# loanDepot, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [loanDepot, Inc.](/companies/ldi.md) (CIK 1831631)
- Form: 10-Q
- Filed: 2023-08-10
- Accepted by EDGAR: Aug 9, 2023, 22:55 ET
- Period: 2023-06-30
- Accession: 0001831631-23-000258
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1831631/000183163123000258/ldi-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1831631/000183163123000258/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $271.8m | us-gaap:RevenuesNetOfInterestExpense |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $479.7m | us-gaap:RevenuesNetOfInterestExpense |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $30.2m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $57.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | −$8.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | −$23.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$23.4m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$66.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.13 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.38 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.13 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.38 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 173,908,030 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 172,358,924 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$132.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $11.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $1.7m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2023-06-30 | $719.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-06-30 | $6.20bn | us-gaap:Assets |
| Total liabilities | at 2023-06-30 | $5.41bn | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $2.24bn | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-06-30 | $797.3m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 52,215 characters.

The following discussion provides an analysis of the Company's financial condition, cash flows and results of operations from management's perspective and should be read in conjunction with our consolidated financial statements and the accompanying notes included under Part I. Item 1 of this report. The results of operations described below are not necessarily indicative of the results to be expected for any future periods. This discussion includes forward-looking information that involves risks and assumptions which could cause actual results to differ materially from management’s expectations. See our cautionary language at the beginning of this report under “Special Note Regarding Forward-Looking Statements” and for a more complete discussion of the factors that could affect our future results refer to Part I, Item 1A "Risk Factors" and Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Form 10-K. Capitalized terms used but not otherwise defined herein have the meanings set forth in the our Form 10-K.

### Overview

We are a customer-centric, technology-empowered residential mortgage platform. Our goal is to be the lender of choice for consumers and the employer of choice by being a company that operates on sound principles of exceptional value, ethics, and transparency. Since our inception, we have significantly expanded our origination platform as well as developed an in-house servicing platform. Our primary sources of revenue are derived from the origination of conventional and government mortgage loans, servicing conventional and government mortgage loans, and providing ancillary services.

### Key Factors Influencing Our Results of Operations

### Market and Economic Environment

The consumer lending market and the associated loan origination volumes for mortgage loans are influenced by economic conditions. While borrower demand for consumer credit has typically remained strong in most economic environments, general market conditions, including the interest rate environment, unemployment rates, home price appreciation and consumer confidence may affect borrower willingness to seek financing and investor desire and ability to invest in loans. For example, a significant interest rate increase or rise in unemployment could cause potential borrowers to defer seeking financing as they wait for interest rates to stabilize or the general economic environment to improve. Additionally, if the economy weakens and actual or expected default rates increase, loan investors may postpone or reduce their investments in loan products.

Purchase mortgage loan origination volume can be subject to seasonal trends as home sales typically rise during the spring and summer seasons and decline in the fall and winter seasons. This is somewhat offset by purchase loan originations sourced from our joint ventures which experience their highest level of activity during November and December as home builders focus on completing and selling homes prior to year-end. Seasonality has less of an impact on mortgage loan refinancing volumes, which are primarily driven by fluctuations in mortgage loan interest rates.

Increases in interest rates may affect affordability and the ability for potential home buyers to qualify for a mortgage loan. As interest rates increase, rate and term refinancings become less attractive to consumers. However, rising interest rates during periods of inflationary pressures can make real assets, including real estate, an attractive investment. Demand for real estate may result in ongoing support for purchase mortgages and home price appreciation creating borrower equity that could result in opportunities for cash-out refinancings or home equity loans.

### Interest Rates

Our mortgage loan refinancing volumes (and to a lesser degree, our purchase volumes), balance sheets, and results of operations are influenced by changes in interest rates and how we effectively manage the related interest rate risk. The majority of our assets are subject to interest rate risk, including LHFS, IRLCs, servicing rights and mandatory trades, forward sales contracts, interest rate swap futures and put options. We refer to such mandatory trades, forward sales contracts, interest rate swap futures and put options collectively as “Hedging Instruments.” As interest rates increase, our LHFS and IRLCs generally decrease in value while our Hedging Instruments utilized to hedge against interest rate risk typically increase in value. Rising interest rates cause our expected mortgage loan servicing revenues to increase due to a decline in mortgage loan prepayments which extends the average life of our servicing portfolio and increases the value of our servicing rights. Conversely, as interest rates decrease, our LHFS and IRLCs generally increase in value while our Hedging Instruments decrease in value. In a declining interest rate environment, borrowers tend to refinance their mortgage loans, which increases prepayment speed and causes expected mortgage loan servicing revenues to decrease, which reduces the average life of our servicing portfolio and decreases the value of our servicing rights. Changes in fair value of our servicing rights are recorded as unrealized gains and losses in changes in fair value of servicing rights, net, in our consolidated statements of operations.

### Current Market Conditions

In July 2023, the Federal Reserve raised the Federal Funds rate by another 0.25 percentage points for a total increase of 5.25 percentage points since the beginning of 2022. The resulting increase in mortgage interest rates has impacted mortgage origination volumes, which are expected to decline for the year ended December 31, 2023 relative to 2022.

In July 2022, we announced our Vision 2025 plan. The plan’s four primary elements include: 1) Increase focus on purchase transactions while serving increasingly diverse communities across the country; 2) Execute previously announced growth-generating initiatives; 3) Centralize management of loan originations and loan fulfillment to enhance quality and effectiveness; and 4) Aggressively rightsize our cost structure. During the second half of 2022, we consolidated our retail and corporate locations and completed the exit of our wholesale business. During the first quarter of 2023, we completed the transition of our servicing portfolio to our in-house platform lowering our servicing expense, expanded the offerings on our digital HELOC platform, and announced a new partnership with Habitat for Humanity to support the organization's mission to help families build and improve places to call home. During the second quarter of 2023, we continued to streamline our leadership structure and consolidated our digital platform into existing product channels.

### Key Performance Indicators

We manage and assess the performance of our business by evaluating a variety of metrics. Selected key performance metrics include loan originations and sales and servicing metrics.

#### Loan Origination and Sales

Loan originations and sales by volume and units are a measure of how successful we are at growing sales of mortgage loan products and a metric used by management in an attempt to isolate how effectively we are performing. We believe that originations and sales are an indicator of our market penetration in mortgage loans and that this provides useful information because it allows investors to better assess the strength of our core business. Loan originations and sales include brokered loan originations not funded by us. We enter into IRLCs to originate loans, at specified interest rates, with customers who have applied for a mortgage and meet certain credit and underwriting criteria. We believe the volume of our IRLCs is another measure of our overall market share.

Gain on sale margin represents the total of (i) gain on origination and sale of loans, net, and (ii) origination income, net, divided by loan origination volume during period.

Pull through weighted gain on sale margin represents the total of (i) gain on origination and sale of loans, net, and (ii) origination income, net, divided by the pull through weighted rate lock volume. Pull through weighted rate lock volume is the principal balance of loans subject to interest rate lock commitments, net of a pull-through factor for the loan funding probability.

#### Servicing Metrics

Servicing metrics include the unpaid principal balance of our servicing portfolio and servicing portfolio units, which represent the number of mortgage loan customers we service. We believe that the net additions to our portfolio and number of units are indicators of the growth of our mortgage loans serviced and our servicing income, but may be offset by sales of servicing rights.

*(Dollars in thousands)*

| Loan originations by purpose: | Three Months Ended June 30, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Purchase | $4,552,919 | $9,500,164 | $8,065,690 | $17,530,930 |
| Refinance | 1,720,624 | 6,494,891 | 3,152,190 | 20,014,856 |
| Total loan originations | $6,273,543 | $15,995,055 | $11,217,880 | $37,545,786 |
| Loan originations (units) | 21,257 | 47,311 | 37,595 | 112,262 |
| Licensed loan officers | 1,664 | 2,907 | 1,664 | 2,907 |
| **Loans sold:** |  |  |  |  |
| Servicing retained | $3,943,845 | $10,568,649 | $7,221,552 | $27,691,365 |
| Servicing released | 2,134,024 | 7,342,889 | 4,252,898 | 13,088,211 |
| Total loans sold | $6,077,869 | $17,911,538 | $11,474,450 | $40,779,576 |
| Loans sold (units) | 20,570 | 51,862 | 37,788 | 120,011 |
| Gain on sale margin | 2.75% | 1.16% | 2.61% | 1.62% |
| Pull through weighted gain on sale margin | 2.85 | 1.50 | 2.57 | 1.89 |
| IRLCs | $8,973,666 | $19,596,763 | $17,442,101 | $49,588,215 |
| IRLCs (units) | 29,035 | 58,855 | 57,028 | 149,875 |
| Pull through weighted lock volume | $6,057,179 | $12,412,894 | $11,382,667 | $32,212,939 |
| **Servicing metrics** |  |  |  |  |
| Total servicing portfolio (unpaid principal balance) | $142,479,870 | $155,217,012 | $142,479,870 | $155,217,012 |
| Total servicing portfolio (units) | 482,266 | 507,231 | 482,266 | 507,231 |
| 60+ days delinquent ($) | $1,192,377 | $1,511,871 | $1,192,377 | $1,511,871 |
| 60+ days delinquent (%) | 0.84% | 0.97% | 0.84% | 0.97% |
| Servicing rights at fair value, net(1) | $1,998,762 | $2,204,593 | $1,998,762 | $2,204,593 |
| Weighted average servicing fee (2) | 0.29% | 0.29% | 0.29% | 0.29% |
| Multiple(2) (3) | 5.1 | 5.1 | 5.1 | 5.1 |

(1) Amount represents the fair value of servicing rights, net of servicing liabilities, which are included in accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets.

(2) Agency only.

(3) Amounts represent the fair value of servicing rights, net, divided by the weighted average annualized servicing fee.

### Results of Operations

The following table sets forth our consolidated financial statement data for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

*(Dollars in thousands)*

*(Unaudited)*

| REVENUES: | Three Months Ended June 30, 2023 | 2022 | Change $ | Change % |
| --- | ---: | ---: | ---: | ---: |
| Net interest income | $2,851 | $22,799 | $(19,948) | (87.5)% |
| Gain on origination and sale of loans, net | 154,335 | 146,562 | 7,773 | 5.3 |
| Origination income, net | 18,332 | 39,108 | (20,776) | (53.1) |
| Servicing fee income | 117,737 | 117,326 | 411 | 0.4 |
| Change in fair value of servicing rights, net | (38,474) | (33,507) | (4,967) | (14.8) |
| Other income | 17,052 | 16,351 | 701 | 4.3 |
| Total net revenues | 271,833 | 308,639 | (36,806) | (11.9) |
| **EXPENSES:** |  |  |  |  |
| Personnel expense | 157,799 | 296,569 | (138,770) | (46.8) |
| Marketing and advertising expense | 34,712 | 60,837 | (26,125) | (42.9) |
| Direct origination expense | 17,224 | 33,996 | (16,772) | (49.3) |
| General and administrative expense | 54,817 | 63,927 | (9,110) | (14.3) |
| Occupancy expense | 6,099 | 9,388 | (3,289) | (35.0) |
| Depreciation and amortization | 10,721 | 11,323 | (602) | (5.3) |
| Servicing expense | 5,750 | 10,741 | (4,991) | (46.5) |
| Other interest expense | 43,026 | 33,140 | 9,886 | 29.8 |
| Goodwill impairment | — | 40,736 | (40,736) | (100.0) |
| Total expenses | 330,148 | 560,657 | (230,509) | (41.1) |
| Loss before income taxes | (58,315) | (252,018) | 193,703 | 76.9 |
| Income tax benefit | (8,556) | (28,196) | 19,640 | 69.7 |
| Net loss | (49,759) | (223,822) | 174,063 | 77.8 |
| Net loss attributable to noncontrolling interests | (26,316) | (122,894) | 96,578 | 78.6 |
| Net loss attributable to loanDepot, Inc. | $(23,443) | $(100,928) | $77,485 | (76.8) |

The results for the three months ended June 30, 2023 reflect lower volume. The Federal Reserve raised the target federal funds rate seven times in 2022 and three times during the first half of 2023, which drove an increase in mortgage interest rates. The $36.8 million decrease in total net revenues reflects a $19.9 million decrease in net interest income, a $20.8 million decrease in origination income, net from lower transaction volumes, partially offset by a $7.8 million increase in gain on origination and sale of loans, net. Total expenses decreased $230.5 million as a result of lower loan origination volumes, cost reduction efforts directed towards personnel, and lower marketing expense.

#### Revenues

*Net Interest Income.* Net interest income represents income earned on LHFS offset by interest expense on amounts borrowed under warehouse and other lines of credit to finance such loans until sold. A $3.5 billion decrease in the average balance of LHFS coupled with higher costing warehouse lines drove the decrease in net interest income.

*Gain on Origination and Sale of Loans, Net*. Gain on origination and sale of loans, net, was comprised of the following components:

*(Dollars in thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Change $ | Change % |
| --- | ---: | ---: | ---: | ---: |
| Discount from loan sales | $(16,648) | $(437,194) | $420,546 | 96.2% |
| Servicing rights additions | 75,866 | 180,455 | (104,589) | (58.0) |
| Fair value (losses) gains on IRLC and LHFS | (23,996) | 96,224 | (120,220) | (124.9) |
| Fair value gains from Hedging Instruments | 40,475 | 317,683 | (277,208) | (87.3) |
| Discount points, rebates and lender paid costs | 81,114 | 71,767 | 9,347 | 13.0 |
| Provision for loan loss obligation for loans sold | (2,476) | (82,373) | 79,897 | 97.0 |
| Total gain on origination and sale of loans, net | $154,335 | $146,562 | $7,773 | 5.3 |

The increase in gain on origination and sale of loans, net was primarily driven by a reduction in provision for loan losses resulting from a decrease in the volume of loans subject to repurchase during the period and improved margins of originated loans despite the smaller volume of loan originations.

*Origination Income, Net*. Origination income, net, reflects the fees that we earn, net of lender credits we pay, from originating loans. Origination income includes loan origination fees, processing fees, underwriting fees, and other fees collected from the borrower at the time of funding. Lender credits typically include rebates or concessions to borrowers for certain loan origination costs. The $20.8 million or 53.1% decrease in origination income was the result of a 60.8% decrease in loan origination volumes.

*Servicing Fee Income*. Servicing fee income reflects contractual servicing fees and ancillary and other fees (including late charges) related to the servicing of mortgage loans. The increase of $0.4 million or 0.4% in reflects higher ancillary income from the increase in interest rates, partially offset by the $12.6 billion decrease in average UPB of our servicing portfolio.

*Change in Fair Value of Servicing Rights, Net*. Change in fair value of servicing rights, net includes (i) fair value gains or losses net of Hedging Instrument gains or losses; (ii) collection/realization of cash flows, which includes principal amortization and prepayments; and (iii) realized gains or losses on the sales of servicing rights. The decrease of $5.0 million reflects a decrease in fair value losses, net of hedge of $39.2 million, partially offset by lower prepayments of $24.8 million due to the increasing rate environment and higher gains on the sale of servicing rights of $9.5 million.

*Other Income.* Other income includes our pro rata share of net earnings from joint ventures, fee income from title, escrow and settlement services for mortgage loan transactions performed by LDSS, the fair value changes in our trading securities, and interest on cash deposits. The increase of $0.7 million or 4.3% was primarily the result of a decrease in fair value losses on trading securities of $5.5 million, and a $5.9 million increase in income on cash deposits from increasing interest rates, partially offset by a decrease of $12.1 million in escrow and title fee income due to decreased mortgage loan settlement activity.

*Personnel Expense.* Personnel expense includes salaries, commissions, incentive compensation, benefits, and other employee costs. The $138.8 million or 46.8% decrease in personnel expense included volume-related declines in commissions of $60.6 million. The remaining decrease of $78.2 million was attributable to lower salaries & benefits from the 45.2% decrease in headcount related to previously announced cost savings initiatives. As of June 30, 2023, we had 4,683 employees compared to 8,540 employees as of June 30, 2022.

*Marketing and Advertising Expense.* The $26.1 million or 42.9% decrease in marketing expense reflects lower lead aggregators from a decline in the total addressable market and cost savings measures affecting national television campaigns.

*Direct Origination Expense.* Direct origination expense reflects the unreimbursed portion of direct out-of-pocket expenses that we incur in the loan origination process, including underwriting, appraisal, credit report, loan document and other expenses paid to non-affiliates. The $16.8 million or 49.3% decrease in direct origination expense was the result of decreased loan originations during the period.

*General and Administrative Expense*. General and administrative expense includes professional fees, data processing expense, communications expense, and other operating expenses. The $9.1 million or 14.3% decrease in general and administrative expense included $5.3 million less of impairment charges and $0.5 million less of software and subscription charges, partially offset by an increase of $1.0 million in professional and consulting services.

*Servicing Expense.* In early 2023, we completed the transition of our servicing portfolio to our in-house platform. The decrease of $5.0 million or 46.5% in servicing expense reflects our shift to in-house servicing.

*Other Interest Expense.* The $9.9 million or 29.8% increase in other interest expense was the result of higher rates on secured credit facilities, partially offset by a $239.8 million decrease in average balances.

*Goodwill Impairment.* During the three months ended June 30, 2022, there was $40.7 million of impairment recognized on goodwill. There was no similar activity for the three months ended June 30, 2023.

### Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

*(Dollars in thousands)*

*(Unaudited)*

| REVENUES: | Six Months Ended June 30, 2023 | 2022 | Change $ | Change % |
| --- | ---: | ---: | ---: | ---: |
| Net interest income | $4,048 | $35,874 | $(31,826) | (88.7)% |
| Gain on origination and sale of loans, net | 262,487 | 509,692 | (247,205) | (48.5) |
| Origination income, net | 30,349 | 98,181 | (67,832) | (69.1) |
| Servicing fee income | 236,699 | 228,385 | 8,314 | 3.6 |
| Change in fair value of servicing rights, net | (91,280) | (101,890) | 10,610 | 10.4 |
| Other income | 37,431 | 41,707 | (4,276) | (10.3) |
| Total net revenues | 479,734 | 811,949 | (332,215) | (40.9) |
| **EXPENSES:** |  |  |  |  |
| Personnel expense | 298,826 | 642,563 | (343,737) | (53.5) |
| Marketing and advertising expense | 70,626 | 162,350 | (91,724) | (56.5) |
| Direct origination expense | 34,603 | 87,153 | (52,550) | (60.3) |
| General and administrative expense | 110,951 | 113,675 | (2,724) | (2.4) |
| Occupancy expense | 12,180 | 18,784 | (6,604) | (35.2) |
| Depreciation and amortization | 20,747 | 21,867 | (1,120) | (5.1) |
| Servicing expense | 10,583 | 32,252 | (21,669) | (67.2) |
| Other interest expense | 86,116 | 47,533 | 38,583 | 81.2 |
| Goodwill impairment | — | 40,736 | (40,736) | NM |
| Total expenses | 644,632 | 1,166,913 | (522,281) | (44.8) |
| Loss before income taxes | (164,898) | (354,964) | 190,066 | 53.5 |
| Income tax benefit | (23,418) | (39,823) | 16,405 | 41.2 |
| Net loss | (141,480) | (315,141) | 173,661 | 55.1 |
| Net loss attributable to noncontrolling interests | (75,130) | (179,472) | 104,342 | 58.1 |
| Net loss attributable to loanDepot, Inc. | $(66,350) | $(135,669) | $69,319 | (51.1) |

37

Results for the six months ended June 30, 2023 reflect the continuous increase in mortgage rates, resulting in lower profit margins. The increase of $173.7 million, or 55.1% in net income is primarily from a $522.3 million decrease in total expenses, partially offset by a $247.2 million decrease in gain on origination and sale of loans, net. The increased interest rate environment resulted in a decrease in margins and volume of mortgage loan originations and IRLCs from the comparable 2022 period.

#### Revenues

*Net Interest Income.* The decrease in net interest income reflected a $4.1 billion decrease in average LHFS, partially offset by higher yields on LHFS.

*Gain on Origination and Sale of Loans, Net*. Gain on origination and sale of loans, net was comprised of the following components:

*(Dollars in thousands)*

|  | Six Months Ended June 30, 2023 | 2022 | Change $ | Change % |
| --- | ---: | ---: | ---: | ---: |
| Discount from loan sales | $(43,317) | $(673,291) | $629,974 | 93.6% |
| Servicing rights additions | 135,161 | 450,215 | (315,054) | (70.0) |
| Fair value gains (losses) on IRLC and LHFS | 49,888 | (297,535) | 347,423 | 116.8 |
| Fair value (losses) gains from Hedging Instruments | (5,655) | 994,088 | (999,743) | (100.6) |
| Discount points, rebates and lender paid costs | 138,560 | 131,834 | 6,726 | 5.1 |
| Provision for loan loss obligation for loans sold | (12,150) | (95,619) | 83,469 | 87.3 |
|  | $262,487 | $509,692 | $(247,205) | (48.5) |

The decrease in gain on origination and sale of loans, net reflects increased market rates during the six months ended June 30, 2023 and the resulting decrease in loan origination volumes, partially offset by higher lender paid costs. The decreased provision for loan loss obligations on loan sold reflects the lower volume of loans subject to repurchase, partially offset by lower market values for those loans.

*Origination Income, Net*. The decrease in origination income, net, of $67.8 million or 69.1% is consistent with the decrease in loan origination volumes.

*Servicing Fee Income*. The $8.3 million or 3.6% increase was the result of higher ancillary income from the increase in interest rates, partially offset by lower volume from the decrease of $15.0 billion in the average UPB of our servicing portfolio.

*Change in Fair Value of Servicing Rights, Net*. The increase of $10.6 million reflects a $67.2 million decrease in prepayments due to the increasing rate environment, partially offset by a $56.2 million decrease in fair value gains.

*Other Income.* The decrease of $4.3 million or 10.3% reflects a decrease of $37.5 million in escrow and title fee income due to decreased mortgage loan settlement services, partially offset by a decrease in fair value losses on trading securities of $15.6 million attributable to rising interest rates during 2022.

#### Expenses

*Personnel Expense.* The decrease of $343.7 million reflects a $158.9 million decrease in commissions due to the decrease in loan originations and a $188.1 million decrease in salaries and benefits due to the 45.2% decrease in headcount.

*Marketing and Advertising Expense.* The decrease of $91.7 million or 56.5% reflects a reduction in television ads and purchased leads.

*Direct Origination Expense.* The $52.6 million or 60.3% decrease in direct origination expense was the result of decreased loan originations during the period.

*General and Administrative Expense*. The $2.7 million or 2.4% decrease in general and administrative expense included a $5.6 million decrease in lease impairment charges, partially offset by a $1.0 million increase in loss on disposal of fixed assets, and a $3.7 million increase in professional and consulting services.

*Servicing Expense.* The decrease of $21.7 million or 67.2% between periods reflects our shift to in-house servicing.

*Other Interest Expense.* The $38.6 million or 81.2% increase in other interest expense was the result of a $76.1 million increase in average balances, higher rates on secured credit facilities, and lower gains on extinguishment of debt.

*Goodwill Impairment.* During the six months ended June 30, 2022, there was $40.7 million of impairment recognized on goodwill. There was no similar activity for the six months ended June 30, 2023.

*Income Tax Expense (Benefit).* The decrease in benefit for income taxes of $16.4 million reflects lower net losses, partially offset by non-deductible impairment of goodwill and other intangible assets for the six months ended June 30, 2022.

### Balance Sheet Highlights

### June 30, 2023 Compared to December 31, 2022

The following table sets forth our consolidated balance sheets as of the dates indicated:

*(Dollars in thousands)*

*(Unaudited)*

| ASSETS | June 30, 2023 | December 31, 2022 | Change $ | Change % |
| --- | ---: | ---: | ---: | ---: |
| Cash and cash equivalents | $719,073 | $863,956 | $(144,883) | (16.8)% |
| Restricted cash | 61,294 | 116,545 | (55,251) | (47.4) |
| Accounts receivable, net | 68,581 | 145,279 | (76,698) | (52.8) |
| Loans held for sale, at fair value | 2,256,551 | 2,373,427 | (116,876) | (4.9) |
| Derivative assets, at fair value | 80,382 | 39,411 | 40,971 | 104.0 |
| Servicing rights, at fair value | 2,012,049 | 2,037,447 | (25,398) | (1.2) |
| Trading securities, at fair value | 93,442 | 94,243 | (801) | (0.8) |
| Property and equipment, net | 82,677 | 92,889 | (10,212) | (11.0) |
| Operating lease right-of-use assets | 34,040 | 35,668 | (1,628) | (4.6) |
| Prepaid expenses and other assets | 129,675 | 155,982 | (26,307) | (16.9) |
| Loans eligible for repurchase | 647,418 | 634,677 | 12,741 | 2.0 |
| Investments in joint ventures | 18,322 | 20,410 | (2,088) | (10.2) |
| Total assets | $6,203,504 | $6,609,934 | $(406,430) | (6.1) |
| **LIABILITIES & EQUITY** |  |  |  |  |
| Warehouse and other lines of credit | $2,046,208 | $2,146,602 | $(100,394) | (4.7) |
| Accounts payable, accrued expenses and other liabilities | 407,356 | 488,696 | (81,340) | (16.6) |
| Derivative liabilities, at fair value | 8,790 | 67,492 | (58,702) | (87.0) |
| Liability for loans eligible for repurchase | 647,418 | 634,677 | 12,741 | 2.0 |
| Operating lease liability | 56,552 | 61,675 | (5,123) | (8.3) |
| Debt obligations, net | 2,239,836 | 2,289,319 | (49,483) | (2.2) |
| Total liabilities | 5,406,160 | 5,688,461 | (282,301) | (5.0) |
| Total equity | 797,344 | 921,473 | (124,129) | (13.5) |
| Total liabilities and equity | $6,203,504 | $6,609,934 | $(406,430) | (6.1) |

*Cash and Cash Equivalents.* The $144.9 million or 16.8% decrease in cash and cash equivalents relates to net losses for the year and repayment of debt obligations.

*Loans Held for Sale, at Fair Value.* Loans held for sale, at fair value, are primarily fixed and variable rate, 15- to 30-year term first-lien loans that are secured by residential property. The $116.9 million or 4.9% decrease reflects $11.5 billion in loan sales, partially offset by $11.2 billion in loan originations, an increase in fair value, and loan repurchase activity.

*Servicing Rights, at Fair Value.* The $25.4 million or 1.2% decrease included a $90.0 million reduction from the sale of $158.0 million in UPB and $76.3 million from principal amortization and prepayments, partially offset by $135.2 million of capitalized servicing rights from servicing-retained loan sales and a $4.8 million increase in fair value.

*Warehouse and Other Lines of Credit.* The decrease of $100.4 million or 4.7% is consistent with the decrease in loans held for sale.

*Debt Obligations, net.* The decrease of $49.5 million or 2.2% included a decrease in secured credit facilities of $51.2 million, partially offset by the repurchase of $0.1 million of our 2028 Senior Notes.

*Equity*. Total equity was $797.3 million and $921.5 million as of June 30, 2023 and December 31, 2022, respectively. The decrease was attributed to net loss of $141.5 million and the repurchase of treasury shares, at cost of $2.0 million to net settle and withhold tax on vested RSUs, partially offset by stock-based compensation of $11.7 million and an increase to additional paid in capital of $6.7 million related to deferred taxes.

### Liquidity and Capital Resources

### Liquidity

Our liquidity reflects our ability to meet our current obligations, including our operating expenses and, when applicable, the retirement of our debt and margin calls relating to our Hedging Instruments, warehouse and other lines of credit, secured credit facilities, fund new originations and purchases, meet servicing advance requirements, and make investments as we identify them. We forecast the need to have adequate liquid funds available to operate and grow our business. As of June 30, 2023, unrestricted cash and cash equivalents were $719.1 million and committed and uncommitted available capacity under our warehouse and other lines of credit was $1.7 billion.

We fund substantially all of the mortgage loans we close through borrowings under our warehouse and other lines of credit. Our mortgage origination liquidity could be affected as our lenders reassess their exposure to the mortgage origination industry and either curtail access to uncommitted mortgage warehouse financing capacity or impose higher costs to access such capacity. Our liquidity may be further constrained as there may be less demand by investors to acquire our mortgage loans in the secondary market.

As a servicer, we are required to advance principal and interest to the investor for up to four months on GSE backed mortgages and longer on other government agency backed mortgages on behalf of clients who have entered a forbearance plan. As of June 30, 2023, approximately 0.1%, or $115.3 million UPB, of our servicing portfolio was in active forbearance.

### Sources and Uses of Cash

Our primary sources of liquidity have been as follows: (i) funds obtained from our warehouse and other lines of credit; (ii) proceeds from debt obligations; (iii) proceeds received from the sale and securitization of loans; (iv) proceeds from the sale of servicing rights; (v) loan fees from the origination of loans; (vi) servicing fees; (vii) title and escrow fees from settlement services; (viii) real estate referral fees; and (ix) interest income from LHFS.

Our primary uses of funds for liquidity have included the following: (i) funding mortgage loans; (ii) funding loan origination costs; (iii) payment of warehouse line haircuts required at loan origination; (iv) payment of interest expense on warehouse and other lines of credit; (v) payment of interest expense under debt obligations; (vi) payment of operating expenses; (vii) repayment of warehouse and other lines of credit; (viii) repayment of debt obligations; (ix) funding of servicing advances; (x) margin calls on warehouse and other lines of credit or Hedging Instruments; (xi) repurchases of loans under representation and warranty breaches; and (xii) costs relating to servicing.

We rely on the secondary mortgage market as a source of long-term capital to support our mortgage lending operations. Approximately 75% of the mortgage loans that we originated during the six months ended June 30, 2023 were sold in the secondary mortgage market to Fannie Mae or Freddie Mac or, in the case of MBS guaranteed by Ginnie Mae, are mortgage loans insured or guaranteed by the FHA or VA. We also sell loans to many private investors.

At this time, we currently believe that our cash on hand, as well as the sources of liquidity described above, will be sufficient to maintain our current operations and fund our loan operations and capital commitments for the next twelve months. However, we will continue to review our liquidity needs in light of current and anticipated mortgage market conditions and we have taken various steps to align our cost structure with current and expected mortgage origination volumes.

### Warehouse and Other Lines of Credit and Debt Obligations

Warehouse and other lines of credit are discussed in Note 8- Warehouse and Other Lines of Credit and debt obligations are discussed in Note 9- Debt Obligations of the Notes to Consolidated Financial Statements contained in Item 1.

Our lenders require us to comply with various financial covenants including tangible net worth, liquidity, leverage ratios and profitability. As a result of net losses during 2022 and in the first half of 2023, we were required to amend certain of our warehouse lines or debt obligations or obtain waivers of profitability related to financial covenants in certain of our debt obligations. As of June 30, 2023, following certain amendments, we were in full compliance with all financial covenants. Although these financial covenants limit the amount of indebtedness that we may incur and affect our liquidity through minimum cash reserve requirements, we believe that these covenants currently provide us with sufficient flexibility to operate our business and obtain the financing necessary to achieve that purpose.

We finance most of our loan originations on a short-term basis using our warehouse and other lines of credit. Under these facilities, we agree to transfer certain loans to our counterparties against the transfer of funds by them, with a simultaneous agreement by the counterparties to transfer the loans back to us at the date loans are sold, or on demand by us, against the transfer of funds from us. We do not recognize these transfers as sales for accounting purposes. During the three months ended June 30, 2023, our loans remained on warehouse lines for an average of 18 days. Our warehouse facilities are generally short-term borrowings with original maturities between one and two years. Our securitization facilities are generally two or three year terms. We utilize both committed and uncommitted loan funding facilities and we evaluate our needs under these facilities based on forecasted volume of loan originations and sales.

As of June 30, 2023, we maintained revolving lines of credit with nine counterparties providing warehouse and securitization facilities with borrowing capacity totaling $3.9 billion of which $1.3 billion was committed. Our $3.9 billion of capacity as of June 30, 2023 was comprised of $3.4 billion with maturities staggered throughout June 2024 and $0.5 billion maturing in October 2024. As of June 30, 2023, we had $2.0 billion of borrowings outstanding and $1.7 billion of additional availability under our facilities.

When we draw on our warehouse and securitization facilities we must pledge eligible loan collateral. Our warehouse line providers require us to make a capital investment, or “haircut.” upon financing the loan, which is generally based on product types and the market value of the loans. The haircuts are normally recovered from sales proceeds. As of June 30, 2023, we had a total of $10.9 million in restricted cash posted as collateral with our warehouse and securitization facilities, of which $4.3 million was the minimum requirement.

In addition to our warehouse lines, we fund our balance sheet through our secured and unsecured debt obligations. The availability and cost of funds to us can vary depending on market conditions. From time to time, and subject to any applicable laws or regulations, we may take steps to reduce or repurchase our debt through redemptions, tender offers, cash purchases, prepayments, refinancing, exchange offers, open market or privately-negotiated transactions. The amount of debt, if any, that may be reduced or repurchased will depend on various factors, such as market conditions, trading levels of our debt, our cash positions, our compliance with debt covenants, and other considerations.

Secured debt obligations as of June 30, 2023 included secured credit facilities and Term Notes that totaled $1.2 billion net of $1.0 million of deferred financing costs. Secured credit facilities are secured by Ginnie Mae, Fannie Mae, or Freddie Mac MSRs, certain servicing advance receivables, or trading securities. Term Notes are secured by certain participation certificates relating to Ginnie Mae MSRs.

Unsecured debt obligations as of June 30, 2023 consisted of Senior Notes totaling $1.0 billion net of $9.2 million of deferred financing costs. During the second quarter of 2023, we repurchased $0.1 million of 2028 Senior Notes at 60.1% of par which resulted in a $39,000 gain on extinguishment of debt.

### Dividends and Distributions

As part of our balance sheet and capital management strategies, we suspended our regular quarterly dividend effective March 31, 2022 and for the foreseeable future.

Cash dividends are subject to the discretion of our board of directors and our compliance with applicable law, and depend on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, including the satisfaction of our obligations under the TRA, restrictions in our debt agreements, business prospects and other factors that our board of directors may deem relevant.

Our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their jurisdiction of organization or agreements of our subsidiaries, including agreements governing our indebtedness. Future agreements may also limit our ability to pay dividends.

### Contractual Obligations and Commitments

Our estimated contractual obligations as of June 30, 2023 are as follows:

*(Dollars in thousands)*

|  | Payments Due by Period Total | Less than 1 Year | 1-3 years | 3-5 Years | More than 5 Years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Warehouse and other lines of credit | $2,046,208 | $1,546,208 | $500,000 | $— | $— |
| Debt obligations (1) |  |  |  |  |  |
| Secured credit facilities | 1,047,614 | 699,632 | 347,982 | — | — |
| Term Notes | 200,000 | 200,000 | — | — | — |
| Senior Notes | 1,002,375 | — | 500,000 | 502,375 | — |
| Operating lease obligations (2) | 65,832 | 20,977 | 29,308 | 14,670 | 876 |
| Naming and promotional rights agreements | 85,819 | 20,880 | 37,939 | 12,000 | 15,000 |
| Total contractual obligations | $4,447,848 | $2,487,697 | $1,415,230 | $529,045 | $15,876 |

(1) Amounts exclude deferred financing costs.

(2) Represents lease obligations for office space under non-cancelable operating lease agreements.

In addition to the above contractual obligations, we also have interest rate lock commitments and forward sale contracts. Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon and, therefore, those commitments have been excluded from the table above. Refer to Note 5- Derivative Financial Instruments and Hedging Activities and Note 14- Commitments & Contingencies of the Notes to Consolidated Financial Statements contained in Item 1 for further discussion on derivatives and other contractual commitments.

### Off-Balance Sheet Arrangements

As of June 30, 2023, we were party to mortgage loan participation purchase and sale agreements, pursuant to which we have access to uncommitted facilities that provide liquidity for recently sold MBS up to the MBS settlement date. These facilities, which we refer to as gestation facilities, are a component of our financing strategy and are off-balance sheet arrangements provided by certain warehouse lenders.

### Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with GAAP, which requires us to make judgments, estimates and assumptions that affect: (i) the reported amounts of our assets and liabilities; (ii) the disclosure of our contingent assets and liabilities at the end of each reporting period; and (iii) the reported amounts of revenues and expenses during each reporting period. We continually evaluate these judgments, estimates and assumptions based on our own historical experience, knowledge and assessment of current business and other conditions and our expectations regarding the future based on available information which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application. Our accounting policies are described in Note 1 to the consolidated financial statements included in the Company's 2022 Form 10-K. At December 31, 2022, the most critical of these significant accounting policies were policies related to the fair value of loans held for sale, servicing rights, and derivative financial instruments. As of the date of this report, there have been no significant changes to the Company's critical accounting policies or estimates.

When reading our consolidated financial statements, you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions.

### Reconciliation of Non-GAAP Measures

To provide investors with information in addition to our results as determined by GAAP, we disclose certain non-GAAP measures to assist investors in evaluating our financial results. We believe these non-GAAP measures provide useful information to investors regarding our results of operations because each measure assists both investors and management in analyzing and benchmarking the performance and value of our business. They facilitate company-to-company operating performance comparisons by backing out potential differences caused by variations in hedging strategies, changes in valuations, capital structures (affecting interest expense on non-funding debt), taxation, the age and book depreciation of facilities (affecting relative depreciation expense), and other cost or benefit items which may vary for different companies for reasons unrelated to operating performance. These non-GAAP measures include our Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share (if dilutive), and Adjusted EBITDA (LBITDA). We exclude from these non-GAAP financial measures the change in fair value of MSRs and related hedging gains and losses as they add volatility and are not indicative of the Company’s operating performance or results of operation. We also exclude stock-based compensation expense, which is a non-cash expense, gains or losses on extinguishment of debt and disposal of fixed assets, non-cash goodwill impairment, and other impairment charges to intangible assets and operating lease right-of-use assets as management does not consider these costs to be indicative of our performance or results of operations. Adjusted EBITDA (LBITDA) includes interest expense on funding facilities, which are recorded as a component of “net interest income (expense)”, as these expenses are a direct operating expense driven by loan origination volume. By contrast, interest expense on our non-funding debt is a function of our capital structure and is therefore excluded from Adjusted EBITDA (LBITDA). Adjustments for income taxes are made to reflect historical results of operations on the basis that it was taxed as a corporation under the Internal Revenue Code, and therefore subject to U.S. federal, state and local income taxes. Adjustments to Diluted Weighted Average Shares Outstanding assumes the pro forma conversion of weighted average Class C shares to Class A common stock. These non-GAAP measures have limitations as analytical tools, and should not be considered in isolation or as a substitute for revenue, net income, or any other operating performance measure calculated in accordance with GAAP, and may not be comparable to a similarly titled measure reported by other companies. Some of these limitations are:

- they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments;
- Adjusted EBITDA (LBITDA) does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt;
- although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and Adjusted Total Revenue, Adjusted Net Income (Loss), and Adjusted EBITDA (LBITDA) do not reflect any cash requirement for such replacements or improvements; and
- they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows.

Because of these limitations, Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share, and Adjusted EBITDA (LBITDA) are not intended as alternatives to total revenue, net income (loss), net income (loss) attributable to the Company, or Diluted Earnings (Loss) Per Share or as an indicator of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share, and Adjusted EBITDA (LBITDA) along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. See below for a reconciliation of these non-GAAP measures to their most comparable U.S. GAAP measures.

| Reconciliation of Total Revenue to Adjusted Total Revenue (Dollars in thousands) (Unaudited): June 30, 2023 | Three Months Ended June 30, 2022 | June 30, 2023 | Six Months Ended June 30, 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| Total net revenue | $271,833 | $308,639 | $479,734 | $811,949 |
| Change in fair value of servicing rights net, of hedging gains and losses(1) | 3,876 | (35,366) | 22,165 | (34,072) |
| Adjusted total revenue | $275,709 | $273,273 | $501,899 | $777,877 |

(1) Represents the change in the fair value of servicing rights attributable to changes in assumptions, net of hedging gains and losses.

| Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) (Dollars in thousands) (Unaudited): June 30, 2023 | Three Months Ended June 30, 2022 | June 30, 2023 | Six Months Ended June 30, 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| Net loss attributable to loanDepot, Inc. | $(23,443) | $(100,928) | $(66,350) | $(135,669) |
| Net loss from the pro forma conversion of Class C common shares to Class A common shares(1) | (26,316) | (122,894) | (75,130) | (179,472) |
| Net loss | (49,759) | (223,822) | (141,480) | (315,141) |
| Adjustments to the benefit for income taxes(2) | 6,916 | 31,952 | 20,120 | 46,663 |
| Tax-effected net loss | (42,843) | (191,870) | (121,360) | (268,478) |
| Change in fair value of servicing rights, net of hedging gains and losses(3) | 3,876 | (35,366) | 22,165 | (34,072) |
| Stock-based compensation expense | 5,754 | 4,712 | 11,679 | 7,021 |
| Gain on extinguishment of debt | (39) | — | (39) | (10,528) |
| Loss on disposal of fixed assets | 751 | — | 1,012 | — |
| Goodwill impairment | — | 40,736 | — | 40,736 |
| Other impairment | 686 | 5,963 | 341 | 5,963 |
| Tax effect of adjustments(4) | (2,514) | 6,962 | (8,421) | 9,103 |
| Adjusted net loss | $(34,329) | $(168,863) | $(94,623) | $(250,255) |

(1) Reflects net loss to Class A common stock and Class D common stock from the pro forma exchange of Class C common stock.

(2) loanDepot, Inc. is subject to federal, state and local income taxes. Adjustments to income tax benefit reflect the effective income tax rates below, and the pro forma assumption that loanDepot, Inc. owns 100% of LD Holdings.

| June 30, 2023 | Three Months Ended June 30, 2022 | June 30, 2023 | Six Months Ended June 30, 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| Statutory U.S. federal income tax rate | 21.00% | 21.00% | 21.00% | 21.00% |
| State and local income taxes (net of federal benefit) | 5.28 | 5.00 | 5.78 | 5.00 |
| Effective income tax rate | 26.28% | 26.00% | 26.78% | 26.00% |

(3) Represents the change in the fair value of servicing rights attributable to changes in assumptions, net of hedging gains and losses.

(4) Amounts represent the income tax effect using the aforementioned effective income tax rates, excluding certain discrete tax items. Reporting periods after June 30, 2022 include the income tax effect of excess tax benefits or deficiencies on vested RSUs. Prior periods were adjusted to conform to current presentation.

| Reconciliation of Adjusted Diluted Weighted Average Shares Outstanding to Diluted Weighted Average Shares Outstanding (Dollars in thousands except per share) (Unaudited) June 30, 2023 | Three Months Ended June 30, 2022 | June 30, 2023 | Six Months Ended June 30, 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| Net loss attributable to loanDepot, Inc. | $(23,443) | $(100,928) | $(66,350) | $(135,669) |
| Adjusted net loss | (34,329) | (168,863) | (94,623) | (250,255) |
| **Share Data:** |  |  |  |  |
| Diluted weighted average shares of Class A and Class D common stock outstanding | 173,908,030 | 153,822,380 | 172,358,924 | 146,415,135 |
| Assumed pro forma conversion of weighted average Class C shares to Class A common stock | 148,597,745 | 165,281,304 | 149,535,576 | 173,245,208 |
| Adjusted diluted weighted average shares outstanding | 322,505,775 | 319,103,684 | 321,894,500 | 319,660,343 |

| Reconciliation of Net Income (Loss) to Adjusted EBITDA (LBITDA) (Dollars in thousands) (Unaudited): June 30, 2023 | Three Months Ended June 30, 2022 | June 30, 2023 | Six Months Ended June 30, 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(49,759) | $(223,822) | $(141,480) | $(315,141) |
| Interest expense — non-funding debt(1) | 43,026 | 33,140 | 86,116 | 47,533 |
| Income tax benefit | (8,556) | (28,196) | (23,418) | (39,823) |
| Depreciation and amortization | 10,721 | 11,323 | 20,747 | 21,867 |
| Change in fair value of servicing rights, net of hedging gains and losses(2) | 3,876 | (35,366) | 22,165 | (34,072) |
| Stock-based compensation expense | 5,754 | 4,712 | 11,679 | 7,021 |
| Loss on disposal of fixed assets | 751 | — | 1,012 | — |
| Goodwill impairment | — | 40,736 | — | 40,736 |
| Other impairment | 686 | 5,963 | 341 | 5,963 |
| Adjusted EBITDA (LBITDA) | $6,499 | $(191,510) | $(22,838) | $(265,916) |

(1) Represents other interest expense, which includes gain on extinguishment of debt and amortization of debt issuance costs, in the Company’s consolidated statement of operations.

(2) Represents the change in the fair value of servicing rights attributable to changes in assumptions, net of hedging gains and losses.

## Market risk

As filed, 6,675 characters.

In the normal course of business, we are exposed to various risks which can affect our business, results and operations. The primary market risks to which we are exposed include interest rate risk, credit risk, prepayment risk and inflation risk.

We manage our interest rate risk and the price risk associated with changes in interest rates pursuant to the terms of an Interest Rate Risk Management Policy which (i) quantifies our interest rate risk exposure, (ii) lists the derivatives eligible for use as Hedging Instruments and (iii) establishes risk and liquidity tolerances.

### Interest Rate Risk

Our principal market exposure is to interest rate risk as our business is subject to variability in results of operations due to fluctuations in interest rates. We anticipate that interest rates will remain our primary benchmark for market risk for the foreseeable future. Changes in interest rates affect our assets and liabilities measured at fair value, including LHFS, IRLCs, servicing rights and Hedging Instruments. In a declining interest rate environment, we expect higher loan origination volumes, higher loan margins, increases in the value of our LHFS and IRLCs, and decreases in the value of our Hedging Instruments and servicing rights. In a rising interest rate environment, we expect lower loan origination volumes, lower loan margins, decreases in the value of our LHFS and IRLCs, and increases in the value of our Hedging Instruments and servicing rights. The interaction between the results of operations of our various activities is a core component of our overall interest rate risk strategy.

IRLCs represent an agreement to extend credit to a potential customer, whereby the interest rate on the loan is set prior to funding. Our LHFS, which are held in inventory awaiting sale into the secondary market, and our IRLCs, are subject to changes in interest rates from the date of the commitment through the sale of the loan into the secondary market. Accordingly, we are exposed to interest rate risk and related price risk during the period from the date of the lock commitment through (i) the lock commitment cancellation or expiration date, or (ii) the date of sale into the secondary mortgage market. The average term for outstanding interest rate lock commitments at June 30, 2023 was 41 days; and our average holding period of the loan from funding to sale was 28 days for the six months ended June 30, 2023.

We manage the interest rate risk associated with our outstanding IRLCs, LHFS and servicing rights by entering into Hedging Instruments. Management expects these Hedging Instruments will experience changes in fair value opposite to changes in fair value of the IRLCs and LHFS, thereby reducing earnings volatility. We take into account various factors and strategies in determining the portion of IRLCs, LHFS, and servicing rights that we want to economically hedge. Our expectation of how many of our IRLCs will ultimately close is a key factor in determining the notional amount of Hedging Instruments used in hedging the position.

### Credit Risk

We are subject to credit risk in connection with our loan sale transactions. While our contracts vary, we provide representations and warranties to purchasers and insurers of the mortgage loans sold that typically are in place for the life of the loan. In the event of a breach of these representations and warranties, we may be required to repurchase a mortgage loan or indemnify the purchaser, and any subsequent loss on the mortgage loan may be borne by us. The representations and warranties require adherence to applicable origination and underwriting guidelines (including those of Fannie Mae, Freddie Mac, and Ginnie Mae), including but not limited to the validity of the lien securing the loan, property eligibility, borrower credit, income and asset requirements, and compliance with applicable federal, state and local law.

We record a provision for losses relating to such representations and warranties as part of our loan sale transactions. The level of the liability for losses from representations and warranties is difficult to estimate and requires considerable management judgment. The level of loan repurchase losses is dependent on economic factors, trends in property values, investor repurchase demand strategies, and other external conditions that may change over the lives of the underlying loans. We evaluate the adequacy of our liability for losses from representations and warranties based on our loss experience and our assessment of incurred losses relating to loans that we have previously sold and which remain outstanding at the balance sheet date. As our portfolio of loans sold subject to representations and warranties grows and as economic fundamentals change, such adjustments can be material. However, we believe that our current estimates adequately approximate the losses incurred on our sold loans subject to such representations and warranties.

Additionally, we are exposed to credit risk associated with our borrowers, counterparties, and other significant vendors. Our ability to operate profitably is dependent on both our access to capital to finance our assets and our ability to profitably originate, sell, and service loans. Our ability to hold loans pending sale and/or securitization depends, in part, on the availability to us of adequate financing lines of credit at suitable interest rates and favorable advance rates. In general, we manage such risk by selecting only counterparties that we believe to be financially strong, dispersing the risk among multiple counterparties, placing contractual limits on the amount of unsecured credit extended to any single counterparty and entering into netting agreements with the counterparties, as appropriate. During the six months ended June 30, 2023 and 2022, we incurred no losses due to nonperformance by any of our counterparties.

### Prepayment Risk

Prepayment risk is affected by interest rates (and their inherent risk) and borrowers’ actions relative to their underlying loans. To the extent that the actual prepayment speed on the loans underlying our servicing rights differs from what we projected when we initially recognized them and when we measured fair value as of the end of each reporting period, the carrying value of our investment in servicing rights will be affected. In general, an increase in prepayment expectations will decrease our estimates of the fair value of the servicing right, thereby reducing expected servicing income. We monitor the servicing portfolio to identify potential refinancings and the impact that would have on associated servicing rights.

## Controls and procedures

As filed, 1,978 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of June 30, 2023, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

## Risk factors

As filed, 163 characters.

There have been no material changes in the risk factors discussed under Part I. "Item 1A. Risk Factors" of our 2022 Form 10-K filed with the SEC on March 16, 2023.

Filed Aug 10, 2023.
Source: SEC EDGAR, the filing index for accession 0001831631-23-000258. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.