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loanDepot
LDI
#6425
Rank
$0.76 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$1.42
Share price
5.19%
Change (1 day)
19.33%
Change (1 year)
๐Ÿ’ณ Financial services
Categories
  1. loanDepot
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2023 Q2

loanDepot - 10-Q quarterly report FY2023 Q2


Text size:
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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, 2023
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 8, 2023, 78,893,436 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, 143,501,547 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. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, including our Vision 2025 plan, technology developments, financing and investment plans, financial condition and liquidity, dividend policy, competitive position, industry and regulatory environment, potential growth opportunities and the effects of competition. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” "seek," “should,” “will,” “would” or similar expressions and the negatives of those terms.

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, 2022 filed with the Securities and Exchange Commission (“SEC”) on March 16, 2023.

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, 2023 and December 31, 2022
1
Consolidated Statements of Operations for the three and six months June 30, 2023 and 2022
2
Consolidated Statements of Equity for the three and six months ended June 30, 2023 and 2022
3
Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022
5
Notes to Consolidated Financial Statements
7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
32
Item 3. Quantitative and Qualitative Disclosures About Market Risk
46
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
49
Item 1A. Risk Factors
50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
50
Item 3. Defaults Upon Senior Securities
50
Item 4. Mine Safety Disclosures
50
Item 5. Other Information
50
Item 6. Exhibits
51
Signatures
53




PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
loanDepot, Inc.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30,
2023		December 31,
2022
ASSETS(Unaudited)
Cash and cash equivalents$719,073 $863,956 
Restricted cash61,294 116,545 
Accounts receivable, net68,581 145,279 
Loans held for sale, at fair value (includes $501,320 and $497,574 pledged to creditors in securitization trusts at June 30, 2023 and December 31, 2022, respectively)
2,256,551 2,373,427 
Derivative assets, at fair value80,382 39,411 
Servicing rights, at fair value (includes $582,748 and $544,729 pledged to creditors in securitization trusts at June 30, 2023 and December 31, 2022, respectively)
2,012,049 2,037,447 
Trading securities, at fair value93,442 94,243 
Property and equipment, net82,677 92,889 
Operating lease right-of-use assets34,040 35,668 
Prepaid expenses and other assets129,675 155,982 
Loans eligible for repurchase647,418 634,677 
Investments in joint ventures18,322 20,410 
Total assets$6,203,504 $6,609,934 
LIABILITIES AND EQUITY
Warehouse and other lines of credit$2,046,208 $2,146,602 
Accounts payable, accrued expenses and other liabilities407,356 488,696 
Derivative liabilities, at fair value8,790 67,492 
Liability for loans eligible for repurchase647,418 634,677 
Operating lease liability56,552 61,675 
Debt obligations, net2,239,836 2,289,319 
Total liabilities5,406,160 5,688,461 
Commitments and contingencies (Note 14)
Class A common stock, $0.001 par value, 2,500,000,000 authorized, 80,847,554 and 74,277,152 issued at June 30, 2023 and December 31, 2022, respectively
$81 $74 
Class B common stock, $0.001 par value, 2,500,000,000 authorized, none issued at June 30, 2023 and December 31, 2022, respectively
— — 
Class C common stock, $0.001 par value, 2,500,000,000 authorized, 144,026,439 and 145,693,119 issued at June 30, 2023 and December 31, 2022, respectively
144 146 
Class D common stock, $0.001 par value, 2,500,000,000 authorized, 97,026,671 and 97,026,671 issued at June 30, 2023 and December 31, 2022, respectively
97 97 
Preferred stock, $0.001 par value, 50,000,000 authorized, none issued at June 30, 2023 and December 31, 2022, respectively
— — 
Treasury stock at cost, 2,860,164 and 1,780,141 shares at June 30, 2023 and December 31, 2022, respectively
(15,324)(13,282)
Additional paid-in capital812,614 788,601 
Retained deficit
(408,220)(342,137)
Noncontrolling interest407,952 487,974 
Total equity797,344 921,473 
Total liabilities and equity$6,203,504 $6,609,934 
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,
2023202220232022
REVENUES:
Interest income$33,060 $62,722 $61,017 $115,687 
Interest expense(30,209)(39,923)(56,969)(79,813)
Net interest income
2,851 22,799 4,048 35,874 
Gain on origination and sale of loans, net154,335 146,562 262,487 509,692 
Origination income, net18,332 39,108 30,349 98,181 
Servicing fee income117,737 117,326 236,699 228,385 
Change in fair value of servicing rights, net(38,474)(33,507)(91,280)(101,890)
Other income17,052 16,351 37,431 41,707 
Total net revenues271,833 308,639 479,734 811,949 
EXPENSES:
Personnel expense157,799 296,569 298,826 642,563 
Marketing and advertising expense34,712 60,837 70,626 162,350 
Direct origination expense17,224 33,996 34,603 87,153 
General and administrative expense54,817 63,927 110,951 113,675 
Occupancy expense6,099 9,388 12,180 18,784 
Depreciation and amortization10,721 11,323 20,747 21,867 
Servicing expense5,750 10,741 10,583 32,252 
Other interest expense43,026 33,140 86,116 47,533 
Goodwill impairment— 40,736 — 40,736 
Total expenses330,148 560,657 644,632 1,166,913 
Loss before income taxes
(58,315)(252,018)(164,898)(354,964)
Income tax benefit
(8,556)(28,196)(23,418)(39,823)
Net loss
(49,759)(223,822)(141,480)(315,141)
Net loss attributable to noncontrolling interests
(26,316)(122,894)(75,130)(179,472)
Net loss attributable to loanDepot, Inc.
$(23,443)$(100,928)$(66,350)$(135,669)
Loss per share:
Basic$(0.13)$(0.66)$(0.38)$(0.93)
Diluted$(0.13)$(0.66)$(0.38)$(0.93)
Weighted average shares outstanding:
Basic173,908,030 153,822,380 172,358,924 146,415,135 
Diluted173,908,030 153,822,380 172,358,924 146,415,135 

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, 202243,600,418 170,690,888 97,026,671 $45 $171 $97 $(13,015)$656,267 $(77,151)$944,755 $1,511,169 
Deferred taxes and other tax adjustments associated with the Reorganization and IPO— — — — — — — (18,426)— — (18,426)
Net issuance of common stock under stock-based compensation plans19,992,630 (18,499,494)— 20 (19)— (72)122,452 — (122,453)(72)
Forfeiture of accrued dividend equivalents on unvested Class A RSUs— — — — — — — — 37 45 82 
Stock-based compensation— — — — — — — 2,342 — 2,369 4,711 
Distributions for taxes on behalf of shareholders, net— — — — — — — — (27,193)(32,586)(59,779)
Net loss
— — — — — — — — (100,928)(122,894)(223,822)
Balance at June 30, 202263,593,048 152,191,394 97,026,671 $65 $152 $97 $(13,087)$762,635 $(205,235)$669,236 $1,213,863 
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 
Deferred taxes and other tax adjustments related to conversions and exchanges— — — — — — — 1,485 — — 1,485 
Net issuance of common stock under stock-based compensation plans2,886,220 (956,586)— 4 (1)— (1,471)5,733 — (5,736)(1,471)
Forfeiture of accrued 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 

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, 202136,466,936 172,729,168 100,822,084 $38 $173 $101 $(12,852)$565,073 $(28,976)$1,105,803 $1,629,360 
Deferred taxes and other tax adjustments associated with the reorganization and IPO— — — — — — — (17,744)— — (17,744)
Net issuance of common stock under stock-based compensation plans27,126,112 (20,537,774)(3,795,413)27 (21)(4)(235)211,930 — (211,932)(235)
Dividends to Class A and Class D shareholders ($0.08 per share)
— — — — — — — — (5,273)(6,397)(11,670)
Distributions to Class C shareholders — — — — — — — — (6,338)(7,665)(14,003)
Stock-based compensation— — — — — — — 3,376 — 3,645 7,021 
Distributions for taxes on behalf of shareholders, net— — — — — — — (28,979)(34,746)(63,725)
Net loss
— — — — — — — (135,669)(179,472)(315,141)
Balance at June 30, 202263,593,048 152,191,394 97,026,671 $65 $152 $97 $(13,087)$762,635 $(205,235)$669,236 $1,213,863 
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 
Deferred taxes and other tax adjustments related to conversions and exchanges— — — — — — — 6,666 — — 6,666 
Net issuance of common stock under stock-based compensation plans5,490,379 (1,666,680)— 7 (2)— (2,042)10,999 — (10,503)(1,541)
Forfeiture of accrued dividend equivalents on unvested Class A RSUs— — — — — — — — 129 163 292 
Stock-based compensation— — — — — — — 6,348 — 5,330 11,678 
Refund of tax distributions, 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 
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,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$(141,480)$(315,141)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization expense20,747 21,867 
Amortization of operating lease right-of-use asset6,788 11,272 
Amortization of debt issuance costs3,430 8,067 
Gain on origination and sale of loans(187,050)(809,990)
Gain on sale of servicing rights(7,164)(20,041)
Fair value change in trading securities(1,671)13,883 
Provision for loss obligation on sold loans and servicing rights12,152 108,120 
Decrease in provision for deferred income taxes(22,993)(39,643)
Fair value change in derivative assets(596)191,682 
Fair value change in derivative liabilities(58,702)34,961 
Premium paid on derivatives(40,375)(150,624)
Fair value change in loans held for sale(24,430)174,519 
Fair value change in servicing rights71,505 (154,290)
Stock-based compensation expense11,679 7,021 
Originations of loans(11,091,542)(37,142,855)
Proceeds from sales of loans11,481,093 40,992,588 
Proceeds from principal payments46,785 100,885 
Payments to investors for loan repurchases(273,143)(376,387)
Gain on extinguishment of debt(39)(10,528)
Goodwill impairment— 40,736 
Disbursements from joint ventures7,396 4,565 
Other changes in operating assets and liabilities55,529 (19,739)
Net cash (used in) provided by operating activities
(132,081)2,670,928 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment(11,547)(28,844)
Proceeds from sale of servicing rights97,193 387,968 
Cash flows received on trading securities2,472 4,109 
Investments in joint ventures— (350)
Net cash flows provided by investing activities
88,118 362,883 

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,
20232022
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings on warehouse and other lines of credit$10,255,564 $42,522,401 
Repayment of borrowings on warehouse and other lines of credit(10,355,959)(45,714,257)
Proceeds from debt obligations197,949 2,099,247 
Payments on debt obligations(249,248)(1,290,746)
Payments of debt issuance costs(761)(4,135)
Treasury stock purchased to net settle and withhold taxes on vested shares(2,042)(235)
Dividends and shareholder distributions(1,674)(117,107)
Net cash used in financing activities
(156,171)(2,504,832)
Net change in cash and cash equivalents and restricted cash(200,134)528,979 
Cash and cash equivalents and restricted cash at beginning of the period980,501 620,596 
Cash and cash equivalents and restricted cash at end of the period
$780,367 $1,149,575 
SUPPLEMENTAL DISCLOSURES:
Cash paid (received) during the period for:
Interest$162,138 $120,060 
Income taxes(3,525)24,223 
Supplemental disclosure of noncash investing and financing activities
Operating leases right-of-use assets obtained in exchange for lease liabilities$5,501 $8,656 
Trading securities retained in securitizations— 50,426 


See accompanying notes to the unaudited consolidated financial statements.

6

loanDepot, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ are in thousands, 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, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. 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, 2022 (“2022 Form 10-K”).

Nature of Operations

loanDepot, Inc. 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. As of June 30, 2023, the consolidated subsidiaries of LD Holdings included loanDepot.com, LLC, (“LDLLC”), Artemis Management LLC (“ART”), LD Settlement Services, LLC (“LDSS”), mello Holdings, LLC (“Mello”), and mello Credit Strategies LLC (“MCS”).

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, income from loan servicing, and fees charged for settlement services related to the origination and sale of loans.

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 2022 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” or the “Codification”). In the opinion of management, the unaudited condensed 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 (“Holdco Units”) and Class C common stock, (“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


7


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.

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 significant estimates in certain areas, including determining the fair value of loans held for sale, servicing rights, derivative assets and derivative liabilities, trading securities, awards granted under the incentive equity plan, determining the loan loss obligation on sold loans and MSRs. Actual results could differ from those estimates.

Concentration of Risk

The Company has concentrated its 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 17% of total loan originations for the six months ended June 30, 2023.

The Company sells mortgage loans to various third-party investors. Four investors accounted for 35%, 28%, 12%, and 6% of the Company’s loan sales for the six months ended June 30, 2023. No other investors accounted for more than 5% of the loan sales for the six months ended June 30, 2023.

The Company funds loans through warehouse and other lines of credit. As of June 30, 2023, 19% and 11% of the Company's warehouse lines were payable to two separate lenders.



8



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 2022 Form 10-K 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.

The following tables present the carrying amount and estimated fair value of financial instruments included in the consolidated financial statements.

June 30, 2023
Carrying AmountEstimated Fair Value
Level 1Level 2Level 3
Assets
Cash and cash equivalents$719,073 $719,073 $— $— 
Restricted cash61,294 61,294 — — 
Loans held for sale, at fair value2,256,551 — 2,256,551 — 
Derivative assets, at fair value80,382 4,640 23,142 52,600 
Servicing rights, at fair value2,012,049 — — 2,012,049 
Trading securities, at fair value93,442 — 93,442 — 
Loans eligible for repurchase647,418 — 647,418 — 
Liabilities
Warehouse and other lines of credit$2,046,208 $— $2,046,208 $— 
Derivative liabilities, at fair value8,790 4,342 896 3,552 
Servicing rights, at fair value13,287 — — 13,287 
Debt obligations:
Secured credit facilities1,046,730 — 1,047,614 — 
Term Notes199,916 — 200,000 — 
Senior Notes993,190 — 682,449 — 
Liability for loans eligible for repurchase647,418 — 647,418 — 



9


December 31, 2022
Carrying AmountEstimated Fair Value
Level 1Level 2Level 3
Assets
Cash and cash equivalents$863,956 $863,956 $— $— 
Restricted cash116,545 116,545 — — 
Loans held for sale, at fair value2,373,427 — 2,373,427 — 
Derivative assets, at fair value39,411 — 10,037 29,374 
Servicing rights, at fair value2,037,447 — — 2,037,447 
Trading securities, at fair value94,243 — 94,243 — 
Loans eligible for repurchase634,677 — 634,677 — 
Liabilities
Warehouse and other lines of credit$2,146,602 $— $2,146,602 $— 
Derivative liabilities, at fair value67,492 18,226 43,482 5,784 
Servicing rights, at fair value12,311 — — 12,311 
Debt obligations:
Secured credit facilities1,097,831 — 1,098,853 — 
Term Notes199,666 — 200,000 — 
Senior Notes991,822 — 645,495 — 
Liability for loans eligible for repurchase634,677 — 634,677 — 

Financial Statement Items Measured at Fair Value on a Recurring Basis

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.


10


June 30, 2023
Level 1Level 2Level 3Total
Fair value through net income:
Assets:
Loans held for sale$— $2,256,551 $— $2,256,551 
Trading securities— 93,442 — 93,442 
Derivative assets:
Interest rate lock commitments— — 52,600 52,600 
Forward sale contracts— 23,142 — 23,142 
Interest rate swap futures4,640 — — 4,640 
Servicing rights— — 2,012,049 2,012,049 
Total assets at fair value$4,640 $2,373,135 $2,064,649 $4,442,424 
Liabilities:
Derivative liabilities:
Interest rate lock commitments$— $— $3,552 $3,552 
Forward sale contracts— 896 — 896 
Put options on treasuries4,342 — — 4,342 
Servicing rights— — 13,287 13,287 
Total liabilities at fair value$4,342 $896 $16,839 $22,077 


December 31, 2022
Level 1Level 2Level 3Total
Fair value through net income:
Assets:
Loans held for sale$— $2,373,427 $— $2,373,427 
Trading securities— 94,243 — 94,243 
Derivative assets:
Interest rate lock commitments— — 29,374 29,374 
Forward sale contracts— 6,676 — 6,676 
MBS put options— 3,361 — 3,361 
Servicing rights— — 2,037,447 2,037,447 
Total assets at fair value$— $2,477,707 $2,066,821 $4,544,528 
Liabilities:
Derivative liabilities:
Interest rate lock commitments$— $— $5,784 $5,784 
Forward sale contracts— 43,482 — 43,482 
Put options on treasuries10,831 — — 10,831 
Interest rate swap futures7,395 — — 7,395 
Servicing rights— — 12,311 12,311 
Total liabilities at fair value$18,226 $43,482 $18,095 $79,803 




11



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, 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 or losses included in earnings (realized and unrealized)102,124 67,358 199,308 70,820 
Sales and settlements
Sales— (85,164)— (97,194)
Settlements (1)
(85,179)— (128,843)— 
Transfers of IRLCs to closed loans(26,619)— (45,007)— 
Balance at end of period$49,048 $1,998,762 $49,048 $1,998,762 
(1)Funded amount for IRLCs.

Three Months Ended June 30, 2022Six Months Ended June 30, 2022
IRLCs, netServicing
Rights, net		IRLCs, netServicing
Rights, net
Balance at beginning of period$12,000 $2,078,187 $180,620 $1,999,402 
Total net gains or losses included in earnings (realized and unrealized)114,197 212,777 257,154 624,546 
Sales and settlements
Sales— (86,371)— (419,355)
Settlements (1)
(38,536)— (271,458)— 
Transfers of IRLCs to closed loans(30,056)— (108,711)— 
Balance at end of period$57,605 $2,204,593 $57,605 $2,204,593 
(1)Funded amount for IRLCs.

The following presents the gains and losses included in earnings relating to 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, 2023Six Months Ended June 30, 2023
IRLCs, netServicing Rights, netIRLCs, net
Servicing
Rights, net
Total net gains (losses) included in:
Gain on origination and sale of loans, net$(9,674)$75,866 $25,458 $135,161 
Change in fair value of servicing rights, net— (8,508)— (64,341)
Total$(9,674)$67,358 $25,458 $70,820 
Change in unrealized gains (losses) relating to assets and liabilities still held at period end
$49,048 $(53,577)$49,048 $(44,788)


12


Three Months Ended June 30, 2022Six Months Ended June 30, 2022
IRLCs, netServicing Rights, netIRLCs
Servicing
Rights, net
Total net gains (losses) included in:
Gain on origination and sale of loans, net$45,605 $180,455 $(123,015)$450,215 
Change in fair value of servicing rights, net— 32,322 — 174,331 
Total$45,605 $212,777 $(123,015)$624,546 
Change in unrealized gains relating to assets and liabilities still held at period end
$57,605 $215,835 $57,605 $615,444 

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, 2023December 31, 2022
Unobservable InputRange of inputs
Weighted Average(1)
Range of inputs
Weighted Average(1)
IRLCs
  Pull-through rate2.0%-99.9%78.1%8.4%-99.9%75.3%
Servicing rights
  Discount rate(2)
4.8%-16.4%6.4%5.0%-16.1%6.5%
  Prepayment rate(2)
5.7%-18.5%7.5%5.8%-17.6%7.2%
  Cost to service (per loan)$62-$135$89$63-$138$87
(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 non-recurring basis as of June 30, 2023 or December 31, 2022.

Financial Statement Items Measured at Amortized Cost

Warehouse and other lines of credit - The Company’s warehouse and other lines of credit bear interest at a rate that is periodically adjusted based on a market index. The carrying value of warehouse and other lines of credit approximates fair value.

Debt obligations, net - Debt consists of secured credit facilities, Term Notes, and Senior Notes. The Company’s secured credit facilities and Term Notes accrue interest at a stated base rate, plus a margin, they are highly liquid and short-term in nature and as a result, their carrying value approximated fair value as of June 30, 2023 and December 31, 2022. Fair value of the Company’s Senior Notes issued in October 2020 and March 2021 were estimated using the quoted market prices at June 30, 2023. The debt obligations are classified as Level 2 in the fair value hierarchy.



13




NOTE 3 – LOANS HELD FOR SALE, AT FAIR VALUE

The following table represents the unpaid principal balance of LHFS by product type of loan as of June 30, 2023 and December 31, 2022:
June 30,
2023		December 31,
2022
Amount%Amount%
Conforming - fixed$1,245,676 54 %$1,441,497 59 %
Conforming - ARM20,172 1 52,513 2 
Government - fixed 891,887 40 815,921 34 
Government - ARM10,365 — 17,788 1 
Other - residential mortgage loans123,648 5 101,137 4 
Consumer loans1,731 — 1,774 — 
Total2,293,479 100 %2,430,630 100 %
Fair value adjustment(36,928)(57,203)
Loans held for sale, at fair value$2,256,551 $2,373,427 

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,
2023202220232022
Balance at beginning of period$2,039,367 $6,558,668 $2,373,427 $8,136,817 
Origination and purchase of loans6,200,295 15,769,229 11,091,542 37,142,855 
Sales(6,046,785)(17,876,229)(11,429,204)(40,681,596)
Repurchases109,683 194,650 243,141 333,666 
Principal payments(31,688)(40,598)(46,785)(100,885)
Fair value (loss) gain
(14,321)50,618 24,430 (174,519)
Balance at end of period$2,256,551 $4,656,338 $2,256,551 $4,656,338 



14


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

Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
Discount from loan sales
$(16,648)$(437,194)$(43,317)$(673,291)
Servicing rights additions75,866 180,455 135,161 450,215 
Unrealized gains (losses) from derivative assets and liabilities
27,097 (190,545)63,157 (31,803)
Realized gains (losses) from derivative assets and liabilities
3,703 553,834 (43,354)902,875 
Discount points, rebates and lender paid costs81,114 71,767 138,560 131,834 
Fair value (loss) gain
(14,321)50,618 24,430 (174,519)
Provision for loan loss obligation for loans sold(2,476)(82,373)(12,150)(95,619)
Total gain on origination and sale of loans, net$154,335 $146,562 $262,487 $509,692 

The Company had $25.8 million and $24.8 million of loans held for sale on non-accrual status as of June 30, 2023 and December 31, 2022, respectively.


NOTE 4 – SERVICING RIGHTS, AT FAIR VALUE

The outstanding principal balance of the servicing portfolio was comprised of the following:
June 30,
2023		December 31,
2022
Conventional$103,820,875 $104,074,252 
Government38,658,995 37,096,679 
Total servicing portfolio$142,479,870 $141,170,931 


A summary of the changes in the balance of servicing rights, net of servicing rights liability is as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
Balance at beginning of period$2,016,568 $2,078,187 $2,025,136 $1,999,402 
Additions75,866 180,455 135,161 450,215 
Sales proceeds, net(78,191)(86,464)(90,030)(399,314)
Changes in fair value:
Due to changes in valuation inputs or assumptions26,138 98,795 4,771 297,792 
Due to collection/realization of cash flows(41,619)(66,380)(76,276)(143,502)
Balance at end of period$1,998,762 $2,204,593 $1,998,762 $2,204,593 



15


The following is a summary of the components of loan servicing fee income as reported in the Company’s consolidated statements of operations:
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
Contractual servicing fees$95,308 $113,824 $196,440 $222,650 
Late, ancillary and other fees22,429 3,502 40,259 5,735 
Servicing fee income$117,737 $117,326 $236,699 $228,385 

The following is a summary of the components of change in fair value of servicing rights, net as reported in the Company’s consolidated statements of operations:
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
Changes in fair value:
Due to changes in valuation inputs or assumptions$26,138 $98,795 $4,771 $297,792 
Due to collection/realization of cash flows(41,619)(66,380)(76,276)(143,502)
Realized gains (losses) on sales of servicing rights
7,021 (2,493)7,161 7,540 
Net loss from derivatives hedging servicing rights
(30,014)(63,429)(26,936)(263,720)
Changes in fair value of servicing rights, net$(38,474)$(33,507)$(91,280)$(101,890)

The table below illustrates hypothetical changes in fair values of servicing rights, caused by assumed immediate changes to key assumptions that are used to determine fair value.


June 30,
2023		December 31,
2022
Fair Value of Servicing Rights, net$1,998,762 $2,025,136 
Change in Fair Value from adverse changes:
Discount Rate:
Increase 1%(77,924)(81,431)
Increase 2%(150,990)(157,281)
Cost of Servicing:
Increase 10%(19,374)(19,017)
Increase 20%(38,845)(38,127)
Prepayment Speed:
Increase 10%(19,850)(18,863)
Increase 20%(39,278)(37,546)

Sensitivities are hypothetical changes in fair value and cannot be extrapolated because the relationship of changes in assumptions to changes in fair value may not be linear. Also, the effect of a variation in a particular assumption is calculated without changing any other assumption, whereas a change in one factor may result in changes to another. Accordingly, no assurance can be given that actual results would be consistent with the results of these estimates. As a result, actual future changes in servicing rights values may differ significantly from those displayed above.





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NOTE 5 – DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Derivative instruments utilized by the Company primarily include interest rate lock commitments, forward sale contracts, MBS put options, put options on treasuries, and interest rate swap futures. Derivative financial instruments are recognized as assets or liabilities and are measured at fair value. The Company accounts for derivatives as free-standing derivatives and does not designate any derivative financial instruments for hedge accounting. All derivative financial instruments are recognized on the consolidated balance sheets at fair value with changes in the fair values being reported in current period earnings. The Company does not use derivative financial instruments for purposes other than in support of its risk management activities. Refer to Note 1- Description of Business and Summary of Significant Accounting Policies and Note 2- Fair Value for further details on derivatives in the 2022 Form 10-K.

The following summarizes the Company’s outstanding derivative instruments:
Fair Value
NotionalBalance Sheet LocationAssetLiability
June 30, 2023:
Interest rate lock commitments $2,788,282 Derivative asset, at fair value$52,600 
Interest rate lock commitments 442,711 Derivative liabilities, at fair value— 3,552 
Forward sale contracts 3,343,849 Derivative asset, at fair value23,142 — 
Forward sale contracts 84,577 Derivative liabilities, at fair value— 896 
Put options on treasuries — Derivative asset, at fair value— — 
Put options on treasuries 7,275 Derivative liabilities, at fair value— 4,342 
Interest rate swap futures 2,088 Derivative asset, at fair value4,640 — 
Interest rate swap futures — Derivative liabilities, at fair value— — 
Total derivative financial instruments$80,382 $8,790 

Fair Value
NotionalBalance Sheet LocationAssetLiability
December 31, 2022:
Interest rate lock commitments $1,591,807 Derivative asset, at fair value$29,374 $— 
Interest rate lock commitments 622,706 Derivative liabilities, at fair value— 5,784 
Forward sale contracts 309,809 Derivative asset, at fair value6,676 — 
Forward sale contracts 2,963,685 Derivative liabilities, at fair value— 43,482 
Put options on treasuries — Derivative asset, at fair value— — 
Put options on treasuries 8,050 Derivative liabilities, at fair value— 10,831 
MBS put options400,000 Derivative asset, at fair value3,361 — 
MBS put options— Derivative liabilities, at fair value— — 
Interest rate swap futures — Derivative asset, at fair value— — 
Interest rate swap futures 211 Derivative liabilities, at fair value— 7,395 
Total derivative financial instruments$39,411 $67,492 



17


Because many of the Company’s current derivative agreements are not exchange-traded, the Company is exposed to credit loss in the event of nonperformance by the counterparty to the agreements. The Company controls this risk through credit monitoring procedures including financial analysis, dollar limits and other monitoring procedures. The notional amount of the contracts does not represent the Company’s exposure to credit loss.

The following summarizes the realized and unrealized net gains or losses on derivative financial instruments and the consolidated statements of operations line items where such gains and losses are included:
Three Months Ended
June 30,		Six Months Ended
June 30,
Derivative instrumentStatements of Operations Location2023202220232022
Interest rate lock commitments, netGain on origination and sale of loans, net$(9,674)$45,605 $25,458 $(123,015)
Forward sale contractsGain on origination and sale of loans, net44,183 297,939 1,047 962,458 
Interest rate swap futuresGain on origination and sale of loans, net(6,999)(50,848)(7,059)(84,530)
Put optionsGain on origination and sale of loans, net3,290 70,593 357 116,159 
Forward sale contractsChange in fair value of servicing rights, net(5,635)(23,399)(8,427)(97,627)
Interest rate swap futuresChange in fair value of servicing rights, net(10,012)(38,916)(8,773)(165,579)
Put optionsChange in fair value of servicing rights, net(14,367)(1,114)(9,736)(514)
Total realized and unrealized gains (losses) on derivative financial instruments
$786 $299,860 $(7,133)$607,352 

NOTE 6 – BALANCE SHEET NETTING

The Company has entered into agreements with counterparties, which include netting arrangements whereby the counterparties are entitled to settle their positions on a net basis. In certain circumstances, the Company is required to provide certain counterparties financial instruments and cash collateral against derivative financial instruments, warehouse and other lines of credit, or debt obligations. Cash collateral is held in margin accounts and included in restricted cash on the Company's consolidated balance sheets.

The table below represents financial assets and liabilities that are subject to master netting arrangements or similar agreements categorized by financial instrument, together with corresponding financial instruments and corresponding collateral received or pledged. In circumstances where right of set off criteria is met, the related asset and liability are presented in a net position on the consolidated balance sheets. Warehouse and other lines of credit and secured debt obligations were secured by financial instruments and cash collateral with fair values that exceeded the liability amount recorded on the consolidated balance sheets as of June 30, 2023 and December 31, 2022, respectively. Refer to Note 8 – Warehouse and Other Lines of Credit for further details on cash collateral requirements.


18


June 30, 2023
Gross amounts recognizedGross amounts offset in consolidated balance sheetNet amounts presented in consolidated balance sheetGross amounts not offset in consolidated balance sheetNet amount
Financial instrumentsCash collateral
Assets:
Forward sale contracts$32,351 $(9,209)$23,142 $— $(13,847)$9,295 
Interest rate swap futures4,640 — 4,640 — — 4,640 
Total Assets$36,991 $(9,209)$27,782 $— $(13,847)$13,935 
Liabilities:
Forward sale contracts$10,105 $(9,209)$896 $— $— $896 
Put options on treasuries4,342 — 4,342 — (4,342)— 
Warehouse and other lines of credit2,046,208 — 2,046,208 (2,046,208)— — 
Secured debt obligations (1)
1,247,614 — 1,247,614 (1,247,614)— — 
Total liabilities$3,308,269 $(9,209)$3,299,060 $(3,293,822)$(4,342)$896 
(1)Secured debt obligations as of June 30, 2023 included secured credit facilities and Term Notes.

December 31, 2022
Gross amounts recognizedGross amounts offset in consolidated balance sheetsNet amounts presented in consolidated balance sheetsGross amounts not offset in consolidated balance sheetsNet amount
Financial instrumentsCash collateral
Assets:
Forward sale contracts$39,386 $(32,710)$6,676 $— $— $6,676 
MBS put options3,361 — 3,361 — — 3,361 
Total assets$42,747 $(32,710)$10,037 $— $— $10,037 
Liabilities:
Forward sale contracts$76,192 $(32,710)$43,482 $— $(36,270)$7,212 
Put options on treasuries10,831 — 10,831 — (10,831)— 
Interest rate swap futures7,395 — 7,395 — (7,395)— 
Warehouse and other lines of credit2,146,602 — 2,146,602 (2,146,602)— — 
Secured debt obligations (1)1,298,853 — 1,298,853 (1,298,853)— — 
Total liabilities$3,539,873 $(32,710)$3,507,163 $(3,445,455)$(54,496)$7,212 
(1)Secured debt obligations as of December 31, 2022 included secured credit facilities and Term Notes.


NOTE 7 – VARIABLE INTEREST ENTITIES

The determination of whether the assets and liabilities of the VIEs are consolidated or not consolidated in the consolidated balance sheets depends on the terms of the related transaction and the Company’s continuing involvement, if any, with the VIE. The Company is deemed the primary beneficiary and therefore consolidates VIEs for which it has both (a) the power, through voting rights or similar rights, to direct the activities that most significantly impact the VIE's economic performance, and (b) benefits, as defined, from the VIE. The Company determines whether it holds a significant variable interest in a VIE based on a consideration of both qualitative and quantitative factors regarding the nature, size, and form of its involvement with the VIE. The Company assesses whether it is the primary beneficiary of a VIE on an ongoing basis. The Company did not provide any non-contractual financial support to VIEs for the six months ended June 30, 2023 and year ended December 31, 2022.



19


Consolidated VIEs

The Company is a holding company, its sole material asset is its equity interest in LD Holdings and as the sole managing member of LD Holdings, the Company indirectly operates and controls all of LD Holdings’ business and affairs. LD Holdings is considered a VIE and the financial results of LD Holdings and its subsidiaries are consolidated. A portion of net earnings or loss is allocated to noncontrolling interest to reflect the entitlement of the Continuing LLC Members.

The Company is involved in several types of securitization and financing transactions that utilize special purpose entities (“SPEs”). The Company’s principal use of SPEs is to obtain liquidity by securitizing certain of its financial and non-financial assets. SPEs involved in the Company’s securitization and other financing transactions are often considered VIEs.

The Company consolidates securitization facilities that finance mortgage loans held for sale, and SPEs established as trusts to finance mortgage servicing rights and servicing advance receivables. The Company sells assets to a securitization or trust, which issue beneficial interests that are collateralized by the transferred assets and entitle the investors to specified cash flows generated therefrom. The Company may retain beneficial interests in the assets sold. The Company also holds certain conditional repurchase options specific to these securitizations that allow it to repurchase assets from the securitization entity. The Company’s economic exposure to loss from outstanding third-party financing is generally limited to the carrying value of the assets financed. The Company has retained risks in the securitizations including customary representations and warranties. For securitization facilities, the Company, as seller, has an option to prepay and redeem outstanding classes of issued notes after a set time period has elapsed. The Company’s exposure to these entities is primarily through its role as seller, servicer, and administrator. Servicing functions include, but are not limited to, general collection activity, preparing and furnishing statements, and loss mitigation efforts including repossession and sale of collateral.

The Company sells mortgage loans to investors through private label securitizations, which are accounted for either as sales or secured borrowings. The Company may retain economic interests in the securitized and sold assets, which are generally retained in the form of senior or subordinated interests, residual interests, and/or servicing rights. The Company evaluates its interests in each private label securitization for classification as a VIE. The Company accounts for a securitization as a sale when it has relinquished control over the transferred financial assets and does not hold other interests in the VIE that individually, or in the aggregate, would absorb more than an insignificant amount of the VIE’s expected losses or receive more than an insignificant amount of the VIE’s expected residual returns. The Company has an option to exercise a cleanup call to purchase the remaining mortgage loans and any trust property when the remaining aggregate principal balance is less than 10% of the initial aggregate principal balance.

The table below presents a summary of the carrying value and balance sheet classification of assets and liabilities in the Company’s securitization and SPE VIEs
June 30,
2023		December 31,
2022
Assets
Loans held for sale, at fair value$501,320 $497,574 
Restricted cash6,620 6,735 
Servicing rights, at fair value582,748 544,729 
Prepaid expenses and other assets59,727 54,887 
Total$1,150,415 $1,103,925 
Liabilities
Warehouse and other lines of credit$500,000 $500,000 
Debt obligations, net:
MSR Facilities 144,374 116,874 
Servicing advance facilities20,070 48,484 
Term notes199,916 199,666 
Total$864,360 $865,024 



20


Non-Consolidated VIEs

The nature, purpose, and activities of non-consolidated VIEs currently encompass the Company’s investments in retained interests from securitizations and joint ventures. The table below presents a summary of the nonconsolidated VIEs for which the Company holds variable interests.


June 30, 2023
Carrying valueMaximum
exposure to loss		Total assets in VIEs
AssetsLiabilities
Retained interests$93,442 $— $93,442 $2,254,850 
Investments in joint ventures18,322 — 18,322 19,139 
Total$111,764 $— $111,764 
December 31, 2022
Carrying valueMaximum
exposure to loss		Total assets in VIEs
AssetsLiabilities
Retained interests$94,243 $— $94,243 $2,309,739 
Investments in joint ventures20,410 — 20,410 38,682 
Total$114,653 $— $114,653 

Retained interests

In 2022 and 2021, the Company completed the sale and securitization of non-owner occupied residential mortgage loans. Pursuant to the credit risk retention requirements, the Company, as sponsor, is required to retain at least a 5% economic interest in the credit risk of the assets collateralizing the securitization transactions. The retained interests represent a variable interest in the securitizations. The Company determined it was not the primary beneficiary of the VIE. The Company’s continuing involvement is limited to customary servicing obligations as servicer and servicing administrator associated with retained servicing rights and the receipt of principal and interest associated with the retained interests. The investors and the securitization trusts have no recourse to the Company’s assets; holders of the securities issued by each trust can look only to the loans owned by the trust for payment. The retained interests held by the Company are subject principally to the credit risk stemming from the underlying transferred loans. The securitization trusts used to effect these transactions are variable interest entities that the Company does not consolidate. The Company remeasures the carrying value of its retained interests at each reporting date to reflect their current fair value which is included in trading securities, at fair value on the consolidated balance sheets, with corresponding gains or losses included in other income on the consolidated statements of operations. As of June 30, 2023, the remaining principal balance of loans transferred to these securitization trusts was $2.3 billion of which $10.0 million was 90 days or more past due.

Investments in joint ventures

The Company’s joint ventures include investments with home builders, real estate brokers, and commercial real estate companies to provide loan origination services and real estate settlement services to customers referred by the Company’s joint venture partners. The Company is generally not determined to be the primary beneficiary in its joint venture VIEs because it does not have the power, through voting rights or similar rights, to direct the activities that most significantly impact the economic performance of the VIE. The Company’s pro rata share of net earnings of joint ventures was $5.7 million and $9.5 million for the three and six months ended June 30, 2023, respectively, and $4.2 million and $6.2 million for the three and six months ended June 30, 2022, respectively, and is included in other income in the consolidated statements of operations.



21



NOTE 8 – WAREHOUSE AND OTHER LINES OF CREDIT

At June 30, 2023, the Company was a party to 9 revolving lines of credit with lenders providing an aggregate $3.9 billion of warehouse and securitization facilities. The facilities are used to fund, and are secured by, residential mortgage loans held for sale. The facilities are repaid using proceeds from the sale of loans. Interest is generally payable monthly in arrears or on the repurchase date of a loan, and outstanding principal is payable upon receipt of loan sale proceeds or on the repurchase date of a loan. Outstanding principal related to a particular loan must also be repaid after the expiration of a contractual period of time or, if applicable, upon the occurrence of certain events of default with respect to the underlying loan. Interest expense is recorded to interest expense on the consolidated statements of operations. The base interest rates on the facilities bear interest at the secured overnight financing rate (“SOFR”), or other alternative base rate, plus a margin. Some of the facilities carry additional fees charged on the total line amount, commitment fees charged on the committed portion of the line, and non-usage fees charged when monthly usage falls below a certain utilization percentage. As of June 30, 2023, the interest rate was comprised of the applicable base rate plus a spread ranging from 1.37% to 2.25%. The base interest rate for warehouse facilities is subject to increase based upon the characteristics of the underlying loans collateralizing the lines of credit, including, but not limited to product type and number of days held for sale. The warehouse lines are scheduled to expire through 2024. As of June 30, 2023 there was one securitization facility with an original three year term scheduled to expire in 2024. All warehouse lines and other lines of credit are subject to renewal based on an annual credit review conducted by the lender.

Certain warehouse line lenders require the Company to maintain cash accounts with minimum required balances at all times. As of June 30, 2023 and December 31, 2022, the Company had posted a total of $10.9 million and $11.0 million, restricted cash as collateral with our warehouse lenders and securitization facilities of which $4.3 million and $4.3 million were the minimum required balances.

Under the terms of these warehouse lines, the Company is required to maintain various covenants. As of June 30, 2023, the Company amended certain warehouse lines related to certain profitability covenants, following which the Company was in compliance with the covenants under the warehouse lines.

Securitization Facilities

In October 2021, the Company issued notes and a class of owner trust certificates through an additional securitization facility (“2021-3 Securitization Facility”) backed by a revolving warehouse line of credit. The 2021-3 Securitization Facility is secured by newly originated, first-lien, fixed-rate or adjustable-rate, residential mortgage loans originated in accordance with the criteria of Fannie Mae and Freddie Mac for the purchase of mortgage loans or in accordance with the criteria of Ginnie Mae for the guarantee of securities backed by mortgage loans. The 2021-3 Securitization Facility issued $500.0 million in notes that bear interest at SOFR, plus a margin. The 2021-3 Securitization Facility will terminate on the earlier of (i) the three-year anniversary of the initial purchase date, (ii) the Company exercising its right to optional prepayment in full, and (iii) the date of the occurrence and continuance of an event of default.


22



The following table presents information on warehouse and securitization facilities and the outstanding balance as of June 30, 2023 and December 31, 2022:
Outstanding Balance
Committed
Amount		Uncommitted
Amount		Total
Facility
Amount		Expiration
Date		June 30,
2023		December 31,
2022
Facility 1(1)
$400,000 $350,000 $750,000 10/26/2023$383,148 $382,098 
Facility 2(2)
— 300,000 300,000 9/25/2023196,350 236,144 
Facility 3— 300,000 300,000 4/16/2024203,865 177,900 
Facility 4— 300,000 300,000 12/28/2023180,844 202,548 
Facility 5(2)
— 200,000 200,000 N/A— — 
Facility 6(2)
100,000 500,000 600,000 9/29/2023219,213 180,273 
Facility 7(3)
250,000 350,000 600,000 11/1/2023154,896 295,064 
Facility 8— 300,000 300,000 9/21/2023207,892 172,575 
Facility 9(4)
500,000 — 500,000 10/21/2024500,000 500,000 
Total $1,250,000 $2,600,000 $3,850,000 $2,046,208 $2,146,602 
(1)The total facility is available both to fund loan originations and also provide liquidity under a gestation facility to finance recently sold MBS up to the MBS settlement date.
(2)In addition to the warehouse line, the lender provides a separate gestation facility to finance recently sold MBS up to the MBS settlement date.
(3)In addition to the outstanding balance secured by mortgage loans, the Company has $144.4 million outstanding to finance servicing rights included within debt obligations in the consolidated balance sheets.
(4)Securitization backed by a revolving warehouse facility to finance newly originated first-lien fixed and adjustable rate mortgage loans.


The following table presents information on borrowings under warehouse and securitization facilities:
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
Maximum outstanding balance during the period$2,046,208 $6,407,547 $2,152,855 $7,672,559 
Average balance outstanding during the period1,760,606 4,928,772 1,642,477 5,605,996 
Collateral pledged (loans held for sale)2,149,195 4,408,362 2,149,195 4,408,362 
Weighted average interest rate during the period6.99 %2.60 %6.81 %2.27 %




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NOTE 9 – DEBT OBLIGATIONS

The following table presents the outstanding debt as of June 30, 2023 and December 31, 2022:
June 30,
2023		December 31,
2022
Secured debt obligations, net:
Secured credit facilities
MSR facilities$941,472 $963,834 
Securities financing facilities85,188 85,513 
Servicing advance facilities20,070 48,484 
Total secured credit facilities1,046,730 1,097,831 
Term Notes199,916 199,666 
Total secured debt obligations, net1,246,646 1,297,497 
Unsecured debt obligations, net:
Senior Notes993,190 991,822 
Total debt obligations, net$2,239,836 $2,289,319 

Certain of the Company’s secured debt obligations require us to satisfy financial covenants, including minimum levels of profitability, tangible net worth, liquidity, and maximum levels of consolidated leverage. The Company obtained amendments relating to certain profitability covenants. As a result, the Company was in compliance with all such financial covenants as of June 30, 2023.

Secured Credit Facilities

Secured credit facilities are revolving facilities collateralized by MSRs, trading securities, and servicing advances.

MSR Facilities

In October 2014, the Company entered into a $25.0 million credit facility to finance servicing rights and for other working capital needs and general corporate purposes. The facility was secured by Freddie Mac mortgage servicing rights. The facility was not renewed and was paid off in June 2023.

In December 2021, the Company entered into a credit facility agreement. The agreement was amended in June 2023 to provide for $450.0 million in borrowing capacity, with an option to increase up to $600.0 million upon mutual consent, available to the Company. The facility is secured by Freddie Mac mortgage servicing rights with a fair value of $728.9 million as of June 30, 2023. The facility bears interest at SOFR, plus a margin per annum and matures in December 2023. At June 30, 2023, there was $450.0 million outstanding on this facility and $0.9 million in unamortized deferred financing costs.

In January 2022, the Company entered into a credit facility agreement which provides $500.0 million in borrowing capacity. The facility is secured by Fannie Mae mortgage servicing rights with a fair value of $637.2 million as of June 30, 2023. The facility bears interest at SOFR, plus a margin per annum and matures in January 2025. At June 30, 2023, there was $348.0 million outstanding on this facility and no unamortized deferred financing costs.

In August 2017, the Company established the GMSR Trust to finance Ginnie Mae mortgage servicing rights owned by the Company through issuance of either variable funding notes or term notes, in each case secured by participation certificates held by the GMSR Trust. As of June 30, 2023, the Company had pledged participation certificates representing beneficial interests in Ginnie Mae mortgage servicing rights to the GMSR Trust with a fair value of $582.7 million. At June 30, 2023 the maximum borrowing capacity of the variable funding notes was $150.0 million. The variable funding notes bear interest at SOFR plus a margin per annum and mature in November 2023. As of June 30, 2023, there were $144.4 million in variable funding notes outstanding to finance Ginnie Mae mortgage servicing rights owned by the Company.



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Securities Financing Facilities

The Company has entered into master repurchase agreements to finance retained interest securities related to its securitizations. The securities financing facilities have an advance rate between 50% and 90% based on classes of the securities and accrue interest at a rate of 90-day SOFR, plus a margin. The securities financing facilities are secured by the trading securities, which represent our retained interests in the credit risk of the assets collateralizing certain securitization transactions. As of June 30, 2023, the trading securities had a fair value of $93.4 million on the consolidated balance sheets and there were $85.2 million in securities financing facilities outstanding.

Servicing Advance Facilities

In September 2020, the Company, through its indirect-wholly owned subsidiary loanDepot Agency Advance Receivables Trust (the “Advance Receivables Trust”), entered into a variable funding note facility for the financing of servicing advance receivables with respect to residential mortgage loans serviced by it on behalf of Fannie Mae and Freddie Mac. Pursuant to an indenture, the Advance Receivables Trust can issue up to $100.0 million in variable funding notes (the “2020-VF1 Notes”). The 2020-VF1 Notes accrue interest at SOFR, plus a margin per annum and mature in September 2023 (unless earlier redeemed in accordance with their terms). At June 30, 2023, there was $20.1 million in 2020-VF1 Notes outstanding.

In November 2021, the Company, through the GMSR Trust issued variable funding notes secured by principal and interest advance receivables and servicing advance receivables with respect to residential mortgage loans serviced on behalf of Ginnie Mae. The variable funding notes bear interest at SOFR plus a margin per annum and mature in November 2023. As of June 30, 2023, there was no balance outstanding on the variable funding notes.

Term Notes

In October 2018, the Company, through the GMSR Trust issued the Series 2018-GT1 Term Notes (“Term Notes”). The Term Notes accrue interest at 30-day LIBOR, or other alternative base rate such as SOFR, plus a margin per annum and mature in October 2023 or, if extended pursuant to the terms of the related indenture supplement, October 2025 (unless earlier redeemed in accordance with their terms). At June 30, 2023, there was $200.0 million in Term Notes outstanding and $0.1 million in unamortized deferred financing costs.

Senior Notes

In October 2020, the Company issued $500.0 million in aggregate principal amount of 6.50% senior unsecured notes due 2025, (the “2025 Senior Notes”). The 2025 Senior Notes will mature on November 1, 2025. Interest on the 2025 Senior Notes accrues at a rate of 6.50% per annum, payable semi-annually in arrears on May 1 and November 1 of each year. The Company may redeem the 2025 Senior Notes, in whole or in part, at various redemption prices. At June 30, 2023, there was $500.0 million in 2025 Senior Notes outstanding and $4.1 million in unamortized deferred financing costs.

In March 2021, the Company issued $600.0 million in aggregate principal amount of 6.125% senior unsecured notes due 2028 (the “2028 Senior Notes” and together with the 2025 Senior Notes, the "Senior Notes"). The 2028 Senior Notes will mature on April 1, 2028. Interest on the 2028 Senior Notes accrues at a rate of 6.125% per annum, payable semi-annually in arrears on April 1 and October 1 of each year. At any time prior to April 1, 2024, the Company may redeem some or all of the 2028 Senior Notes at a price equal to 100% of the principal amount of the 2028 Senior Notes, plus accrued and unpaid interest, if any, to, but not including, the date of redemption plus a make-whole premium. During the first quarter of 2022, the Company repurchased $97.5 million of 2028 Senior Notes at an average purchase price of 87.9% of par, which resulted in a $10.5 million gain on extinguishment of debt. During the second quarter of 2023, the Company repurchased $0.1 million of 2028 Senior Notes at a purchase price of 60.1% of par, which resulted in a $39,000 gain on extinguishment of debt. Gain on extinguishment of debt is recorded in other interest expense on the consolidated statement of operations. The Company may redeem the 2028 Senior Notes, in whole or in part, at any time on or after April 1, 2024 at various redemption prices. In addition, subject to certain conditions at any time prior to April 1, 2024, the Company may redeem up to 40% of the principal amount of the 2028 Senior Notes with the proceeds of certain equity offerings at a redemption price of 106.125% of the principal amount of the


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2028 Senior Notes, together with accrued and unpaid interest, if any, to, but not including, the date of redemption. At June 30, 2023, there was $502.4 million in 2028 Senior Notes outstanding and $5.0 million in unamortized deferred financing costs.

Interest Expense

Interest expense on all outstanding debt obligations with variable rates is paid based on SOFR, or other alternative base rate, plus a margin ranging from 0.90% - 3.50%.


NOTE 10 – EQUITY

The Company consolidates the financial results of LD Holdings and reports noncontrolling interest related to the interests held by the Continuing LLC Members. The noncontrolling interest of $408.0 million and $488.0 million as of June 30, 2023 and December 31, 2022, respectively, represented the economic interest in LD Holdings held by the Continuing LLC Members. The Continuing LLC Members have the right to exchange one Holdco Unit and one share of Class B common stock or Class C common stock, as applicable, together for cash or one share of Class A common stock at the Company’s election, subject to customary conversion rate adjustments for stock splits, stock dividends, and reclassifications. As Continuing LLC Members convert shares, noncontrolling interest is adjusted to proportionately reduce the economic interest in LD Holdings with an offset to additional paid-in-capital on the consolidated statements of equity. The following table summarizes the ownership of LD Holdings as of June 30, 2023 and December 31, 2022.

June 30, 2023December 31, 2022
Holding Member Interests:Holdco UnitsOwnership PercentageHoldco UnitsOwnership Percentage
loanDepot, Inc.175,014,06154.86%169,523,68253.78%
Continuing LLC Members144,026,43945.14%145,693,11946.22%
Total319,040,500100.00%315,216,801100.00%

NOTE 11 – EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share of Class A common stock and Class D common stock is computed by dividing net income (loss) attributable to loanDepot, Inc. by the weighted-average number of shares of Class A common stock and Class D common stock, respectively, outstanding during the period. Diluted earnings (loss) per share of Class A common stock and Class D common stock is computed by dividing net income (loss) attributable to loanDepot, Inc. by the weighted-average number of shares of Class A common stock and Class D common stock respectively, outstanding adjusted to give effect to potentially dilutive securities.
There was no Class B common stock outstanding during the six months ended June 30, 2023 and 2022. The following table sets forth the calculation of basic and diluted earnings (loss) per share for Class A common stock and Class D common stock:



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Three Months EndedSix Months Ended
June 30, 2023June 30, 2023
Class AClass DTotalClass AClass DTotal
Net loss attributable to loanDepot, Inc.
$(10,364)$(13,079)$(23,443)$(29,000)$(37,350)$(66,350)
Weighted average shares - basic76,881,359 97,026,671 173,908,030 75,332,253 97,026,671 172,358,924 
Loss per share - basic
$(0.13)$(0.13)$(0.13)$(0.38)$(0.38)$(0.38)
Diluted loss per share:
Net loss allocated to common stockholders - diluted
$(10,364)$(13,079)$(23,443)$(29,000)$(37,350)$(66,350)
Weighted average shares - diluted76,881,359 97,026,671 173,908,030 75,332,253 97,026,671 172,358,924 
Loss per share - diluted
$(0.13)$(0.13)$(0.13)$(0.38)$(0.38)$(0.38)


Three Months EndedSix Months Ended
June 30, 2022June 30, 2022
Class AClass DTotalClass AClass DTotal
Net loss attributable to loanDepot, Inc.
$(37,266)$(63,662)$(100,928)$(45,531)$(90,138)$(135,669)
Weighted average shares - basic56,795,709 97,026,671 153,822,380 49,138,217 97,276,918 146,415,135 
Loss per share - basic
$(0.66)$(0.66)$(0.66)$(0.93)$(0.93)$(0.93)
Diluted loss per share:
Net loss allocated to common stockholders - diluted
$(37,266)$(63,662)$(100,928)$(45,531)$(90,138)$(135,669)
Weighted average shares - diluted56,795,709 97,026,671 153,822,380 49,138,217 97,276,918 146,415,135 
Loss per share - diluted
$(0.66)$(0.66)$(0.66)$(0.93)$(0.93)$(0.93)

For the three and six months ended June 30, 2023, 148,597,745 and 149,535,576, respectively, of shares of Class C common stock were evaluated for the assumed exchange of noncontrolling interests and determined to be anti-dilutive, and thus were excluded from the computation of diluted loss per share.

For the three and six months ended June 30, 2023, 19,795,712 and 20,902,847, respectively, of Class A RSUs, nonqualified stock options, and ESPP shares were determined to be anti-dilutive, and thus excluded from the computation of diluted loss per share.

For the three and six months ended June 30, 2022, 165,281,304 and 173,245,208, respectively, of shares of Class C common stock were evaluated for the assumed exchange of noncontrolling interests and determined to be anti-dilutive, and thus were excluded from the computation of diluted loss per share.

For the three and six months ended June 30, 2022, 14,221,221 and 11,914,870, respectively, of Class A RSUs and nonqualified stock options were determined to be anti-dilutive, and thus excluded from the computation of diluted loss per share.

NOTE 12 – INCOME TAXES



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The Company’s income tax expense varies from the expense that would be expected based on statutory rates due principally to its organizational structure.

As of June 30, 2023 and December 31, 2022, the Company had a deferred tax asset before any valuation allowance of $101.1 million and $70.5 million, respectively, and a deferred tax liability of $193.2 million and $191.6 million, respectively. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. The deferred tax liability as of June 30, 2023 and December 31, 2022 relates to temporary differences in the book basis as compared to the tax basis of loanDepot, Inc.’s investment in LD Holdings, net of tax benefits from future deductions for payments made under a Tax Receivable Agreement (“TRA”) as a result of the IPO. Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and the Company’s effective tax rate in the future. Deferred income taxes are measured using the applicable tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on the tax rates that have been enacted at the reporting date. The Company measured its deferred tax assets and liabilities at June 30, 2023 and December 31, 2022 using the combined federal and state rate (less federal benefit) of 26.8%. The Company establishes a valuation allowance when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. As of June 30, 2023, the Company had a valuation allowance of deferred tax assets $0.3 million on tax credits that have limited carryforward periods and may expire prior to the Company being able to utilize them. The Company did not establish a valuation allowance for remaining deferred tax assets as the Company believes it is more-likely-than-not that the Company will realize the benefits of the deferred tax assets. The Company recognized a TRA liability of $53.7 million and $50.7 million as of June 30, 2023 and December 31, 2022, respectively, which represents the Company’s estimate of the aggregate amount that it will pay under the TRA, refer to Note 14- Commitments and Contingencies, for further information on the TRA liability.


NOTE 13 – RELATED PARTY TRANSACTIONS

In conjunction with its joint ventures, the Company entered into agreements to provide services to the joint ventures for which it receives and pays fees. Services for which the Company earns fees comprise of loan processing and administrative services (legal, accounting, human resources, data processing and management information, assignment processing, post-closing, underwriting, facilities management, quality control, management consulting, risk management, promotions, public relations, advertising and compliance with credit agreements). The Company also originates eligible mortgage loans referred by its joint ventures for which the Company pays the joint ventures a broker fee.

Fees earned, costs incurred, and amounts payable to or receivable from joint ventures were as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
Loan processing and administrative services fee income$5,217 $4,548 $9,394 $7,878 
Loan origination broker fees expense$33,596 $29,797 $60,382 $49,926 
June 30,
2023		December 31,
2022
Amounts payable from joint ventures
$(6,343)$(9,776)

The Company has entered into a TRA with Parthenon Stockholders and certain Continuing LLC Members. There were no payments made during the six months ended June 30, 2023 or June 30, 2022.

NOTE 14– COMMITMENTS AND CONTINGENCIES

Escrow Services

In conducting its operations, the Company, through its wholly-owned subsidiaries, LDSS and ACT, routinely hold customers' assets in escrow pending completion of real estate financing transactions. These amounts are maintained in


28


segregated bank accounts and are offset with the related liabilities resulting in no amounts reported in the accompanying consolidated balance sheets. The balances held for the Company’s customers totaled $6.0 million and $5.1 million at June 30, 2023 and December 31, 2022, respectively.

Legal Proceedings

The Company is a defendant in, or a party to, legal actions and proceedings that arise in the ordinary course of business. In some of these actions and proceedings, claims for monetary damages are asserted against the Company. These matters include actions alleging improper lending practices, improper servicing, quiet title actions, improper foreclosure practices, violations of consumer protection laws, etc. and on account of consumer bankruptcies. In many of these actions, the Company may not be the real party of interest (because the Company is not the servicer of the loan or the holder of the note) but it may appear in the pleadings because it is in the chain of title to property over which there may be a dispute. Such matters may be indemnified and managed by the appropriate party, which may be the Company’s subservicer or a former subservicer. In other cases, such as lien avoidance cases brought in bankruptcy, the Company is insured by title insurance, and the case is turned over to the title insurer who tenders the Company’s defense. In some of these actions and proceedings, claims for monetary damages are asserted against the Company. In view of the inherent difficulty of predicting the outcome of such legal actions and proceedings, the Company generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss related to each pending matter may be, if any.

The Company seeks to resolve all litigation and regulatory matters in the manner management believes is in the best interest of the Company and contests liability, allegations of wrongdoing, and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with outstanding legal and regulatory proceedings utilizing the latest information available. Any estimated loss is subject to significant judgment and is based upon currently available information, a variety of assumptions, and known and unknown uncertainties. Where available information indicates that it is probable a liability has been incurred and the Company can reasonably estimate the amount of the loss, an accrued liability is established. The actual costs of resolving these proceedings may be substantially higher or lower than the amounts accrued.

The ultimate outcome of legal proceedings is uncertain, and the amount of any future potential loss is not considered probable or estimable. The Company expects to incur defense costs and other expenses in connection with any such legal proceedings. If the final resolution of any legal proceedings is unfavorable, it could have a material adverse effect on the Company’s business and financial condition.

Based on the Company’s current understanding of pending legal actions and proceedings, management does not believe that judgments or settlements arising from pending or threatened legal matters, individually or in the aggregate, will have a material adverse effect on the consolidated financial position, operating results or cash flows of the Company. However, unfavorable resolutions could affect the Company’s consolidated financial position, results of operations or cash flows for the years in which they are resolved.

Employment Litigation

On December 24, 2020, the Company received a demand letter from one of the senior members of its operations team alleging, among other things, loan origination noncompliance and various employment related claims, including hostile work environment and gender discrimination, with unspecified damages. The executive has since resigned her position with the Company. On September 21, 2021, Plaintiff filed her complaint with the Superior Court of the State of California, County of Orange and an amended complaint was filed on December 21, 2021. Following some motion practice, on June 30, 2022, the Company filed its answer and affirmative defenses to the amended complaint. The Company deposed the Plaintiff and anticipates filing its Motion for Summary Judgment, or in the alternative, Summary Adjudication on or before November 15, 2023. The Plaintiff seeks damages in excess of $75 million. While the Company’s management does not believe these allegations have merit, defending such allegations has resulted in and will likely continue to result in substantial costs and a diversion of management’s attention and resources. Because the Company believes this lawsuit is without merit it continues to vigorously defend against it. Discovery in this matter is still ongoing.

Regulatory Requirements



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The Company is subject to various capital requirements by the U.S. Department of Housing and Urban Development (“HUD”); lenders of the warehouse lines of credit; and secondary markets investors. Failure to maintain minimum capital requirements could result in the inability to participate in HUD-assisted mortgage insurance programs, to borrow funds from warehouse line lenders or to sell or service mortgage loans. As of June 30, 2023, the Company was in compliance with its selling and servicing capital requirements.

Commitments to Extend Credit

The Company enters into IRLCs with customers who have applied for residential mortgage loans and meet certain credit and underwriting criteria. These commitments expose the Company to market risk if interest rates change and the loan is not economically hedged or committed to an investor. The Company is also exposed to credit loss if the loan is originated and not sold to an investor and the customer does not perform. The collateral upon extension of credit typically consists of a first deed of trust in the mortgagor’s residential property. Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon. Total commitments to originate loans as of June 30, 2023 and December 31, 2022 approximated $3.2 billion and $2.2 billion, respectively. These loan commitments are treated as derivatives and are carried at fair value, refer to Note 5- Derivative Financial Instruments and Hedging Activities for further information on derivatives.

Loan Loss Obligation for Sold Loans

When the Company sells mortgage loans, it makes customary representations and warranties to the purchasers about various characteristics of each loan such as the origination and underwriting guidelines, 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. The Company establishes a loan repurchase reserve for losses associated with repurchase loan obligations if the Company breached a representation or warranty given to the loan purchaser. Additionally, the Company’s loan loss obligation for sold loans includes an estimate for losses associated with early payoffs and early payment defaults. There have been charge-offs associated with early payoffs, early payment defaults and losses related to representations, warranties, and other provisions for the three and six months ended June 30, 2023 and 2022.

The activity related to the loan loss obligation for sold loans is as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
Balance at beginning of period$65,670 $41,159 $70,797 $29,877 
Provision for loan loss obligations2,476 82,373 12,150 95,619 
Charge-offs(14,679)(37,659)(29,480)(39,623)
Balance at end of period$53,467 $85,873 $53,467 $85,873 

Obligation for Sold MSRs

The Company recognizes sales of mortgage servicing rights as sales if title passes, if substantially all risks and rewards of ownership have irrevocably passed to the purchaser, and any protection provisions retained by the Company are minor and can be reasonably estimated.  If a sale is recognized and only minor protection provisions exist, a liability for the estimated obligation associated with those provisions is recorded in accounts payable, accrued expenses and other liabilities on the consolidated balance sheet. The Company establishes a reserve related to the reimbursement of the purchase price for any loans that are prepaid in full within 90 days of the MSR sale transaction. The obligation for sold MSRs was $0.5 million and $1.1 million as of June 30, 2023 and December 31, 2022, respectively

TRA Liability

As part of the IPO and reorganization, the Company entered into a TRA with Parthenon Stockholders and certain Continuing LLC Members, whereby loanDepot, Inc. will be obligated to pay such parties or their permitted assignees, 85% of


30


the amount of cash tax savings, if any, in U.S. federal, state, and local taxes that loanDepot, Inc. realizes, or is deemed to realize as a result of future tax benefits from increases in tax basis. The TRA liability is accounted for as a contingent liability with amounts accrued when deemed probable and estimable. The Company recognized a TRA liability of $53.7 million and $50.7 million as of June 30, 2023 and December 31, 2022, respectively, which represents the Company’s estimate of the aggregate amount that it will pay under the TRA as a result of the offering transaction. The amounts payable under the TRA will vary depending on a number of factors, such as the amount and timing of taxable income attributable to loanDepot, Inc.

NOTE 15 – REGULATORY CAPITAL AND LIQUIDITY REQUIREMENTS

The Company, through certain subsidiaries, is required to maintain minimum net worth, liquidity and other financial requirements specified in certain of its selling and servicing agreements, including:

•Ginnie Mae single-family issuers. The eligibility requirements include net worth of $2.5 million plus 0.35% of outstanding Ginnie Mae single-family obligations and a liquidity requirement equal to the greater of $1.0 million or 0.10% of outstanding Ginnie Mae single-family securities.

•Fannie Mae and Freddie Mac. The eligibility requirements for seller/servicers include tangible net worth of $2.5 million plus 0.25% of the Company’s total single-family servicing portfolio, excluding loans subserviced for others and a liquidity requirement equal to 0.035% of the aggregate UPB serviced for the agencies plus 2.0% of total nonperforming agency servicing UPB in excess of 6%.
•HUD. The eligibility requirements include a minimum adjusted net worth of $1.0 million plus 1% of the total volume in excess of $25.0 million of FHA Single Family Mortgages originated, underwritten, serviced, and/or purchased during the prior fiscal year, up to a maximum required adjusted net worth of $2.5 million.
•Fannie Mae, Freddie Mac and Ginnie Mae. The Company is also required to hold a ratio of Adjusted/Tangible Net Worth to Total Assets greater than 6%.

To the extent that these requirements are not met, the Company may be subject to a variety of regulatory actions which could have a material adverse impact on our results of operations and financial condition. The most restrictive of the minimum net worth and capital requirements require the Company to maintain a minimum adjusted net worth balance of $146.4 million as of June 30, 2023. The Company was in compliance with the net worth, liquidity and other financial requirements of its selling and servicing requirements as of June 30, 2023.





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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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


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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.


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Three Months Ended
June 30,		Six Months Ended
June 30,
(Dollars in thousands)2023202220232022
Loan originations by purpose:
Purchase$4,552,919 $9,500,164 $8,065,690 $17,530,930 
Refinance1,720,624 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 officers1,664 2,907 1,664 2,907 
Loans sold:
Servicing retained$3,943,845 $10,568,649 $7,221,552 $27,691,365 
Servicing released2,134,024 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 margin2.75 %1.16 %2.61 %1.62 %
Pull through weighted gain on sale margin2.85 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.


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Three Months Ended
June 30,		Change
$		Change
%
(Dollars in thousands)20232022
(Unaudited)
REVENUES:
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:


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Three Months Ended
June 30,		Change
$		Change
%
(Dollars in thousands)20232022
Discount from loan sales
$(16,648)$(437,194)$420,546 96.2 %
Servicing rights additions75,866 180,455 (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 costs81,114 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.


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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
Six Months Ended
June 30,		Change
$		Change
%
(Dollars in thousands)20232022
(Unaudited)
REVENUES:
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 expense10,583 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)



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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:
Six Months Ended
June 30,		Change
$		Change
%
(Dollars in thousands)20232022
Discount from loan sales
$(43,317)$(673,291)$629,974 93.6 %
Servicing rights additions135,161 450,215 (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 costs138,560 131,834 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.


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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.


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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)June 30,
2023		December 31,
2022		Change
$		Change
%
(Unaudited)
ASSETS
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 value93,442 94,243 (801)(0.8)
Property and equipment, net 82,677 92,889 (10,212)(11.0)
Operating lease right-of-use assets34,040 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 407,356488,696(81,340)(16.6)
Derivative liabilities, at fair value 8,79067,492(58,702)(87.0)
Liability for loans eligible for repurchase647,418634,67712,741 2.0 
Operating lease liability56,55261,675(5,123)(8.3)
Debt obligations, net 2,239,8362,289,319(49,483)(2.2)
Total liabilities 5,406,160 5,688,461 (282,301)(5.0)
Total equity797,344 921,473 (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.


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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.
 

 


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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


42


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:
 
Payments Due by Period
(Dollars in thousands)TotalLess than 1 Year1-3 years3-5 Years More than
5 Years
Warehouse and other lines of credit$2,046,208 $1,546,208 $500,000 $— $— 
Debt obligations (1)
Secured credit facilities1,047,614 699,632 347,982 — — 
Term Notes200,000 200,000 — — — 
Senior Notes1,002,375 — 500,000 502,375 — 
Operating lease obligations (2)
65,832 20,977 29,308 14,670 876 
Naming and promotional rights agreements85,819 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.


43


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.



44


Reconciliation of Total Revenue to Adjusted Total Revenue
(Dollars in thousands)
(Unaudited):
Three Months EndedSix Months Ended
June 30, 2023June 30, 2022June 30, 2023June 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):
Three Months EndedSix Months Ended
June 30, 2023June 30, 2022June 30, 2023June 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 expense5,754 4,712 11,679 7,021 
Gain on extinguishment of debt(39)— (39)(10,528)
Loss on disposal of fixed assets751 — 1,012 — 
Goodwill impairment— 40,736 — 40,736 
Other impairment686 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.
Three Months EndedSix Months Ended
June 30, 2023June 30, 2022June 30, 2023June 30, 2022
Statutory U.S. federal income tax rate21.00 %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 rate26.28 %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.


45


Reconciliation of Adjusted Diluted Weighted Average Shares Outstanding to Diluted Weighted Average Shares Outstanding
(Dollars in thousands except per share)
(Unaudited)
Three Months EndedSix Months Ended
June 30, 2023June 30, 2022June 30, 2023June 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 outstanding173,908,030 153,822,380 172,358,924 146,415,135 
Assumed pro forma conversion of weighted average Class C shares to Class A common stock148,597,745 165,281,304 149,535,576 173,245,208 
Adjusted diluted weighted average shares outstanding322,505,775319,103,684321,894,500319,660,343

Reconciliation of Net Income (Loss) to Adjusted EBITDA (LBITDA)
(Dollars in thousands)
(Unaudited):
Three Months EndedSix Months Ended
June 30, 2023June 30, 2022June 30, 2023June 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 amortization10,721 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 expense5,754 4,712 11,679 7,021 
Loss on disposal of fixed assets751 — 1,012 — 
Goodwill impairment— 40,736 — 40,736 
Other impairment686 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we are exposed to various risks which can affect our business, results and operations. The primary market risks to which we are exposed include interest rate risk, credit risk, prepayment risk and inflation risk.
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,


46


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.


47


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.


48


Item 4. Controls and Procedures

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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we and certain of our subsidiaries are involved in various lawsuits in state or federal courts regarding violations of state or federal statutes, regulations or common law related to matters arising out of the ordinary course of business. For a further discussion of our material legal proceedings, see Note 14 - Commitments and Contingencies of the Notes to Consolidated Financial Statements included in “Item 1 Financial Statements.” Additionally, below we have described certain other significant legal proceedings.

Securities Class Action Litigation

Beginning in September 2021, two putative class action lawsuits were filed in the United States District Court for the Central District of California asserting claims under the U.S. securities laws against the Company, certain of its directors, and certain of its officers regarding certain disclosures made in connection with the Company’s IPO. The two actions were consolidated in May 2022. A consolidated amended complaint was filed in June 2022, which, in addition to challenging disclosures made in connection with the IPO, alleges that certain disclosures made after the IPO were false and/or misleading. The Company’s motion to dismiss was filed on August 24, 2022. On January 24, 2023, the Court granted, in part, and denied, in part, the Company’s motion to dismiss. The Company’s answer to the consolidated amended complaint was filed on March 3, 2023. On June 26, 2023, the parties reached an agreement in principle to settle the action. On July 26, 2023, plaintiffs filed a motion for preliminary approval of the settlement with the Court, which is pending approval.

Stockholder Derivative Litigation

Beginning in October 2021, four shareholder derivative complaints were filed in the United States District Court for the Central District of California against certain of the Company’s directors and officers, alleging, among things, that these defendants breached their fiduciary duties by causing the Company to make the disclosures being


49


challenged in the putative securities class action described above and seeking unspecified monetary damages for the Company and that the Company make certain changes to its corporate governance. These derivative actions subsequently were consolidated into a single action (the “California Federal Action”). The California Federal Action currently is stayed. Beginning in March 2022, two substantially similar shareholder derivative complaints were filed in the United States District Court for the District of Delaware, and then were consolidated into a single action (the “Delaware Federal Action”). The Delaware Federal Action currently is stayed. Beginning in June 2023, three substantially similar shareholder derivative complaints were filed in the Delaware Court of Chancery (the “Delaware Chancery Actions”), which actions are in their preliminary stages. The Company believes these lawsuits are without merit. The Company does not believe that a loss is probable or that the amount of loss is reasonably estimable in this matter at this time.


Item 1A. Risk Factors

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.



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Shares of the Company's Class B common stock or Class C common stock may each be converted, together with a corresponding Holdco Unit, as applicable, at any time and from time to time at the option of the holder of such share of Class B common stock or Class C common stock, as applicable, for one fully paid and non-assessable share of Class A common stock. Each share of the Company’s Class D common stock may be converted into one fully paid and non-assessable share of Class A common stock at any time at the option of the holder of such share of Class D common stock. There is no cash or other consideration paid by the holder converting such shares and, accordingly, there is no cash or other consideration received by the Company. The shares of Class A common stock issued by the Company in such conversions are exempt from registration pursuant to Section 3(a)(9) of the Securities Act.

On April 3, 2023, we issued to stockholders 903,904 shares of Class A common stock upon the conversion of the same number of shares of our Class C common stock and corresponding Holdco Units held by such stockholders.

On May 1, 2023, we issued to stockholders 269,066 shares of Class A common stock upon the conversion of the same number of shares of our Class C common stock and corresponding Holdco Units held by such stockholders.

On June 1, 2023, we issued to stockholders 553,165 shares of Class A common stock upon the conversion of the same number of shares of our Class C common stock and corresponding Holdco Units held by such stockholders.


Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.



50


Item 6. Exhibits

The following documents are filed as a part of this report:
Exhibit No.Description
3.1
3.2
10.1*+
10.2*+
10.3*+
10.4*+
10.5*
10.6*+
10.7*+
10.8+
10.9+
10.10+
10.11+


51


Exhibit No.Description
10.13
10.14
10.15#
10.16
31.1*
31.2*
32.1**
32.2**
101.0iXBRL Document
101.INSiXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHiXBRL Taxonomy Extension Schema Document.
101.CALiXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFiXBRL Taxonomy Extension Definition Linkbase Document.
101.LABiXBRL Taxonomy Extension Label Linkbase Document.
101.PREiXBRL Taxonomy Extension Presentation Linkbase Document.
104.0Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith
** Furnished herewith
+ Confidential information has been omitted because it is both (i) not material and (ii) is the type of information that the Company treats as private or confidential pursuant to Item 601(b)(10) of Regulation S-K. Certain schedules, exhibits and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K or constitutes a clearly unwarranted invasion of personal privacy pursuant to Item 601(a)(6) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the staff of the Securities and Exchange Commission upon request.
# Management contract or compensatory plan or arrangement.



52


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LOANDEPOT, INC.
  
  
Dated: August 9, 2023
By:/s/ Frank Martell
Name:Frank Martell
Title:President and Chief Executive Officer
Dated: August 9, 2023
By:/s/ David Hayes
Name:David Hayes
Title:Chief Financial Officer




53

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