loanDepot, Inc 10-Q for FY2023 Q3
loanDepot, Inc. (LDI)
10-Q
2023-11-09
For: 2023-09-30
View Original
Added on
April 09, 2026
About this 10-Q
loanDepot, Inc filed this 10-Q on November 9, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $265.66M
- down 3.1% from $274.19M a year earlier
- Net loss
- $16.6M
- compared with a net loss of $60.08M a year earlier
- Diluted EPS
- -$0.09
- compared with -$0.37 a year earlier
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 September 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
(Exact Name of Registrant as Specified in Its Charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (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 | ||||||||||||
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 | ☐ | |||||||||||||||||
☒ | 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 November 8, 2023, 81,557,677 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, 142,483,267 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 September 30, 2023 and December 31, 2022 | |||||
Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 | |||||
Consolidated Statements of Equity for the three and nine months ended September 30, 2023 and 2022 | |||||
Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 | |||||
| Notes to Consolidated Financial Statements | |||||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | |||||
| Item 4. Controls and Procedures | |||||
| PART II. OTHER INFORMATION | |||||
| Item 1. Legal Proceedings | |||||
| Item 1A. Risk Factors | |||||
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |||||
| Item 3. Defaults Upon Senior Securities | |||||
| Item 4. Mine Safety Disclosures | |||||
| Item 5. Other Information | |||||
| Item 6. Exhibits | |||||
| Signatures | |||||
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
loanDepot, Inc.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| September 30, 2023 | December 31, 2022 | ||||||||||
| ASSETS | (Unaudited) | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Accounts receivable, net | |||||||||||
Loans held for sale, at fair value (includes $ | |||||||||||
| Derivative assets, at fair value | |||||||||||
Servicing rights, at fair value (includes $ | |||||||||||
| Trading securities, at fair value | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Prepaid expenses and other assets | |||||||||||
| Loans eligible for repurchase | |||||||||||
| Investments in joint ventures | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Warehouse and other lines of credit | $ | $ | |||||||||
| Accounts payable, accrued expenses and other liabilities | |||||||||||
| Derivative liabilities, at fair value | |||||||||||
| Liability for loans eligible for repurchase | |||||||||||
| Operating lease liability | |||||||||||
| Debt obligations, net | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingencies (Note 14) | |||||||||||
Class A common stock, $ | $ | $ | |||||||||
Class B common stock, $ | |||||||||||
Class C common stock, $ | |||||||||||
Class D common stock, $ | |||||||||||
Preferred stock, $ | |||||||||||
Treasury stock at cost, | ( | ( | |||||||||
| Additional paid-in capital | |||||||||||
Retained deficit | ( | ( | |||||||||
| Noncontrolling interest | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See accompanying notes to the unaudited consolidated financial statements.
1
loanDepot, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
(Unaudited)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| REVENUES: | |||||||||||||||||||||||
| Interest income | $ | $ | $ | $ | |||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
Net interest income | |||||||||||||||||||||||
| Gain on origination and sale of loans, net | |||||||||||||||||||||||
| Origination income, net | |||||||||||||||||||||||
| Servicing fee income | |||||||||||||||||||||||
| Change in fair value of servicing rights, net | ( | ( | ( | ( | |||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Total net revenues | |||||||||||||||||||||||
| EXPENSES: | |||||||||||||||||||||||
| Personnel expense | |||||||||||||||||||||||
| Marketing and advertising expense | |||||||||||||||||||||||
| Direct origination expense | |||||||||||||||||||||||
| General and administrative expense | |||||||||||||||||||||||
| Occupancy expense | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Servicing expense | |||||||||||||||||||||||
| Other interest expense | |||||||||||||||||||||||
| Goodwill impairment | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
Loss before income taxes | ( | ( | ( | ( | |||||||||||||||||||
Income tax benefit | ( | ( | ( | ( | |||||||||||||||||||
Net loss | ( | ( | ( | ( | |||||||||||||||||||
Net loss attributable to noncontrolling interests | ( | ( | ( | ( | |||||||||||||||||||
Net loss attributable to loanDepot, Inc. | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Loss per share: | |||||||||||||||||||||||
| Basic | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
2
loanDepot, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands)
(Unaudited)
| Common stock outstanding | Common stock $ | Treasury Shares | Additional paid-in capital | Retained Deficit | Non-controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class C | Class D | Class A | Class C | Class D | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred taxes and other tax adjustments related to conversions and exchanges | — | — | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net issuance of common stock under stock-based compensation plans | ( | — | ( | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends on unvested Class A RSUs | — | — | — | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Forfeiture of accrued distributions on unvested Class C shares | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions for taxes on behalf of shareholders, net | — | — | — | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred taxes and other tax adjustments related to conversions and exchanges | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net issuance of common stock under stock-based compensation plans | ( | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Forfeiture of accrued dividend equivalents on unvested Class A RSUs | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Forfeiture of accrued distributions on unvested Class C shares | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Refunds of tax distributions, net | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
3
loanDepot, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands)
(Unaudited)
| Common stock outstanding | Common stock $ | Treasury Stock | Additional paid-in capital | Retained Deficit | Non-controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class C | Class D | Class A | Class C | Class D | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred taxes and other tax adjustments related to conversions and exchanges | — | — | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net issuance of common stock under stock-based compensation plans | ( | ( | ( | ( | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends to Class A and Class D shareholders ($ | — | — | — | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to Class C shareholders | — | — | — | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions for taxes on behalf of shareholders, net | — | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred taxes and other tax adjustments related to conversions and exchanges | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net issuance of common stock under stock-based compensation plans | ( | — | ( | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Forfeiture of accrued dividend equivalents on unvested Class A RSUs | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Forfeiture of accrued distributions on unvested Class C shares | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Refund of tax distributions, net | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
4
loanDepot, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
Net loss | $ | ( | $ | ( | |||||||
Adjustments to reconcile net loss to net | |||||||||||
cash provided by operating activities: | |||||||||||
| Depreciation and amortization expense | |||||||||||
| Amortization of operating lease right-of-use asset | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Gain on origination and sale of loans | ( | ( | |||||||||
| Gain on sale of servicing rights | ( | ( | |||||||||
| Fair value change in trading securities | |||||||||||
| Provision for loss obligation on sold loans and servicing rights | |||||||||||
| Decrease in provision for deferred income taxes | ( | ( | |||||||||
| Fair value change in derivative assets | |||||||||||
| Fair value change in derivative liabilities | ( | ||||||||||
| Premium paid on derivatives | ( | ( | |||||||||
| Fair value change in loans held for sale | ( | ||||||||||
| Fair value change in servicing rights | ( | ||||||||||
| Stock-based compensation expense | |||||||||||
| Originations of loans | ( | ( | |||||||||
| Proceeds from sales of loans | |||||||||||
| Proceeds from principal payments | |||||||||||
| Payments to investors for loan repurchases | ( | ( | |||||||||
| Gain on extinguishment of debt | ( | ( | |||||||||
| Goodwill impairment | |||||||||||
| Disbursements from joint ventures | |||||||||||
| Other changes in operating assets and liabilities | |||||||||||
Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Proceeds from sale of servicing rights | |||||||||||
| Cash flows received on trading securities | |||||||||||
| Investments in joint ventures | ( | ||||||||||
Net cash flows provided by investing activities | |||||||||||
See accompanying notes to the unaudited consolidated financial statements.
5
loanDepot, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Dollars in thousands)
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Proceeds from borrowings on warehouse and other lines of credit | $ | $ | |||||||||
| Repayment of borrowings on warehouse and other lines of credit | ( | ( | |||||||||
| Proceeds from debt obligations | |||||||||||
| Payments on debt obligations | ( | ( | |||||||||
| Payments of debt issuance costs | ( | ( | |||||||||
| Treasury stock purchased to net settle and withhold taxes on vested shares | ( | ( | |||||||||
| Dividends and shareholder distributions | ( | ( | |||||||||
Net cash used in financing activities | ( | ( | |||||||||
| Net change in cash and cash equivalents and restricted cash | ( | ||||||||||
| Cash and cash equivalents and restricted cash at beginning of the period | |||||||||||
Cash and cash equivalents and restricted cash at end of the period | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURES: | |||||||||||
| Cash paid (received) during the period for: | |||||||||||
| Interest | $ | $ | |||||||||
| Income taxes | ( | ||||||||||
| Supplemental disclosure of noncash investing and financing activities | |||||||||||
| Operating leases right-of-use assets obtained in exchange for lease liabilities | $ | $ | |||||||||
| Trading securities retained in securitizations | |||||||||||
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 nine months ended September 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 September 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
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 nine months ended September 30, 2023.
The Company sells mortgage loans to various third-party investors. Four investors accounted for 36 %, 28 %, 12 %, and 5 % of the Company’s loan sales for the nine months ended September 30, 2023. No other investors accounted for more than 5% of the loan sales for the nine months ended September 30, 2023.
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.
| September 30, 2023 | ||||||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | |||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||||||||||||
| Restricted cash | ||||||||||||||||||||||||||
| Loans held for sale, at fair value | ||||||||||||||||||||||||||
| Derivative assets, at fair value | ||||||||||||||||||||||||||
| Servicing rights, at fair value | ||||||||||||||||||||||||||
| Trading securities, at fair value | ||||||||||||||||||||||||||
| Loans eligible for repurchase | ||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Warehouse and other lines of credit | $ | $ | $ | $ | ||||||||||||||||||||||
| Derivative liabilities, at fair value | ||||||||||||||||||||||||||
| Servicing rights, at fair value | ||||||||||||||||||||||||||
| Debt obligations: | ||||||||||||||||||||||||||
| Secured credit facilities | ||||||||||||||||||||||||||
| Term Notes | ||||||||||||||||||||||||||
| Senior Notes | ||||||||||||||||||||||||||
| Liability for loans eligible for repurchase | ||||||||||||||||||||||||||
9
| December 31, 2022 | ||||||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | |||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||||||||||||
| Restricted cash | ||||||||||||||||||||||||||
| Loans held for sale, at fair value | ||||||||||||||||||||||||||
| Derivative assets, at fair value | ||||||||||||||||||||||||||
| Servicing rights, at fair value | ||||||||||||||||||||||||||
| Trading securities, at fair value | ||||||||||||||||||||||||||
| Loans eligible for repurchase | ||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Warehouse and other lines of credit | $ | $ | $ | $ | ||||||||||||||||||||||
| Derivative liabilities, at fair value | ||||||||||||||||||||||||||
| Servicing rights, at fair value | ||||||||||||||||||||||||||
| Debt obligations: | ||||||||||||||||||||||||||
| Secured credit facilities | ||||||||||||||||||||||||||
| Term Notes | ||||||||||||||||||||||||||
| Senior Notes | ||||||||||||||||||||||||||
| Liability for loans eligible for repurchase | ||||||||||||||||||||||||||
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
| September 30, 2023 | ||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
| Fair value through net income: | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Loans held for sale | $ | $ | $ | $ | ||||||||||||||||||||||
| Trading securities | ||||||||||||||||||||||||||
| Derivative assets: | ||||||||||||||||||||||||||
| Interest rate lock commitments | ||||||||||||||||||||||||||
| Forward sale contracts | ||||||||||||||||||||||||||
| Servicing rights | ||||||||||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Derivative liabilities: | ||||||||||||||||||||||||||
| Interest rate lock commitments | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest rate swap futures | ||||||||||||||||||||||||||
| Forward sale contracts | ||||||||||||||||||||||||||
| Put options on treasuries | ||||||||||||||||||||||||||
| Servicing rights | ||||||||||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | ||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
| Fair value through net income: | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Loans held for sale | $ | $ | $ | $ | ||||||||||||||||||||||
| Trading securities | ||||||||||||||||||||||||||
| Derivative assets: | ||||||||||||||||||||||||||
| Interest rate lock commitments | ||||||||||||||||||||||||||
| Forward sale contracts | ||||||||||||||||||||||||||
| MBS put options | ||||||||||||||||||||||||||
| Servicing rights | ||||||||||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Derivative liabilities: | ||||||||||||||||||||||||||
| Interest rate lock commitments | $ | $ | $ | $ | ||||||||||||||||||||||
| Forward sale contracts | ||||||||||||||||||||||||||
| Put options on treasuries | ||||||||||||||||||||||||||
| Interest rate swap futures | ||||||||||||||||||||||||||
| Servicing rights | ||||||||||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | ||||||||||||||||||||||
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 September 30, 2023 | Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||
| IRLCs, net | Servicing Rights, net | IRLCs, net | Servicing Rights, net | |||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
| Total net gains (losses) included in: | ||||||||||||||||||||||||||
| Gain on origination and sale of loans, net: | ||||||||||||||||||||||||||
| Issuances and additions | ||||||||||||||||||||||||||
| Transfers of IRLC to LHFS | ( | ( | ||||||||||||||||||||||||
| Other factors | ( | ( | ||||||||||||||||||||||||
Change in fair value of servicing rights, net(1) | — | — | ( | |||||||||||||||||||||||
| Sales | ( | ( | ||||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||||||||||||
(1)The change in unrealized gains or losses relating to servicing rights still held at September 30, 2023 amounted to a net loss of $3.0 million and a net gain of $14.4 million for the three and nine months ended September 30, 2023, respectively.
| Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||
| IRLCs, net | Servicing Rights, net | IRLCs, net | Servicing Rights, net | |||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
| Total net gains (losses) included in: | ||||||||||||||||||||||||||
| Gain on origination and sale of loans, net: | ||||||||||||||||||||||||||
| Issuances and additions | ||||||||||||||||||||||||||
| Transfers of IRLC to LHFS | ( | ( | ||||||||||||||||||||||||
| Other factors | ( | ( | ||||||||||||||||||||||||
Change in fair value of servicing rights, net(1) | — | — | ||||||||||||||||||||||||
| Sales | ( | ( | ||||||||||||||||||||||||
| Balance at end of period | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
(1)The change in unrealized gains or losses relating to servicing rights that were still held at September 30, 2022, amounted to net gains of $150.5 million and $683.4 million for the three and nine months ended September 30, 2022, respectively.
12
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:
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||
| Unobservable Input | Range of inputs | Weighted Average(1) | Range of inputs | Weighted Average(1) | ||||||||||||||||||||||||||||||||||
| IRLCs | ||||||||||||||||||||||||||||||||||||||
| Pull-through rate | - | - | ||||||||||||||||||||||||||||||||||||
| Servicing rights | ||||||||||||||||||||||||||||||||||||||
Discount rate(2) | - | - | ||||||||||||||||||||||||||||||||||||
Prepayment rate(2) | - | - | ||||||||||||||||||||||||||||||||||||
| Cost to service (per loan) | $ | - | $ | $ | $ | - | $ | $ | ||||||||||||||||||||||||||||||
(1)Weighted average inputs are based on the committed amounts for IRLCs and the UPB of the underlying loans for servicing rights.
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 September 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 September 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 September 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 September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||
| Amount | % | Amount | % | |||||||||||||||||||||||
| Conforming - fixed | $ | % | $ | % | ||||||||||||||||||||||
| Conforming - ARM | ||||||||||||||||||||||||||
| Government - fixed | ||||||||||||||||||||||||||
| Government - ARM | ||||||||||||||||||||||||||
| Other - residential mortgage loans | ||||||||||||||||||||||||||
| Consumer loans | ||||||||||||||||||||||||||
| Total | % | % | ||||||||||||||||||||||||
| Fair value adjustment | ( | ( | ||||||||||||||||||||||||
| Loans held for sale, at fair value | $ | $ | ||||||||||||||||||||||||
A summary of the changes in the balance of loans held for sale is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
| Origination and purchase of loans | ||||||||||||||||||||||||||
| Sales | ( | ( | ( | ( | ||||||||||||||||||||||
| Repurchases | ||||||||||||||||||||||||||
| Principal payments | ( | ( | ( | ( | ||||||||||||||||||||||
Fair value (loss) gain | ( | ( | ( | |||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||||||||||||
14
Gain on origination and sale of loans, net is comprised of the following components:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
Discount from loan sales | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Servicing rights additions | ||||||||||||||||||||||||||
Unrealized gains from derivative assets and liabilities | ||||||||||||||||||||||||||
Realized gains from derivative assets and liabilities | ||||||||||||||||||||||||||
| Discount points, rebates and lender paid costs | ||||||||||||||||||||||||||
Fair value (loss) gain | ( | ( | ( | |||||||||||||||||||||||
| Recovery (provision) for loan loss obligation for loans sold | ( | ( | ( | |||||||||||||||||||||||
| Total gain on origination and sale of loans, net | $ | $ | $ | $ | ||||||||||||||||||||||
The Company had $24.9 million and $24.8 million of loans held for sale on non-accrual status as of September 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:
| September 30, 2023 | December 31, 2022 | |||||||||||||
| Conventional | $ | $ | ||||||||||||
| Government | ||||||||||||||
| Total servicing portfolio | $ | $ | ||||||||||||
A summary of the changes in the balance of servicing rights, net of servicing rights liability is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||
| Sales proceeds | ( | ( | ( | ( | ||||||||||||||||||||||
| Changes in fair value: | ||||||||||||||||||||||||||
| Due to changes in valuation inputs or assumptions | ||||||||||||||||||||||||||
| Due to collection/realization of cash flows | ( | ( | ( | ( | ||||||||||||||||||||||
Realized gains (losses) on sales of servicing rights | ( | |||||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||||||||||||
15
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Contractual servicing fees | $ | $ | $ | $ | ||||||||||||||||||||||
| Late, ancillary and other fees | ||||||||||||||||||||||||||
| Servicing fee income | $ | $ | $ | $ | ||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Changes in fair value: | ||||||||||||||||||||||||||
| Due to changes in valuation inputs or assumptions | $ | $ | $ | $ | ||||||||||||||||||||||
| Due to collection/realization of cash flows | ( | ( | ( | ( | ||||||||||||||||||||||
Realized gains (losses) on sales of servicing rights, net (1) | ( | ( | ||||||||||||||||||||||||
Net loss from derivatives hedging servicing rights | ( | ( | ( | ( | ||||||||||||||||||||||
| Changes in fair value of servicing rights, net | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
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.
| September 30, 2023 | December 31, 2022 | |||||||||||||
| Fair Value of Servicing Rights, net | $ | $ | ||||||||||||
| Change in Fair Value from adverse changes: | ||||||||||||||
| Discount Rate: | ||||||||||||||
| Increase 1% | ( | ( | ||||||||||||
| Increase 2% | ( | ( | ||||||||||||
| Cost of Servicing: | ||||||||||||||
| Increase 10% | ( | ( | ||||||||||||
| Increase 20% | ( | ( | ||||||||||||
| Prepayment Speed: | ||||||||||||||
| Increase 10% | ( | ( | ||||||||||||
| Increase 20% | ( | ( | ||||||||||||
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.
16
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 | ||||||||||||||||||||||||||
| Notional | Balance Sheet Location | Asset | Liability | |||||||||||||||||||||||
| September 30, 2023: | ||||||||||||||||||||||||||
| Interest rate lock commitments | $ | Derivative asset, at fair value | $ | |||||||||||||||||||||||
| Interest rate lock commitments | Derivative liabilities, at fair value | — | ||||||||||||||||||||||||
| Forward sale contracts | Derivative asset, at fair value | — | ||||||||||||||||||||||||
| Forward sale contracts | Derivative liabilities, at fair value | — | ||||||||||||||||||||||||
| Put options on treasuries | Derivative asset, at fair value | — | ||||||||||||||||||||||||
| Put options on treasuries | Derivative liabilities, at fair value | — | ||||||||||||||||||||||||
| Interest rate swap futures | Derivative asset, at fair value | — | ||||||||||||||||||||||||
| Interest rate swap futures | Derivative liabilities, at fair value | — | ||||||||||||||||||||||||
| Total derivative financial instruments | $ | $ | ||||||||||||||||||||||||
17
| Fair Value | ||||||||||||||||||||||||||
| Notional | Balance Sheet Location | Asset | Liability | |||||||||||||||||||||||
| December 31, 2022: | ||||||||||||||||||||||||||
| Interest rate lock commitments | $ | Derivative asset, at fair value | $ | $ | — | |||||||||||||||||||||
| Interest rate lock commitments | Derivative liabilities, at fair value | — | ||||||||||||||||||||||||
| Forward sale contracts | Derivative asset, at fair value | — | ||||||||||||||||||||||||
| Forward sale contracts | Derivative liabilities, at fair value | — | ||||||||||||||||||||||||
| Put options on treasuries | Derivative asset, at fair value | — | ||||||||||||||||||||||||
| Put options on treasuries | Derivative liabilities, at fair value | — | ||||||||||||||||||||||||
| MBS put options | Derivative asset, at fair value | — | ||||||||||||||||||||||||
| MBS put options | Derivative liabilities, at fair value | — | ||||||||||||||||||||||||
| Interest rate swap futures | Derivative asset, at fair value | — | ||||||||||||||||||||||||
| Interest rate swap futures | Derivative liabilities, at fair value | — | ||||||||||||||||||||||||
| Total derivative financial instruments | $ | $ | ||||||||||||||||||||||||
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 September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| Derivative instrument | Statements of Operations Location | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| Interest rate lock commitments, net | Gain on origination and sale of loans, net | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||
| Forward sale contracts | Gain on origination and sale of loans, net | |||||||||||||||||||||||||||||||
| Interest rate swap futures | Gain on origination and sale of loans, net | ( | ( | ( | ||||||||||||||||||||||||||||
| Put options | Gain on origination and sale of loans, net | |||||||||||||||||||||||||||||||
| Forward sale contracts | Change in fair value of servicing rights, net | ( | ( | ( | ( | |||||||||||||||||||||||||||
| Interest rate swap futures | Change in fair value of servicing rights, net | ( | ( | ( | ( | |||||||||||||||||||||||||||
| Put options | Change in fair value of servicing rights, net | ( | ( | ( | ( | |||||||||||||||||||||||||||
Total realized and unrealized (losses) gains on derivative financial instruments | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||
18
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 September 30, 2023 and December 31, 2022, respectively. Refer to Note 8 – Warehouse and Other Lines of Credit for further details on cash collateral requirements.
| September 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| Gross amounts recognized | Gross amounts offset in consolidated balance sheet | Net amounts presented in consolidated balance sheet | Gross amounts not offset in consolidated balance sheet | Net amount | ||||||||||||||||||||||||||||||||||
| Financial instruments | Cash collateral | |||||||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||
| Forward sale contracts | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Total Assets | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||||||||
| Forward sale contracts | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Put options on treasuries | ( | |||||||||||||||||||||||||||||||||||||
| Interest rate swap futures | ( | |||||||||||||||||||||||||||||||||||||
| Warehouse and other lines of credit | ( | |||||||||||||||||||||||||||||||||||||
Secured debt obligations (1) | ( | |||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | $ | ( | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||
(1)Secured debt obligations as of September 30, 2023 included secured credit facilities and Term Notes.
19
| December 31, 2022 | ||||||||||||||||||||||||||||||||||||||
| Gross amounts recognized | Gross amounts offset in consolidated balance sheets | Net amounts presented in consolidated balance sheets | Gross amounts not offset in consolidated balance sheets | Net amount | ||||||||||||||||||||||||||||||||||
| Financial instruments | Cash collateral | |||||||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||
| Forward sale contracts | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| MBS put options | ||||||||||||||||||||||||||||||||||||||
| Total assets | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||||||||
| Forward sale contracts | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Put options on treasuries | ( | |||||||||||||||||||||||||||||||||||||
| Interest rate swap futures | ( | |||||||||||||||||||||||||||||||||||||
| Warehouse and other lines of credit | ( | |||||||||||||||||||||||||||||||||||||
Secured debt obligations (1) | ( | |||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | $ | ( | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||
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 nine months ended September 30, 2023 and year ended December 31, 2022.
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 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.
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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 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 transfers 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 transferred. 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 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
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||
| Assets | ||||||||||||||||||||
| Loans held for sale, at fair value | $ | $ | ||||||||||||||||||
| Restricted cash | ||||||||||||||||||||
| Servicing rights, at fair value | ||||||||||||||||||||
| Prepaid expenses and other assets | ||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Warehouse and other lines of credit | $ | $ | ||||||||||||||||||
| Debt obligations, net: | ||||||||||||||||||||
| MSR Facilities | ||||||||||||||||||||
| Servicing advance facilities | ||||||||||||||||||||
| Term notes | ||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||
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.
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| September 30, 2023 | ||||||||||||||||||||||||||
| Carrying value | Maximum exposure to loss | Total assets in VIEs | ||||||||||||||||||||||||
| Assets | Liabilities | |||||||||||||||||||||||||
| Retained interests | $ | $ | — | $ | $ | |||||||||||||||||||||
| Investments in joint ventures | — | |||||||||||||||||||||||||
| Total | $ | $ | — | $ | ||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||
| Carrying value | Maximum exposure to loss | Total assets in VIEs | ||||||||||||||||||||||||
| Assets | Liabilities | |||||||||||||||||||||||||
| Retained interests | $ | $ | — | $ | $ | |||||||||||||||||||||
| Investments in joint ventures | — | |||||||||||||||||||||||||
| Total | $ | $ | — | $ | ||||||||||||||||||||||
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 September 30, 2023, the remaining principal balance of loans transferred to these securitization trusts was $2.2 billion of which $8.7 million was 90 days or more past due.
Investments in joint ventures
NOTE 8 – WAREHOUSE AND OTHER LINES OF CREDIT
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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 September 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 September 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 September 30, 2023 and December 31, 2022, the Company had posted a total of $17.9 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 September 30, 2023, the Company was in compliance with 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.
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The following table presents information on warehouse and securitization facilities and the outstanding balance as of September 30, 2023 and December 31, 2022:
| Outstanding Balance | ||||||||||||||||||||||||||||||||||||||
| Committed Amount | Uncommitted Amount | Total Facility Amount | Expiration Date | September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||
Facility 1(1) | $ | $ | $ | 10/26/2023 | $ | $ | ||||||||||||||||||||||||||||||||
Facility 2(2)(3) | 9/23/2024 | |||||||||||||||||||||||||||||||||||||
| Facility 3 | 4/16/2024 | |||||||||||||||||||||||||||||||||||||
| Facility 4 | 12/28/2023 | |||||||||||||||||||||||||||||||||||||
Facility 5(3) | N/A | |||||||||||||||||||||||||||||||||||||
Facility 6(3) | 9/27/2024 | |||||||||||||||||||||||||||||||||||||
Facility 7(4) | 11/1/2023 | |||||||||||||||||||||||||||||||||||||
| Facility 8 | 9/20/2024 | |||||||||||||||||||||||||||||||||||||
Facility 9(5) | 10/21/2024 | |||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
(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. In October 2023, this facility was extended to mature in October 2024.
(2)In October 2023, the $300.0 million facility was amended to provide $1.0 million committed and $299.0 million uncommitted.
(3)In addition to the warehouse line, the lender provides a separate gestation facility to finance recently sold MBS up to the MBS settlement date.
(4)In November 2023, the warehouse facility was not renewed.
(5)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 September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Maximum outstanding balance during the period | $ | $ | $ | $ | ||||||||||||||||||||||
| Average balance outstanding during the period | ||||||||||||||||||||||||||
| Collateral pledged (loans held for sale) | ||||||||||||||||||||||||||
| Weighted average interest rate during the period | % | % | % | % | ||||||||||||||||||||||
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NOTE 9 – DEBT OBLIGATIONS
The following table presents the outstanding debt as of September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||
| Secured debt obligations, net: | ||||||||||||||||||||||||||
| Secured credit facilities | ||||||||||||||||||||||||||
| MSR facilities | $ | $ | ||||||||||||||||||||||||
| Securities financing facilities | ||||||||||||||||||||||||||
| Servicing advance facilities | ||||||||||||||||||||||||||
| Total secured credit facilities | ||||||||||||||||||||||||||
| Term Notes | ||||||||||||||||||||||||||
| Total secured debt obligations, net | ||||||||||||||||||||||||||
| Unsecured debt obligations, net: | ||||||||||||||||||||||||||
| Senior Notes | ||||||||||||||||||||||||||
| Total debt obligations, net | $ | $ | ||||||||||||||||||||||||
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 September 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 September 2023.
In December 2021, the Company entered into a credit facility agreement. The agreement was amended in June 2023 to provide for $490.0 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 $745.0 million as of September 30, 2023. The facility bears interest at SOFR, plus a margin per annum and matures in December 2023. At September 30, 2023, there was $450.0 million outstanding on this facility and $0.4 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 $615.6 million as of September 30, 2023. The facility bears interest at SOFR, plus a margin per annum and matures in January 2025. At September 30, 2023, there was $325.6 million outstanding on this facility and no unamortized deferred financing costs.
In August 2017, the Company established the GMSR Trust to finance its Ginnie Mae mortgage servicing rights through the issuance of variable funding notes or term notes, both secured by participation certificates representing beneficial interests in Ginnie Mae mortgage servicing rights held by the GMSR Trust. These variable funding notes accrue interest at SOFR plus a margin per annum. As of September 30, 2023, the Company had pledged participation certificates with a fair value of $621.4 million, with $150.0 million in outstanding variable funding notes scheduled to mature in November 2023. In November 2023, the maturity of the GMSR Trust variable funding notes was extended to January 2024, with a borrowing capacity of $175.0 million, which also includes variable funding notes secured by principal and interest advance receivables or
25
servicing advance receivables related to residential mortgage loans serviced on behalf of Ginnie Mae, as discussed in the Servicing Advance Facilities section below.
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 70 % 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 September 30, 2023, the trading securities had a fair value of $89.3 million on the consolidated balance sheets and there were $76.3 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 2024 (unless earlier redeemed in accordance with their terms). At September 30, 2023, there was $16.0 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 related to residential mortgage loans serviced on behalf of Ginnie Mae. These variable funding notes bear interest at SOFR plus a margin per annum. As of September 30, 2023, there was no balance outstanding on these variable funding notes, which were scheduled to mature in November 2023. In November 2023, the variable funding notes were extended to January 2024.
Term Notes
In October 2018, the Company, through the GMSR Trust issued the Series 2018-GT1 Term Notes (“Term Notes”). In September 2023, the Term Notes were extended to mature in October 2025 and accrue interest at SOFR plus a margin per annum. At September 30, 2023, there was $200.0 million in Term Notes outstanding and no unamortized deferred financing costs.
Senior Notes
In October 2020, the Company issued $500.0 million in aggregate principal amount of 6.50 % unsecured senior 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. During the third quarter of 2023, the Company repurchased $2.3 million of 2025 Senior Notes at an average purchase price of 79.8 % of par, which resulted in a $436 ,000 gain on extinguishment of debt. Gain on extinguishment of debt is recorded in other interest expense on the consolidated statement of operations. As of September 30, 2023, there were $497.8 million in 2025 Senior Notes outstanding and $3.7 million in unamortized deferred financing costs.
In March 2021, the Company issued $600.0 million in aggregate principal amount of 6.125 % unsecured senior 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 the 2028 Senior Notes at 100 % of the principal, plus accrued interest and a make-whole premium. Up to 40 % of the principal may be redeemed before April 1, 2024 with proceeds from certain equity offerings at a price of 106.125 % of the principal plus accrued interest. After April 1, 2024 the Company may redeem the 2028 Senior Notes at various redemption prices. 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
26
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. In the third quarter of 2023, the Company repurchased $3.0 million of 2028 Senior Notes at a purchase price of 58.5 % of par, resulting in a $1.2 million gain on extinguishment of debt. As of September 30, 2023, there were $499.4 million in 2028 Senior Notes outstanding and $4.7 million in unamortized deferred financing costs.
Interest Expense
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 $389.8 million and $488.0 million as of September 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 September 30, 2023 and December 31, 2022.
| September 30, 2023 | December 31, 2022 | ||||||||||||||||
| Holding Member Interests: | Holdco Units | Ownership Percentage | Holdco Units | Ownership Percentage | |||||||||||||
| loanDepot, Inc. | |||||||||||||||||
| Continuing LLC Members | |||||||||||||||||
| Total | |||||||||||||||||
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. Diluted EPS was computed using the treasury stock method for Class A RSUs, nonqualified stock options, and ESPP shares and the if-converted method for Class C common stock.
There was no 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 Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| September 30, 2023 | September 30, 2023 | ||||||||||||||||||||||||||||||||||
| Class A | Class D | Total | Class A | Class D | Total | ||||||||||||||||||||||||||||||
Net loss attributable to loanDepot, Inc. | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
| Weighted average shares - basic | |||||||||||||||||||||||||||||||||||
Loss per share - basic | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
Diluted loss per share: | |||||||||||||||||||||||||||||||||||
Net loss allocated to common stockholders - diluted | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
| Weighted average shares - diluted | |||||||||||||||||||||||||||||||||||
Loss per share - diluted | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2022 | ||||||||||||||||||||||||||||||||||
| Class A | Class D | Total | Class A | Class D | Total | ||||||||||||||||||||||||||||||
Net loss attributable to loanDepot, Inc. | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
| Weighted average shares - basic | |||||||||||||||||||||||||||||||||||
Loss per share - basic | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
Diluted loss per share: | |||||||||||||||||||||||||||||||||||
Net loss allocated to common stockholders - diluted | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
| Weighted average shares - diluted | |||||||||||||||||||||||||||||||||||
Loss per share - diluted | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
For the three and nine months ended September 30, 2023, 147,171,089 and 148,741,661 , 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 nine months ended September 30, 2023, 14,659,858 and 18,796,509 , 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 nine months ended September 30, 2022, 156,677,534 and 167,796,888 , 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.
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 September 30, 2023 and December 31, 2022, the Company had a deferred tax asset before any valuation allowance of $104.5 million and $70.5 million, respectively, and a deferred tax liability of $190.2 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 September 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 September 30, 2023 and December 31, 2022 using the combined federal and state rate (less federal benefit) of 27.0 % and 27.4 %, respectively. 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 September 30, 2023, the Company had a valuation allowance of deferred tax assets $0.4 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 $53.8 million and $50.7 million as of September 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 September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Loan processing and administrative services fee income | $ | $ | $ | $ | ||||||||||||||||||||||
| Loan origination broker fees expense | $ | $ | $ | $ | ||||||||||||||||||||||
| September 30, 2023 | December 31, 2022 | |||||||||||||
Amounts payable to joint ventures | $ | $ | ||||||||||||
The Company has entered into a TRA with Parthenon Stockholders and certain Continuing LLC Members. There were no
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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 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 $8.2 million and $5.1 million at September 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
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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.
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 September 30, 2023 and December 31, 2022 approximated $3.0 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 nine months ended September 30, 2023 and 2022.
The activity related to the loan loss obligation for sold loans is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
(Recovery) provision for loan loss obligations | ( | |||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | ||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||||||||||||
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 $0.6 million and $1.1 million as of September 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 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
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NOTE 15 – REGULATORY CAPITAL AND LIQUIDITY REQUIREMENTS
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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 typically 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. According to MBA’s Mortgage Finance Forecast published October 15, 2023, annual one-to-four family residential mortgage origination for 2023 are expected to decrease by 29% on a year-over-year basis to $1.6 trillion and increase by 19% in 2024 to $1.9 trillion.
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 transitioned our servicing portfolio to an in-house platform, reducing servicing expenses, expanded our offerings on the digital HELOC platform, and forged a new partnership with Habitat for Humanity, supporting their mission to improve housing. In the second and third quarters of 2023, we further streamlined our leadership structure and integrated 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 September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (Dollars in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| IRLCs | $ | 8,295,935 | $ | 12,032,026 | $ | 25,738,036 | $ | 61,620,241 | ||||||||||||||||||
| IRLCs (units) | 26,888 | 38,569 | 83,916 | 188,444 | ||||||||||||||||||||||
| Pull through weighted lock volume | $ | 5,685,209 | $ | 8,755,082 | $ | 17,067,876 | $ | 40,968,021 | ||||||||||||||||||
| Pull through weighted gain on sale margin | 2.93 | 2.03 | 2.69 | 1.92 | ||||||||||||||||||||||
| Loan originations by purpose: | ||||||||||||||||||||||||||
| Purchase | $ | 4,337,476 | $ | 6,938,408 | $ | 12,403,166 | $ | 24,469,338 | ||||||||||||||||||
| Refinance | 1,745,667 | 2,911,519 | 4,897,857 | 22,926,375 | ||||||||||||||||||||||
| Total loan originations | $ | 6,083,143 | $ | 9,849,927 | $ | 17,301,023 | $ | 47,395,713 | ||||||||||||||||||
| Gain on sale margin | 2.74 | % | 1.80 | % | 2.66 | % | 1.66 | % | ||||||||||||||||||
| Loan originations (units) | 20,593 | 29,795 | 58,188 | 142,057 | ||||||||||||||||||||||
| Licensed loan officers | 1,598 | 2,319 | 1,598 | 2,319 | ||||||||||||||||||||||
| Loans sold: | ||||||||||||||||||||||||||
| Servicing retained | $ | 4,175,126 | $ | 6,604,979 | $ | 11,396,678 | $ | 34,296,344 | ||||||||||||||||||
| Servicing released | 2,092,762 | 5,132,350 | 6,345,660 | 18,220,561 | ||||||||||||||||||||||
| Total loans sold | $ | 6,267,888 | $ | 11,737,329 | $ | 17,742,338 | $ | 52,516,905 | ||||||||||||||||||
| Loans sold (units) | 21,188 | 34,613 | 58,976 | 154,624 | ||||||||||||||||||||||
| Servicing metrics | ||||||||||||||||||||||||||
| Total servicing portfolio (unpaid principal balance) | $ | 143,959,705 | $ | 139,709,633 | $ | 143,959,705 | $ | 139,709,633 | ||||||||||||||||||
| Total servicing portfolio (units) | 490,191 | 463,471 | 490,191 | 463,471 | ||||||||||||||||||||||
60+ days delinquent ($)(1) | $ | 1,235,443 | $ | 1,365,774 | $ | 1,235,443 | $ | 1,365,774 | ||||||||||||||||||
| 60+ days delinquent (%) | 0.86 | % | 0.98 | % | 0.86 | % | 0.98 | % | ||||||||||||||||||
Servicing rights at fair value, net(2) | $ | 2,038,654 | $ | 2,013,269 | $ | 2,038,654 | $ | 2,013,269 | ||||||||||||||||||
Weighted average servicing fee (3) | 0.29 | % | 0.29 | % | 0.29 | % | 0.29 | % | ||||||||||||||||||
Multiple(3) (4) | 5.2 | 5.2 | 5.2 | 5.2 | ||||||||||||||||||||||
(1)The UPB of loans that are 60 or more days past due as of September 30, 2023, according to the contractual due date, or are in foreclosure.
(2)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.
(3)Agency only.
(4)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 September 30, 2023 compared to the three months ended September 30, 2022.
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| Three Months Ended September 30, | Change $ | Change % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| REVENUES: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 2,611 | $ | 9,794 | $ | (7,183) | (73.3) | % | |||||||||||||||||||||||||||||||||||||||||||||
| Gain on origination and sale of loans, net | 148,849 | 156,300 | (7,451) | (4.8) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Origination income, net | 17,740 | 21,268 | (3,528) | (16.6) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Servicing fee income | 118,783 | 113,544 | 5,239 | 4.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of servicing rights, net | (35,688) | (38,479) | 2,791 | 7.3 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other income | 13,366 | 11,765 | 1,601 | 13.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total net revenues | 265,661 | 274,192 | (8,531) | (3.1) | |||||||||||||||||||||||||||||||||||||||||||||||||
| EXPENSES: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Personnel expense | 141,432 | 218,819 | (77,387) | (35.4) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Marketing and advertising expense | 33,894 | 42,940 | (9,046) | (21.1) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Direct origination expense | 15,749 | 19,463 | (3,714) | (19.1) | |||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expense | 46,522 | 83,412 | (36,890) | (44.2) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Occupancy expense | 5,903 | 9,889 | (3,986) | (40.3) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 10,592 | 10,243 | 349 | 3.4 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Servicing expense | 8,532 | 14,221 | (5,689) | (40.0) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other interest expense | 42,504 | 36,138 | 6,366 | 17.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total expenses | 305,128 | 435,125 | (129,997) | (29.9) | |||||||||||||||||||||||||||||||||||||||||||||||||
Loss before income taxes | (39,467) | (160,933) | 121,466 | 75.5 | |||||||||||||||||||||||||||||||||||||||||||||||||
Income tax benefit | (5,205) | (23,451) | 18,246 | 77.8 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | (34,262) | (137,482) | 103,220 | 75.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net loss attributable to noncontrolling interests | (17,663) | (77,401) | 59,738 | 77.2 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net loss attributable to loanDepot, Inc. | $ | (16,599) | $ | (60,081) | $ | 43,482 | (72.4) | ||||||||||||||||||||||||||||||||||||||||||||||
The decrease in net loss of $103.2 million was primarily due to a $130.0 million decrease in total expenses. This decline was driven by a combination of volume-related declines and optimization efforts aligned with our Vision 2025 Plan. The $8.5 million decrease in total net revenues was caused by reduced mortgage origination volume due to declining demand from rising interest rates in 2022 and throughout 2023. Additionally, net interest income declined due to higher cost of funds relative to interest income on LHFS, and lower average balances. However, servicing fee income rose due to an increase in ancillary income from higher interest rates and a higher average UPB in our servicing portfolio.
Revenues
Net Interest Income. Net interest income represents the income earned on LHFS, offset by interest expenses on amounts borrowed under warehouse and other lines of credit to finance these loans until they are sold. Our LHFS are generally tied to longer-term interest rates while our warehouse lines of credit are tied to short-term interest rates. Therefore our net interest income is impacted by the term structure of market interest rates. The decrease in net interest income was due to higher cost of funds, partially offset by lower average balances of warehouse lines. The average cost of warehouse lines increased by 342 basis points, while the average yield on LHFS increased 111 basis points. The average balance on warehouse lines decreased by $1.5 billion, and the average balance of LHFS decreased $1.4 billion.
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Gain on Origination and Sale of Loans, Net. Gain on origination and sale of loans, net, was comprised of the following:
| Three Months Ended September 30, | Change $ | Change % | ||||||||||||||||||||||||
| (Dollars in thousands) | 2023 | 2022 | ||||||||||||||||||||||||
Discount from loan sales | $ | (64,973) | $ | (83,312) | $ | 18,339 | 22.0 | % | ||||||||||||||||||
| Fair value of servicing rights additions | 80,068 | 124,244 | (44,176) | (35.6) | ||||||||||||||||||||||
Fair value losses on IRLC and LHFS | (39,162) | (203,519) | 164,357 | 80.8 | ||||||||||||||||||||||
Fair value gains from Hedging Instruments | 86,946 | 274,185 | (187,239) | (68.3) | ||||||||||||||||||||||
| Discount points, rebates and lender paid costs | 83,772 | 57,634 | 26,138 | 45.4 | ||||||||||||||||||||||
Recovery of (provision for) loan loss obligation for loans sold | 2,198 | (12,932) | 15,130 | 117.0 | ||||||||||||||||||||||
| Total gain on origination and sale of loans, net | $ | 148,849 | $ | 156,300 | $ | (7,451) | (4.8) | |||||||||||||||||||
Gain on origination and sale of loans, net includes several key components. The estimated change in value of a loan from the time we enter into a commitment to lend to the borrower (IRLC) to the closing of the loan (LHFS) up until its eventual sale is recorded in “Fair value gains or losses on IRLC and LHFS.” Various factors, such as mortgage volume, the duration a loan remains at stages in the origination process, and shifts in interest rates, influence fair value changes on IRLC and LHFS. We utilize a hedge strategy to manage the impact of interest rate changes in IRLC and LHFS, "Fair value gains or losses from Hedging Instruments" represents the unrealized gains or losses on Hedging Instruments. When a loan is sold, the difference between proceeds received and the UPB is included in “Premium or discount from loan sales.” Additionally, “Discount points, rebates, and lender paid costs” are recognized at closing of the loan. The fair value of servicing rights retained on loan sales is included in “Fair value of servicing rights additions.” The "Provision for loan loss obligation for loans sold” is established to cover potential losses from a breach of representation or warranty made to purchasers or insurers of the sold loans.
The $7.5 million or 4.8% decrease in gain on origination and sale of loans, net was driven by lower IRLC volume from
higher rates, partially offset by higher margins on that volume. The recovery for loan loss obligations for the period is a result of fewer loans subject to repurchase and partially mitigated the impact of other volume-related decreases.
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 $3.5 million or 16.6% decrease in origination income was the result of a 38.2% decrease in loan origination volumes, partially offset by an increase in origination income from the launch of our HELOC product.
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 $5.2 million or 4.6% reflects higher ancillary income from the cash balances held on behalf of our customers due to higher interest rates and a $0.2 billion increase 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 $2.8 million increase was driven by gains on the sale of servicing rights of $17.0 million and lower prepayments of $11.0 million, partially offset by a decrease of $25.2 million in fair value gains, net of hedging losses.
Expenses
Personnel Expense. Personnel expense includes salaries, commissions, incentive compensation, benefits, and other employee costs. The $77.4 million or 35.4% decrease in personnel expense included volume-related declines in commissions of $23.4 million. The remaining decrease of $54.0 million was attributable to lower salaries & benefits from the 26.0% decrease in headcount related to previously announced cost savings initiatives. As of September 30, 2023, we had 4,532 employees compared to 6,121 employees as of September 30, 2022.
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Marketing and Advertising Expense. The $9.0 million or 21.1% decrease in marketing expense reflects lower lead aggregators from a decline in the total addressable market.
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 $3.7 million or 19.1% decrease in direct origination expense was the result of decreased loan originations during the period.
General and Administrative Expense. General and administrative expense includes professional fees, data processing expense, communications expense, and other operating expenses. The $36.9 million or 44.2% decrease in general and administrative expense included a $20.0 million reduction in impairment and other real estate exit costs and a $9.7 million decrease 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 $5.7 million or 40.0% in servicing expense reflects our shift to in-house servicing.
Other Interest Expense. The $6.4 million or 17.6% increase in other interest expense was the result of higher rates on secured credit facilities, partially offset by a $100.9 million decrease in average balances and a $1.7 million gain on extinguishment of Senior Notes.
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Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
| Nine Months Ended September 30, | Change $ | Change % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| REVENUES: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 6,659 | $ | 45,668 | $ | (39,009) | (85.4) | % | |||||||||||||||||||||||||||||||||||||||||||||
| Gain on origination and sale of loans, net | 411,336 | 665,993 | (254,657) | (38.2) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Origination income, net | 48,088 | 119,449 | (71,361) | (59.7) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Servicing fee income | 355,482 | 341,929 | 13,553 | 4.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of servicing rights, net | (126,968) | (140,370) | 13,402 | 9.5 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other income | 50,798 | 53,472 | (2,674) | (5.0) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total net revenues | 745,395 | 1,086,141 | (340,746) | (31.4) | |||||||||||||||||||||||||||||||||||||||||||||||||
| EXPENSES: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Personnel expense | 440,258 | 861,382 | (421,124) | (48.9) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Marketing and advertising expense | 104,520 | 205,289 | (100,769) | (49.1) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Direct origination expense | 50,352 | 106,616 | (56,264) | (52.8) | |||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expense | 157,473 | 197,089 | (39,616) | (20.1) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Occupancy expense | 18,083 | 28,673 | (10,590) | (36.9) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 31,339 | 32,110 | (771) | (2.4) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Servicing expense | 19,116 | 46,472 | (27,356) | (58.9) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other interest expense | 128,619 | 83,671 | 44,948 | 53.7 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill impairment | — | 40,736 | (40,736) | NM | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total expenses | 949,760 | 1,602,038 | (652,278) | (40.7) | |||||||||||||||||||||||||||||||||||||||||||||||||
Loss before income taxes | (204,365) | (515,897) | 311,532 | 60.4 | |||||||||||||||||||||||||||||||||||||||||||||||||
Income tax benefit | (28,622) | (63,274) | 34,652 | 54.8 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | (175,743) | (452,623) | 276,880 | 61.2 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net loss attributable to noncontrolling interests | (92,793) | (256,873) | 164,080 | 63.9 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net loss attributable to loanDepot, Inc. | $ | (82,950) | $ | (195,750) | $ | 112,800 | (57.6) | ||||||||||||||||||||||||||||||||||||||||||||||
The decrease of $276.9 million, or 61.2% in net loss was primarily due to a $652.3 million decrease in total expenses, partially offset by a $340.7 million decrease in total net revenue. The decline in revenue was driven by the impact of the increased interest rate environment, leading to a decrease in the volume of IRLCs and mortgage loan originations compared to the same period in 2022. The decline in total expense included efforts associated with our Vision 2025 plan, as well as volume-driven declines related to mortgage loan originations.
Revenues
Net Interest Income. The decrease in net interest income was predominately driven by higher cost of funds, resulting from increased market rates, partially offset by higher yield on LHFS. The average cost of warehouse lines increased 433 basis points while the average yield on LHFS increased 217 basis points.
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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| Nine Months Ended September 30, | Change $ | Change % | ||||||||||||||||||||||||
| (Dollars in thousands) | 2023 | 2022 | ||||||||||||||||||||||||
Discount from loan sales | $ | (108,289) | $ | (756,602) | $ | 648,313 | 85.7 | % | ||||||||||||||||||
| Fair value of servicing rights additions | 215,229 | 574,459 | (359,230) | (62.5) | ||||||||||||||||||||||
Fair value gains (losses) on IRLC and LHFS | 10,725 | (501,053) | 511,778 | 102.1 | ||||||||||||||||||||||
Fair value gains from Hedging Instruments | 81,291 | 1,268,271 | (1,186,980) | (93.6) | ||||||||||||||||||||||
| Discount points, rebates and lender paid costs | 222,332 | 189,468 | 32,864 | 17.3 | ||||||||||||||||||||||
Provision for loan loss obligation for loans sold | (9,952) | (108,550) | 98,598 | 90.8 | ||||||||||||||||||||||
| $ | 411,336 | $ | 665,993 | $ | (254,657) | (38.2) | ||||||||||||||||||||
The decrease in gain on origination and sale of loans, net reflects higher market rates during the nine months ended September 30, 2023 leading to reduced loan origination volumes, partially offset by higher margins on that volume and increased discount points. The reduced provision for loan loss obligations on loan sold is a result of fewer loans subject to repurchase, partially offset by lower market values for those loans.
Origination Income, Net. The decrease in origination income, net, of $71.4 million or 59.7% is consistent with the decrease in loan origination volumes.
Servicing Fee Income. The $13.6 million or 4.0% increase was the result of higher ancillary income from the increase in interest rates, partially offset by lower volume from the decrease of $9.1 billion in the average UPB of our servicing portfolio.
Change in Fair Value of Servicing Rights, Net. The increase of $13.4 million reflects a $78.2 million decrease in prepayments due to the rate environment and a $16.6 million increase in gain on sale of servicing rights, partially offset by an $81.5 million decrease in fair value gains, net of hedging losses.
Expenses
Personnel Expense. The decrease of $421.1 million reflects a $182.3 million decrease in commissions due to the decrease in loan originations and a $234.5 million decrease in salaries and benefits due to the 26.0% decrease in headcount.
Marketing and Advertising Expense. The decrease of $100.8 million or 49.1% reflects a reduction in purchased leads and direct mail.
Direct Origination Expense. The $56.3 million or 52.8% decrease in direct origination expense was the result of decreased loan originations during the period.
General and Administrative Expense. The $39.6 million or 20.1% decrease in general and administrative expense included a $24.6 million decrease in impairment and other real estate exit costs and a $6.1 million decrease in professional and consulting services.
Servicing Expense. The decrease of $27.4 million or 58.9% between periods reflects our shift to in-house servicing.
Other Interest Expense. The $44.9 million or 53.7% increase in other interest expense was the result of a $16.4 million increase in average balances, higher rates on secured credit facilities, and an $8.8 million decrease in gain on extinguishment of Senior Notes.
Goodwill Impairment. During the nine months ended September 30, 2022, there was $40.7 million of impairment recognized on goodwill. There was no similar activity for the nine months ended September 30, 2023.
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Income Tax Expense (Benefit). The decrease in benefit for income taxes of $34.7 million reflects lower net losses, partially offset by non-deductible impairment of goodwill and other intangible assets for the nine months ended September 30, 2022.
Balance Sheet Highlights
September 30, 2023 Compared to December 31, 2022
The following table sets forth our consolidated balance sheets as of the dates indicated:
| (Dollars in thousands) | September 30, 2023 | December 31, 2022 | Change $ | Change % | ||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 717,196 | $ | 863,956 | $ | (146,760) | (17.0) | % | ||||||||||||||||||||||||
| Restricted cash | 114,765 | 116,545 | (1,780) | (1.5) | ||||||||||||||||||||||||||||
| Accounts receivable, net | 53,845 | 145,279 | (91,434) | (62.9) | ||||||||||||||||||||||||||||
| Loans held for sale, at fair value | 2,070,748 | 2,373,427 | (302,679) | (12.8) | ||||||||||||||||||||||||||||
| Derivative assets, at fair value | 86,622 | 39,411 | 47,211 | 119.8 | ||||||||||||||||||||||||||||
| Servicing rights, at fair value | 2,053,359 | 2,037,447 | 15,912 | 0.8 | ||||||||||||||||||||||||||||
| Trading securities, at fair value | 89,334 | 94,243 | (4,909) | (5.2) | ||||||||||||||||||||||||||||
| Property and equipment, net | 76,762 | 92,889 | (16,127) | (17.4) | ||||||||||||||||||||||||||||
| Operating lease right-of-use assets | 32,558 | 35,668 | (3,110) | (8.7) | ||||||||||||||||||||||||||||
| Prepaid expenses and other assets | 124,756 | 155,982 | (31,226) | (20.0) | ||||||||||||||||||||||||||||
| Loans eligible for repurchase | 639,806 | 634,677 | 5,129 | 0.8 | ||||||||||||||||||||||||||||
| Investments in joint ventures | 18,778 | 20,410 | (1,632) | (8.0) | ||||||||||||||||||||||||||||
| Total assets | $ | 6,078,529 | $ | 6,609,934 | $ | (531,405) | (8.0) | |||||||||||||||||||||||||
| LIABILITIES & EQUITY | ||||||||||||||||||||||||||||||||
| Warehouse and other lines of credit | $ | 1,897,859 | $ | 2,146,602 | $ | (248,743) | (11.6) | |||||||||||||||||||||||||
| Accounts payable, accrued expenses and other liabilities | 462,521 | 488,696 | (26,175) | (5.4) | ||||||||||||||||||||||||||||
| Derivative liabilities, at fair value | 49,742 | 67,492 | (17,750) | (26.3) | ||||||||||||||||||||||||||||
| Liability for loans eligible for repurchase | 639,806 | 634,677 | 5,129 | 0.8 | ||||||||||||||||||||||||||||
| Operating lease liability | 53,579 | 61,675 | (8,096) | (13.1) | ||||||||||||||||||||||||||||
| Debt obligations, net | 2,206,087 | 2,289,319 | (83,232) | (3.6) | ||||||||||||||||||||||||||||
| Total liabilities | 5,309,594 | 5,688,461 | (378,867) | (6.7) | ||||||||||||||||||||||||||||
| Total equity | 768,935 | 921,473 | (152,538) | (16.6) | ||||||||||||||||||||||||||||
| Total liabilities and equity | $ | 6,078,529 | $ | 6,609,934 | $ | (531,405) | (8.0) | |||||||||||||||||||||||||
Cash and Cash Equivalents. The $146.8 million or 17.0% 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 $302.7 million or 12.8% decrease reflects $17.7 billion in loan sales, partially offset by $17.3 billion in loan originations and an increase in fair value.
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Servicing Rights, at Fair Value. The $15.9 million or 0.8% increase included $215.2 million of capitalized servicing rights from servicing-retained loan sales and a $73.4 million increase in fair value, partially offset by a $171.2 million reduction from the sale of $164.7 million in UPB and $114.8 million from principal amortization and prepayments.
Warehouse and Other Lines of Credit. The decrease of $248.7 million or 11.6% is consistent with the decrease in loans held for sale.
Debt Obligations, net. The decrease of $83.2 million or 3.6% included a decrease in secured credit facilities of $81.0 million and $5.4 million repurchase of Senior Notes.
Equity. Total equity was $768.9 million and $921.5 million as of September 30, 2023 and December 31, 2022, respectively. The decrease was attributed to net loss of $175.7 million and the repurchase of treasury shares, at cost of $2.3 million to net settle and withhold tax on vested RSUs, partially offset by stock-based compensation of $15.6 million and an increase to additional paid in capital of $7.3 million primarily related to deferred taxes.
Liquidity and Capital Resources
Liquidity
Our liquidity reflects our ability to meet potential cash requirements. We forecast the need to have adequate liquid funds available to operate and grow our business. As of September 30, 2023, unrestricted cash and cash equivalents were $717.2 million and committed and uncommitted available capacity under our warehouse and other lines of credit was $1.8 billion. 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.
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 originations 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.
Financial Covenants
Our lenders require us to comply with various financial covenants including tangible net worth, liquidity, leverage ratios and profitability. As of September 30, 2023, 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.
Seller/Servicer Financial Requirements
As seller and servicer, we are subject to minimum net worth, liquidity and other financial requirements. In 2022, both FHFA and Ginnie Mae revised these requirements. Effective from September 30, 2023, minimum net worth requirements for FHFA and Ginnie Mae include a base of $2.5 million plus percentages of the seller/servicer’s residential first lien mortgage servicing UPB serviced for each agency and a percentage of other non-agencies servicing UPB. Base liquidity for the agencies depends on the remittance type and includes specific percentages of the seller/servicer's residential first lien mortgage servicing UPB for each agency, along with a percentage for other non-agencies servicing UPB. Large non-depositories require a liquidity buffer based on UPB for FHFA and Ginnie Mae. The capital ratio for FHFA and Ginnie Mae requires tangible net worth/total assets to be equal to or greater than 6% for both agencies. As of September 30, 2023, we were in compliance with these financial requirements.
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Revised FHFA and Ginnie Mae seller servicer minimum financial eligibility requirements effective December 31, 2023 include origination liquidity and third-party ratings. FHFA also requires an annual capital and liquidity plan effective March 31, 2024, and Ginnie Mae is implementing a risk-based capital requirement effective December 31, 2024. We are assessing the impact of these upcoming requirements but anticipate no significant change in our ability to meet financial eligibility requirements.
Warehouse and Other Lines of Credit
We primarily finance mortgage loans through borrowings under our warehouse and other lines of credit. Under these facilities, we transfer specific loans to our counterparties and receive funds from them. Simultaneously, there is an agreement in place where the counterparties commit to transferring the loans back to us, either at the date the loans are sold or upon our request, and we provide the funds in return. We do not recognize these transfers as sales for accounting purposes. During the three months ended September 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 and our securitization facility is a three year term. 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. Our liquidity could be affected as lenders may reassess their exposure to the mortgage origination industry and potentially limit access to uncommitted mortgage warehouse financing or increase associated costs. Moreover, there may be reduced demand from investors to acquire our mortgage loans in the secondary market, further impacting our liquidity. Approximately 76% of the mortgage loans that we originated during the nine months ended September 30, 2023 were sold in the secondary mortgage market either directly to Fannie Mae and Freddie Mac or securitized into MBS guaranteed by Ginnie Mae. We also sell loans to many private investors.
As of September 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 September 30, 2023 was comprised of $3.4 billion with maturities staggered throughout September 2024 and $0.5 billion maturing in October 2024. As of September 30, 2023, we had $1.9 billion of borrowings outstanding and $1.8 billion of additional availability under our facilities. Warehouse and other lines of credit are further discussed in Note 8- Warehouse and Other Lines of Credit.
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 September 30, 2023, we had a total of $17.9 million in restricted cash posted as collateral with our warehouse and securitization facilities, of which $4.3 million was the minimum requirement.
Debt Obligations
MSR facilities and Term Notes provide financing for our servicing portfolio investments. As of September 30, 2023 the outstanding balance of our MSR facilities was $925.1 million net of $0.4 million deferred financing costs. The outstanding balance of Term Notes was $200.0 million. MSR facilities are secured by Ginnie Mae, Fannie Mae, or Freddie Mac MSRs, which amounted to $1.4 billion as of September 30, 2023 and Term Notes are secured by specific participation certificates relating to Ginnie Mae MSRs totaling $621.4 million as of the same date.
Securities financing facilities provide financing for the retained interest securities associated with our securitizations. As of September 30, 2023 there were outstanding securities financing facilities of $76.3 million, secured by trading securities with a fair value of $89.3 million.
Servicing advance facilities provide financing for our servicing agreements. As servicer, we are required to fulfill contractual obligations such as principal and interest payments for certain investor as well as taxes, insurance, foreclosure costs, and other necessities to preserve the serviced assets. For GSE-backed mortgages, this obligation extends up to four months, and for other government agency-backed mortgages, it may extend even longer, especially for clients under forbearance plans. The size of servicing advance balances is influenced by delinquency rates and prepayment speeds. As of September 30, 2023 the outstanding balance on our servicing advance facilities was $16.0 million secured by servicing advance receivables totaling $54.9 million.
Unsecured debt obligations as of September 30, 2023 consisted of Senior Notes totaling $1.0 billion net of $8.4 million of deferred financing costs. Periodically, and in accordance with applicable laws and regulations, we may take actions to reduce or
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repurchase our debt. These actions can include redemptions, tender offers, cash purchases, prepayments, refinancing, exchange offers, open market or privately-negotiated transactions. The decision on amount of debt to be reduced or repurchased depends on several factors, including market conditions, trading levels of our debt, our cash positions, compliance with debt covenants, and other relevant considerations. During the third quarter of 2023, we repurchased $5.3 million of Senior Notes at 67.62% of par which resulted in a $1.7 million gain on extinguishment of debt. Debt obligations are further discussed in Note 9- Debt Obligations of the Notes to Consolidated Financial Statements contained in Item 1.
Dividends and Distributions
As part of our balance sheet and capital management strategies, we suspended our regular quarterly dividend effective March 31, 2022 and for the foreseeable future.
Cash dividends are subject to the discretion of our board of directors and our compliance with applicable law, and depend on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, including the satisfaction of our obligations under the TRA, restrictions in our debt agreements, business prospects and other factors that our board of directors may deem relevant. Our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their jurisdiction of organization or agreements of our subsidiaries, including agreements governing our indebtedness. Future agreements may also limit our ability to pay dividends.
Contractual Obligations and Commitments
Our estimated contractual obligations as of September 30, 2023 are as follows:
| Payments Due by Period | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Total | Less than 1 Year | 1-3 years | 3-5 Years | More than 5 Years | |||||||||||||||||||||||||||
| Warehouse and other lines of credit | $ | 1,897,859 | $ | 1,397,859 | $ | 500,000 | $ | — | $ | — | ||||||||||||||||||||||
Debt obligations (1) | ||||||||||||||||||||||||||||||||
| Secured credit facilities | 1,017,833 | 692,261 | 325,572 | — | — | |||||||||||||||||||||||||||
| Term Notes | 200,000 | — | 200,000 | — | — | |||||||||||||||||||||||||||
| Senior Notes | 997,125 | — | 497,750 | 499,375 | — | |||||||||||||||||||||||||||
Operating lease obligations (2) | 61,853 | 20,659 | 27,401 | 13,550 | 243 | |||||||||||||||||||||||||||
| Naming and promotional rights agreements | 78,621 | 24,743 | 28,378 | 12,000 | 13,500 | |||||||||||||||||||||||||||
| Total contractual obligations | $ | 4,253,291 | $ | 2,135,522 | $ | 1,579,101 | $ | 524,925 | $ | 13,743 | ||||||||||||||||||||||
(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 September 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.
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Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP, which requires us to make judgments, estimates and assumptions that affect: (i) the reported amounts of our assets and liabilities; (ii) the disclosure of our contingent assets and liabilities at the end of each reporting period; and (iii) the reported amounts of revenues and expenses during each reporting period. We continually evaluate these judgments, estimates and assumptions based on our own historical experience, knowledge and assessment of current business and other conditions and our expectations regarding the future based on available information which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application. Our accounting policies are described in Note 1 to the consolidated financial statements included in the Company's 2022 Form 10-K. At December 31, 2022, the most critical of these significant accounting policies were policies related to the fair value of loans held for sale, servicing rights, and derivative financial instruments. As of the date of this report, there have been no significant changes to the Company's critical accounting policies or estimates.
When reading our consolidated financial statements, you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions.
Reconciliation of Non-GAAP Measures
To provide investors with information in addition to our results as determined by GAAP, we disclose certain non-GAAP measures to assist investors in evaluating our financial results. We believe these non-GAAP measures provide useful information to investors regarding our results of operations because each measure assists both investors and management in analyzing and benchmarking the performance and value of our business. They facilitate company-to-company operating performance comparisons by backing out potential differences caused by variations in hedging strategies, changes in valuations, capital structures (affecting interest expense on non-funding debt), taxation, the age and book depreciation of facilities (affecting relative depreciation expense), and other cost or benefit items which may vary for different companies for reasons unrelated to operating performance. These non-GAAP measures include our Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share (if dilutive), and Adjusted EBITDA (LBITDA). We exclude from these non-GAAP financial measures the change in fair value of MSRs and related hedging gains and losses as they add volatility and are not indicative of the Company’s operating performance or results of operation. We also exclude stock-based compensation expense, which is a non-cash expense, gains or losses on extinguishment of debt and disposal of fixed assets, non-cash goodwill impairment, and other impairment charges to intangible assets and operating lease right-of-use assets as management does not consider these costs to be indicative of our performance or results of operations. Adjusted EBITDA (LBITDA) includes interest expense on funding facilities, which are recorded as a component of “net interest income (expense)”, as these expenses are a direct operating expense driven by loan origination volume. By contrast, interest expense on our non-funding debt is a function of our capital structure and is therefore excluded from Adjusted EBITDA (LBITDA). Adjustments for income taxes are made to reflect historical results of operations on the basis that it was taxed as a corporation under the Internal Revenue Code, and therefore subject to U.S. federal, state and local income taxes. Adjustments to Diluted Weighted Average Shares Outstanding assumes the pro forma conversion of weighted average Class C shares to Class A common stock. These non-GAAP measures have limitations as analytical tools, and should not be considered in isolation or as a substitute for revenue, net income, or any other operating performance measure calculated in accordance with GAAP, and may not be comparable to a similarly titled measure reported by other companies. Some of these limitations are:
•they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments;
•Adjusted EBITDA (LBITDA) does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and Adjusted Total Revenue, Adjusted Net Income (Loss), and Adjusted EBITDA (LBITDA) do not reflect any cash requirement for such replacements or improvements; and
•they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows.
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Because of these limitations, Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share, and Adjusted EBITDA (LBITDA) are not intended as alternatives to total revenue, net income (loss), net income (loss) attributable to the Company, or Diluted Earnings (Loss) Per Share or as an indicator of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share, and Adjusted EBITDA (LBITDA) along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. See below for a reconciliation of these non-GAAP measures to their most comparable U.S. GAAP measures.
Reconciliation of Total Revenue to Adjusted Total Revenue (Dollars in thousands) (Unaudited): | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||||||||||||
| Total net revenue | $ | 265,661 | $ | 274,192 | $ | 745,395 | $ | 1,086,141 | ||||||||||||||||||
Change in fair value of servicing rights net, of hedging gains and losses(1) | 702 | (24,529) | 22,868 | (58,601) | ||||||||||||||||||||||
| Adjusted total revenue | $ | 266,363 | $ | 249,663 | $ | 768,263 | $ | 1,027,540 | ||||||||||||||||||
(1)Represents the change in the fair value of servicing rights due to changes in valuation inputs or assumptions, net of gains or losses from derivatives hedging servicing rights.
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Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) (Dollars in thousands) (Unaudited): | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||||||||||||
Net loss attributable to loanDepot, Inc. | $ | (16,599) | $ | (60,081) | $ | (82,950) | $ | (195,750) | ||||||||||||||||||
Net loss from the pro forma conversion of Class C common shares to Class A common shares(1) | (17,663) | (77,401) | (92,793) | (256,873) | ||||||||||||||||||||||
Net loss | (34,262) | (137,482) | (175,743) | (452,623) | ||||||||||||||||||||||
Adjustments to the benefit for income taxes(2) | 4,845 | 20,124 | 25,054 | 66,787 | ||||||||||||||||||||||
Tax-effected net loss | (29,417) | (117,358) | (150,689) | (385,836) | ||||||||||||||||||||||
Change in fair value of servicing rights, net of hedging gains and losses(3) | 702 | (24,529) | 22,868 | (58,601) | ||||||||||||||||||||||
| Stock-based compensation expense | 3,940 | 4,773 | 15,619 | 11,794 | ||||||||||||||||||||||
| Gain on extinguishment of debt | (1,651) | — | (1,690) | (10,528) | ||||||||||||||||||||||
| Loss on disposal of fixed assets | 93 | 11,026 | 1,105 | 11,026 | ||||||||||||||||||||||
| Goodwill impairment | — | — | — | 40,736 | ||||||||||||||||||||||
| Other impairment | 129 | 9,149 | 470 | 15,112 | ||||||||||||||||||||||
Tax effect of adjustments(4) | (655) | 93 | (9,140) | 9,196 | ||||||||||||||||||||||
Adjusted net loss | $ | (26,859) | $ | (116,846) | $ | (121,457) | $ | (367,101) | ||||||||||||||||||
(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 Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||||||||||||
| Statutory U.S. federal income tax rate | 21.00 | % | 21.00 | % | 21.00 | % | 21.00 | % | ||||||||||||||||||
| State and local income taxes (net of federal benefit) | 6.43 | 5.00 | 6.00 | 5.00 | ||||||||||||||||||||||
| Effective income tax rate | 27.43 | % | 26.00 | % | 27.00 | % | 26.00 | % | ||||||||||||||||||
(3)Represents the change in the fair value of servicing rights due to changes in valuation inputs or assumptions, net of gains or losses from derivatives hedging servicing rights.
(4)Amounts represent the income tax effect using the aforementioned effective income tax rates, excluding certain discrete tax items.
Reconciliation of Adjusted Diluted Weighted Average Shares Outstanding to Diluted Weighted Average Shares Outstanding (Dollars in thousands except per share) (Unaudited) | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||||||||||||
Net loss attributable to loanDepot, Inc. | $ | (16,599) | $ | (60,081) | $ | (82,950) | $ | (195,750) | ||||||||||||||||||
Adjusted net loss | (26,859) | (116,846) | (121,457) | (367,101) | ||||||||||||||||||||||
| Share Data: | ||||||||||||||||||||||||||
| Diluted weighted average shares of Class A and Class D common stock outstanding | 175,962,804 | 162,464,369 | 173,568,986 | 151,803,928 | ||||||||||||||||||||||
| Assumed pro forma conversion of weighted average Class C shares to Class A common stock | 147,171,089 | 156,677,534 | 148,741,661 | 167,796,888 | ||||||||||||||||||||||
| Adjusted diluted weighted average shares outstanding | 323,133,893 | 319,141,903 | 322,310,647 | 319,600,816 | ||||||||||||||||||||||
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Reconciliation of Net Income (Loss) to Adjusted EBITDA (LBITDA) (Dollars in thousands) (Unaudited): | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||||||||||||
Net loss | $ | (34,262) | $ | (137,482) | $ | (175,743) | $ | (452,623) | ||||||||||||||||||
Interest expense — non-funding debt(1) | 42,504 | 36,138 | 128,619 | 83,671 | ||||||||||||||||||||||
Income tax benefit | (5,205) | (23,451) | (28,622) | (63,274) | ||||||||||||||||||||||
| Depreciation and amortization | 10,592 | 10,243 | 31,339 | 32,110 | ||||||||||||||||||||||
Change in fair value of servicing rights, net of hedging gains and losses(2) | 702 | (24,529) | 22,868 | (58,601) | ||||||||||||||||||||||
| Stock-based compensation expense | 3,940 | 4,773 | 15,619 | 11,794 | ||||||||||||||||||||||
| Loss on disposal of fixed assets | 93 | 11,026 | 1,105 | 11,026 | ||||||||||||||||||||||
| Goodwill impairment | — | — | — | 40,736 | ||||||||||||||||||||||
| Other impairment | 129 | 9,149 | 470 | 15,112 | ||||||||||||||||||||||
Adjusted EBITDA (LBITDA) | $ | 18,493 | $ | (114,133) | $ | (4,345) | $ | (380,049) | ||||||||||||||||||
(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 due to changes in valuation inputs or assumptions, net of gains or losses from derivatives hedging servicing rights.
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, 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 September 30, 2023 was 44 days; and our average holding period of the loan from funding to sale was 30 days for the nine months ended September 30, 2023.
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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 nine months ended September 30, 2023 and 2022, we incurred no losses due to nonperformance by any of our counterparties.
Prepayment Risk
Prepayment risk is affected by interest rates (and their inherent risk) and borrowers’ actions relative to their underlying loans. To the extent that the actual prepayment speed on the loans underlying our servicing rights differs from what we projected when we initially recognized them and when we measured fair value as of the end of each reporting period, the carrying value of our investment in servicing rights will be affected. In general, an increase in prepayment expectations will decrease our estimates of the fair value of the servicing right, thereby reducing expected servicing income. We monitor the servicing portfolio to identify potential refinancings and the impact that would have on associated servicing rights.
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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 September 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
50
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. Two of the derivative actions were subsequently consolidated into a single action (the “Delaware Chancery Actions”). The third action was voluntarily dismissed. The Company’s response to the Delaware Chancery Action is due on December 13, 2023. 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 July 3, 2023, we issued to stockholders 337,513 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 August 1, 2023, we issued to stockholders 429,303 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 September 1, 2023, we issued to stockholders 202,320 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
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Item 6. Exhibits
The following documents are filed as a part of this report:
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| Exhibit No. | Description | |||||||
| 32.1** | ||||||||
| 32.2** | ||||||||
| 101.0 | iXBRL Document | |||||||
| 101.INS | iXBRL 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.SCH | iXBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | iXBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | iXBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | iXBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | iXBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104.0 | Cover 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.
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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: November 9, 2023 | By: | /s/ Frank Martell | ||||||
| Name: | Frank Martell | |||||||
| Title: | President and Chief Executive Officer | |||||||
Dated: November 9, 2023 | By: | /s/ David Hayes | ||||||
| Name: | David Hayes | |||||||
| Title: | Chief Financial Officer | |||||||
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EXHIBIT 31.1
CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) AND 15d-14(a) UNDER THE EXCHANGE ACT
I, Frank Martell, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of loanDepot, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ Frank Martell
Frank Martell
Chief Executive Officer, President and Director
Date: November 9, 2023
EXHIBIT 31.2
CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) AND 15d-14(a) UNDER THE EXCHANGE ACT
I, David Hayes, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of loanDepot, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ David Hayes
David Hayes
Chief Financial Officer
Date: November 9, 2023
Exhibit 32.1
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Frank Martell, Chief Executive Officer of loanDepot, Inc. (the “Company”), hereby certify, that, to my knowledge:
1.the Quarterly Report on Form 10-Q for the period ended September 30, 2023 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 9, 2023
| /s/ Frank Martell | ||||||||
| Frank Martell | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
Exhibit 32.2
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, David Hayes, Chief Financial Officer of loanDepot, Inc. (the “Company”), hereby certify, that, to my knowledge:
1.the Quarterly Report on Form 10-Q for the period ended September 30, 2023 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 9, 2023
| /s/ David Hayes | ||||||||
| David Hayes | ||||||||
| Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||