2025 at an exercise price of $2.96 per share of common stock with respect to 2,008,750 of the Warrants, and at an exercise price of $4.94 per share of common stock with respect to 1,004,374 of the Warrants.
The warrants are exercisable at any time and from time to time, in whole or in part, by the holders until April 7, 2025 at an exercise price of $2.96 per share of common stock with respect to 2,008,750 of warrants, and at an exercise price of $4.94 per share of common stock with respect to 1,004,374 of warrants.
The increase was mainly driven by the FVO accounting on all new loan originations beginning October 1, 2022, as all origination costs on FVO loans are expensed as incurred as opposed to being deferred and amortized prior to October 1, 2022 and to a lesser extent an increase in employees. Origination Expenses .
The increase was mainly driven by the FVO accounting on all new loan originations beginning October 1, 2022, as all origination costs on FVO loans were expensed as incurred as opposed to being deferred and amortized prior to October 1, 2022 and to a lesser extent an increase in employees. Origination Expenses .
Net expenses of real estate owned increased from an income of $70 thousand during the year ended December 31, 2022 to an expense of $6.2 million during the year ended December 31, 2023. The $6.2 million increase is mainly due to the increase in valuation adjustments taken. Other Operating Expenses.
Net expenses of real estate owned increased from an income of $70 thousand during the year ended December 31, 2022 to an expense of $6.2 million during the year ended December 31, 2023. The $6.2 million increase was mainly due to the increase in valuation adjustments taken. Other Operating Expenses .
Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The allowance for loan losses is maintained at a level deemed adequate by management to provide for expected losses in the portfolio at the balance sheet date.
Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The allowance for credit losses is maintained at a level deemed adequate by management to provide for expected losses in the portfolio at the balance sheet date.
We measure net interest income before and after interest expense related to our corporate debt and before and after our provisions for loan losses. Credit Losses We strive to minimize actual credit losses through our rigorous screening and underwriting process and life of loan portfolio management and special servicing practices.
We measure net interest income before and after interest expense related to our corporate debt and before and after our provision for credit losses. Credit Losses We strive to minimize actual credit losses through our rigorous screening and underwriting process and life of loan portfolio management and special servicing practices.
Our portfolio related net interest income increased to $124.3 million from $112.6 million for the year ended December 31, 2023 and 2022. Interest Income. Interest income increased by $70.4 million, or 29.3%, to $310.8 million for the year ended December 31, 2023, compared to $240.3 million for the year ended December 31, 2022.
Our portfolio related net interest income increased to $124.3 million from $112.6 million for the years ended December 31, 2023 and 2022, respectively. Interest Income. Interest income increased by $70.4 million, or 29.3%, to $310.8 million for the year ended December 31, 2023, compared to $240.3 million for the year ended December 31, 2022.
When a loan is placed on nonaccrual status, the accrued and unpaid interest is reversed as a reduction of interest income and accrued interest receivable. Accrued interest receivable is excluded from the amortized cost of loans and it is presented as accrued interest receivable in the Consolidated Balance Sheets.
When a loan is placed on nonaccrual status, the accrued and unpaid interest is reversed as a reduction of interest income and accrued interest receivable. Accrued interest receivable is excluded from the amortized cost of loans and it is presented as “Accrued interest receivable” in the Consolidated Balance Sheets.
The corporate debt balance was $215.0 million as of December 31, 2023. Provision for Loan Losses . Our provision for loan losses increased by approximately $0.8 million from the provision of $1.2 million for the year ended December 31, 2022 to a provision of $1.9 million for the year ended December 31, 2023.
The corporate debt balance was $215.0 million as of December 31,2023. Provision for Credit Losses. Our provision for credit losses increased by approximately $0.8 million from the provision of $1.2 million for the year ended December 31, 2022 to a provision of $1.9 million for the year ended December 31, 2023.
The net fees and costs associated with loans held for sale carried at the lower of cost or fair value, are deferred as part of the carrying value of the loan and recognized as a gain or loss on the sale of the loan.
The net fees and costs associated with loans held for sale carried at the lower of cost or fair value, are deferred as part of the carrying value of the loan and recognized as a gain or loss upon the sale of the loan.
Weighted average LTV is calculated for the population of loans outstanding at the end of each specified period using the original loan amounts and appraised LTVs at the time of origination of each loan. LTV is a key statistic because requiring the borrower to invest more equity in the collateral minimizes our exposure for future credit losses. 16 Nonperforming Loans.
Weighted average LTV is calculated for the population of loans outstanding at the end of each specified period using the original loan amounts and appraised LTVs at the time of origination of each loan. LTV is a key statistic because requiring the borrower to invest more equity in the collateral minimizes our exposure for future credit losses. Weighted Average Coupon.
New Accounting Standards In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 240): Improvements to Income Tax Disclosures,” which requires additional disclosure and disaggregated information in the Income Tax Rate reconciliation using both percentages and reporting currency amounts, with additional qualitative explanations of individually significant reconciling items.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 240): Improvements to Income Tax Disclosures,” which requires additional disclosure and disaggregated information in the Income Tax Rate reconciliation using both percentages and reporting currency amounts, with additional qualitative explanations of individually significant reconciling items.
Origination expenses decreased from $4.0 million during the year ended December 31, 2022 to $0.5 million during the year ended December 31, 2023. The decrease of $3.5 million is primarily due to more effective loan origination cost management and our ability to transfer origination costs such as appraisal fees to borrowers. Securitization Expenses .
Origination expenses decreased from $4.0 million during the year ended December 31, 2022 to $0.5 million during the year ended December 31, 2023. The decrease of $3.5 million was primarily due to more effective loan origination cost management and our ability to transfer origination costs such as appraisal fees to borrowers. 32 Securitization Expenses .
Changes in fair value subsequent to initial recognition of fair value securitized debt are reported as unrealized gain/(loss) on fair value securitized debt, a component of other operating income within the consolidated statements of income. Origination Fee Income. Fee income related to our loan origination activities. Interest Income on cash balance. Interest income on bank balances. Other Income.
Changes in fair value, subsequent to initial recognition of fair value securitized debt are reported as “Unrealized gain (loss) on fair value securitized debt”, a component of other operating income within the Consolidated Statements of Income. Origination Income. Fee income related to our loan origination activities. Interest Income on cash balance. Interest income on bank balances. Other Income.
We determined the collectability of our loans by evaluating certain risk characteristics. The segmentation of our loan portfolio was determined based on analyses of our loan portfolio performance over the past nine years.
We determined the collectability of our loans by evaluating certain risk characteristics. The segmentation of our loan portfolio was determined based on analyses of our loan portfolio performance over the past ten years.
These measures are affected by a number of factors, including the demand for investor real estate loans, the competitiveness of the market for originating or acquiring investor real estate loans, the cost of financing our portfolio, operating costs, the availability of funding sources and the underlying performance of the collateral supporting our loans.
These measures are affected by various factors, including the demand for investor real estate loans, the competitiveness of the market for originating or acquiring investor real estate loans, the cost of financing our portfolio, operating costs, the availability of funding sources and the underlying performance of the collateral supporting our loans.
Critical Accounting Estimates and Significant Accounting Policies Our consolidated financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States and follow general practices within the financial services industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes.
Critical Accounting Estimates and Significant Accounting Policies Our consolidated financial statements are prepared in accordance with GAAP in the United States and follow general practices within the financial services industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes.
Significant variables or assumptions incorporated in the macroeconomic forecasts include U.S. unemployment, U.S. real gross domestic product (GDP), treasury yields, and U.S. real estate housing prices. We consider multiple scenarios from different macroeconomic forecasts and use different forecast and revision periods for estimating lifetime expected credit losses.
Significant variables or assumptions incorporated in the macroeconomic forecasts include U.S. unemployment, U.S. real gross domestic product (“GDP”), treasury yields, and U.S. real estate housing prices. We consider multiple scenarios from different macroeconomic forecasts and use different forecast and reversion periods for estimating lifetime expected credit losses.
The increase in portfolio related interest expense in 2023 was primarily attributable to a higher loan portfolio being financed and increased interest rates.
The increase in portfolio related interest expense in 2024 was primarily attributable to a higher loan portfolio being financed and increased interest rates.
Loan servicing expenses increased from $12.3 million during the year ended December 31, 2022 to $17.6 million during the year ended December 31, 2023. The $5.3 million increase during the year ended December 31, 2023 is mainly due to the increase in our total loan portfolio. Professional Fees .
Loan servicing expenses increased from $12.3 million during the year ended December 31, 2022 to $17.6 million during the year ended December 31, 2023. The $5.3 million increase during the year ended 2023 was mainly due to the increase in our loan portfolio. Professional Fees .
We also resolved $19.3 million, $16.2 million, and $10.7 million of long-term and short-term nonperforming loans transferred to REO during the years ended December 31, 2023, 2022 and 2021, respectively. From these resolution activities, we realized net gains of $5.5 million, $10.8 million, and $7.5 million during the years ended December 31, 2023, 2022, and 2021, respectively.
We also resolved $29.8 million, $19.3 million and $16.2 million of long-term and short-term nonperforming loans transferred to REO during the years ended December 31, 2024, 2023 and 2022, respectively. From these resolution activities, we realized net gains of $10.2 million, $5.5 million and $10.8 million during the years ended December 31, 2024, 2023 and 2022, respectively.
Year Ended December 31, ($ in thousands) 2023 2022 $ Change % Change Gain on disposition of loans $ 8,238 $ 7,107 $ 1,131 15.9 % Unrealized gain on fair value loans 47,850 8,265 39,585 478.9 % Unrealized (loss)/gain on mortgage servicing rights (660 ) 2,086 (2,746 ) (131.6 )% Unrealized loss on fair value securitized debt (9,002 ) — (9,002 ) — Origination fee income 12,450 5,225 (1) 7,225 138.3 % Interest income on cash balance 5,194 — 5,194 — Other income 1,840 1,638 (1) 202 12.3 % Total other operating income $ 65,910 $ 24,321 $ 41,589 171.0 % (1) $5.2 million of origination income originally included in other income for the year ended December 31, 2022 has been reclassified and separately presented as "origination income" under other operating income to conform to current period presentation. 28 Operating Expenses The table below presents the various components of operating expenses for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Year Ended December 31, 2023 2022 $ Change % Change ($ in thousands) Gain on disposition of loans $ 8,238 $ 7,107 $ 1,131 15.9 % Unrealized gain on fair value loans 47,850 8,265 39,585 478.9 Unrealized loss on fair value securitized debt (9,002 ) — (9,002 ) — Unrealized gain (loss) on mortgage servicing rights (660 ) 2,086 (2,746 ) (131.6 ) Origination fee income 12,450 5,225 (1) 7,225 138.3 Interest income on cash balance 5,194 — 5,194 — Other income 1,840 1,638 (1) 202 12.3 Total other operating income $ 65,910 $ 24,321 $ 41,589 171.0 % (1) $5.2 million of origination income originally included in other income for the year ended December 31, 2022 has been reclassified and separately presented as “origination income” under other operating income to conform to current period presentation.
Loan count reflects the number of loans at the end of the period. It includes all loans with an outstanding principal balance. Average Loan Balance. Average loan balance reflects the average UPB at the end of the period (i.e., total loans divided by loan count). Weighted Average Coupon.
Loan count reflects the number of loans at the end of the period. It includes all loans with an outstanding principal balance. Average Loan Balance. Average loan balance reflects the average UPB at the end of the period (i.e., total loans divided by loan count). Weighted Average Loan-to-Value.
In addition, when we transfer a loan to REO, we record the REO at its fair value, less estimated costs to sell, at the time of the transfer. The difference between the fair value of the real estate and the carrying value of the loan is recorded as a gain or a loan charge-off. Unrealized Gain/(Loss) on Fair Value Loans.
In addition, when we transfer a loan to REO, we record the REO at its fair value, less estimated costs to sell at the time of the transfer. The difference between the fair value of the real estate and the carrying value of the loan is recorded as a gain or a loan charge-off.
The prepayment penalty terms differ between the short-term and long-term loans, and we have developed a CPR curve for our short-term loans (2-year or less) and one for our long-term loans (30-year). Data from 2012-2023 is used to develop prepayment rates for our long-term loans.
The prepayment penalty terms differ between the short-term and long-term loans, and we have developed a CPR curve for our short-term loans (two-year or less) and one for our long-term loans (30-year). Data from 2012-2024 is used to develop prepayment rates for our long-term loans.
Financing Activities For the year ended December 31, 2023, our net cash provided by financing activities of $535.8 million consisted mainly of $1.2 billion in borrowings from our warehouse and repurchase facilities and $1.0 billion in securitizations issued, respectively.
For the year ended December 31, 2023, our net cash provided by financing activities of $535.8 million consisted mainly of $1.2 billion in borrowings from our warehouse and repurchase facilities and $1.0 billion in securitized debt issued.
The cash generated was offset by payments we made of $1.2 billion and $438.8 million on our warehouse and repurchase facilities and securitizations issued, respectively.
The cash generated was offset by payments we made of $1.2 billion and $438.8 million on our warehouse and repurchase facilities and securitized debt issued, respectively.
For the year ended December 31, 2022, our net cash provided by financing activities of $874.0 million consisted mainly of $1.7 billion in borrowings from our warehouse and repurchase facilities and $1.4 billion in securitizations issued, respectively.
For the year ended December 31, 2022, our net cash provided by financing activities of $874.0 million consisted mainly of $1.7 billion in borrowings from our warehouse and repurchase facilities and $1.4 billion in securitized debt issued.
Fair Value Option Accounting We made an election to apply the fair value option accounting to all our originated mortgage loans on a go-forward basis beginning October 1, 2022. We will consider applying FVO accounting to acquired loans on a case-by-case basis. The fair value option loans will be presented on a separate line item in the consolidated balance sheet.
Fair Value Option Accounting We made an election to apply the fair value option accounting to all our originated mortgage loans on a go-forward basis beginning October 1, 2022. We will consider applying FVO accounting to acquired loans on a case-by-case basis. The fair value option loans are presented as a separate line item in the Consolidated Balance Sheets.
Accordingly, we closely monitor the primary drivers of net income which consist of the following: Net Interest Income Net interest income is the largest contributor to our net income and is monitored on both an absolute basis and relative to provisions for loan losses and operating expenses.
Accordingly, we closely monitor the primary drivers of net income which consist of the following: Net Interest Income Net interest income is the largest contributor to our net income and is monitored on both an absolute basis and relative to provision for credit losses and operating expenses.
On March 15, 2022, we entered into a five-year $215.0 million syndicated corporate debt agreement ("the 2022 Term Loan"). The 2022 Term Loan bears interest at a fixed rate of 7.125% and matures on March 15, 2027. Interest on the 2022 Term Loan is paid every six months.
Contractual Obligations and Commitments On March 15, 2022, we entered into a five-year $215.0 million syndicated corporate debt agreement (“the 2022 Term Loan”). The 2022 Term Loan bears interest at a fixed rate of 7.125% and matures on March 15, 2027. Interest on the 2022 Term Loan is paid every six months.
The valuation impact to our P&L from loans becoming REO or in REO is a combination of 1) loan charge-offs, 2) gain on transfer to REO included in "gain on disposition of loans" in the consolidated statements of income, 3) net gain/(loss) on sale of REO, and 4) net valuation adjustments on REO.
The valuation impact to our earnings from loans becoming REO or in REO is a combination of: (1) loan charge-offs, (2) gain on transfer to REO included in “Gain on disposition of loans” in the Consolidated Statements of Income, (3) net valuation adjustments on REO, and (4) net gain or loss on sale of REO.
Includes $42.2 million, $39.6 million, and $53.8 million of COVID-19 forbearance-granted loans 90 days or more past due as of December 31, 2023, 2022 and 2021, respectively. Total Loans. Total loans reflects the aggregate UPB at the end of the period. It excludes deferred origination costs, acquisition discounts, fair value adjustments and allowance for loan losses. Loan Count.
Includes $40.1 million, $42.2 million and $39.6 million of COVID-19 forbearance-granted loans 90 days or more past due as of December 31, 2024, 2023 and 2022, respectively. Total Loans. Total loans reflects the aggregate UPB at the end of the period. It excludes deferred origination costs, acquisition discounts, fair value adjustments and allowance for credit losses. Loan Count.
Our critical accounting estimates are summarized below. 11 Allowance for Loan Losses For our loans held for investment where we have not elected fair value option ("FVO") accounting, we calculate an allowance for loan losses. Under the current expected credit loss ("CECL") methodology, the allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist.
Our critical accounting estimates are summarized below. 11 Allowance for Credit Losses For our loans held for investment where we have not elected FVO accounting, we calculate an allowance for credit losses. Under the current expected credit loss (“CECL”) methodology, the allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist.
The increase in provision for loan losses is primarily attributable to the increase in charge-offs. Other Operating Income The table below presents the various components of other operating income for the year ended December 31, 2023 compared to the year ended December 31, 2022.
The increase in provision for credit losses was primarily attributable to the increase in charge-offs. 31 Other Operating Income The table below presents the various components of other operating income for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Investing Activities For the year ended December 31, 2023, our net cash used in investing activities of $584.7 million consisted mainly of $1.1 billion in cash used to originate held for investment loans, offset by $459.7 million in cash received in payments on held for investment loans.
Investing Activities For the year ended December 31, 2024, our net cash used in investing activities of $1.0 billion consisted mainly of $1.8 billion in cash used to originate held for investment loans, offset by $723.0 million in cash received in payments on held for investment loans. 35 For the year ended December 31, 2023, our net cash used in investing activities of $584.7 million consisted mainly of $1.1 billion in cash used to originate held for investment loans, offset by $459.7 million in cash received in payments on held for investment loans.
Interest income on loans held for investment is comprised of interest income on loans and prepayment fees less the amortization of deferred net costs related to the origination of loans. Interest income on loans held for sale is comprised of interest income earned on loans prior to their sale.
Interest income on loans held for investment is comprised of interest income on loans and prepayment fees less the amortization of deferred net costs related to the origination of loans carried at amortized cost. Interest income on loans held for sale is comprised of interest income earned on loans prior to their sale.
The revolving warehouse facilities also contain customary covenants, including but not limited to financial covenants that require us to maintain a minimum net worth, a maximum debt-to-net worth ratio and a ratio of a minimum earnings before interest, taxes, depreciation and amortization to interest expense.
The warehouse facilities also contain customary covenants, including financial covenants that require us to maintain minimum liquidity, a minimum net worth, a maximum debt-to-net worth ratio and a ratio of a minimum earnings before interest, taxes, depreciation and amortization of interest expense.
The fees and costs associated with loans held for sale carried at fair value are recognized and expensed as incurred Interest Expense — Portfolio Related Portfolio related interest expense is incurred on the debt we incur to fund our loan origination and portfolio activities and consists of our warehouse repurchase facilities and securitized debt.
The fees and costs associated with loans carried at fair value are recognized and expensed as incurred. Interest Expense — Portfolio Related Portfolio related interest expense is incurred on the debt we obtained to fund our loan origination and portfolio activities and consists of our warehouse facilities and securitized debt.
Years Ended December 31, 2023 and 2022 ($ in thousands) Average Loans Interest Income Average Yield Year Ended December 31, 2023 $ 3,725,197 $ 310,775 8.34 % Year Ended December 31, 2022 3,092,198 240,343 7.77 % Volume variance 632,999 49,200 Rate variance 21,232 0.57 % Total interest income variance $ 70,432 Interest Expense — Portfolio Related.
Average Loans Interest Income Average Yield ($ in thousands) Year ended December 31, 2023 $ 3,725,197 $ 310,775 8.34 % Year ended December 31, 2022 3,092,197 240,343 7.77 % Volume variance 633,000 49,200 Rate variance 21,232 0.57 % Total interest income variance $ 70,432 Interest Expense — Portfolio Related.
This is due to low LTVs at origination and our active management of the portfolio. The following tables summarize the resolution activities of loans that were nonperforming or became nonperforming during the periods indicated. We resolved $206.1 million, $142.2 million, and $201.9 million of long-term and short-term nonperforming loans during the years ended December 31, 2023, 2022, and 2021, respectively.
This was due to low LTVs at origination and our active management of the portfolio. The following tables summarize the resolution activities of loans that were nonperforming or became nonperforming during the periods indicated. We resolved $253.4 million, $206.1 million and $142.2 million of long-term and short-term nonperforming loans during the years ended December 31, 2024, 2023 and 2022, respectively.
We have elected to apply the fair value option accounting to all our originated mortgage loans on a go-forward basis beginning October 1, 2022. We have elected to account for certain purchased distressed loans at fair value using FASB ASC Topic 825, Financial Instruments (ASC 825). We regularly estimate the fair value of these loans.
Unrealized Gain (Loss) on Fair Value Loans. We have elected to apply the fair value option accounting to all our originated mortgage loans on a go-forward basis beginning October 1, 2022. We have elected to account for certain purchased distressed loans at fair value using FASB ASC Topic 825, Financial Instruments (ASC 825).
GAAP versus tax differences. The U.S. GAAP treatment considers each REMIC as a variable interest entity that is required to be consolidated in our financial statements, accounting for the securitization as a secured borrowing.
GAAP treatment considers each REMIC as a variable interest entity that is required to be consolidated in our financial statements, accounting for the securitization as a secured borrowing.
Loans Held for Investment Our total portfolio of loans held for investment consists of both loans held for investment carried at amortized cost, which are presented in the Consolidated Balance Sheets as loans held for investment, net, and loans held for investment at fair value, which are presented in the Consolidated Balance Sheets as loans held for investment, at fair value.
Loans Held for Investment Our total portfolio of loans held for investment consists of both loans held for investment carried at amortized cost, and loans held for investment at fair value, which are presented in the Consolidated Balance Sheets as “Loans held for investment, at amortized cost” and “Loans held for investment, at fair value”, respectively.
For the year ended December 31, 2023, our portfolio related net interest margin was 3.34%. We generate profits to the extent that our portfolio related net interest income exceeds our interest expense on corporate debt, provision for loan losses and operating expenses.
For the year ended December 31, 2024, our portfolio related net interest margin was 3.56%. We generate profits to the extent that our portfolio related net interest income exceeds our interest expense on corporate debt, provision for credit losses and operating expenses.
Securitized Debt From May 2011 through December 2023, we have completed 31 transactions, issuing $6.4 billion in principal amount of securities to third parties. All borrower payments are segregated into remittance accounts at the primary servicer and remitted to the trustee of each trust monthly.
Securitized Debt From May 2011 through December 2024, we have completed 37 transactions, issuing $8.0 billion in principal amount of securities to third parties. All borrower payments are segregated into remittance accounts at the primary servicer and remitted to the trustee of each trust monthly.
Nonperforming loans were $394.6 million, or 9.7% of our held for investment loan portfolio as of December 31, 2023, compared to $292.8 million, or 8.3% as of December 31, 2022, and $273.1 million, or 10.9% of the loan portfolio as of December 31, 2021.
Nonperforming loans were $539.4 million, or 10.7% of our held for investment loan portfolio as of December 31, 2024, compared to $394.6 million, or 9.7% as of December 31, 2023, and $292.8 million, or 8.3% of the loan portfolio as of December 31, 2022.
The following table presents information regarding the increase in portfolio related interest expense and distinguishes between the dollar amount of change in interest expense attributable to changes in the average outstanding debt balance (volume) versus changes in cost of funds (rate) for the years ended December 31, 2023 and 2022.
The following table presents information regarding the portfolio related interest expense and distinguishes between the change in interest expense attributable to change in the average outstanding debt balance (volume) and change in cost of funds (rate) for the years ended December 31, 2024 and 2023.
We will not record a CECL loan loss reserve on fair value option loans. In accordance with ASC 820, we utilize a third-party loan valuation model to estimate the fair value of our nonperforming mortgage loans. We use an in-house loan valuation model to estimate the fair value of our performing mortgage loans.
We do not record a CECL reserve on fair value option loans. In accordance with ASC 820, we utilize a third-party loan valuation specialist to determine the fair value of our nonperforming mortgage loans. We use a third-party loan valuation model to estimate the fair value of our performing mortgage loans.
Estimated prepayments, or Constant Prepayment Rates ("CPRs") are developed from multiple loan characteristic considerations, such as property types, FICO scores, loan purpose, and prepayment penalty terms, which is the most significant driver of prepayment activity.
Estimated prepayments, or Constant Prepayment Rates (“CPRs”) are developed from multiple loan characteristic considerations, such as property types, Fair Isaac Corporation (“FICO”) scores, loan purpose, and prepayment penalty terms, which is the most significant driver of prepayment activity.
The decrease in allowance is primarily due to loan paydowns and payoffs decreasing our portfolio of loans held for investment carried at amortized cost. Our allowance increased to $4.9 million as of December 31, 2022, from $4.3 million as of December 31, 2021.
Our allowance decreased to $4.8 million as of December 31, 2023, from $4.9 million as of December 31, 2022. The decrease in allowance was primarily due to loan paydowns and payoffs decreasing our portfolio of loans held for investment carried at amortized cost.
Under FVO accounting, direct compensation related to the origination of loans and securitization issuance costs are expensed as incurred. Under amortized cost accounting, these costs are deferred and amortized as yield adjustments for these products.
The increase was driven mainly by the FVO election for loans and securitizations. Under FVO accounting, direct compensation related to the origination of loans and securitization issuance costs are expensed as incurred. Under amortized cost accounting, these costs are deferred and amortized as yield adjustments for these products.
Year Ended December 31, ($ in thousands) 2023 2022 2021 Income before income taxes (A) $ 71,127 $ 44,552 $ 39,793 Net income (B) 52,293 32,519 29,224 Monthly average balance: Stockholders' / Members' equity (C) 407,305 364,282 255,331 Pre-tax return on equity (A)/(C) 17.5 % 12.2 % 15.6 % Return on equity (B)/(C) 12.8 % 8.9 % 11.4 % 23 Components of Results of Operations Interest Income We accrue interest on the UPB of our loans in accordance with the individual terms and conditions of each loan, discontinuing interest and reversing previously accrued interest once a loan becomes 90 days or more past due (nonaccrual status).
Year Ended December 31, 2024 2023 2022 ($ in thousands) Income before income taxes (A) $ 96,391 $ 71,127 $ 44,552 Net income (B) 68,466 52,293 32,519 Monthly average balance: Stockholders’ / Members’ equity (C) 474,942 407,305 364,282 Pre-tax return on average equity (A)/(C) 20.3 % 17.5 % 12.2 % Return on average equity (B)/(C) 14.4 % 12.8 % 8.9 % Components of Results of Operations Interest Income We accrue interest on the UPB of our loans in accordance with the individual terms and conditions of each loan, discontinuing interest and reversing previously accrued interest once a loan becomes 90 days or more past due (nonaccrual status).
Changes in fair value subsequent to initial recognition of fair value loans are reported as unrealized gain/(loss) on fair value loans, a component of other operating income within the consolidated statements of income. Unrealized Gain/(Loss) on Mortgage Servicing Rights. The Company has elected to record its mortgage servicing rights using the fair value measurement method.
The Company has elected to record its mortgage servicing rights using the fair value measurement method. Changes in fair value are reported as “Unrealized gains (losses) on mortgage servicing rights”, a component of other operating income within the Consolidated Statements of Income. Unrealized Gain (Loss) on Fair Value Securitized Debt.
As of December 31, 2022, we had five non-mark-to-market warehouse facilities and one modified mark-to-market warehouse facility to support our loan origination and acquisition facilities. One agreement is a two-year warehouse repurchase facility, three agreements are one-year warehouse repurchase facilities and two agreements are three-year warehouse facilities.
As of December 31, 2023, we had six non-mark-to-market warehouse facilities and one modified mark-to-market warehouse facility to support our loan origination and acquisition activities. One agreement was a two-year warehouse repurchase facility, three agreements were one-year warehouse repurchase facilities and three agreements were three-year warehouse facilities.
Portfolio and Asset Quality Key Portfolio Statistics December 31, 2023 2022 2021 ($ in thousands) Total loans (UPB) $ 4,072,890 $ 3,512,486 $ 2,587,221 Loan count 10,477 8,893 6,964 Average loan balance $ 389 $ 395 $ 372 Weighted average loan-to-value 67.8 % 68.2 % 67.7 % Weighted average coupon 8.88 % 7.95 % 7.76 % Nonperforming loans (UPB) (A) $ 394,562 $ 292,789 $ 273,100 Nonperforming loans (% of total) (A) 9.69 % 8.34 % 17.11 % (A) Reflects the UPB of loans 90 days or more past due or placed on nonaccrual status.
Portfolio and Asset Quality Key Portfolio Statistics December 31, 2024 2023 2022 ($ in thousands) Total loans $ 5,055,937 $ 4,072,890 $ 3,512,486 Loan count 12,932 10,477 8,893 Average loan balance $ 391 $ 389 $ 395 Weighted average loan-to-value 66.6 % 67.8 % 68.2 % Weighted average coupon 9.53 % 8.88 % 7.95 % Nonperforming loans (UPB) (A) $ 539,438 $ 394,562 $ 292,789 Nonperforming loans (% of total) (A) 10.67 % 9.69 % 8.34 % (A) Reflects the UPB of loans 90 days or more past due or placed on nonaccrual status.
Pre-tax return on equity and return on equity increased for the year ended December 31, 2023 as compared to 2022 and 2021 due to the increase in income before income taxes and net income as further explained below.
Pre-tax return on average equity and return on average equity increased for the year ended December 31, 2024 as compared to 2023 and 2022 due to the increases in income before income taxes and net income.

… 175 more changes not shown on this page.

Other VEL 10-K year-over-year comparisons