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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to _____
Commission File Number: 001-40003

loanDepot, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 85-3948939
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
6561 Irvine Center Drive,
Irvine,California 92618
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (888) 337-6888
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol
Name of each exchange
on which registered
Class A Common Stock, $0.001 per value per shareLDIThe 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 ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☒
  Emerging growth company☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 5, 2024, 88,134,396 shares of the registrant’s Class A common stock, par value $0.001 per share, were outstanding. No shares of registrant’s Class B common stock were outstanding, 139,992,967 shares of registrant’s Class C common stock were outstanding and 97,026,671 shares of registrant’s Class D common stock were outstanding.
 



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. These forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and may contain the words “believe,” “anticipate,” “expect,” “intend,” “plan,” “predict,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” or other similar words and phrases or future or conditional verbs such as “will,” “may,” “might,” “should,” “would,” or “could” and the negatives of those terms. Examples of forward-looking statements include, but are not limited to: information concerning our possible or assumed future results of operations, business strategies, technology developments, financing and investment plans, financial condition and liquidity, dividend policy, competitive position, industry and regulatory environment, potential growth opportunities, the effects of competition, and the impact of the cybersecurity incident that occurred in the first quarter of 2024.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. You should read this report with the understanding that our actual future results may be materially different from what we expect.

Important factors that could cause actual results to differ materially from our expectations are included in Part I, Item 2 “Management's Discussion and Analysis of Financial Condition and Results of Operations” in this report as well as Part I, Item 1A “Risk Factors” and Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on March 15, 2024.

Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.




loanDepot, Inc.

Table of Contents

PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023
Consolidated Statements of Operations for the three and six months ended June 30, 2024 and 2023
Consolidated Statements of Equity for the three and six months ended June 30, 2024 and 2023
Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023
Notes to Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
Signatures




PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
loanDepot, Inc.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30,
2024		December 31,
2023
ASSETS(Unaudited)
Cash and cash equivalents$533,153 $660,707 
Restricted cash98,057 85,149 
Loans held for sale, at fair value (includes $495,731 and $510,080 pledged to creditors in securitization trusts at June 30, 2024 and December 31, 2023, respectively)
2,377,987 2,132,880 
Loans held for investment, at fair value (pledged to creditors in a securitization trust)
120,287 — 
Derivative assets, at fair value59,779 93,574 
Servicing rights, at fair value (includes $596,140 and $617,878 pledged to creditors in securitization trusts at June 30, 2024 and December 31, 2023, respectively)
1,583,128 1,999,763 
Trading securities, at fair value89,477 92,901 
Property and equipment, net64,631 70,809 
Operating lease right-of-use assets24,549 29,433 
Loans eligible for repurchase740,238 711,371 
Investments in joint ventures17,905 20,363 
Other assets
233,586 254,098 
Total assets$5,942,777 $6,151,048 
LIABILITIES AND EQUITY
Warehouse and other lines of credit$2,213,128 $1,947,057 
Accounts payable, accrued expenses and other liabilities375,319 379,971 
Derivative liabilities, at fair value17,856 84,962 
Liability for loans eligible for repurchase740,238 711,371 
Operating lease liability41,896 49,192 
Debt obligations, net1,975,402 2,274,011 
Total liabilities5,363,839 5,446,564 
Commitments and contingencies (Note 15)
Class A common stock, $0.001 par value, 2,500,000,000 authorized, 89,986,725 and 87,377,147 issued at June 30, 2024 and December 31, 2023, respectively
$90 $87 
Class B common stock, $0.001 par value, 2,500,000,000 authorized, none issued at June 30, 2024 and December 31, 2023, respectively
— — 
Class C common stock, $0.001 par value, 2,500,000,000 authorized, 141,540,233 and 141,234,529 issued at June 30, 2024 and December 31, 2023, respectively
142 141 
Class D common stock, $0.001 par value, 2,500,000,000 authorized, 97,026,671 and 97,026,671 issued at June 30, 2024 and December 31, 2023, respectively
97 97 
Preferred stock, $0.001 par value, 50,000,000 authorized, none issued at June 30, 2024 and December 31, 2023, respectively
— — 
Treasury stock at cost, 4,003,915 and 3,349,395 shares at June 30, 2024 and December 31, 2023, respectively
(17,488)(16,493)
Additional paid-in capital830,706 821,055 
Retained deficit
(518,214)(451,706)
Noncontrolling interest283,605 351,303 
Total equity578,938 704,484 
Total liabilities and equity$5,942,777 $6,151,048 
See accompanying notes to the unaudited consolidated financial statements.

1

loanDepot, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
(Unaudited)


Three Months Ended
June 30,		Six Months Ended
June 30,
2024202320242023
REVENUES:
Interest income$35,052 $33,060 $65,977 $61,017 
Interest expense(35,683)(32,001)(67,349)(59,689)
Net interest (expense) income
(631)1,059 (1,372)1,328 
Gain on origination and sale of loans, net166,920 154,335 282,981 262,487 
Origination income, net19,494 18,332 33,099 30,349 
Servicing fee income125,082 119,529 249,140 239,418 
Change in fair value of servicing rights, net(60,787)(38,474)(106,056)(91,280)
Other income15,312 17,052 30,383 37,432 
Total net revenues265,390 271,833 488,175 479,734 
EXPENSES:
Personnel expense141,036 157,799 275,354 298,826 
Marketing and advertising expense31,175 34,712 59,529 70,626 
Direct origination expense21,550 17,224 39,721 34,603 
General and administrative expense73,160 54,817 130,905 110,951 
Occupancy expense5,204 6,099 10,314 12,180 
Depreciation and amortization8,955 10,721 18,398 20,747 
Servicing expense8,467 5,750 16,728 10,583 
Other interest expense53,000 43,026 99,547 86,116 
Total expenses342,547 330,148 650,496 644,632 
Loss before income taxes
(77,157)(58,315)(162,321)(164,898)
Income tax benefit
(11,304)(8,556)(24,964)(23,418)
Net loss
(65,853)(49,759)(137,357)(141,480)
Net loss attributable to noncontrolling interests
(33,642)(26,316)(70,891)(75,130)
Net loss attributable to loanDepot, Inc.
$(32,211)$(23,443)$(66,466)$(66,350)
Loss per share:
Basic$(0.18)$(0.13)$(0.37)$(0.38)
Diluted$(0.18)$(0.13)$(0.37)$(0.38)
Weighted average shares outstanding:
Basic182,324,046 173,908,030 181,863,195 172,358,924 
Diluted182,324,046 173,908,030 181,863,195 172,358,924 

See accompanying notes to the unaudited consolidated financial statements.

2

loanDepot, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands)
(Unaudited)
Common stock outstandingCommon stock $Treasury SharesAdditional paid-in capitalRetained DeficitNon-controlling InterestsTotal Equity
Class AClass CClass DClass AClass CClass D
Balance at March 31, 202375,101,170 144,983,025 97,026,671 $77 $145 $97 $(13,853)$802,251 $(384,843)$437,288 $841,162 
Conversion-related deferred taxes and adjustments— — — — — — — 1,485 — — 1,485 
Net common stock issued under stock-based compensation plans2,886,220 (956,586)— 4 (1)— (1,471)5,733 — (5,736)(1,471)
Forfeiture of dividend equivalents on unvested Class A RSUs— — — — — — — — 119 151 270 
Stock-based compensation— — — — — — — 3,145 — 2,608 5,753 
Distributions for taxes on behalf of shareholders, net— — — — — — — — (53)(43)(96)
Net loss
— — — — — — — — (23,443)(26,316)(49,759)
Balance at June 30, 202377,987,390 144,026,439 97,026,671 $81 $144 $97 $(15,324)$812,614 $(408,220)$407,952 $797,344 
Balance at March 31, 202484,736,834 141,499,389 97,026,671 $88 $142 $97 $(16,916)$824,245 $(486,054)$315,740 $637,342 
Conversion-related deferred taxes and adjustments— — — — — — — 2,028 — — 2,028 
Net common stock issued under stock-based compensation plans1,245,976 40,844 — 2 — — (572)1,112 — (1,114)(572)
Forfeiture of accrued distributions on unvested Class C shares— — — — — — — — 3 5 8 
Stock-based compensation— — — — — — — 3,321 — 2,577 5,898 
Distributions for taxes on behalf of shareholders, net— — — — — — — — 48 39 87 
Net loss
— — — — — — — — (32,211)(33,642)(65,853)
Balance at June 30, 202485,982,810 141,540,233 97,026,671 $90 $142 $97 $(17,488)$830,706 $(518,214)$283,605 $578,938 

See accompanying notes to the unaudited consolidated financial statements.

3


loanDepot, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands)
(Unaudited)
Common stock outstandingCommon stock $Treasury StockAdditional paid-in capitalRetained DeficitNon-controlling InterestsTotal Equity
Class AClass CClass DClass AClass CClass D
Balance at December 31, 202272,497,011 145,693,119 97,026,671 $74 $146 $97 $(13,282)$788,601 $(342,137)$487,974 $921,473 
Conversion-related deferred taxes and adjustments— — — — — — — 6,666 — — 6,666 
Net common stock issued under stock-based compensation plans5,490,379 (1,666,680)— 7 (2)— (2,042)10,999 — (10,503)(1,541)
Dividends to Class A and Class D shareholders ($0.00 per share)
— — — — — — — — 129 163 292 
Stock-based compensation— — — — — — — 6,348 5,330 11,678 
Distributions for taxes on behalf of shareholders, net— — — — — — — 138 118 256 
Net loss
— — — — — — — (66,350)(75,130)(141,480)
Balance at June 30, 202377,987,390 144,026,439 97,026,671 $81 $144 $97 $(15,324)$812,614 $(408,220)$407,952 $797,344 
Balance at December 31, 202384,027,752 141,234,529 97,026,671 $87 $141 $97 $(16,493)$821,055 $(451,706)$351,303 $704,484 
Conversion-related deferred taxes and adjustments— — — — — — — 2,120 — — 2,120 
Net common stock issued under stock-based compensation plans1,955,058 305,704 — 3 1 — (995)1,481 — (1,484)(994)
Forfeiture of dividend equivalents on unvested Class A RSUs
— — — — — — — — 4 5 9 
Forfeiture of accrued distributions on unvested Class C shares— — — — — — — — 6 9 15 
Stock-based compensation— — — — — — — 6,050 — 4,703 10,753 
Distributions for taxes on behalf of shareholders, net— — — — — — — — (52)(40)(92)
Net loss
— — — — — — — — (66,466)(70,891)(137,357)
Balance at June 30, 202485,982,810 141,540,233 97,026,671 $90 $142 $97 $(17,488)$830,706 $(518,214)$283,605 $578,938 
See accompanying notes to the unaudited consolidated financial statements.

4

loanDepot, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)



Six Months Ended
June 30,
20242023
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$(137,357)$(141,480)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Depreciation and amortization expense18,398 20,747 
Amortization of operating lease right-of-use asset5,046 6,788 
Amortization of debt discount and debt issuance costs
6,124 3,430 
Gain on origination and sale of loans(221,912)(187,050)
Fair value change in trading securities587 (1,671)
(Benefit) provision for loss obligation on sold loans and servicing rights
(3,051)12,152 
Decrease in provision for deferred income taxes(24,964)(22,993)
Fair value change in derivative assets56,252 (596)
Fair value change in derivative liabilities(67,106)(58,702)
Premium paid on derivatives(22,457)(40,375)
Fair value change in loans held for sale4,291 (24,430)
Fair value change in loans held for investment
321 — 
Fair value change in servicing rights38,434 64,341 
Stock-based compensation expense10,753 11,679 
Originations of loans(10,481,454)(11,091,542)
Proceeds from sales of loans10,323,131 11,481,093 
Proceeds from principal payments181,587 46,785 
Payments to investors for loan repurchases(291,372)(273,143)
Loss (gain) on extinguishment of debt
5,680 (39)
Disbursements from joint ventures5,992 7,396 
Changes in operating assets and liabilities:
Other changes in operating assets and liabilities36,263 55,529 
Net cash used in operating activities
(556,814)(132,081)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment(12,191)(11,547)
Proceeds from sale of servicing rights495,312 97,193 
Cash flows received on trading securities2,837 2,472 
Proceeds from principal payments on loans held for investment
1,924 — 
Return of capital from joint ventures245 — 
Net cash flows provided by investing activities
488,127 88,118 

See accompanying notes to the unaudited consolidated financial statements.

5

loanDepot, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Dollars in thousands)
(Unaudited)

Six Months Ended
June 30,
20242023
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings on warehouse and other lines of credit$9,837,177 $10,255,564 
Repayment of borrowings on warehouse and other lines of credit(9,571,106)(10,355,959)
Proceeds from debt obligations1,015,251 197,949 
Payments on debt obligations(1,314,083)(249,248)
Payments of debt issuance costs(10,829)(761)
Treasury stock purchased to net settle and withhold taxes on vested shares(995)(2,042)
Dividends and shareholder distributions(1,374)(1,674)
Net cash used in financing activities
(45,959)(156,171)
Net change in cash and cash equivalents and restricted cash(114,646)(200,134)
Cash and cash equivalents and restricted cash at beginning of the period745,856 980,501 
Cash and cash equivalents and restricted cash at end of the period
$631,210 $780,367 
SUPPLEMENTAL DISCLOSURES:
Cash paid (received) during the period for:
Interest$152,270 $162,138 
Income taxes(4)(3,525)
Supplemental disclosure of noncash investing and financing activities
Loans transferred from held for sale to held for investment
$122,532 $— 
Operating leases right-of-use assets obtained in exchange for lease liabilities1,356 5,501 


See accompanying notes to the unaudited consolidated financial statements.

6

loanDepot, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ are in thousands, except per share amounts, or unless otherwise indicated)
(Unaudited)


NOTE 1 – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements were prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation were included. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report of loanDepot, Inc. on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”).

Nature of Operations

loanDepot, Inc. (together with its consolidated subsidiaries, the “Company”) was incorporated in Delaware on November 6, 2020 to facilitate the initial public offering (“IPO”) of its Class A common stock and related transactions in order to carry on the business of LD Holdings Group LLC (“LD Holdings”) and its consolidated subsidiaries. loanDepot, Inc.’s common stock began trading on the New York Stock Exchange on February 11, 2021 under the ticker symbol “LDI.” loanDepot, Inc. is a holding company and its sole material asset is its equity interest in LD Holdings.

The Company engages in the originating, financing, selling, and servicing of residential mortgage loans, and engages in title, escrow, and settlement services for mortgage loan transactions. The Company derives income primarily from gains on the origination and sale of loans to investors, from loan servicing, and from fees charged for settlement services related to the origination and sale of loans.

Cybersecurity Incident
On January 8, 2024, the Company announced that it identified a cybersecurity incident that affected certain of the Company’s systems (the “Cybersecurity Incident”). Upon detecting unauthorized activity, the Company promptly took steps to contain and remediate the Cybersecurity Incident and initiated an investigation. The Cybersecurity Incident has now been contained. Based on the Company’s investigation findings to date, during the Cybersecurity Incident, an unauthorized third party gained access to certain sensitive personal information of approximately 16.9 million individuals stored in the Company’s systems. The Company has notified applicable regulators as required and has notified individuals in accordance with applicable law and has offered credit monitoring and identity protection services at no charge to those individuals whose sensitive personal information was identified as potentially being subject to unauthorized access. Refer to Note 15. Commitments and Contingencies for additional information regarding the Cybersecurity Incident and related litigation.

During the three and six months ended June 30, 2024, the Company recognized $26.9 million and $41.6 million, respectively, of expenses related to the Cybersecurity Incident, net of insurance recoveries, which includes an accrual of $25.0 million in connection with class action litigation related to the Cybersecurity Incident. These cybersecurity related expenses are recognized in general and administrative expenses in the statements of operations. The Company maintains cybersecurity insurance coverage to limit its exposure to losses such as those related to the Cybersecurity Incident. The Company submitted claims to its cybersecurity insurers for reimbursement of some of the costs, expenses, and losses stemming from the Cybersecurity Incident. During the three and six months ended June 30, 2024, the Company has received $15.0 million of reimbursements from its cybersecurity insurers. The exact timing and amount of any additional reimbursements is not known at this time.


7



Summary of Significant Accounting Policies

Our accounting policies are described below and in Note 1- Description of Business and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our 2023 Form 10-K.

Consolidation and Basis of Presentation

The Company's consolidated financial statements are prepared in accordance with GAAP as codified in the FASB’s Accounting Standards Codification (“ASC”). In the opinion of management, the unaudited consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

loanDepot, Inc. is a holding company, its sole material asset is its equity interest in LD Holdings and as the sole managing member of LD Holdings, loanDepot, Inc. indirectly operates and controls all of LD Holdings’ business and affairs. LD Holdings is also a holding company and has no material assets other than its equity interests in its direct subsidiaries consisting of a 99.99% ownership in LDLLC (the majority asset of the group), and 100% equity ownership in ART, LDSS, Mello, and MCS. The financial results of LD Holdings and its subsidiaries are consolidated with loanDepot, Inc., and the consolidated net earnings or loss are allocated to noncontrolling interest to reflect the entitlement of certain members that still hold Class A holdings units in LD Holdings (“Holdco Units”) and Class C common stock of the Company, (“Continuing LLC Members”) as of the periods presented.

The accompanying consolidated financial statements include all of the assets, liabilities, and results of operations of the Company and consolidated variable interest entities (“VIEs”) in which the Company is the primary beneficiary. VIEs are entities that have a total equity investment at risk that is insufficient to permit the entity to finance its activities without additional subordinated financial support, whose equity investors at risk lack the ability to control the entity's activities, or is structured with non-substantive voting rights. The Company evaluates its associations with VIEs, both at inception and when there is a change in circumstance that requires reconsideration, to determine if the Company is the primary beneficiary and consolidation is required. A primary beneficiary is defined as a variable interest holder that has a controlling financial interest. A controlling financial interest requires both: (a) the power to direct the activities that most significantly impact the VIE’s economic performance, and (b) the obligation to absorb losses or receive benefits of a VIE that could potentially be significant to the VIE. The Company has not provided financial or other support during the periods presented to any VIE that it was not previously contractually required to provide. Other entities that the Company does not consolidate, but for which it has significant influence over operating and financial policies, are accounted for using the equity method. All intercompany accounts and transactions have been eliminated in consolidation.

Certain items in prior periods were reclassified to conform to the current presentation. To conform to the current period presentation, fair value change in servicing rights on the consolidated statements of cash flow includes gains or losses on the sale of mortgage servicing rights (“MSRs”). Additionally, servicing income on the consolidated statements of operations now includes amounts earned on custodial accounts that were previously included as a reduction in interest expense.

The Company has evaluated subsequent events for recognition or disclosure through the date of this report and has not identified any recordable or disclosable events that were not already reported in these consolidated financial statements or notes thereto.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Management has made estimates in certain areas, including determining the fair value of loans held for sale (“LHFS”), loans held for investment (“LHFI”), servicing rights, derivative assets and derivative liabilities, trading securities, awards granted under the incentive equity plan, and determining the loan loss obligation on sold loans and MSRs. Actual results could differ from those estimates.



8


Concentration of Risk

The Company has limited its concentration in credit risk for cash by maintaining deposits in several financial institutions, which may at times exceed amounts covered by insurance provided by the Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk related to cash.

Due to the nature of the mortgage lending industry, changes in interest rates may significantly impact revenue from originating mortgages and subsequent sales of loans to investors, which are the primary source of income for the Company. The Company originates mortgage loans on property located throughout the United States, with loans originated for property located in California totaling approximately 18% of total loan originations for the six months ended June 30, 2024.

The Company sells mortgage loans to various third-party investors. Four investors accounted for 33%, 23%, 17%, and 5% of the Company’s loan sales for the six months ended June 30, 2024. No other investors accounted for more than 5% of the loan sales for the six months ended June 30, 2024.

The Company funds loans through warehouse and other lines of credit. As of June 30, 2024, 20% and 18% of the Company's warehouse lines were payable to two separate lenders.

Loans Held for Investment, at Fair Value

On April 24, 2024, the Company executed a securitization of a pool of approximately $150.0 million fixed-rate and adjustable-rate, performing, re-performing and non-performing residential mortgage loans, whereby the loans were transferred to statutory trust Mello Mortgage Capital Acceptance 2024-SD1 (“MMCA 2024-SD1”). The Company evaluated the sale of loans to MMCA 2024-SD1 according to ASC 860 - Transfers and Servicing and determined that the transaction does not qualify for sale treatment. As a result, it was recorded as a secured borrowing in which the loans remain on the consolidated balance sheet as loans held for investment, at fair value and the securitization debt is also recognized on the consolidated balance sheet in debt obligations, net. Deferred financing costs and debt discount related to the securitization debt are recorded in debt obligations, net on the consolidated balance sheet and amortized using the effective yield method.

Loans held for investment are accounted for at fair value, with changes in fair value recognized in current earnings. All changes in fair value, including changes arising from the passage of time, and the loan related interest income are recognized as components of other income in the consolidated statements of operations. Interest income on loans held for investment is recognized using their contractual interest rates. Interest income recognition is suspended for loans when they become 90 days delinquent, or when, in management's opinion, a full recovery of interest and principal becomes doubtful. Interest income recognition is resumed when the loan becomes contractually current. When loans are placed on non-accrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest income on non-accrual loans is subsequently recognized only to the extent cash is received.



NOTE 2 – FAIR VALUE

The Company's consolidated financial statements include assets and liabilities that are measured based on their estimated fair values. Refer to Note 1 - Description of Business, Presentation and Summary of Significant Accounting Policies in the 2023 Form 10-K and below for information on the fair value hierarchy, valuation methodologies, and key inputs used to measure financial assets and liabilities recorded at fair value, as well as methods and assumptions used to estimate fair value disclosures for financial instruments not recorded at fair value in their entirety on a recurring basis.

Loans held for investment - LHFI are valued at the best execution of either investor pricing or market pricing which is predominately driven by known inputs of discount rate, loan-to-value, note rate and delinquency status, and therefore, these LHFI are classified as Level 2.

Financial Statement Items Measured at Fair Value on a Recurring Basis


9



The following tables presents the Company’s assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy as of the dates indicated.
June 30, 2024
Level 1Level 2Level 3Total
Fair value through net income:
Assets:
Loans held for sale$— $2,377,987 $— $2,377,987 
Loans held for investment
— 120,287 — 120,287 
Trading securities— 89,477 — 89,477 
Derivative assets:
Interest rate lock commitments— — 51,826 51,826 
Forward sale contracts— 542 — 542 
Interest rate swap futures3,879 — — 3,879 
MBS put options— 3,532 — 3,532 
Servicing rights— — 1,583,128 1,583,128 
Total assets at fair value$3,879 $2,591,825 $1,634,954 $4,230,658 
Liabilities:
Derivative liabilities:
Interest rate lock commitments$— $— $2,080 $2,080 
Forward sale contracts— 10,894 — 10,894 
Put options on treasuries4,882 — — 4,882 
Servicing rights— — 16,665 16,665 
Total liabilities at fair value$4,882 $10,894 $18,745 $34,521 




10


December 31, 2023
Level 1Level 2Level 3Total
Fair value through net income:
Assets:
Loans held for sale$— $2,132,880 $— $2,132,880 
Trading securities— 92,901 — 92,901 
Derivative assets:
Interest rate lock commitments— — 49,112 49,112 
Forward sale contracts— 16,610 — 16,610 
Interest rate swap futures26,476 — — 26,476 
MBS put options— 1,376 — 1,376 
Servicing rights— — 1,999,763 1,999,763 
Total assets at fair value$26,476 $2,243,767 $2,048,875 $4,319,118 
Liabilities:
Derivative liabilities:
Interest rate lock commitments$— $— $1,172 $1,172 
Forward sale contracts— 83,728 — 83,728 
Put options on treasuries62 — — 62 
Servicing rights— — 14,045 14,045 
Total liabilities at fair value$62 $83,728 $15,217 $99,007 


The following presents the changes in the Company’s assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
Three Months Ended June 30, 2024Six Months Ended June 30, 2024
IRLCs, netServicing
Rights, net		IRLCs, netServicing
Rights, net
Balance at beginning of period$50,163 $1,970,164 $47,940 $1,985,718 
Total net gains (losses) included in:
Gain on origination and sale of loans, net:
Issuances and additions93,090 66,115 190,420 114,491 
Fallout
(19,789)— (40,658)— 
Transfers of IRLC to LHFS(73,718)— (147,956)— 
Change in fair value(1)
— (30,617)— (38,434)
Sales— (439,199)— (495,312)
Balance at end of period$49,746 $1,566,463 $49,746 $1,566,463 

(1)The change in unrealized gains or losses relating to servicing rights still held at June 30, 2024 amounted to a net loss of $8.6 million and a net gain of $42.5 million for the three and six months ended June 30, 2024, respectively.



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Three Months Ended June 30, 2023Six Months Ended June 30, 2023
IRLCs, netServicing
Rights, net		IRLCs, netServicing
Rights, net
Balance at beginning of period$58,722 $2,016,568 $23,590 $2,025,136 
Total net gains (losses) included in:
Gain on origination and sale of loans, net:
Issuances and additions102,124 75,866 199,308 135,161 
Fallout
(26,619)— (45,007)— 
Transfers of IRLC to LHFS(85,179)— (128,843)— 
Change in fair value(1)
— (8,508)— (64,341)
Sales— (85,164)— (97,194)
Balance at end of period$49,048 $1,998,762 $49,048 $1,998,762 

(1)The change in unrealized gains or losses relating to servicing rights that were still held at June 30, 2023, amounted to net losses of $53.6 million and $44.8 million for the three and six months ended June 30, 2023, respectively.

The following table presents quantitative information about the valuation techniques and unobservable inputs applied to Level 3 fair value measurements for financial instruments measured at fair value on a recurring basis:
June 30, 2024December 31, 2023
Unobservable InputRange of inputs
Weighted Average(1)
Range of inputs
Weighted Average(1)
IRLCs
  Pull-through rate2.6%-99.9%76.2%2.7%-99.9%76.7%
Servicing rights
  Discount rate(2)
4.2%-17.1%6.4%4.6%-16.8%6.4%
  Prepayment rate
5.5%-22.5%8.3%5.6%-22.4%8.1%
  Cost to service (per loan)$73-$127$95$72-$126$90
(1)Weighted average inputs are based on the committed amounts for IRLCs and the UPB of the underlying loans for servicing rights.
(2)The Company estimates the fair value of MSRs using an option-adjusted spread (“OAS”) model, which projects MSR cash flows over multiple interest rate scenarios in conjunction with the Company’s prepayment model, and then discounts these cash flows at risk-adjusted rates.

Financial Statement Items Measured at Fair Value on a Nonrecurring Basis

The Company did not have any material assets or liabilities that were recorded at fair value on a nonrecurring basis as of June 30, 2024 or December 31, 2023.

Financial Statement Items Measured at Amortized Cost

The following table presents the carrying amount and estimated fair value of financial instruments included in the consolidated financial statements that are not recorded at fair value on a recurring or nonrecurring basis. The table excludes cash and cash equivalents, restricted cash, warehouse and other lines of credit, and secured debt facilities as these financial instruments are highly liquid or short-term in nature and as a result, their carrying amounts approximate fair value:



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June 30, 2024December 31, 2023
Carrying AmountEstimated Fair ValueCarrying AmountEstimated Fair Value
Senior Notes$805,291 $699,651 $989,318 $886,492 




NOTE 3 – LOANS HELD FOR SALE, AT FAIR VALUE

The following table represents the unpaid principal balance of loans held for sale by product type of loan as of June 30, 2024 and December 31, 2023:
June 30,
2024		December 31,
2023
Amount%Amount%
Conforming - fixed$1,256,327 53 %$1,211,449 57 %
Conforming - ARM12,873 1 18,592 1 
Government - fixed 860,485 37 777,860 36 
Government - ARM45,236 2 20,403 1 
Other - residential mortgage loans103,457 4 37,424 2 
Other - HELOC
72,924 3 67,354 3 
Total2,351,302 100 %2,133,082 100 %
Fair value adjustment26,685 (202)
Loans held for sale, at fair value$2,377,987 $2,132,880 

A summary of the changes in the balance of loans held for sale is as follows:

Three Months Ended
June 30,		Six Months Ended
June 30,
2024202320242023
Balance at beginning of period$2,300,058 $2,039,367 $2,132,880 $2,373,427 
Origination and purchase of loans5,979,131 6,200,295 10,481,454 11,091,542 
Sales(5,784,166)(6,046,785)(10,215,710)(11,429,204)
Transfers to loans held for investment
(122,532)— (122,532)— 
Repurchases150,060 109,683 287,773 243,141 
Principal payments(155,514)(31,688)(181,587)(46,785)
Fair value gain (loss)
10,950 (14,321)(4,291)24,430 
Balance at end of period$2,377,987 $2,256,551 $2,377,987 $2,256,551 



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Gain on origination and sale of loans, net is comprised of the following components:

Three Months Ended
June 30,		Six Months Ended
June 30,
2024202320242023
(Discount) premium from loan sales
$(871)$(16,648)$19,324 $(43,317)
Servicing rights additions66,115 75,866 114,491 135,161 
Unrealized (losses) gains from derivative assets and liabilities
(10,024)27,097 56,185 63,157 
Realized gains (losses) from derivative assets and liabilities
17,341 3,703 (45,897)(43,354)
Discount points, rebates and lender paid costs73,657 81,114 133,995 138,560 
Fair value gain (loss)
10,950 (14,321)(4,291)24,430 
Recovery (provision) for loan loss obligation for loans sold9,752 (2,476)9,174 (12,150)
Total gain on origination and sale of loans, net$166,920 $