Guild Holdings Co [GHLD] Filings

10-Q 1 ghld-20230630.htm 10-Q ghld-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission File Number: 001-39645

GUILD HOLDINGS COMPANY

(Exact Name of Registrant as Specified in its Charter)

_______________


Delaware			85-2453154
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
5887 Copley Drive San Diego, California			92111
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (858) 560-6330

_______________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Class A common stock, $0.01 par value per share

GHLD

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of August 2, 2023, the registrant had 20,625,581 shares of Class A common stock outstanding and 40,333,019 shares of Class B common stock outstanding.

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GUILD HOLDINGS COMPANY

Table of Contents


			Page
		CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS	1
		SUMMARY OF RISK FACTORS	1
PART I		FINANCIAL INFORMATION	3
	Item 1.	Financial Statements (Unaudited)	3
		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Income (Loss)	4
		Condensed Consolidated Statements of Changes in Stockholders' Equity	5
		Condensed Consolidated Statements of Cash Flows	6
		Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	60
	Item 4.	Controls and Procedures	60
PART II		OTHER INFORMATION	61
	Item 1.	Legal Proceedings	61
	Item 1A.	Risk Factors	61
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	82
	Item 5.	Other Information	82
	Item 6.	Exhibits	84
Signatures			85

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

Important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements include, but are not limited to, those factors described below under “Summary of Risk Factors” and in Part II, Item 1A. "Risk Factors” in this Quarterly Report.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described elsewhere in this Quarterly Report. Moreover, we operate in a very competitive environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

As used herein, "Guild," "the Company," "we," "us," "our," and similar terms include Guild Holdings Company and its subsidiaries, unless the context indicates otherwise.

SUMMARY OF RISK FACTORS

Below is a summary of the principal factors that make an investment in our Class A common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under Part II, Item 1A. “Risk Factors” and should be carefully considered, together with other information in this Quarterly Report and our other filings with the Securities and Exchange Commission ("SEC"), before making an investment decision regarding our Class A common stock.

•A disruption in the secondary home loan market or our ability to sell the loans we originate may continue to have a detrimental effect on our business.

•Macroeconomic and U.S. residential real estate market conditions have and could further materially and adversely affect our clients, origination volume, revenue, and results of operations.

•We are highly dependent on certain U.S. government-sponsored entities and government agencies, and any organizational or pricing changes in these entities, their guidelines or their current roles could materially and adversely affect us.

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•Changes in prevailing interest rates or U.S. monetary policies have had and may continue to have a detrimental effect on our business. Our hedging strategies may not be successful in mitigating interest rate risk.

•Our servicing rights are subject to termination with or without cause.

•Our existing and any future indebtedness could adversely affect our liquidity and our ability to operate our business.

•A significant disruption in the technology that supports our origination and servicing platform could harm us.

•Acquisitions and investments have in the past, and may in the future, cause our financial results to differ from expectations and we may not be able to achieve anticipated benefits from such acquisitions or investments.

•Pressure from existing and new competitors may adversely affect us.

•Our failure to maintain or grow our historical referral relationships with our referral partners may materially and adversely affect us.

•Servicing advances can be subject to delays in recovery or may not be recoverable at all.

•From time to time our estimates of the fair value of certain assets prove to be inaccurate and we are required to write them down.

•The success and growth of our business will depend upon our ability to adapt to and implement technological changes and to develop and market attractive products and services.

•Failure or perceived failure to comply with existing or future laws, regulations, contracts, self-regulatory schemes, standards, and other obligations related to data privacy and security (including security incidents) could harm our business.

•Our business may be materially and adversely affected by a cybersecurity breach or other vulnerability involving our computer systems or those of certain of our third-party service providers.

•Operating and growing our business may require additional capital that may not be available.

•We are subject to certain operational risks, including employee or customer fraud, the obligation to repurchase sold loans in the event of a documentation error, and data processing system failures and errors.

•We are periodically required to repurchase mortgage loans, or indemnify purchasers of our mortgage loans, including if these loans fail to meet certain criteria or characteristics.

•Seasonality may cause fluctuations in our financial results.

•If we fail to protect our brand and reputation, our ability to grow our business and increase the volume of mortgages we originate and service may be adversely affected.

•We may fail to comply with the complex legal and regulatory framework (including state licensing requirements) governing our mortgage loan origination and servicing activities.

•Material changes to the laws, regulations or practices applicable to reverse mortgage programs could adversely affect our reverse mortgage business.

•We are controlled by McCarthy Capital Mortgage Investors, LLC (“MCMI”), and MCMI’s interests may conflict with our interests and the interests of our other stockholders.

•We are a “controlled company” and may rely on exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.

•Our directors and executive officers have significant control over our business.

•We are a holding company and depend upon distributions from Guild Mortgage Company LLC ("GMC") to meet our obligations.

•The dual class structure of our common stock may adversely affect the trading market of our Class A common stock.

•We have previously identified material weaknesses in our internal control over financial reporting and ineffective disclosure controls and procedures.

Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business, financial condition, results of operations and cash flows.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

GUILD HOLDINGS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


(In thousands, except share and per share amounts)	June 30, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	105,963	$	137,891
Restricted cash	5,868		8,863
Mortgage loans held for sale	1,125,992		845,775
Reverse mortgage loans held for investment	36,709		—
Ginnie Mae loans subject to repurchase right	598,634		650,179
Accounts, notes and interest receivable	65,035		58,304
Derivative assets	13,702		3,120
Mortgage servicing rights, net	1,184,503		1,139,539
Intangible assets, net	29,100		33,075
Goodwill	184,894		176,769
Other assets	182,239		186,076
Total assets	$	3,532,639	$	3,239,591
Liabilities and stockholders’ equity
Warehouse lines of credit	$	1,053,060	$	713,151

Notes payable	123,750		126,250
Ginnie Mae loans subject to repurchase right	598,879		650,179
Accounts payable and accrued expenses	33,629		34,095
Accrued compensation and benefits	34,251		29,597
Investor reserves	18,364		16,094
Contingent liabilities due to acquisitions	7,793		526
Derivative liabilities	—		5,173
Operating lease liabilities	83,759		85,977
Note due to related party	—		530
Deferred compensation plan	94,873		95,769
Deferred tax liabilities	232,816		232,963
Total liabilities	2,281,174		1,990,304
Commitments and contingencies (Note 16)
Stockholders’ equity
Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued and outstanding	—		—
Class A common stock, $0.01 par value; 250,000,000 shares authorized; 20,645,142 and 20,583,130 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	206		206
Class B common stock, $0.01 par value; 100,000,000 shares authorized; 40,333,019 shares issued and outstanding as of June 30, 2023 and December 31, 2022	403		403
Additional paid-in capital	45,141		42,727
Retained earnings	1,205,654		1,205,885
Non-controlling interest	61		66
Total stockholders’ equity	1,251,465		1,249,287
Total liabilities and stockholders’ equity	$	3,532,639	$	3,239,591

See accompanying notes to condensed consolidated financial statements

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GUILD HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share amounts)	2023		2022		2023		2022
Revenue
Loan origination fees and gain on sale of loans, net	$	136,925	$	207,972	$	229,576	$	450,611
Gain on reverse mortgage loans held for investment	2,306		—		2,306		—
Loan servicing and other fees	60,211		54,595		120,298		107,772
Valuation adjustment of mortgage servicing rights	27,890		21,074		(26,981)		205,675
Interest income	26,584		14,823		44,829		30,086
Interest expense	(17,329)		(10,949)		(29,591)		(25,087)
Other income, net	224		22		259		242
Net revenue	236,811		287,537		340,696		769,299
Expenses
Salaries, incentive compensation and benefits	144,903		178,192		256,023		365,521
General and administrative	20,448		6,371		41,331		741
Occupancy, equipment and communication	18,402		18,973		35,832		37,285
Depreciation and amortization	3,661		3,808		7,399		7,721
(Reversal of) provision for foreclosure losses	(1,044)		1,796		470		1,475
Total expenses	186,370		209,140		341,055		412,743
Income (loss) before income tax expense (benefit)	50,441		78,397		(359)		356,556
Income tax expense (benefit)	13,505		20,108		(100)		90,294
Net income (loss)	36,936		58,289		(259)		266,262
Net income (loss) attributable to non-controlling interest	—		17		(5)		32
Net income (loss) attributable to Guild	$	36,936	$	58,272	$	(254)	$	266,230

Net income (loss) per share attributable to Class A and Class B Common Stock:
Basic	$	0.61	$	0.95	$	—	$	4.36
Diluted	$	0.60	$	0.95	$	—	$	4.31
Weighted average shares outstanding of Class A and Class B Common Stock:
Basic	60,962		61,064		60,931		61,060
Diluted	61,801		61,650		60,931		61,779

See accompanying notes to condensed consolidated financial statements

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GUILD HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

(In thousands, except share amounts)


	Class A Shares	Class A Amount		Class B Shares	Class B Amount		Additional Paid-In Capital		Retained Earnings		Non-Controlling Interest		Total
Balance at December 31, 2021	20,723,912	$	207	40,333,019	$	403	$	42,175	$	877,194	$	34	$	920,013
Stock-based compensation	—	—		—	—		1,272		—		—		1,272
Dividend equivalents on unvested restricted stock units forfeited	—	—		—	—		(40)		40		—		—
Net income	—	—		—	—		—		207,958		15		207,973
Balance at March 31, 2022	20,723,912	$	207	40,333,019	$	403	$	43,407	$	1,085,192	$	49	$	1,129,258
Stock-based compensation	—	—		—	—		1,728		—		—		1,728
Dividend equivalents on unvested restricted stock units forfeited	—	—		—	—		(25)		25		—		—
Vesting of restricted stock units	34,055	—		—	—		—		—		—		—
Repurchase and retirement of Class A common stock	(141,952)	(1)		—	—		(1,444)		—		—		(1,445)
Net income	—	—		—	—		—		58,272		17		58,289
Balance at June 30, 2022	20,616,015	$	206	40,333,019	$	403	$	43,666	$	1,143,489	$	66	1,187,830





	Class A Shares	Class A Amount		Class B Shares	Class B Amount		Additional Paid-In Capital		Retained Earnings		Non-Controlling Interest		Total
Balance at December 31, 2022	20,583,130	$	206	40,333,019	$	403	$	42,727	$	1,205,885	$	66	$	1,249,287
Stock-based compensation	—	—		—	—		1,756		—		—		1,756
Vesting of restricted stock units	333	—		—	—		—		—		—		—
Shares of Class A common stock withheld related to net share settlement	(137)	—		—	—		(1)		—		—		(1)
Repurchase and retirement of Class A common stock	(50,166)	(1)		—	—		(567)		—		—		(568)
Net loss	—	—		—	—		—		(37,190)		(5)		(37,195)
Balance at March 31, 2023	20,533,160	$	205	40,333,019	$	403	$	43,915	$	1,168,695	$	61	$	1,213,279
Stock-based compensation	—	—		—	—		2,323		—		—		2,323
Dividend equivalents on unvested restricted stock units forfeited	—	—		—	—		(23)		23		—		—
Vesting of restricted stock units	211,733	2		—	—		(2)		—		—		—
Shares of Class A common stock withheld related to net share settlement	(48,163)	—		—	—		(523)		—		—		(523)
Repurchase and retirement of Class A common stock	(51,588)	(1)		—	—		(549)		—		—		(550)
Net income	—	—		—	—		—		36,936		—		36,936
Balance at June 30, 2023	20,645,142	$	206	40,333,019	$	403	$	45,141	$	1,205,654	$	61	$	1,251,465

See accompanying notes to condensed consolidated financial statements

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GUILD HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Six Months Ended June 30,
(In thousands)	2023		2022
Cash flows from operating activities
Net (loss) income	$	(259)	$	266,262
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	7,399		7,721
Valuation adjustment of mortgage servicing rights	26,981		(205,675)
Valuation adjustment of mortgage loans held for sale	6,106		33,648
Valuation adjustment of reverse mortgage loans held for investment	(2,306)		—
Unrealized (gain) loss on derivatives	(15,755)		6,924
Amortization of right-of-use assets	10,888		8,531
Provision (relief) for investor reserves	5,018		(896)
Provision for foreclosure losses	470		1,475
Valuation adjustment of contingent liabilities, net due to acquisitions	1,248		(45,402)
Gain on sale of mortgage loans excluding fair value of other financial instruments, net	(151,020)		(340,002)
Earnings from joint ventures	(165)		—
Deferred income taxes	(147)		85,257
Other	2,180		(4,938)
Benefit from investor reserves	(2,748)		(622)
Foreclosure loss reserve	(2,509)		(833)
Stock-based compensation	4,079		3,000
Changes in operating assets and liabilities:
Origination of mortgage loans held for sale	(7,012,503)		(11,908,191)
Proceeds on sale of and payments from mortgage loans held for sale	6,877,200		13,168,952
Accounts, notes and interest receivable	9,618		44,200
Other assets	6,199		2,208
Mortgage servicing rights	(71,945)		(149,295)
Accounts payable and accrued expenses	(2,329)		(12,351)
Accrued compensation and benefits	3,939		(28,368)
Income taxes	2,225		7,056
Contingent liability payments	—		(5,241)
Operating lease liabilities	(11,579)		(8,028)
Deferred compensation plan liability	(5,262)		4,035
Real estate owned, net	(922)		21
Net cash (used in) provided by operating activities	(315,899)		929,448
Cash flows from investing activities
Acquisition of businesses	(5,480)		—
Origination of reverse mortgage loans held for investment	(34,402)		—

Investments in joint ventures	(854)		—
Issuance of note receivable	(11,250)		—
Proceeds from the sale of property and equipment	3		176
Purchases of property and equipment	(2,426)		(2,546)
Net cash used in investing activities	(54,409)		(2,370)
Cash flows from financing activities
Borrowings on warehouse lines of credit	6,954,199		11,756,682
Repayments on warehouse lines of credit	(6,614,142)		(12,536,045)


Borrowings on MSR notes payable	30,000		—
Repayments on MSR notes payable	(32,500)		(131,250)
Contingent liability payments	—		(7,300)
Net change in notes payable	(530)		(1,261)
Taxes paid related to net share settlement of equity awards	(524)		—
Repurchases of Class A common stock	(1,118)		(1,445)

Net cash provided by (used in) financing activities	335,385		(920,619)
(Decrease) increase in cash, cash equivalents and restricted cash	(34,923)		6,459

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Cash, cash equivalents and restricted cash, beginning of period	146,754		248,120
Cash, cash equivalents and restricted cash, end of period	$	111,831	$	254,579

Cash, cash equivalents and restricted cash at end of period are comprised of the following:
Cash and cash equivalents	$	105,963	$	248,987
Restricted cash	5,868		5,592
Total cash, cash equivalents and restricted cash	$	111,831	$	254,579
Supplemental information
Cash paid for interest, net	$	7,173	$	19,690
Cash paid for income taxes, net of refunds	$	(2,144)	$	(2,068)
Supplemental disclosure of non-cash investing activities:
Measurement period adjustments to goodwill	$	760	$	(1,710)

See accompanying notes to condensed consolidated financial statements

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GUILD HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except as otherwise indicated)

(Unaudited)

NOTE 1 - BUSINESS, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES

Guild Holdings Company, including its consolidated subsidiaries (collectively, “Guild” or the “Company”) originates, sells, and services residential mortgage loans within the United States.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with U.S. generally accepted accounting principles (“GAAP”) applicable to interim financial statements. These unaudited condensed consolidated financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results of the interim period. The condensed consolidated balance sheet data as of December 31, 2022 was derived from audited financial statements but does not include all disclosures required by GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. The Company follows the same accounting policies for preparing quarterly and annual reports.

Principles of Consolidation

The Company's condensed consolidated financial statements include the accounts of the Company, Guild Mortgage Company LLC ("GMC"), and their consolidated subsidiaries and those variable interest entities ("VIE") of which the Company is the primary beneficiary.

Generally, a VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. In determining whether the Company is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of the Company's investment; the obligation or likelihood for the Company or other investors to provide financial support; and the similarity with and significance to the Company's business activities and the business activities of the other investors.

The Company consolidates one VIE. At June 30, 2023, the VIE had immaterial assets and liabilities.

All intercompany accounts and transactions have been eliminated in consolidation.

Investments in Joint Ventures

The Company has investments in joint ventures involved in the mortgage lending business, which are included in other assets in the Condensed Consolidated Balance Sheets. The Company's investments in these joint ventures are accounted for under the equity method of accounting as the Company does not have a majority voting interest, operational control or financial control. As a result, the Company does not recognize the assets and liabilities of these joint ventures in its financial statements. The Company's share of the net earnings or losses of the investee are included in other income, net in the Condensed Consolidated Statements of Income (Loss).

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although management is not currently aware of any factors that would significantly change its estimates and assumptions, actual results could materially differ from those estimates.

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Escrow and Fiduciary Funds

As a loan servicer, the Company maintains segregated bank accounts in trust for investors and escrow balances for mortgagors, which are excluded from the Company’s Condensed Consolidated Balance Sheets. These accounts totaled $899.2 million and $580.2 million at June 30, 2023 and December 31, 2022, respectively.

Reverse Mortgage Loans Held for Investment

In April 2023, the Company acquired certain assets of Cherry Creek Mortgage, LLC ("CCM") (see Note 3 - Acquisitions), which expanded its range of services by offering reverse mortgages to its customers. Reverse mortgage loans are residential mortgage loans for which neither principal nor interest is due until the borrower dies, the home is sold, or other trigger events occur. Reverse mortgage loans can have either fixed interest rates or adjustable interest rates. In the case of most fixed-rate reverse mortgage loans, the borrower must draw the loan proceeds up front in one lump sum, while many adjustable-rate mortgage loans provide the borrower with a line of credit that can be drawn over time.

The Company has elected to measure these loans at fair value, on a recurring basis, with changes in fair value recorded as a charge or credit to gain on reverse mortgage loans held for investment in the Condensed Consolidated Statements of Income (Loss). The reverse mortgage loan activity is included in the Company's origination segment.

Upfront costs and fees related to reverse mortgage loans held for investment, including broker fees, are recognized in gain on reverse mortgage loans held for investment in the Condensed Consolidated Statements of Income (Loss) as incurred and are not capitalized.

Recent Accounting Standards

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"), which provides temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. ASU 2020-04 generally considers contract modifications related to reference rate reform to be an event that does not require contract remeasurement at the modification date nor a reassessment of a previous accounting determination. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies that the practical expedients in ASU 2020-04 apply to derivatives impacted by changes in the interest rate used for margining, discounting, or contract price alignment. The guidance in ASU 2020-04 is optional and may be elected over time, through December 31, 2022, as reference rate reform activities occur. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, to extend the temporary accounting rules from December 31, 2022 to December 31, 2024. Once ASU 2020-04 is elected, the guidance must be applied prospectively for all eligible contract modifications. For contracts to which ASC Topic 470, Debt applies, the Company has applied the optional expedients available from ASU 2020-04 and accounted for the contract modifications related to reference rate reform prospectively. The Company transitioned its funding facilities and financing facilities that utilized LIBOR as the reference rate to alternative reference rates prior to the LIBOR cessation date of June 30, 2023 and there was no material impact on the Company's consolidated financial statements.

NOTE 2 - FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Inputs used to measure fair value are prioritized within a three-level fair value hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The categorization of assets and liabilities measured at fair value within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The three levels of inputs used to measure fair value are as follows:

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•Level One - Level One inputs are unadjusted, quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

•Level Two - Level Two inputs are observable for that asset or liability, either directly or indirectly, and include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, observable inputs for the asset or liability other than quoted prices and inputs derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified contractual term, the inputs must be observable for substantially the full term of the asset or liability.

•Level Three - Level Three inputs are unobservable inputs for the asset or liability that reflect the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, and are developed based on the best information available.

The Company updates the valuation of each instrument recorded at fair value on a monthly or quarterly basis, evaluating all available observable information, which may include current market prices or bids, recent trade activity, changes in the levels of market activity and benchmarking of industry data. The assessment also includes consideration of identifying the valuation approach that would be used currently by market participants. If it is determined that a change in valuation technique or its application is appropriate, or if there are other changes in availability of observable data or market activity, the current methodology will be analyzed to determine if a transfer between levels of the valuation hierarchy is appropriate. Such reclassifications are reported as transfers into or out of a level as of the beginning of the quarter that the change occurs.

Fair value is based on quoted market prices, when available. If quoted prices are not available, fair value is estimated based upon other observable inputs. Unobservable inputs are used when observable inputs are not available and are based upon judgments and assumptions, which are the Company’s assessment of the assumptions market participants would use in pricing the asset or liability. These inputs may include assumptions about risk, counterparty credit quality, the Company’s creditworthiness and liquidity and are developed based on the best information available. When a determination is made to classify an asset or liability within Level Three of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement of the asset or liability. The fair value of assets and liabilities classified within Level Three of the valuation hierarchy also typically includes observable factors and the realized or unrealized gain or loss recorded from the valuation of these instruments would also include amounts determined by observable factors.

Recurring Fair Value Measurements

The Company’s fair value measurements are evaluated within the fair value hierarchy, based on the nature of the inputs used to determine the fair value at the measurement date. At June 30, 2023 and December 31, 2022, the Company had the following assets and liabilities that are measured at fair value on a recurring basis:

Trading Securities — Trading securities are classified within Level One of the valuation hierarchy. Valuation is based upon quoted prices for identical instruments traded in active markets. Level One trading securities include securities traded on active exchange markets, such as the New York Stock Exchange. Trading securities are included within other assets in the Condensed Consolidated Balance Sheets.

Notes Receivable — Notes receivable are classified within Level Three of the valuation hierarchy as the Company's valuation includes significant unobservable inputs, including consideration of estimates of future earn-out payments, discount rates and expectations about settlement.

Derivative Instruments — Derivative instruments are classified within Level Two and Level Three of the valuation hierarchy, and include the following:

Interest Rate Lock Commitments — "IRLCs" are classified within Level Three of the valuation hierarchy. IRLCs represent an agreement to extend credit to a mortgage loan applicant, or an agreement to purchase a loan from a third-party originator, whereby the interest rate on the

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loan is set prior to funding. The fair value of IRLCs is based upon the estimated fair value of the underlying mortgage loan, including the expected net future cash flows related to servicing the mortgage loan, net of estimated incentive compensation expenses, and adjusted for: (i) estimated costs to complete and originate the loan and (ii) an adjustment to reflect the estimated percentage of IRLCs that will result in a closed mortgage loan under the original terms of the agreement (pull-through rate). The pull-through rate is considered a significant unobservable input and is estimated based on changes in pricing and actual borrower behavior using a historical analysis of loan closing and fallout data. The average pull-through rate used to calculate the fair value of IRLCs as of June 30, 2023 and December 31, 2022, was 85.4% and 93.4%, respectively. On a quarterly basis, actual loan pull-through rates are compared to the modeled estimates to confirm the assumptions are reflective of current trends. Generally, a change in interest rates is accompanied by a directionally opposite change in the assumption used for the pull-through percentage, and the impact to fair value of a change in pull-through would be partially offset by the related change in price.

Forward Delivery Commitments — Forward delivery commitments are classified within Level Two of the valuation hierarchy. Forward delivery commitments fix the forward sales price that will be realized upon the sale of mortgage loans into the secondary market. The fair value of forward delivery commitments is primarily based upon the current agency mortgage-backed security market to-be-announced pricing specific to the loan program, delivery coupon and delivery date of the trade. Best efforts sales commitments are also entered into for certain loans at the time the borrower commitment is made. These best-efforts sales commitments are valued using the committed price to the counterparty against the current market price of the IRLC or mortgage loan held for sale.

Option contracts are a type of forward commitment that represents the rights to buy or sell mortgage-backed securities at specified prices in the future. Their value is based upon the underlying current to-be-announced pricing of the agency mortgage-backed security market, and market-based volatility. See Note 6 for additional information on the derivative instruments.

Mortgage Loans Held for Sale — "MLHS" are carried at fair value. The fair value of MLHS is based on secondary market pricing for loans with similar characteristics, and as such, is classified as a Level Two measurement. Fair value is estimated through a market approach by using either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to servicing rights and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. The agency mortgage-backed security market is a highly liquid and active secondary market for conforming conventional loans whereby quoted prices exist for securities at the pass-through level and are published on a regular basis. The Company has the ability to access this market and it is the market into which conforming mortgage loans are typically sold.

Reverse Mortgage Loans Held for Investment — Reverse mortgage loans held for investment are carried at fair value and classified within Level Three of the valuation hierarchy. See Note 9 for additional information on the Company's reverse mortgage loans held for investment.

Mortgage Servicing Rights — "MSRs" are classified within Level Three of the valuation hierarchy due to the use of significant unobservable inputs and the lack of an active market for such assets. The fair value of MSRs is estimated based upon projections of expected future cash flows considering prepayment estimates, the Company’s historical prepayment rates, portfolio characteristics, interest rates based on interest rate yield curves, implied volatility, costs to service and other economic factors. The Company obtains valuations from an independent third party on a monthly basis, and records an adjustment based on this third-party valuation. See Note 7 for additional information on the Company's MSRs.

Investment in Warrants — The Company was a party to a joint marketing agreement with a private independent insurance carrier whereby the Company marketed their products and submitted leads for borrowers needing insurance. In connection with satisfying the conditions set forth under such agreement, the Company received warrants that may be exercised to

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purchase shares of common stock of the private company. The Company’s equity investment in the warrants is carried at its estimated fair value, which was determined using the price per share paid by an investor in an equity sale transaction completed by the private company, resulting in a Level Three classification. The warrants are exercisable until June 2025. The Company’s investment in the warrants will be revalued at each balance sheet date with changes in the fair value reported in other income, net in the Condensed Consolidated Statements of Income (Loss) each reporting period. The Company's investment in warrants is included within other assets in the Condensed Consolidated Balance Sheets.

Contingent Liabilities due to acquisitions — Contingent liabilities represent future obligations of the Company to make payments to the former owners of its acquired companies. The Company determines the fair value of its contingent liabilities using a discounted cash flow approach whereby the Company forecasts the cash outflows related to the future payments, which are based on a percentage of net income specified in the purchase agreements. The Company then discounts these expected payment amounts to calculate the present value, or fair value, as of the valuation date. The Company’s management evaluates the underlying projections used in determining fair value each period and makes updates to these underlying projections.

The Company uses a risk-adjusted discount rate to value the contingent liabilities, which is considered a significant unobservable input, and as such, the liabilities are classified as a Level Three measurement. Management’s underlying projections adjust for market penetration and other economic expectations, and the discount rate is risk-adjusted for key factors such as uncertainty in the mortgage banking industry due to its reliance on external influences (interest rates, regulatory changes, etc.), upfront payments, and credit risk. An increase in the discount rate will result in a decrease in the fair value of the contingent liabilities. Conversely, a decrease in the discount rate will result in an increase in the fair value of the contingent liabilities. At June 30, 2023 and December 31, 2022 the range of the risk adjusted discount rate was 10.1% - 25.0%, with a median of 25.0%, and 14.5% - 25.0%, with a median of 15.0%, respectively. Adjustments to the fair value of the contingent liabilities (other than payments) are recorded as a gain or loss and are included within general and administrative expenses in the Condensed Consolidated Statements of Income (Loss).

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2023:


Description	Level 1		Level 2		Level 3		Total
Assets:
Trading securities	$	84	$	—	$	—	$	84
Notes receivable	—		—		9,824		9,824
Derivative
Forward delivery commitments and best efforts sales commitments	—		8,089		—		8,089
Interest rate lock commitments	—		—		5,613		5,613
Mortgage loans held for sale	—		1,125,992		—		1,125,992
Reverse mortgage loans held for investment	—		—		36,709		36,709
Mortgage servicing rights	—		—		1,184,503		1,184,503
Investment in warrants	—		—		961		961
Total assets at fair value	$	84	$	1,134,081	$	1,237,610	$	2,371,775
Liabilities:





Contingent liabilities due to acquisitions	$	—	$	—	$	7,793	$	7,793
Total liabilities at fair value	$	—	$	—	$	7,793	$	7,793

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The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2022:


Description	Level 1		Level 2		Level 3		Total
Assets:
Trading securities	$	96	$	—	$	—	$	96
Derivative
Forward delivery commitments	—		1,602		—		1,602
Interest rate lock commitments	—		—		1,518		1,518
Mortgage loans held for sale	—		845,775		—		845,775
Mortgage servicing rights	—		—		1,139,539		1,139,539
Investment in warrants	—		—		961		961
Total assets at fair value	$	96	$	847,377	$	1,142,018	$	1,989,491
Liabilities:
Derivative
Forward delivery commitments and best efforts sales commitments	$	—	$	5,173	$	—	$	5,173
Contingent liabilities due to acquisitions	—		—		526		526
Total liabilities at fair value	$	—	$	5,173	$	526	$	5,699

The table below presents a reconciliation of certain Level Three assets and liabilities measured at fair value on a recurring basis for the three and six months ended June 30, 2023 and 2022:


	IRLCs		Contingent Liabilities		Note Receivable
Balance at March 31, 2023	$	12,206	$	2,218	$	11,250
Net transfers and revaluation losses	(6,593)		—		—
Additions	—		4,401		—
Valuation adjustments	—		1,174		(1,426)
Balance at June 30, 2023	$	5,613	$	7,793	$	9,824

Balance at December 31, 2022	$	1,518	$	526	$	—
Net transfers and revaluation gains	4,095		—		—
Additions	—		6,103		11,250
Valuation adjustments	—		1,164		(1,426)
Balance at June 30, 2023	$	5,613	$	7,793	$	9,824

Balance at March 31, 2022	$	(11,851)	$	20,438	$	—
Net transfers and revaluation losses	26,451		—		—
Payments	—		(2,370)		—
Valuation adjustments	—		(16,511)
Balance at June 30, 2022	$	14,600	$	1,557	$	—

Balance at December 31, 2021	$	22,119	$	59,500	$	—
Net transfers and revaluation losses	(7,519)		—		—
Payments	—		(12,541)		—

Valuation adjustments	—		(45,402)
Balance at June 30, 2022	$	14,600	$	1,557	$	—

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Changes in the availability of observable inputs may result in reclassifications of certain assets or liabilities. Such reclassifications are reported as transfers in or out of Level Three as of the beginning of the period that the change occurs. There were no transfers between fair value levels during the three and six months ended June 30, 2023 and 2022.

Non-Recurring Fair Value Measurements

Certain assets and liabilities that are not typically measured at fair value on a recurring basis may be subject to fair value measurement requirements under certain circumstances. These adjustments to fair value usually result from write-downs of individual assets. At June 30, 2023 and December 31, 2022, the Company had the following financial assets measured at fair value on a non-recurring basis:

Ginnie Mae Loans subject to Repurchase Right — Government National Mortgage Association ("GNMA" or "Ginnie Mae") securitization programs allow servicers to buy back individual delinquent mortgage loans from the securitized loan pool once certain conditions are met. If a borrower makes no payment for three consecutive months, the servicer has the option to repurchase the delinquent loan for an amount equal to 100% of the loan’s remaining principal balance. Under ASC 860, Transfers and Servicing, this buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option becomes unconditional. The Company records these assets and liabilities at their fair value, which is determined to be the remaining unpaid principal balance ("UPB"). The Company’s future expected realizable cash flows are the cash payments of the remaining UPB whether paid by the borrower or reimbursed through a claim filed with HUD. The Company considers the fair value of these assets and liabilities to fall into the Level Two bucket in the valuation hierarchy due to the assets and liabilities having specified contractual terms and the inputs are observable for substantially the full term of the assets' and liabilities' lives.

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a non-recurring basis at June 30, 2023:


Description	Level 1		Level 2		Level 3		Total
Assets:
Ginnie Mae loans subject to repurchase right	$	—	$	598,634	$	—	$	598,634
Total assets at fair value	$	—	$	598,634	$	—	$	598,634
Liabilities:
Ginnie Mae loans subject to repurchase right	$	—	$	598,879	$	—	$	598,879
Total liabilities at fair value	$	—	$	598,879	$	—	$	598,879

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a non-recurring basis at December 31, 2022:


Description	Level 1		Level 2		Level 3		Total
Assets:
Ginnie Mae loans subject to repurchase right	$	—	$	650,179	$	—	$	650,179
Total assets at fair value	$	—	$	650,179	$	—	$	650,179
Liabilities:
Ginnie Mae loans subject to repurchase right	$	—	$	650,179	$	—	$	650,179
Total liabilities at fair value	$	—	$	650,179	$	—	$	650,179

Fair Value Option

The following is the estimated fair value and UPB of MLHS that have contractual principal amounts and for which the Company has elected the fair value option. The fair value option was elected for MLHS as the Company believes fair value best reflects their expected future economic

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performance:


	Fair Value		Principal Amount Due Upon Maturity		Difference (1)
Balance at June 30, 2023	$	1,125,992	$	1,155,240	$	(29,248)
Balance at December 31, 2022	$	845,775	$	868,833	$	(23,058)

_______________________________

(1)Represents the amount of losses included in loan origination fees and gain on sale of loans, net due to changes in fair value of items accounted for using the fair value option.

NOTE 3 - ACQUISITIONS

Cherry Creek Mortgage, LLC.

On April 3, 2023, the Company acquired substantially all the assets of Cherry Creek Mortgage, LLC. (“CCM”) under the terms of an asset purchase agreement to expand the Company’s operations throughout the United States. The total fair value of consideration transferred was $8.3 million, which consisted of $2.6 million of cash, contingent consideration of $4.4 million and an original issuance discount on note receivable of $1.3 million. The note receivable issued to CCM in March 2023 represents advances made to CCM (see Note 4 for additional information on the note receivable).

CCM is entitled to earn-out payments for four years based on certain performance criteria. There is no guarantee CCM will achieve any earn-out payments during the earn-out period. Earn-out payments will be first allocated to repay the principal and accrued interest on the note receivable.

The acquisition has been accounted for as a business combination, under which the total purchase price is allocated to the net tangible and intangible assets and liabilities of CCM acquired in connection with the acquisition based on their preliminary fair values and are subject to change during the measurement period. Of the $8.3 million purchase price, we allocated $5.6 million to net assets and $2.7 million to goodwill. The goodwill resulting from the purchase price allocation reflects the expected synergistic benefits of expanding our geographic locations and the existing workforce. The acquired goodwill was allocated to the Origination segment and is deductible for tax purposes.

Legacy Mortgage, LLC

On February 13, 2023, the Company, acquired certain assets of Legacy Mortgage, LLC (“Legacy”) under the terms of an asset purchase agreement to expand the Company’s operations in the Southwest region. The total fair value of consideration transferred was $5.0 million, which consisted of $3.3 million of cash and contingent consideration of $1.7 million.

Legacy is entitled to earn-out payments based on certain performance criteria for three years. The fair value of the earn-out payments on the acquisition date was $1.7 million.

The acquisition has been accounted for as a business combination, under which the total purchase price is allocated to the net tangible and intangible assets and liabilities of Legacy acquired in connection with the acquisition based on their preliminary fair values and are subject to change during the measurement period. Of the $5.0 million purchase price, the Company allocated $0.4 million to net assets and $4.6 million to goodwill. The goodwill resulting from the purchase price allocation reflects the expected synergistic benefits of expanding the Company's geographic locations and the existing workforce. The acquired goodwill was allocated to the Origination segment and is deductible for tax purposes.

The results of CCM and Legacy are included in the Company’s condensed consolidated financial statements since the date of the acquisitions and did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures. Transaction costs associated with these transactions were not material and were expensed as incurred within general and administrative expenses in the Condensed Consolidated Statements of Income (Loss).

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NOTE 4 - ACCOUNTS, NOTES AND INTEREST RECEIVABLE

Accounts, notes and interest receivable consisted of the following:


	June 30, 2023		December 31, 2022
Trust advances	$	25,045	$	44,164
Foreclosure advances, net	13,792		12,320
Receivables related to loan sales	4,219		562
Notes receivable	9,844		—
Accrued interest - notes receivable	313		—
Other	11,822		1,258
Total accounts, notes and interest receivable	$	65,035	$	58,304

Management has established a foreclosure reserve for estimated uncollectible balances of the foreclosure and trust advances. Management believes that substantially all other accounts, notes and interest receivable amounts are collectible and, accordingly, no allowance for doubtful accounts is necessary.

The activity of the foreclosure loss reserve was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Balance — beginning of period	$	8,665	$	10,271	$	8,698	$	10,355
Utilization of foreclosure reserve	(962)		(1,070)		(2,509)		(833)
(Reversal of) provision for foreclosure losses	(1,044)		1,796		470		1,475
Balance — end of period	$	6,659	$	10,997	$	6,659	$	10,997

Notes Receivable

In March 2023, the Company issued a note receivable to CCM in the amount of $11.3 million in connection with the acquisition of CCM, which closed in April 2023. The Company recognized a discount on the note receivable of approximately $1.3 million on the date the acquisition closed. The note bears interest at a variable rate tied to the Secured Overnight Financing Rate ("SOFR") plus an applicable margin. Also, pursuant to the acquisition, CCM will be entitled to earn-out payments for four years based on certain performance criteria. The earn-out payments will be first allocated to repay the interest and principal due on the note receivable. The note receivable matures in April 2027. If an earn-out payment is not due to CCM, 50% of the interest payment may be "paid-in-kind", and thereby added to the principal balance.

NOTE 5 - OTHER ASSETS

Other assets consisted of the following:


	June 30, 2023		December 31, 2022
Prepaid expenses	$	25,431	$	31,499
Company owned life insurance	40,237		37,871
Property and equipment, net	13,750		12,118
Right-of-use assets	73,133		74,660
Income tax receivable	24,306		26,531
Real estate owned	1,472		306
Land	1,969		2,034
Trading securities	84		96
Investments in joint ventures, net	896		—
Investment in warrants	961		961
Total other assets	$	182,239	$	186,076

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Property and equipment, net consisted of the following:


	June 30, 2023		December 31, 2022
Computer equipment	$	30,543	$	29,447
Furniture and equipment	25,725		25,072
Leasehold improvements	19,624		18,713
Internal-use software in production	1,998		772
Internal-use software	11,448		10,357
Property and equipment, gross	89,338		84,361
Accumulated depreciation	(75,588)		(72,243)
Property and equipment, net	$	13,750	$	12,118

Depreciation and amortization expense for property and equipment was $1.7 million and $1.8 million for the three months ended June 30, 2023 and 2022, respectively, and $3.4 million and $3.7 million for the six months ended June 30, 2023 and 2022, respectively.

NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses forward commitments in hedging the interest rate risk exposure on its fixed and adjustable rate commitments. The Company’s derivative instruments are not designated as hedging instruments for accounting purposes; therefore, changes in fair value are recognized in current period earnings. Realized and unrealized gains and losses from the Company's non-designated derivative instruments are included in loan origination fees and gain on sale of loans, net in the Condensed Consolidated Statements of Income (Loss).

Changes in the fair value of the Company's derivative financial instruments are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Unrealized hedging gains (losses)	$	9,703	$	(46,957)	$	15,755	$	(6,924)

Notional and Fair Value

The notional and fair value of derivative financial instruments not designated as hedging instruments were as follows at June 30, 2023 and December 31, 2022:


			Fair Value
	Notional Value		Derivative Asset		Derivative Liability
Balance at June 30, 2023
IRLCs	$	1,338,917	$	5,613	$	—
Forward delivery commitments and best efforts sales commitments	$	1,621,954	$	8,089	$	—

Balance at December 31, 2022
IRLCs	$	810,514	$	1,518	$	—
Forward delivery commitments and best efforts sales commitments	$	1,127,154	$	1,602	$	5,173

The Company had an additional $273.7 million and $256.3 million of outstanding forward contracts and mandatory sell commitments, comprised of closed loans with equal and offsetting UPB amounts allocated to them, at June 30, 2023 and December 31, 2022, respectively. The Company also had $325.0 million and $470.8 million in closed hedge instruments not yet settled at June 30, 2023 and December 31, 2022, respectively. See Note 2 for fair value disclosure of the derivative instruments.

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The following table presents the quantitative information about IRLCs and the fair value measurements:


	June 30, 2023	December 31, 2022
Unobservable Input	Range (Weighted Average)
Loan funding probability (“pull-through”)	0% -100% (85.4%)	0% - 100% (93.4%)

Counterparty agreements for forward commitments contain master netting agreements. The master netting agreements contain a legal right to offset amounts due to and from the same counterparty. The Company incurred no credit losses due to nonperformance of any of its counterparties during the three and six months ended June 30, 2023 and 2022.

The table below represents financial assets and liabilities that are subject to master netting arrangements categorized by financial instrument:


	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts Offset in the Balance Sheet		Net Amounts of Recognized Assets (Liabilities) in the Balance Sheet
June 30, 2023
Forward delivery commitments and best efforts sales commitments	$	8,352	$	(263)	$	8,089
Total assets	$	8,352	$	(263)	$	8,089





December 31, 2022
Forward delivery commitments	$	1,887	$	(285)	$	1,602
Total assets	$	1,887	$	(285)	$	1,602

Forward delivery commitments and best efforts sales commitments	$	(11,399)	$	4,959	$	(6,440)
Margin calls	1,267		—		1,267
Total liabilities	$	(10,132)	$	4,959	$	(5,173)

NOTE 7 - MORTGAGE SERVICING RIGHTS

The activity of mortgage servicing rights was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Balance — beginning of period	$	1,112,161	$	937,556	$	1,139,539	$	675,340
MSRs originated	44,452		71,680		71,945		149,295
Changes in fair value:
Due to collection/realization of cash flows	(15,890)		(25,827)		(27,060)		(50,721)
Due to changes in valuation model inputs or assumptions	43,780		46,901		79		256,396
Balance — end of period	$	1,184,503	$	1,030,310	$	1,184,503	$	1,030,310

The following table presents the weighted average discount rate, prepayment speed and cost to service assumptions used to determine the fair value of MSRs:

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	June 30, 2023	December 31, 2022
Unobservable Input	Range (Weighted Average)
Discount rate	9.6% - 15.6% (10.7%)	9.6% - 15.7% (10.6%)
Prepayment rate	6.5% - 27.6% (7.9%)	6.6% - 28.6% (7.5%)
Cost to service (per loan)	$72.0 - $273.4 ($91.8)	$66.7 - $330.4 ($92.0)

At June 30, 2023 and December 31, 2022, the MSRs had a weighted average life of approximately 8.3 years and 8.5 years, respectively. See Note 2 for additional information regarding the valuation of MSRs.

Actual revenue generated from servicing activities included contractually specified servicing fees, as well as late fees and other ancillary servicing revenue, which were recorded within loan servicing and other fees as follows for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Servicing fees from servicing portfolio	$	59,410	$	53,368	$	118,390	$	104,932
Late fees	1,619		1,368		3,287		2,883
Other ancillary servicing revenue and fees	(818)		(141)		(1,379)		(43)
Total loan servicing and other fees	$	60,211	$	54,595	$	120,298	$	107,772

At June 30, 2023 and December 31, 2022, the UPB of mortgage loans serviced totaled $82.0 billion and $78.9 billion, respectively. Conforming conventional loans serviced by the Company are sold to the Federal National Mortgage Association ("FNMA" or "Fannie Mae") or the Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") programs on a nonrecourse basis, whereby foreclosure losses are generally the responsibility of FNMA and FHLMC and not the Company. Similarly, certain loans serviced by the Company are secured through GNMA programs, whereby the Company is insured against loss by the Federal Housing Association ("FHA") or partially guaranteed against loss by the Department of Veterans Affairs ("VA").

The key assumptions used to estimate the fair value of MSRs are prepayment speeds, the discount rate and costs to service. Increases in prepayment speeds generally have an adverse effect on the value of MSRs as the underlying loans prepay faster. In a declining interest rate environment, the fair value of MSRs generally decreases as prepayments increase and therefore, the estimated life of the MSRs and related cash flows decrease. Decreases in prepayment speeds generally have a positive effect on the value of MSRs as the underlying loans prepay less frequently. In a rising interest rate environment, the fair value of MSRs generally increases as prepayments decrease and therefore, the estimated life of the MSRs and related cash flows increase. Increases in the discount rate generally have an adverse effect on the value of the MSRs. The discount rate is risk adjusted for key factors such as uncertainty in the mortgage banking industry due to its reliance on external influences (interest rates, regulatory changes, etc.), premium for market liquidity, and credit risk. A higher discount rate would indicate higher uncertainty of the future cash flows. Conversely, decreases in the discount rate generally have a positive effect on the value of the MSRs. Increases in the costs to service generally have an adverse effect on the value of the MSRs as an increase in costs to service would reduce the Company’s future net cash inflows from servicing a loan. Conversely, decreases in the costs to service generally have a positive effect on the value of the MSRs. MSR uncertainties are hypothetical and do not always have a direct correlation with each assumption. Changes in one assumption may result in changes to another assumption, which might magnify or counteract the uncertainties.

Table of Contents 1

The following table illustrates the impact of adverse changes on the prepayment speeds, discount rate and cost to service at two different data points at June 30, 2023 and December 31, 2022, respectively:


	Prepayment Speeds				Discount Rate				Cost to Service (per loan)
	10% Adverse Change		20% Adverse Change		10% Adverse Change		20% Adverse Change		10% Adverse Change		20% Adverse Change
June 30, 2023
Mortgage servicing rights	$	(37,298)	$	(72,947)	$	(50,152)	$	(96,983)	$	(11,744)	$	(23,777)
December 31, 2022
Mortgage servicing rights	$	(36,298)	$	(70,878)	$	(50,392)	$	(96,848)	$	(11,880)	$	(24,162)

NOTE 8 - MORTGAGE LOANS HELD FOR SALE

The Company sells substantially all of its originated mortgage loans into the secondary market. The Company may retain the right to service some of these loans upon sale through ownership of servicing rights. A reconciliation of the changes in mortgage loans held for sale to the amounts presented in the Condensed Consolidated Statements of Cash Flows is set forth below:


	Six Months Ended June 30,
	2023		2022
Balance at the beginning of period	$	845,775	$	2,204,216
Origination of mortgage loans held for sale	7,012,503		11,908,191
Proceeds on sale of and payments from mortgage loans held for sale	(6,877,200)		(13,168,952)

Gain on sale of mortgage loans excluding fair value of other financial instruments, net	151,020		340,002
Valuation adjustment of mortgage loans held for sale	(6,106)		(33,648)
Balance at the end of period	$	1,125,992	$	1,249,809

At June 30, 2023, mortgage loans held for sale included UPB of the underlying loans of $1.2 billion and had a fair value of $1.1 billion. At December 31, 2022, mortgage loans held for sale included UPB of the underlying loans of $868.8 million and had a fair value of $845.8 million.

NOTE 9 - REVERSE MORTGAGE LOANS HELD FOR INVESTMENT


	Three and Six Months Ended June 30, 2023
Beginning balance	$	—
Originations	34,192

Additional funding	211





Fair value gain recognized in earnings(1)	2,306
Ending balance	$	36,709


Unsecuritized loans	$	36,709
Total	$	36,709

______________________________

(1)See further breakdown in the table below

Table of Contents 1

Gain on Reverse Mortgage Loans Held for Investment


	Three and Six Months Ended June 30, 2023


Change in fair value of reverse mortgage loans held for investment	$	2,306
Fair value gain recognized in earnings	2,306

Gain on reverse mortgage loans held for investment	$	2,306

NOTE 10 - INVESTOR RESERVES

The Company’s estimate of the investor reserves considers the current macro-economic environment and recent repurchase trends; however, if the Company experiences a prolonged period of higher repurchase and indemnification activity, then the realized losses from loan repurchases and indemnifications may ultimately be in excess of the liability. The maximum exposure under the Company’s representations and warranties would be the outstanding principal balance and any premium received on all loans ever sold by the Company, less any loans that have already been paid in full by the mortgagee, that have defaulted without a breach of representations and warranties, that have been indemnified via settlement or make-whole, or that have been repurchased. Additionally, the Company may receive relief of certain representations and warranty obligations on loans sold to FNMA or FHLMC on or after January 1, 2013 if FNMA or FHLMC satisfactorily concludes a quality control loan file review or if the borrower meets certain acceptable payment history requirements within 12 or 36 months after the loan is sold to FNMA or FHLMC. The activity of the investor reserves was as follows:


	Three Months Ended June 30,			Six Months Ended June 30,
	2023		2022	2023	2022
Balance — beginning of period	$	16,671

Guild Holdings Co [GHLD] Filings
10-Q	[2023-08-07]
10-Q	[2023-05-09]
10-K	[2023-03-13]
10-Q	[2022-11-07]
10-Q	[2022-08-08]
10-Q	[2022-05-09]
10-K	[2022-03-14]
S-1	[2021-12-22]
10-Q	[2021-11-12]
10-Q	[2021-08-13]
10-Q	[2021-05-12]
10-K	[2021-03-24]
10-Q	[2020-12-04]
S-1	[2020-10-01]