~~0001830197hmpt:A550MWarehouseFacilityMember2021-09-30~~

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~~June 30, ~~2021~~2022


☐			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: 001-39964

Home Point Capital Inc.

(Exact name of registrant as specified in its charter)

Delaware

90-1116426

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

2211 Old Earhart Road, Suite 250

Ann Arbor, Michigan

48105

(Address of Principal Executive Offices)

(Zip Code)

(888) 616-6866

Registrant's telephone number, including area code

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

Title of each class

Trading Symbol

Name of each exchange on which
registered

Common Stock, par value

$0.0000000072 per share

HMPT

The Nasdaq Stock Market LLC

(The Nasdaq Global Select Market)

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

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

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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

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

As of ~~November 3, 2021,~~August 5, 2022, the registrant had ~~139,527,512~~138,381,757 shares of common stock, par value $0.0000000072 per share, outstanding.

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TABLE OF CONTENTS


			Page
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements ~~(Unaudited)~~			1
Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2021~~2022 (Unaudited) and December 31, ~~2020~~2021			1
Condensed Consolidated Statements of Operations for the three and ~~nin~~e six months ended ~~September~~June 30, 2022 and 2021 ~~and 2020~~(Unaudited)			2
Condensed Consolidated Statements of Shareholders’ Equity for the three and ~~nine~~six months ended ~~September~~June ~~30,~~3 0 , 2022 and 2021 ~~and~~ ~~September~~ ~~30, 2020~~(Unaudited)			3
Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June ~~30,~~3 0 , 2022 and 2021 ~~and 2020~~(Unaudited)			4
Notes to Condensed Consolidated Financial Statements (Unaudited)			65
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2628
Item 3. Quantitative and Qualitative Disclosures about Market Risk			3945
Item 4. Controls and Procedures			4045
PART II—OTHER INFORMATION
Item 1. Legal Proceedings			4147
Item 1A. Risk Factors			4147
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			4147
Item 3. Defaults Upon Senior Securities			4147
Item 4. Mine Safety Disclosures			4147
Item 5. Other Information			4147
Item 6. Exhibits			4248
Signatures			4349

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Cautionary Note on Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”) contains certain “forward-looking statements,” ~~as that term is defined in~~within the ~~U.S. federal securities laws, including~~meaning of Section 27A of the ~~Private~~ Securities ~~Litigation Reform~~ Act of ~~1995. These~~1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements include, but are not limited to, ~~statements other than statements of historical facts contained in this Report, including among others,~~ statements relating to our future financial performance, our business prospects and strategy, anticipated financial position, liquidity and capital needs, the industry in which we operate and other similar matters. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “continue,” “potential,” “should” and the negative of these terms or other comparable terminology often identify forward-looking statements. ~~These forward-looking~~Forward-looking statements ~~which are based on currently available information, operating plans, and projections about future events and trends,~~ are not guarantees of future performance, are based upon assumptions, and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements, including the risks discussed in Part I, Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, which was filed on March ~~12, 2021~~17, 2022 (our ~~“2020~~“2021 Annual Report”). Factors, risks, and uncertainties that could cause actual outcomes and results to be materially different from those contemplated ~~by forward-looking statements~~ include, among others:

•our reliance on our financing arrangements to fund mortgage loans and otherwise operate our business;

•the dependence of our loan origination and servicing revenues on macroeconomic and U.S. residential real estate market conditions;

•the requirement to repurchase mortgage loans or indemnify investors if we breach representations and warranties;

•counterparty risk;

•the requirement to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances;

•risks related to any subservicer;

•competition for mortgage assets that may limit the availability of desirable originations, acquisitions and result in reduced risk-adjusted returns;

•our ability to continue to grow our loan origination business or effectively manage significant increases in our loan production volume;

•difficult conditions or disruptions in the mortgage-backed securities (“MBS”), mortgage, real estate and financial markets;

•competition in the industry in which we operate;

•our ~~success~~ability to acquire loans and ~~growth of~~sell the resulting MBS in the secondary markets on favorable terms in our production ~~and servicing activities and the dependence upon~~ activities;

•our ability to adapt to and implement technological changes;

•the effectiveness of our risk management efforts;

•our ability to detect misconduct and fraud;

•any failure to attract and retain a highly skilled workforce, including our senior executives;

•our ability to obtain, maintain, protect and enforce our intellectual property;

•any cybersecurity risks, cyber incidents and technology failures;

•material changes to the laws, regulations or practices applicable to reverse mortgage programs operated by the Federal Housing Administration (“FHA”) and the U.S. Department of Housing and Urban Development;

•our vendor relationships;

•our failure to deal appropriately with various issues that may give rise to reputational risk, including legal and regulatory requirements;

•~~risks and uncertainties associated with litigation, including~~ any employment ~~intellectual property, consumer protection, class action and other~~ litigation ~~matters,~~ and related unfavorable publicity;

•exposure to new risks and increased costs as a result of initiating new business activities or strategies or significantly expanding existing business activities or strategies;

•~~any failure to comply with the significant amount of regulation applicable to our investment management subsidiary;~~

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•the impact of changes in political or economic stability or inby government policies on our material vendors with operations in India;

•our ability to fully utilize our net operating loss (“NOL”) and other tax carryforwards;

•any challenge by the Internal Revenue Service of the amount, timing and/or use of our NOL carryforwards;

•possible changes in legislation and the effect on our ability to use the tax benefits associated with our NOL carryforwards;

•the impact of other changes in tax laws;

•the impact of interest rate fluctuations;

•risks associated with hedging against interest rate exposure;

•the impact of any prolonged economic slowdown, recession or declining real estate values;

•risks associated with financing our assets with borrowings;

•risks associated with a decrease in value of our collateral;

•the dependence of our operations on access to our financing arrangements, which are mostly uncommitted;

•risks associated with the financial and restrictive covenants included in our financing agreements;

•~~our exposure to volatility~~risks associated with changes in the London Inter-Bank Offered ~~Rate;~~Rate reporting practices and the use of alternative reference rates;

•our ability to raise the debt or equity capital required to finance our assets and maintain and grow our business;

•~~risks associated with higher risk loans that we service;~~

•risks associated with derivative financial instruments;

•our ability to ~~foreclose on our mortgage assets in a timely manner or at all;~~

•~~our ability to obtain and/or maintain licenses~~comply with continually changing federal, state and ~~other approvals in those jurisdictions where required to conduct our business;~~local laws and regulations;

•the impact of revised rules and regulations and enforcement of existing rules and regulations by the Consumer Financial Protection ~~Bureau (the “CFPB”);~~Bureau;

•~~legislative~~the impact of revised rules and regulations and enforcement of existing rules and regulations by state regulatory agencies;

•our ability to comply with the Government-Sponsored Enterprises (“GSE”), FHA, U.S. Department of Veterans Affairs (“VA”) and U.S. Department of Agriculture (“USDA”) guidelines and changes ~~that impact the mortgage loan industry~~in these guidelines or ~~housing market;~~GSE and Government National Mortgage Association (“Ginnie Mae”) guarantees;

•changes in regulations or the occurrence of other events that impact the business, operations or prospects of government agencies such as Ginnie Mae, the ~~Government National Mortgage Association, the Federal Housing Administration~~FHA or the ~~U.S. Department of Veterans Affairs,~~VA, the ~~U.S. Department of Agriculture,~~USDA, or ~~Government-Sponsored Enterprises~~GSEs such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, or such changes that increase the cost of doing business with such entities;

•our ability to obtain and/or maintain licenses and other approvals in those jurisdictions where required to conduct our business;

•our ability to comply with the ~~Dodd-Frank Wall Street Reform and Consumer Protection Act and its implementing~~ regulations ~~and regulatory agencies, and any other legislative and regulatory changes that impact the business, operations or governance of mortgage lenders;~~applicable to our investment management subsidiary;

•the ~~CFPB, and its issued and future rules and the enforcement thereof;~~

•~~changes in government support~~impact of ~~homeownership;~~

•~~changes in government or government sponsored home affordability programs;~~

•~~changes in governmental regulations, accounting treatment, tax rates and similar matters;~~private legal proceedings;

•risks associated with our acquisition of mortgage servicing rights;

•the impact of our counterparties terminating our servicing rights under which we conduct servicing activities;

•risks associated with higher risk loans that we service;

•our ~~failure~~ability to ~~deal appropriately with issues that may give rise to reputational risk;~~foreclose on our mortgage assets in a timely manner or at all; and

•the effects of the COVID-19 pandemic on our business.

iii

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•~~the spread of the COVID-19 outbreak and severe disruptions in the U.S. and global economy and financial markets it has caused.~~

Many of the important factors that will determine these results are beyond our ability to control or predict. You are cautioned not to put undue reliance on any forward-looking statements, which speak only as of the date of this Report. Except as otherwise required by law, we do not assume any obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events. You should refer to the risks and uncertainties listed under the heading “Risk Factors” in our ~~2020~~2021 Annual Report, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (“SEC”), for a discussion of other important factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements.

Unless the context otherwise indicates, any reference in this Report to “Home Point,” “our Company,” “the Company,” “us,” “we” and “our” refers to Home Point Capital Inc. and its subsidiaries.

Website and Social Media Disclosure

We use our website (www.investors.homepoint.com) and our corporate Facebook, LinkedIn, and Twitter accounts as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. The contents of our website and social media channels are not, however, a part of this Report.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

HOME POINT CAPITAL INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share and per share amounts)


							(Unaudited)
		September 30, 2021 (unaudited)		December 31, 2020			June 30, 2022		December 31, 2021
Assets:	Assets:					Assets:
Cash and cash equivalents	Cash and cash equivalents	$	160,636	$	165,230	Cash and cash equivalents	$	135,843	$	170,987
Restricted cash	Restricted cash	42,491		31,663		Restricted cash	27,065		36,803
Cash and cash equivalents and Restricted cash	Cash and cash equivalents and Restricted cash	203,127		196,893		Cash and cash equivalents and Restricted cash	162,908		207,790
Mortgage loans held for sale (at fair value)	Mortgage loans held for sale (at fair value)	6,680,196		3,301,694		Mortgage loans held for sale (at fair value)	2,018,640		5,107,161
Mortgage servicing rights (at fair value)	Mortgage servicing rights (at fair value)	1,402,140		748,457		Mortgage servicing rights (at fair value)	1,419,105		1,525,103
Property and equipment, net	Property and equipment, net	22,945		21,710		Property and equipment, net	18,039		21,892
Accounts receivable, net	Accounts receivable, net	117,538		152,845		Accounts receivable, net	176,995		129,092
Derivative assets	Derivative assets	164,602		334,323		Derivative assets	59,280		84,385
Goodwill and intangibles		10,789		10,789
GNMA loans eligible for repurchase		265,132		2,524,240
Goodwill						Goodwill	10,789		10,789
Government National Mortgage Association loans eligible for repurchase						Government National Mortgage Association loans eligible for repurchase	117,092		65,237
Assets held for sale						Assets held for sale	50,748		63,664
Other assets	Other assets	111,640		87,622		Other assets	40,824		43,228
Total assets	Total assets	$	8,978,109	$	7,378,573	Total assets	$	4,074,420	$	7,258,341
Liabilities and Shareholders’ Equity:	Liabilities and Shareholders’ Equity:					Liabilities and Shareholders’ Equity:
Liabilities:	Liabilities:					Liabilities:
Warehouse lines of credit	Warehouse lines of credit	$	6,308,477	$	3,005,415	Warehouse lines of credit	$	1,910,395	$	4,718,658
Term debt and other borrowings, net	Term debt and other borrowings, net	1,065,762		454,022		Term debt and other borrowings, net	845,531		1,226,524
Accounts payable and accrued expenses	Accounts payable and accrued expenses	127,793		167,532		Accounts payable and accrued expenses	106,005		138,193
GNMA loans eligible for repurchase		265,132		2,524,240
Government National Mortgage Association loans eligible for repurchase						Government National Mortgage Association loans eligible for repurchase	117,092		65,237
Deferred tax liabilities	Deferred tax liabilities	224,303		174,002		Deferred tax liabilities	214,871		229,752
Derivative liabilities						Derivative liabilities	60,309		26,736
Other liabilities	Other liabilities	225,440		125,888		Other liabilities	87,815		76,588
Total liabilities	Total liabilities	8,216,907		6,451,099		Total liabilities	3,342,018		6,481,688
Commitments and Contingencies (Note 9)		0		0
Note 9 – Commitments and Contingencies						Note 9 – Commitments and Contingencies	0		0

Shareholders’ Equity:	Shareholders’ Equity:					Shareholders’ Equity:
Preferred stock (Authorized shares: 250,000,000; none issued and outstanding, par value $0.0000000072 per share)		—		—
Common stock (Authorized shares: 1,000,000,000; 139,527,024 shares issued and outstanding, par value $0.0000000072 per share)		—		—
Preferred stock (250,000,000 authorized shares, NaN issued and outstanding, $0.0000000072 par value per share)						Preferred stock (250,000,000 authorized shares, NaN issued and outstanding, $0.0000000072 par value per share)	—		—
Common stock (1,000,000,000 authorized shares, 138,380,272 and 139,326,953 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively, $0.0000000072 par value per share)						Common stock (1,000,000,000 authorized shares, 138,380,272 and 139,326,953 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively, $0.0000000072 par value per share)	—		—
Additional paid-in capital	Additional paid-in capital	522,080		519,510		Additional paid-in capital	511,675		523,811
Retained earnings	Retained earnings	239,122		407,964		Retained earnings	220,727		252,842
Total shareholders' equity		761,202		927,474
Total liabilities and shareholders' equity		$	8,978,109	$	7,378,573
Total shareholders’ equity						Total shareholders’ equity	732,402		776,653
Total liabilities and shareholders’ equity						Total liabilities and shareholders’ equity	$	4,074,420	$	7,258,341

See accompanying notes to the unaudited condensed consolidated financial statements.

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HOME POINT CAPITAL INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited – dollars in thousands, except ~~share and~~ per share amounts)

~~(unaudited)~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenue:
Gain on loans, net	$	13,234	$	75,029	$	58,638	$	376,257
Loan fee income	15,255		39,500		35,159		83,615

Interest income	27,533		34,648		54,610		60,225
Interest expense	(28,920)		(44,136)		(62,015)		(77,071)
Interest expense, net	(1,387)		(9,488)		(7,405)		(16,846)
Loan servicing fees	62,872		85,584		143,936		155,922
Change in fair value of mortgage servicing rights	(29,887)		(106,905)		(12,704)		(94,057)
Other income	9,921		652		10,555		1,453
Total revenue, net	70,008		84,372		228,179		506,344
Expenses:
Compensation and benefits	75,601		127,296		165,033		280,938
Loan expense	6,969		17,483		15,984		35,178
Loan servicing expense	7,121		7,507		12,867		15,600
Production technology	4,343		8,170		9,208		17,455
General and administrative	16,969		26,549		36,640		52,786
Depreciation and amortization	2,627		2,350		5,314		5,111
Other expenses	5,772		8,637		11,068		17,973
Total expenses	119,402		197,992		256,114		425,041
(Loss) income before income tax	(49,394)		(113,620)		(27,935)		81,303
Income tax benefit (expense)	14,121		27,209		9,798		(22,908)
(Loss) income from equity method investment	(9,144)		13,198		(14,416)		17,361
Net (loss) income	$	(44,417)	$	(73,213)	$	(32,553)	$	75,756

(Loss) earnings per share:
Basic	$	(0.32)	$	(0.53)	$	(0.23)	$	0.54
Diluted	$	(0.32)	$	(0.53)	$	(0.23)	$	0.54

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Revenue:
Gain on loans, net $ 145,471 $ 503,344 $ 521,727 $ 962,778
Loan fee income 34,484 28,205 118,099 60,630
Interest income 36,719 14,709 96,944 42,370
Interest expense (45,532) (17,559) (122,603) (47,845)
Interest expense, net (8,813) (2,850) (25,659) (5,475)
Loan servicing fees 91,831 48,350 247,753 133,904
Change in fair value of mortgage servicing rights, net 3,544 (66,749) (90,513) (230,524)
Other income 8,084 498 9,537 2,138
Total revenue, net 274,601 510,798 780,944 923,451
Expenses:
Compensation and benefits 114,612 117,177 395,550 251,462
Loan expense 16,618 8,733 51,796 21,686
Loan servicing expense 6,681 6,481 22,282 22,742
Production technology 7,583 6,378 25,038 14,540
General and administrative 21,741 16,213 74,527 38,981
Depreciation and amortization 2,440 1,236 7,551 4,162
Other expenses 5,649 7,094 23,620 12,087
Total expenses 175,324 163,312 600,364 365,660
Income before income tax 99,277 347,486 180,580 557,791
Income tax expense 27,341 93,294 50,250 149,306
(Loss) income from equity method investments (713) 9,870 16,649 14,050
Total net income $ 71,223 $ 264,062 $ 146,979 $ 422,535
Earnings per share:
Basic $ 0.51 $ 1.90 $ 1.06 $ 3.13
Diluted $ 0.51 $ 1.90 $ 1.05 $ 3.12

See accompanying notes to the unaudited condensed consolidated financial statements.

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HOME POINT CAPITAL INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited – dollars in thousands, except share amounts)

~~(unaudited)~~



	Common Stock			Additional Paid in Capital		Treasury Stock		Retained Earnings		Total Shareholders’ Equity
	Shares	Amount
Beginning balance, January 1, 2022	139,326,953	$	—	$	523,811	$	—	$	252,842	$	776,653
Stock repurchase	(461,690)	—		—		(1,513)		—		(1,513)
Distributions to shareholders	—	—		—		—		(5,575)		(5,575)
Employee stock purchases (option exercise)	97,223	—		122		—		—		122
Equity-based compensation	—	—		1,706		—		—		1,706
Net income	—	—		—		—		11,864		11,864
Balance at March 31, 2022	138,962,486	$	—	$	525,639	$	(1,513)	$	259,131	$	783,257
Stock repurchase	(718,106)	—		—		(2,261)		—		(2,261)
Retirement of treasury stock	—	—		(15,338)		3,774		11,564		—
Distributions to shareholders	—	—		—		—		(5,551)		(5,551)
Employee stock purchases (option exercise)	11,114	—		(33)		—		—		(33)
Equity-based compensation (restricted stock units vesting)	124,778	—		1,407		—		—		1,407
Net loss	—	—		—		—		(44,417)		(44,417)
Ending balance, June 30, 2022	138,380,272	$	—	$	511,675	$	—	$	220,727	$	732,402

Common Stock Additional
Paid in Capital Retained
Earnings
(Accumulated
Deficit) Total
Shareholders’
Equity
Shares Amount
Beginning balance, June 30, 2020 138,860,103 — $ 519,033 $ 113,924 $ 632,957
Distributions to parent — — — (154,492) (154,492)
Stock based compensation — — 144 — 144
Net income — — — 264,062 264,062
Ending balance, September 30, 2020 138,860,103 — $ 519,177 $ 223,494 $ 742,671
Common Stock Additional
Paid in Capital Retained
Earnings
(Accumulated
Deficit) Total
Shareholders’
Equity
Shares Amount
Beginning balance, June 30, 2021 139,487,097 — $ 520,505 $ 188,823 $ 709,328
Contributed capital — — — — —
Dividend to shareholders — — — (20,924) (20,924)
EE stock purchase (option exercise) 39,927 — (105) — (105)
Stock based compensation — — 1,680 — 1,680
Net income — — — 71,223 71,223
Ending balance, September 30, 2021 139,527,024 — $ 522,080 $ 239,122 $ 761,202
Common Stock Additional
Paid in Capital Retained
Earnings
(Accumulated
Deficit) Total
Shareholders’
Equity
Shares Amount
Beginning balance, December 31, 2019 138,860,103 — $ 454,861 $ (44,549) $ 410,312
Contributed capital — — 63,774 — 63,774
Distributions to parent — — — (154,492) (154,492)
Stock based compensation — — 542 — 542
Net income — — — 422,535 422,535
Ending balance, September 30, 2020 138,860,103 — $ 519,177 $ 223,494 $ 742,671
Common Stock Additional
Paid in Capital Retained
Earnings
(Accumulated
Deficit) Total
Shareholders’
Equity
Shares Amount
Beginning balance, December 31, 2020 138,860,103 — $ 519,510 $ 407,964 $ 927,474
Contributed capital — — — 192 192
Dividend to shareholders — — — (20,924) (20,924)
Distribution to parent — — — (295,089) (295,089)
EE stock purchase (option exercise) 666,921 — (2,636) — (2,636)
Stock based compensation — — 5,206 — $ 5,206
Net income — — — 146,979 146,979
Ending balance, September 30, 2021 139,527,024 — $ 522,080 $ 239,122 $ 761,202


	Common Stock			Additional Paid in Capital		Retained Earnings		Total Shareholders’ Equity
	Shares	Amount
Beginning balance, January 1, 2021	138,860,103	$	—	$	519,510	$	407,964	$	927,474
Contributed capital	—	—		—		192		192
Distributions to parent	—	—		—		(295,089)		(295,089)
Employee stock purchases (option exercise)	185,073	—		(1,028)		—		(1,028)
Equity-based compensation	—	—		1,779		—		1,779
Net income	—	—		—		148,969		148,969
Balance at March 31, 2021	139,045,176	$	—	$	520,261	$	262,036	$	782,297
Employee stock purchases (option exercise)	441,921	—		(1,503)		—		(1,503)
Equity-based compensation	—	—		1,747		—		1,747
Net loss	—	—		—		(73,213)		(73,213)
Ending balance, June 30, 2021	139,487,097	$	—	$	520,505	$	188,823	$	709,328

See accompanying notes to the unaudited condensed consolidated financial statements.

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HOME POINT CAPITAL INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited – dollars in thousands)

~~(unaudited)~~

Nine Months Ended September 30,
2021 2020
Operating activities:
Net income $ 146,979 $ 422,535
Adjustments to reconcile net income to cash used in operating activities:
Depreciation 7,551 3,370
Amortization of intangible assets — 792
Amortization of debt issuance costs 2,444 531
Gain on sale of mortgage servicing rights (7,426) —
Gain on loans, net (521,727) (962,778)
Provision for representation and warranty reserve 9,358 10,025
Stock based compensation expense 5,206 542
Deferred income tax 50,301 133,645
Income from equity method investment (16,649) (14,050)
Origination of mortgage loans held for sale (79,464,436) (38,534,747)
Proceeds on sale and payments from mortgage loans held for sale 75,786,570 38,585,878
Change in fair value of mortgage servicing rights, net 90,512 230,524
Change in fair value of mortgage loans held for sale 6,906 (54,709)
Non-cash lease expense — 108
Change in fair value of derivative assets 169,721 (274,250)
Changes in operating assets and liabilities:
Accounts receivable, net 35,360 (21,448)
Other assets (7,369) 3,671
Accounts payable and accrued expenses (40,959) 74,787
Other liabilities 90,194 10,479
Net cash used in operating activities (3,657,464) (385,095)


	Six Months Ended June 30,
	2022		2021
Operating activities:
Net (loss) income	$	(32,553)	$	75,756
Adjustments to reconcile net (loss) income to cash used in operating activities:
Depreciation	5,314		5,111
Amortization of debt issuance costs	1,660		1,620
Gain on loans, net	(58,638)		(376,257)
Provision for representation and warranty reserve	13,724		9,821
Equity-based compensation expense	3,113		3,526
Deferred income tax (benefit) expense	(14,881)		22,789
Loss (income) from equity method investment	14,416		(17,361)
Distributions for mortgage loans held for sale	(22,568,858)		(57,917,479)
Proceeds from sale and payments of mortgage loans held for sale	25,032,673		55,578,192
Decrease in fair value of mortgage servicing rights	12,704		94,057
Decrease in fair value of mortgage loans held for sale	113,594		10,633
Decrease in fair value of derivative assets	25,105		209,106
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net	10,620		(24,515)
Decrease (increase) in other assets	2,404		(7,157)
Decrease in accounts payable and accrued expenses	(40,455)		(21,394)
Increase (decrease) in other liabilities	31,075		(30,659)
Net cash provided by (used for) operating activities	2,551,017		(2,384,211)
Investing activities:
Purchases of property and equipment, net of disposals	(1,461)		(6,751)
Purchase of mortgage servicing rights	(17,833)		(18,701)
Proceeds from sale of mortgage servicing rights	630,622		—
Equity method investment	(1,500)		—
Net cash provided by (used for) investing activities	609,828		(25,452)
Financing activities:
Proceeds from warehouse borrowings	24,046,240		57,710,590
Payments on warehouse borrowings	(26,854,503)		(55,658,415)
Proceeds from term debt borrowings	400,000		1,140,000
Payments on term debt borrowings	(780,000)		(375,000)
Proceeds from other borrowings	70,000		65,000
Payments on other borrowings	(73,250)		(105,000)
Write off (payments of debt issuance costs),net	597		(14,103)
Employee stock purchases (option expense)	89		(2,531)
Common stock repurchases	(3,774)		—
Contributed capital from parent	—		192
Dividends paid to shareholders	(11,126)		—
Distributions to parent 1	—		(295,089)
Net cash (used for) provided by financing activities	(3,205,727)		2,465,644
Net (decrease) increase in cash, cash equivalents and restricted cash	(44,882)		55,981
Cash, cash equivalents and restricted cash at beginning of period	207,790		196,893
Cash, cash equivalents and restricted cash at end of period	$	162,908	$	252,874
Supplemental disclosure:
Cash paid for interest	$	65,502	$	53,267
Cash received from tax refunds, net	$	(1,951)	$	(268)

See accompanying notes to the unaudited condensed consolidated financial statements.

~~Table of Contents~~

~~HOME POINT CAPITAL INC. & SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands)~~

~~(unaudited)~~

Investing activities:
Purchases of property and equipment, net of disposals (8,786) (9,914)
Purchases of mortgage servicing rights (33,027) —
Proceeds from sale of mortgage servicing rights 111,609 —
Net cash provided (used) in investing activities 69,796 (9,914)
Financing activities:
Proceeds from warehouse borrowings 81,365,921 38,381,219
Payments on warehouse borrowings (78,062,859) (37,766,925)
Proceeds from term debt borrowings 1,213,400 47,600
Payments on term debt borrowings (550,000) (60,000)
Proceeds from other borrowings 75,000 64,500
Payments on other borrowings (115,000) (103,500)
Payments of debt issuance costs (14,103) —
Employee stock purchases (option expense) (2,636) —
Capital contributions from parent 192 63,774
Dividends to shareholders (20,924) —
Distribution to parent (295,089) —
Net cash provided by financing activities 3,593,902 626,668
Net increase in cash, cash equivalents and restricted cash 6,234 231,659
Cash, cash equivalents and restricted cash at beginning of period 196,893 81,731
Cash, cash equivalents and restricted cash at end of period $ 203,127 $ 313,390
Supplemental disclosure:
Cash paid for interest $ 104,119 $ 46,715
Cash (refunded) paid for taxes $ (33,740) $ 22,034

~~See accompanying notes to the unaudited condensed consolidated financial statements.~~

Table of Contents

HOME POINT CAPITAL INC. & SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Shares and Per Share Amounts)

(unaudited)

Note 1 – Organization and Operations

Nature of Business

Home Point Capital Inc., a Delaware corporation (“HPC”, or the “Company”), through its subsidiaries, is a residential mortgage originator and servicer with a business model focused on growing originations by leveraging a network of partner ~~relationships. The Company manages the customer experience through~~relationships and its ~~in-house~~ servicing ~~operation and proprietary Home Ownership Platform.~~operation. The Company’s business operations are organized into the following 2 segments: (1) Origination and (2) Servicing. Home Point Financial Corporation (“HPF”), a New Jersey corporation ~~(“HPF”),~~and a wholly owned subsidiary of the Company, originates, sells, and services residential real estate mortgage loans throughout the United ~~States.~~States of America (“U.S.”). Home Point Asset Management LLC (“HPAM”), a Delaware limited liability company, ~~(“HPAM”),~~ is a wholly owned subsidiary of the Company and manages certain servicing assets. HPAM’s wholly owned subsidiary, Home Point Mortgage Acceptance Corporation (“HPMAC”), an Alabama Corporation, ~~(“HPMAC”),~~ services residential real estate mortgage loans. Home Point Corporation Insurance Agency LLC (“HPCIA”), a Michigan limited liability company, ~~(“HPCIA” and together with HPF, HPAM, and HPMAC, the “wholly owned subsidiaries”),~~ is a wholly owned subsidiary of the Company that brokers home owner insurance policies.

Both HPF and HPMAC are ~~each an~~ approved ~~seller~~sellers and ~~servicer~~servicers of one-to-four family first mortgages by the Federal National Mortgage Association (“FNMA” or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”) and are ~~each an~~ approved ~~issuer~~issuers by the Government National Mortgage Association (“GNMA” or “Ginnie Mae”) (collectively, the “Agencies”), and as such, HPF and HPMAC must meet certain Agency eligibility requirements.

Note 2 – Basis of Presentation and ~~Significant~~New Accounting ~~Policies~~Pronouncements

Basis of Presentation

The accompanying ~~unaudited~~ condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. The condensed consolidated financial statements include the financial statements of HPC and its wholly owned subsidiaries. The accompanying ~~unaudited~~ condensed consolidated financial statements have been prepared in conformity with Article 10 of Regulation S-X promulgated under the Securities Act of 1933, as amended (the “Securities Act”). The consolidated balance sheet as of December 31, ~~2020~~2021 and related notes were derived from the audited consolidated financial statements but do not include all disclosures required by U.S. GAAP for complete financial statements. Certain information and footnote disclosures normally included in complete financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These ~~unaudited~~ condensed consolidated financial statements reflect, in the opinion of management, all material adjustments (which include normal recurring adjustments) necessary to fairly state, in all material respects, the Company’s financial position as of ~~September~~June 30, ~~2021 and~~2022, its results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021, and its cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. The ~~unaudited~~ condensed consolidated financial information should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, ~~2020.~~2021.

All intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

The Company reclassified gains and losses on MSR sales from Other income to the Change in fair value of mortgage servicing rights on the consolidated statement of operations. Prior periods have been reclassified to conform to current period presentation.

Use of Estimates

The preparation of the Company’s ~~unaudited~~ condensed consolidated financial statements in conformity with U.S. GAAP requires HPC to make estimates and assumptions about future events that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable.

Examples of reported amounts that rely on significant estimates include mortgage loans held for sale, mortgage servicing rights (“MSRs”), servicing advances reserve, derivative assets, derivative liabilities, ~~assets acquired and liabilities assumed in business combinations,~~ reserves for mortgage repurchases and indemnifications, and deferred tax valuation allowance considerations. Significant estimates are also used in determining the recoverability and fair value of property and equipment ~~goodwill,~~ and ~~intangible assets.~~

~~Stock Split~~

On January 21, 2021, the Company effected a stock split of its outstanding common stock pursuant to which the 100 outstanding shares were split into 1,380,601.11 shares each, for a total of 138,860,103 shares of outstanding common stock. As a result, all amounts relating to share and per share amounts have been retroactively adjusted to reflect this stock split.goodwill.

Table of Contents

~~Initial Public Offering~~

On February 2, 2021, the Company completed its initial public offering (“IPO”) in which the Company’s stockholders sold 7,250,000 shares of its common stock at a public offering price of $13 per share. In conjunction with the IPO, the Company’s board of directors also approved a reorganization of the Company through merging Home Point Capital LP (“HPLP”) with and into the Company, with the Company as the surviving entity. As a secondary offering, there were 0 proceeds to the Company from the sale of the shares being sold by the selling stockholders and all related expenses for the IPO were recorded in General and administrative expenses. Upon the completion of the IPO, investment entities directly or indirectly managed by Stone Point Capital LLC, which are referred to as the Trident Stockholders, beneficially owned approximately 92% of the voting power of the Company’s common stock.

~~Summary of Significant~~Recently Adopted Accounting ~~Policies~~

~~Mortgage loans held for sale~~ are accounted for using the fair value option. Therefore, mortgage loans originated and intended for sale in the secondary market are reflected at fair value. Changes in the fair value are recognized in current period earnings in Gain on loans, net, within the unaudited condensed consolidated statements of operations. Refer to ~~Note 3 – Mortgage Loans Held for Sale~~.

~~Mortgage servicing rights~~ are recognized as assets on the condensed consolidated balance sheets when loans are sold and the associated servicing rights are retained. The Company maintains one class of MSR asset and has elected the fair value option. The Company determines the fair value of mortgage servicing rights by estimating the fair value of the future cash flows associated with the mortgage loans being serviced. Key economic assumptions used in measuring the fair value of mortgage servicing rights include, but are not limited to, prepayment speeds, discount rates, delinquencies, and cost to service. The assumptions used in the valuation model are validated on a periodic basis. The Company obtains valuations from an independent third party on a quarterly basis and records an adjustment based on this third-party valuation. Changes in the fair value are recognized in Change in fair value of mortgage servicing rights, net on the Company's unaudited condensed consolidated statements of operations. Purchased mortgage servicing rights are recorded at the fair value which often is the purchase price at the date of purchase. Refer to ~~Note 4 – Mortgage Servicing Rights~~.

~~Derivative financial instruments~~, including economic hedging activities, are recorded at fair value as either Derivative assets or in Other liabilities on the condensed consolidated balance sheets on a gross basis. The Company has accounted for its derivative instruments as non-designated hedge instruments and uses the derivative instruments to manage risk. The Company’s derivative instruments include, but are not limited to, forward mortgage-backed securities sales commitments, interest rate lock commitments, and other derivative instruments entered into to economically hedge fluctuations in MSRs’ fair value. The impact of the Company’s Derivative assets is reported in Change in fair value of derivative assets on the unaudited condensed consolidated statements of cash flows and the impact of the Company’s derivative liabilities is reported in Increase in other liabilities on the unaudited condensed consolidated statements of cash flows. The Company records derivative assets and liabilities and related cash margin on a gross basis, even when a legally enforceable master netting arrangement exists between the Company and the derivative counterparty. Refer to ~~Note 5 – Derivative Financial Instruments~~.

~~Forward mortgage-backed securities~~ (“MBS”) sale commitments that have not settled are considered derivative financial instruments and are recognized at fair value. These forward commitments will be fulfilled with loans not yet sold or securitized, new originations, and purchases. The forward commitments allow the Company to reduce the risk related to market price volatility. These derivatives are not designated as hedging instruments. Gain or loss on derivatives is recorded in Gain on loans, net in the unaudited condensed consolidated statements of operations.

~~Interest rate lock commitments~~ (“IRLCs”) represent an agreement to extend credit to a mortgage loan applicant, or an agreement to purchase a loan from a third-party originator, whereby the interest rate on the loan is set prior to funding. The loan commitment binds the Company (subject to the loan approval process) to fund the loan at the specified rate, regardless of whether interest rates have changed between the commitment date and the loan funding date. As such, outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of the commitment through the loan funding date or expiration date. The loan commitments generally range between 30 and 90 days; however, the borrower is not obligated to obtain the loan. The Company is subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLCs. Forward MBS sale commitments or whole loans and options on forward contracts are used to manage the interest rate and price risk. These derivatives are not designated as hedging instruments. Historical commitment-to-closing ratios are considered to estimate the quantity of mortgage loans that will fund within the terms of the IRLCs. Change in fair value of IRLC derivatives is recorded in Gain on loans, net in the unaudited condensed consolidated statements of operations.

~~Mortgage servicing rights hedges~~ are accounted for at fair value. MSRs are subject to substantial interest rate risk as the mortgage notes underlying the servicing rights permit the borrowers to prepay the loans. Therefore, the value of MSRs generally tend to diminish in periods of declining interest rates as prepayments increase and increase in periods of rising interest rates as prepayments decrease. Although the level of interest rates is a key driver of prepayment activity, there are other factors that influence prepayments, including home prices, underwriting standards, and product characteristics.

~~Table of Contents~~

The Company manages the impact that the volatility associated with changes in fair value of its MSRs has on its earnings with a variety of derivative instruments. The amount and composition of derivatives used to economically hedge the value of MSRs will depend on the Company's exposure to loss of value on the MSRs, the expected cost of the derivatives, expected liquidity needs, and the expected increase to earnings generated by the origination of new loans resulting from the decline in interest rates. This serves as a business hedge of the MSRs, providing a benefit when increased borrower refinancing activity results in higher loan origination volumes, which would partially offset declines in the value of the MSRs thereby reducing the need to use derivatives. The benefit of this business hedge depends on the decline in interest rates required to create an incentive for borrowers to refinance their mortgage loans and lower their interest rates; however, this benefit may not be realized under certain circumstances regardless of the change in interest rates. The change in fair value of MSR hedges is recorded in Change in fair value of mortgage servicing rights, net in the unaudited condensed consolidated statements of operations.

~~Equity Method Investments~~ are business entities, which the Company does not have control of, but has the ability to exercise significant influence over operating and financial policies and are accounted for using the equity method. The Company evaluates its equity method investments for impairment whenever an event or change in circumstances occurs that may have a significant adverse impact on the carrying value of the investment. If a loss in value has occurred that is deemed to be other-than-temporary, an impairment loss is recorded. The Company recognizes investments in equity method investments initially at cost and are adjusted for HPC’s share of earnings or losses, contributions or distributions. Equity method investments are reported on the consolidated balance sheets in Other assets. As of September 30, 2021, Longbridge Financial, LLC (“Longbridge”) was the Company’s only significant equity method investment, of which the Company owned 49.7 percent of the outstanding equity securities. The following presents condensed financial information of Longbridge (~~in thousands~~):

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Total revenue $ 20,134 $ 114,064 $ 210,752 $ 240,739
Net (loss) income (1,435) 15,962 33,499 28,901
Net (loss) income attributable to the Company (713) 7,933 16,649 14,364

~~Earnings per share (“EPS”)~~ is calculated and presented in the unaudited condensed consolidated financial statements for both basic and diluted earnings per share. Basic EPS excludes all dilutive common stock equivalents and is based on the weighted average number of common shares outstanding during the period. There were 139.1 million and 138.8 million weighted average shares outstanding for the three months ended September 30, 2021 and 2020, respectively, and 139.2 million and 135.1 million weighted average shares outstanding for the nine months ended September 30, 2021 and 2020, respectively. Diluted EPS, as calculated using the treasury stock method, reflects the potential dilution that would occur if the Company’s dilutive outstanding stock options and stock awards were issued. For the three months ended September 30, 2021 and 2020, 140.0 million and 139.2 million weighted average shares were outstanding on a fully diluted basis. For the nine months ended September 30, 2021 and 2020, 139.7 million and 135.5 million shares were outstanding on a fully-diluted basis.

~~Accounting Standards Issued but Not Yet Adopted~~Pronouncements

ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, eliminates particular exceptions related to the method for intra period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects onof the accounting for income taxes. This amendment is effective for annual periods beginning after December 15, 2021. ~~This will be effective for the~~The Company ~~beginning~~adopted ASU 2019-12 as of January 1, 2022. The ~~Company does not anticipate a material impact as a result of the~~ adoption of this standard did not have a material impact on ~~its condensed~~the Company’s consolidated financial statements.

~~ASU 2021-01,~~ Accounting Pronouncements Issued but Not Yet Adopted~~Reference Rate Reform (Topic 848) Scope~~

~~, clarifies some of the guidance of the Financial~~ Accounting Standards ~~Board~~Update (“~~FASB” or “the Board”~~ASU”) as part of the Board’s monitoring of global reference rate reform activities. The ASU permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities under way in global financial markets. The Company is in the process of reviewing its derivative and hedging instruments that utilize LIBOR (as defined below) as the reference rate and is currently evaluating the potential impact that the adoption of this ASU will have on its consolidated financial statements.

~~Table of Contents~~

~~ASU~~ 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting,~~. Subject~~subject to meeting certain criteria, ~~the new guidance~~ provides optional expedients and exceptions related to applying ~~contract modification accounting under existing~~ U.S. GAAP to ~~address the expected phase out of~~certain contract modifications and hedging relationships that reference the London ~~Inter-bank~~Interbank Offered Rate ~~(“LIBOR”~~("LIBOR") ~~by the end of 2021.~~or another rate that is expected to be discontinued. This guidance iswas effective upon issuance and allows application to contract changes as early as January 1, 2020. Subsequently, in 2021, the FASB issued ASU 2021-01, Reference Rate Reform, to further clarify and expand certain aspects of Topic 848. The Company is in the process of reviewing its ~~funding facilities~~derivative and ~~financing facilities~~hedging instruments that utilize LIBOR as the reference ~~rate~~rate. The Company plans to adopt ASU 2020-04 and ASU 2021-01 when LIBOR is ~~currently evaluating~~discontinued for the ~~potential~~Company and does not expect it to have a material impact ~~that the adoption of this ASU will have~~ on its ~~condensed~~ consolidated financial statements.

Note 3 – Mortgage Loans Held for Sale

The Company sells its originated mortgage loans into the secondary market. The Company may retain the right to service some of these loans upon sale through ownership of servicing rights. The following presents mortgage loans held for sale (“MLHS”) at fair value, by ~~type, as of September 30, 2021 (in thousands~~):type:


									June 30, 2022
		September 30, 2021							Unpaid Principal		Fair Value Adjustment		Total Fair Value
		Unpaid Principal		Fair Value Adjustment		Total Fair Value			(dollars in thousands)
Conventional(1)	Conventional(1)	$	5,646,674	$	111,266	$	5,757,940	Conventional(1)	$	1,351,092	$	(15,935)	$	1,335,157
Government(2)	Government(2)	897,033		24,942		921,975		Government(2)	679,660		3,631		683,291
Other(3)		364		(83)		281
Reverse(3)								Reverse(3)	275		(83)		192
Total	Total	$	6,544,071	$	136,125	$	6,680,196	Total	$	2,031,027	$	(12,387)	$	2,018,640


	December 31, 2021
	Unpaid Principal		Fair Value Adjustment		Total Fair Value
	(dollars in thousands)
Conventional(1)	$	4,206,099	$	79,389	$	4,285,488
Government(2)	799,579		21,902		821,481
Reverse(3)	275		(83)		192
Total	$	5,005,953	$	101,208	$	5,107,161

(1)Conventional ~~is comprised of~~includes mortgage loans meeting the eligibility requirements to be sold to FNMA ~~and FHLMC mortgage loans.~~or FHLMC.

(2)Government ~~is comprised of GNMA~~includes mortgage loans meeting the eligibility requirements to be sold to GNMA (including Federal Housing Administration, Department of Veterans Affairs and United States Department of ~~Agriculture)~~Agricultural mortgage loans).

(3)~~Other is comprised~~Reverse loan presented in MLHS on the condensed consolidated balance sheets as a result of ~~home equity lines of credit (“HELOCs”)~~a repurchase.

MLHS on nonaccrual status had $24.0 million and ~~Reverse loans.~~

~~The Company had $26.8~~$26.1 million of unpaid principal balances ~~which had a~~and $19.4 million and $21.6 million estimated fair value, ~~of $22.9 million, of mortgage loans held for sale on nonaccrual status at September 30, 2021.~~

~~The following presents mortgage loans held for sale at fair value, by type,~~ as of June 30, 2022 and December 31, ~~2020 (in thousands~~):

December 31, 2020
Unpaid
Principal Fair Value
Adjustment Total
Fair Value
Conventional(1)
$ 2,183,480 $ 91,939 $ 2,275,419
Government(2)
974,908 51,175 1,026,083
Other(3)
275 (83) 192
Total $ 3,158,663 $ 143,031 $ 3,301,694

~~(1)Conventional is comprised of FNMA and FHLMC mortgage loans.~~

~~(2)Government is comprised of GNMA mortgage loans (including Federal Housing Administration, Department of Veterans Affairs and United States Department of Agriculture).~~

~~(3)Other is comprised of HELOCs and Reverse loans.~~2021, respectively.

The Company had ~~$26.3 million of~~$2.0 billion in unpaid principal ~~balances, which had a fair value~~balance pledged to secure its mortgage warehouse line of ~~$23.5 million,~~credit as of ~~mortgage loans held for sale on nonaccrual status at December 31, 2020.~~June 30, 2022.

Table of Contents

The following presents a reconciliation of the changes in ~~mortgage loans held for sale~~MLHS to the amounts presented on the ~~unaudited~~ condensed consolidated statements of cash ~~flows as of September 30, 2021 and 2020 (in thousands~~):flows:


											Six Months Ended June 30,
		Three Months Ended September 30,				Nine Months Ended September 30,					2022		2021
		2021		2020		2021		2020
Fair value at beginning of period	Fair value at beginning of period	$	5,412,452	$	1,904,174	$	3,301,694	$	1,554,230	Fair value at beginning of period	$	5,107,161	$	3,301,694
Mortgage loans originated and purchased	Mortgage loans originated and purchased	21,546,957		18,289,697		79,464,436		38,534,747		Mortgage loans originated and purchased	22,568,858		57,917,479
Proceeds on sales and payments received	Proceeds on sales and payments received	(20,208,378)		(17,565,561)		(75,786,570)		(37,869,214)		Proceeds on sales and payments received	(25,032,673)		(55,578,192)
Change in fair value	Change in fair value	3,727		17,074		(6,906)		54,709		Change in fair value	(113,594)		(10,633)
(Loss) gain on loans(1)		(74,562)		(363,549)		(292,458)		7,363
Loss on loans(1)										Loss on loans(1)	(511,112)		(217,896)
Fair value at end of period	Fair value at end of period	$	6,680,196	$	2,281,835	$	6,680,196	$	2,281,835	Fair value at end of period	$	2,018,640	$	5,412,452

(1)This line as presented on the condensed consolidated statements of cash flows excludes originated mortgage servicing rights and ~~MSR~~mortgage servicing rights hedging.

~~Table of Contents~~

Note 4 – Mortgage Servicing Rights

The Company sells residential mortgage loans in the secondary market and typically retains the right to service the loans sold.

~~The MSRs~~Mortgage Servicing Rights (“MSRs”) give the Company the contractual right to receive service fees and other remuneration in exchange for performing loan servicing functions on behalf of investors in mortgage loans and securities. Upon sale of a mortgage loan for which the Company retains the underlying servicing, an MSR asset is capitalized, which represents the current fair value of the future net cash flows that are expected to be realized for performing servicing activities.

The following presents an analysis of the changes in capitalized ~~mortgage servicing rights for the three and nine months ended September 30, 2021 and 2020 (in thousands~~):MSRs:


											Three Months Ended June 30,				Six Months Ended June 30,
		Three Months Ended September 30,				Nine Months Ended September 30,					2022		2021		2022		2021
		2021		2020		2021		2020			(dollars in thousands)
Balance at beginning of period	Balance at beginning of period	$	1,267,253	$	499,782	$	748,457	$	575,035	Balance at beginning of period	$	1,490,224	$	1,156,357	$	1,525,103	$	748,457
MSRs originated	MSRs originated	212,368		155,623		776,174		352,118		MSRs originated	155,942		269,449		364,683		563,806
MSRs purchased	MSRs purchased	14,326		—		33,027		—		MSRs purchased	9,245		13,884		17,833		18,701
MSRs sold	MSRs sold	(103,017)		—		(103,017)		—		MSRs sold	(275,312)		—		(755,556)		—
Changes in valuation model inputs	Changes in valuation model inputs	85,150		(17,210)		188,334		(211,668)		Changes in valuation model inputs	72,395		(94,713)		349,381		103,183
Change due to cash payoffs and principal amortization	Change due to cash payoffs and principal amortization	(73,940)		(54,932)		(240,835)		(132,222)		Change due to cash payoffs and principal amortization	(33,389)		(77,724)		(82,339)		(166,894)
Balance at end of period	Balance at end of period	$	1,402,140	$	583,263	$	1,402,140	$	583,263	Balance at end of period	$	1,419,105	$	1,267,253	$	1,419,105	$	1,267,253

The following presents the Company’s total capitalized mortgage servicing portfolio (based on the ~~UPB~~unpaid principal balance (“UPB”) of the underlying mortgage loans) ~~as of September 30, 2021 and December 31, 2020 (in thousands~~):


									June 30, 2022		December 31, 2021
		September 30, 2021			December 31, 2020				(dollars in thousands)
Ginnie Mae	Ginnie Mae	$	17,019,501		$	26,206,612		Ginnie Mae	$	8,391,398	$	5,602,582
Fannie Mae	Fannie Mae	63,688,774			36,395,373			Fannie Mae	45,950,073		70,174,987
Freddie Mac	Freddie Mac	45,085,793			25,621,697			Freddie Mac	36,143,003		52,547,588
Other	Other	38,218			53,567			Other	31,947		34,417
Total mortgage servicing portfolio		$	125,832,286		$	88,277,249
Total								Total	$	90,516,421	$	128,359,574

MSR balance	MSR balance	$	1,402,140		$	748,457		MSR balance	$	1,419,105	$	1,525,103
MSR balance as % of unpaid mortgage principal balance		1.11		%	0.85		%

The following presents the key weighted average assumptions used in determining the fair value of the Company’s ~~MSRs as~~MSRs:


	June 30, 2022		December 31, 2021
Discount rate	7.93	%	8.68	%
Weighted average prepayment speeds	6.37	%	8.30	%

Table of ~~September 30, 2021 and December 31, 2020:~~Contents

September 30,
2021 December 31,
2020
Discount rate 8.89 % 9.47 %
Prepayment speeds 9.54 % 14.43 %

The key assumptions used to estimate the fair value of the MSRs are discount rate and the Conditional Prepayment Rate (“CPR” or “prepayment speeds”). ~~Increases~~An increase in prepayment speeds generally ~~have~~has an adverse effect on the value of MSRs as the underlying loans prepay faster. In a declining interest rate environment, the fair value of MSRs generally decreases as prepayments increase. ~~Decreases~~A decrease in prepayment speeds generally ~~have~~has a positive effect on the value of the MSRs as the underlying loans prepay less frequently. In a rising interest rate environment, the fair value of MSRs generally increases as prepayments decrease. Increases in the discount rate result in a lower MSR value and decreases in the discount rate result in a higher MSR value.

~~Table of Contents~~

The following table illustrates the hypothetical effect on the fair value of the Company’s MSR portfolio when applying unfavorable discount rate and prepayment speeds at two different data points as of September 30, 2021 and December 31, 2020 (~~in thousands):~~

Discount Rate Prepayment Speeds
100 BPS
Adverse Change
200 BPS
Adverse Change
10% Adverse
Change
20% Adverse
Change
September 30, 2021 $ (59,159) $ (113,493) $ (56,936) $ (109,450)
December 31, 2020 $ (26,354) $ (50,754) $ (45,014) $ (85,484)

MSR uncertainties are hypothetical and do not always have a direct correlation with each assumption. Changes in one assumption may result in changes to another assumption, which might magnify or counteract the uncertainties. ~~Refer to~~ ~~Note 12 – Fair Value Measurements, for further discussions~~

The following presents the impact on ~~the key assumptions used to estimate~~ the fair value of the ~~MSRs.~~Company’s MSR portfolio when applying the following hypothetical data points:


	Discount Rate				Prepayment Speeds
	100 BPS Adverse Change		200 BPS Adverse Change		10% Adverse Change		20% Adverse Change
	(dollars in thousands)
June 30, 2022	$	(69,128)	$	(131,943)	$	(45,752)	$	(88,681)
December 31, 2021	$	(66,885)	$	(128,172)	$	(56,278)	$	(108,621)

The following presents information related to loans ~~serviced as of September 30, 2021 and December 31, 2020 (in thousands~~):serviced:


							June 30, 2022		December 31, 2021
		September 30, 2021		December 31, 2020			(dollars in thousands)
Total unpaid principal balance	Total unpaid principal balance	$	131,405,675	$	91,590,114	Total unpaid principal balance	$	92,158,562	$	133,889,085
Loans 30-89 days delinquent	Loans 30-89 days delinquent	816,670		1,353,029		Loans 30-89 days delinquent	898,742		656,012
Loans delinquent 90 or more days or in foreclosure	Loans delinquent 90 or more days or in foreclosure	1,084,419		3,641,183		Loans delinquent 90 or more days or in foreclosure	753,270		777,650

The following presents components of Loan servicing fees as reported in the Company’s ~~unaudited~~ condensed consolidated statements of ~~operations for the three and nine months ended September 30, 2021 and 2020 (in thousands~~):operations:


											Three Months Ended June 30,				Six Months Ended June 30,
		Three Months Ended September 30,				Nine Months Ended September 30,					2022		2021		2022		2021
		2021		2020		2021		2020			(dollars in thousands)
Contractual servicing fees	Contractual servicing fees	$	84,271	$	49,387	$	229,369	$	135,813	Contractual servicing fees	$	62,618	$	77,615	$	143,381	$	145,098
Late fees	Late fees	1,458		1,313		3,923		4,564		Late fees	891		1,323		2,016		2,465
Other	Other	6,102		(2,350)		14,461		(6,473)		Other	(637)		6,646		(1,461)		8,359
Loan servicing fees		$	91,831	$	48,350	$	247,753	$	133,904
Total										Total	$	62,872	$	85,584	$	143,936	$	155,922

The Company held ~~$25.5~~for its customers $16.5 million and ~~$20.6~~$19.9 million of escrow funds ~~within~~recorded in Other liabilities in the condensed consolidated balance sheets ~~for its customers for which it services mortgage loans as of September 30, 2021 and December 31, 2020, respectively.~~

On September 2, 2021, HPF completed the sale of MSRs relating to certain single family mortgage loans serviced for Ginnie Mae with an aggregate unpaid principal balance of approximately $10.7 billion. The total net proceed for the sale of MSRs was approximately $121.6 million with certain customary holdbacks and adjustments and resulted in a gain of $7.4 million. The sale represented approximately 8.6% of HPF’s total mortgage servicing portfolio as of June 30, 2022 and December 31, 2021, respectively. The Company reported $21.2 million and ~~approximately 40.6% percent~~$74.7 million loss on MSR sales in the Change in fair value of ~~HPF’s total Ginnie Mae~~ mortgage servicing ~~portfolio as~~rights in the condensed consolidated statement of operations for the three and six months ended June 30, ~~2021. Ginnie Mae consented to the transfer of the MSRs.~~2022, respectively.

118

Table of Contents

Note 5 – Derivative Financial Instruments

The following presents the outstanding notional ~~balances for~~amounts and fair values of derivative instruments not designated as hedging ~~instruments as~~instruments:


	June 30, 2022
	Notional Value		Derivative Asset		Derivative Liability
	(dollars in thousands)
Forward sale contracts	$	3,730,800	$	13,718	$	14,434
Interest rate lock commitments	3,306,824		22,622		6,375
Forward purchase contracts	305,000		77		3,741
Treasury futures purchase contracts	510,000		2,121		698��
Margin			20,742		35,061
Total			$	59,280	$	60,309


	December 31, 2021
	Notional Value		Derivative Asset		Derivative Liability
	(dollars in thousands)
Forward sale contracts	$	7,819,802	$	6,969	$	8,242
Interest rate lock commitments	6,068,763		29,887		2,843
Forward purchase contracts	1,521,000		3,031		281
Interest rate swap futures contracts	1,540,000		25,313		5,662
Treasury futures purchase contracts	4,720,000		111		—
Margin			19,074		9,708
Total			$	84,385	$	26,736

Table of ~~September~~Contents

The following presents the recorded gain (loss) on derivative financial instruments:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(dollars in thousands)
Forward sale contracts	$	(91,472)	$	283,156	$	(2,804)	$	43,568
Interest rate lock commitments	50,983		(386,845)		(9,770)		(206,291)
Forward purchase contracts	819		17,509		(3,053)		(3,878)
Interest rate swap and Treasury futures purchase contracts	$	(43,601)	$	52,606	$	(161,953)	$	(18,049)

Counterparty agreements for forward commitments contain master netting agreements. The master netting agreements contain a legal right to offset amounts due to and from the same counterparty. The Company incurred no credit losses due to nonperformance of any of its counterparties for the three and six months ended June 30, ~~2021~~2022 and ~~2020 (in thousands~~):2021.

September 30, 2021
Notional
Value Derivative
Asset Derivative
Liability Recorded
Gain/(Loss)
Mortgage-backed securities forward trades $ 11,113,975 $ 54,504 $ 3,304 $ 51,725
Interest rate lock commitments 10,002,894 38,315 17,748 (36,404)
Hedging mortgage servicing rights 7,497,000 254 42,145 (49,323)
Margin 71,529 79,220
Total $ 164,602 $ 142,417
Cash placed with counterparties, net $ 7,691

September 30, 2020
Notional
Value Derivative
Asset Derivative
Liability Recorded
Gain/(Loss)
Mortgage-backed securities forward trades $ 9,637,702 $ 2,793 $ 23,586 $ (8,444)
Interest rate lock commitments 15,103,027 272,837 — 26,082
Hedging mortgage servicing rights 4,306,000 8,730 — 2,161
Margin 30,642 208
Total $ 315,002 $ 23,794
Cash held from counterparties, net $ 30,434

The following presents a summary of derivative assets and liabilities and related netting ~~amounts as of September 30, 2021 (in thousands~~):amounts:


		September 30, 2021							June 30, 2022
		Gross Amount of Recognized Assets (liabilities)		Gross Offset		Net Assets (Liabilities)					Gross Amounts Not Offset in the Statement of Financial Position(1)
Balance at September 30, 2021
									Gross Amount of Assets (Liabilities) Recognized		Financial Instruments		Cash Collateral		Net Amount
									(dollars in thousands)
Derivatives subject to master netting agreements:	Derivatives subject to master netting agreements:							Derivatives subject to master netting agreements:
Assets:	Assets:							Assets:
Mortgage-backed securities forward trades		$	54,504	$	(53,680)	$	824
Hedging mortgage servicing rights		254		—		254
Margin (cash placed with counterparties)		71,529		(34,776)		36,753
Forward sale contracts								Forward sale contracts	$	13,718	$	(9,944)	$	(3,413)	$	361
Forward purchase contracts								Forward purchase contracts	77		(77)		—		—
Interest rate swap and Treasury futures purchase contracts								Interest rate swap and Treasury futures purchase contracts	2,121		(2,121)		—		—
Liabilities:	Liabilities:							Liabilities:
Mortgage-backed securities forward trades		(3,304)		3,665		361
Hedging mortgage servicing rights		(42,145)		34,776		(7,369)
Margin (cash held from counterparties)		(79,220)		50,015		(29,205)

Forward sale contracts								Forward sale contracts	(14,434)		9,944		—		(4,490)
Forward purchase contracts								Forward purchase contracts	(3,741)		77		3,362		(302)
Interest rate swap and Treasury futures purchase contracts								Interest rate swap and Treasury futures purchase contracts	(698)		2,121		(1,423)		—
Derivatives not subject to master netting agreements:	Derivatives not subject to master netting agreements:							Derivatives not subject to master netting agreements:
Assets:	Assets:							Assets:
Interest rate lock commitments	Interest rate lock commitments	38,315		—		38,315		Interest rate lock commitments	22,622		—		—		22,622

Liabilities:	Liabilities:							Liabilities:
Interest rate lock commitments	Interest rate lock commitments	(17,748)		—		(17,748)		Interest rate lock commitments	(6,375)		—		—		(6,375)

Total derivatives	Total derivatives							Total derivatives
Assets	Assets	$	164,602	$	(88,456)	$	76,146	Assets	$	38,538	$	(12,142)	$	(3,413)	$	22,983
Liabilities	Liabilities	$	(142,417)	$	88,456	$	(53,961)	Liabilities	$	(25,248)	$	12,142	$	1,939	$	(11,167)

1210

Table of Contents

~~The following presents a summary of derivative assets and liabilities and related netting amounts as of December 31, 2020 (in thousands~~):


		December 31, 2020							December 31, 2021
		Gross Amount of Recognized Assets (liabilities)		Gross Offset		Net Assets (Liabilities)					Gross Amounts Not Offset in the Statement of Financial Position(1)
Balance at December 31, 2020
									Gross Amount of Assets (Liabilities) Recognized		Financial Instruments		Cash Collateral		Net Amount
									(dollars in thousands)
Derivatives subject to master netting agreements:	Derivatives subject to master netting agreements:							Derivatives subject to master netting agreements:
Assets:	Assets:							Assets:
Mortgage-backed securities forward trades		$	1,320	$	—	$	1,320
Hedging mortgage servicing rights		4,419		—		4,419
Margin (cash placed with counterparties)		58,290		(45,427)		12,863
Forward sale contracts								Forward sale contracts	$	6,969	$	(4,886)	$	(1,272)	$	811
Forward purchase contracts								Forward purchase contracts	3,031		(258)		(2,627)		146
Interest rate swap and Treasury futures purchase contracts								Interest rate swap and Treasury futures purchase contracts	25,424		(5,662)		—		19,762
Liabilities:	Liabilities:							Liabilities:
Mortgage-backed securities forward trades		(61,124)		45,595		(15,529)

Margin (cash held from counterparties)		—		(168)		(168)

Forward sale contracts								Forward sale contracts	(8,242)		4,886		1,252		(2,104)
Forward purchase contracts								Forward purchase contracts	(281)		258		—		(23)
Interest rate swap and Treasury futures purchase contracts								Interest rate swap and Treasury futures purchase contracts	(5,662)		5,662		—		—
Derivatives not subject to master netting agreements:	Derivatives not subject to master netting agreements:							Derivatives not subject to master netting agreements:
Assets:	Assets:							Assets:
Interest rate lock commitments	Interest rate lock commitments	257,785		—		257,785		Interest rate lock commitments	29,887		—		—		29,887
Hedging mortgage servicing rights		12,509		—		12,509
Liabilities:								Liabilities:
Interest rate lock commitments								Interest rate lock commitments	(2,843)		—		—		(2,843)
Total derivatives	Total derivatives							Total derivatives
Assets	Assets	$	334,323	$	(45,427)	$	288,896	Assets	$	65,311	$	(10,806)	$	(3,899)	$	50,606
Liabilities	Liabilities	$	(61,124)	$	45,427	$	(15,697)	Liabilities	$	(17,028)	$	10,806	$	1,252	$	(4,970)

(1) Amounts disclosed for collateral received from or posted to the same counterparty includes cash up to and not exceeding the net amount of the derivative asset or liability presented in the balance sheet. The fair value of the total collateral received from or posted to the same counterparty may exceed the amounts presented. The amounts of collateral received from or posted to counterparty are presented as margin and included as a component of either Derivative assets or Other liabilities in the Balance Sheet.

For information on the determination of fair value, refer to Note 12 – Fair Value ~~Measurements~~.Measurements.

Note 6 – Accounts Receivable, net

The following presents principal categories of Accounts receivable, ~~net as of September 30, 2021 and December 31, 2020 (in thousands~~):net:


		As of September 30, 2021		As of December 31, 2020			June 30, 2022		December 31, 2021
							(dollars in thousands)
Pair off receivable						Pair off receivable	$	34,813	$	3,738
Servicing sale receivable						Servicing sale receivable	72,850		14,364
Servicing advance receivable	Servicing advance receivable	$	50,367	$	97,893	Servicing advance receivable	34,342		71,884
Servicing advance reserves		(6,729)		(8,380)
Servicing advance reserve						Servicing advance reserve	(1,769)		(4,207)
Agency receivable						Agency receivable	12,346		20,184
Income tax receivable						Income tax receivable	7,855		11,181
Servicing receivable-general	Servicing receivable-general	2,780		2,660		Servicing receivable-general	10,231		359
Current income tax receivable		20,784		54,347
Warehouse receivable						Warehouse receivable	1,957		1,934
Interest on servicing deposits	Interest on servicing deposits	482		165		Interest on servicing deposits	262		464
Pair off receivable		22,319		—
Agency receivables, net		10,414		—
Warehouse receivable		9,855		—
Other	Other	7,266		6,160		Other	4,108		9,191
Accounts receivable, net		$	117,538	$	152,845
Total						Total	$	176,995	$	129,092

As part of managing the Company’s servicing advances, servicing advance ~~reserves~~reserve is recognized with management’s estimate of current expected losses and maintained at a level that management considers adequate based upon continuing assessments of collectability, historical loss experience, current trends, and reasonable and supportable forecasts.

1311

Table of Contents

The following presents changes to the servicing advance ~~reserve for the three months and nine months ended September 30, 2021 and 2020~~ ~~(in thousands)~~:reserve:

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Servicing advance reserve, at beginning of period $ (9,098) $ (6,549) $ (8,380) $ (4,308)
Additions, net of adjustments 1,500 (1,487) (724) (6,419)
Charge-offs 869 773 2,375 3,464
Servicing advance reserve, at end of period $ (6,729) $ (7,263) $ (6,729) $ (7,263)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(dollars in thousands)
Servicing advance reserve at beginning of period	$	(2,875)	$	(8,749)	$	(4,207)	$	(8,380)
Additions	(8,705)		(881)		(16,222)		(2,224)
Charge-offs	9,811		532		18,660		1,506
Servicing advance reserve at end of period	$	(1,769)	$	(9,098)	$	(1,769)	$	(9,098)

Note 7 – Warehouse Lines of Credit

The Company maintains mortgage warehouse lines of credit arrangements with various financial institutions, primarily to fund the origination of mortgage loans. The Company held mortgage funding arrangements with 11 separate financial institutions with a total maximum borrowing capacity of $6.0 billion and $7.5 billion ~~at September~~as of June 30, ~~2021~~2022 and ~~$4.2 billion at~~ December 31, ~~2020. As of September 30,~~ 2021, ~~the~~respectively, which is primarily uncommitted. The Company had ~~$1.9~~$4.1 billion and $2.8 billion of unused capacity under its warehouse lines of ~~credit.~~credit as of June 30, 2022 and December 31, 2021, respectively.

The following presents the amounts outstanding ~~as of September 30, 2021 and December 31, 2020~~ and maturity dates under the Company’s various mortgage funding arrangements:

Maturity Date Balance at September 30, 2021 Balance at December 31, 2020
$450M Warehouse Facility September 2022 $ 324.1 million $ 223.9 million
$500M Warehouse Facility September 2022 418.6 million 401.2 million
$500M Warehouse Facility September 2022 441.2 million 437.8 million
$500M Warehouse Facility January 2022 366.2 million 232.1 million
$500M Warehouse Facility January 2022 449.3 million — million
$1.2B Warehouse Facility February 2022 706.4 million 459.9 million
$1.0B Warehouse Facility August 2022 596.8 million 421.9 million
$500M Warehouse Facility March 2023 433.3 million — million
$1.5B Warehouse Facility(1)
May 2023 1,190.7 million 466.0 million
$550M Warehouse Facility Evergreen 400.2 million 171.0 million
$88.5M Warehouse Facility Evergreen 12.3 million 40.6 million
Gestation Evergreen 245.8 million 151.0 million
Early Funding(2)
723.7 million — million
Total warehouse lines of credit $ 6,308.5 million $ 3,005.4 million


	Maturity Date		June 30, 2022
		(dollars in thousands)
$350 million Warehouse Facility1	August 2022		$	32,401
$450 million Warehouse Facility	September 2022		163,940
$500 million Warehouse Facility	September 2022		42,866
$500 million Warehouse Facility	September 2022		58,208
$1,200 million Warehouse Facility	February 2023		685,953
$325 million Warehouse Facility	March 2023		231,877
$400 million Warehouse Facility	March 2023		33,780
$250 million Warehouse Facility2	March 2023		32,608
$1,200 million Warehouse Facility	May 2023		170,149
$89 million Warehouse Facility	Evergreen		10,103
$550 million Warehouse Facility	Evergreen		280,103
Gestation Warehouse Facility	Evergreen		168,407
Early Funding4			—
Total			$	1,910,395

(1) ~~On July 21, 2021, borrowing~~The capacity onof this ~~facility temporarily increased~~Warehouse Facility has been reduced from $700 million as of March 31, 2022 to ~~$1.5 billion through September 15, 2021, and such temporary increase was then subsequently extended through January 15,~~$350 million as of June 30, 2022.

(2)The capacity of this Warehouse Facility has been reduced from $500 million as of March 31, 2022 to $250 million as of June 30, 2022.

Table of Contents


	Maturity Date5		December 31, 2021
		(dollars in thousands)
$1,200 million Warehouse Facility4	February 2022		$	604,421
$500 million Warehouse Facility4	March 2022		335,509
$500 million Warehouse Facility4	March 2022		381,087
$1,000 million Warehouse Facility	August 2022		716,802
$450 million Warehouse Facility	September 2022		277,060
$500 million Warehouse Facility	September 2022		339,521
$500 million Warehouse Facility	September 2022		375,381
$500 million Warehouse Facility	March 2023		309,898
$1,500 million Warehouse Facility	May 2023		731,132
$88.5 million Warehouse Facility	Evergreen		11,409
$550 million Warehouse Facility	Evergreen		363,959
Gestation Warehouse Facility	Evergreen		179,360
Early Funding3			93,119
Total			$	4,718,658

(3)In addition to warehouse facilities, the Company is an approved lender for early funding facilities with Fannie Mae through its As Soon As Pooled (“ASAP”) program and Freddie Mac through its Early Funding (“EF”) program. From time to time, the Company ~~enter~~enters into agreements to deliver certified pools ~~consisting~~ of mortgage loans ~~securitized by Fannie Mae or Freddie Mac, as applicable,~~ and receive funding in exchange for such pools. All mortgage loans delivered under these programs must adhere to a set of eligibility criteria. Early funding programs with Fannie Mae and Freddie Mac do not have stated expiration dates or maximum capacities.

(4)Maturity Dates in this table are as of December 31, 2021. These Warehouse Facilities have been renewed as reflected in the table above.

The Company’s warehouse facilities’ variable interest rates are calculated using ~~a base~~an index rate generally tied to either (a) 1-month LIBOR or (b) a Secured Overnight Financing Rate (“SOFR”); plus applicable interest rate margins, with varying index interest and interest rate margin floors. The weighted average interest rate for the Company’s warehouse facilities was 2.44% and 2.36% as of June 30, 2022 and December 31, 2021, respectively. The Company’s borrowings are 100% secured by ~~the fair value of the mortgage loans held for sale~~MLHS at fair value.

The Company’s warehouse facilities ~~generally~~ require the maintenance of certain financial covenants relating to net worth, profitability, liquidity, and ratio of indebtedness to net worth among others. ~~As of September~~The Company’s warehouse lines that contain profitability covenants were amended to allow for a net loss for the three months ended June 30, ~~2021, the~~2022. The Company was in compliance with all warehouse facility ~~covenants.~~covenants as of June 30, 2022.

The Company continually evaluates its warehouse capacity in relation to expected financing needs.

~~Table of Contents~~

Note 8 – Term Debt and Other Borrowings, net

The ~~Company maintains~~following presents the Company’s term debt and other borrowings, ~~as follows:~~net:

Maturity Date Collateral Balance at September 30, 2021 Balance at December 31, 2020
$1.0B MSR Facility May 2025 Mortgage Servicing Rights $ 525.0 million $ 411.6 million
$550M Senior Notes February 2026 Unsecured 550.0 million — million
$115M Servicing Advance Facility(1)
May 2022 Servicing Advances 1.0 million 43.2 million
$10M Operating Line of Credit(2)
May 2022 Mortgage Loans 3.3 million 1.0 million
Total 1,079.3 million 455.8 million
Debt issuance costs (13.5) million (1.8) million
Term debt and other borrowings, net $ 1,065.8 million $ 454.0 million


	Maturity Date	Collateral	June 30, 2022		December 31, 2021
			(dollars in thousands)
$1.0 billion MSR Facility	May 2025	MSRs	$	355,000	$	685,000
$550 million Senior Notes1	February 2026	Unsecured	500,000		550,000
$85 million Servicing Advance Facility2	May 2023	Servicing Advances	—		3,250
$35 million Operating Line of Credit	May 2023	Mortgage loans	1,000		1,000
Gross			856,000		1,239,250
Debt issuance costs			(10,469)		(12,726)
Total			$	845,531	$	1,226,524

(1) ~~Subsequent to September~~The Company repurchased and retired $50 million Senior Notes during the six months ended June 30, ~~2021,~~2022.

(2)Effective June 9, 2022, the capacity of the Servicing Advance ~~Facility’s capacity was~~Facility has been reduced from $90 million to ~~$90.0~~$85 million.

~~(2) Subsequent to September 30, 2021, the Operating Line~~

Table of ~~Credit’s capacity was increased to $35.0 million.~~Contents

The Company maintains a $1.0 billion MSR financing facility (the “MSR Facility”)~~, which is comprised of~~. On April 29, 2022, the Company entered into an amendment to the MSR facility that, among other things, reduced the committed capacity from $650.0 million ~~of committed capacity and $350.0 million of uncommitted capacity and is collateralized by~~to $500.0 million. The amendment also replaced the ~~Company’s FNMA, FHLMC, and GNMA mortgage servicing rights. In May 2021, the MSR Facility was increased from $500.0 million to $1.0 billion. Interest on the MSR Facility is~~LIBOR based ~~on 3-Month LIBOR~~interest rate with SOFR, plus the applicable interest rate margin, with advance rates generally ranging from 62.5% to 72.5% of the value of the underlying ~~mortgage servicing rights.~~MSRs. The MSR Facility is collateralized by the Company’s FNMA, FHLMC, and GNMA MSRs. The MSR Facility has a three-year revolving period ending on May 4, 2024 followed by a one-year period during which the balance drawn must be repaid and no further amounts may be drawn down, which ends on May 20, 2025. The MSR Facility requires the maintenance of certain financial covenants relating to net worth, liquidity, and indebtedness of the Company. As of ~~September~~June 30, ~~2021,~~2022, the Company was in compliance with all covenants under the MSR Facility.

In January of 2021, the Company issued $550.0 million aggregate principal amount of its 5.0% Senior Notes due 2026 (the “Senior Notes”) in a private placement transaction. The Senior Notes are guaranteed on a senior unsecured basis by each of the Company’s wholly owned subsidiaries existing on the date of issuance, other than HPAM and HPMAC. The Senior Notes bear interest at a rate of 5.0% per annum, payable semi-annually in arrears. The Senior Notes will mature on February 1, 2026. The Company repurchased and retired $50 million Senior Notes during the three and six months ended June 30, 2022.

The Indenture governing the Senior Notes contains covenants and restrictions that, among other things and subject to certain exceptions, limit the ability of the Company and its restricted subsidiaries to (i) incur ~~certain~~ additional debt or issue certain preferred shares; (ii) incur liens; (iii) make certain distributions, investments, and other restricted payments; (iv) engage in certain transactions with affiliates; and (v) merge or consolidate or sell, transfer, lease, or otherwise dispose of all or substantially all of their assets. ~~The Indenture governing the Senior Notes does not include any financial maintenance covenants.~~

The Company has ~~an $115.0~~a $85.0 million servicing advance facility which is collateralized by all of the Company’s servicing advances. ~~The servicing advance facility’s capacity was increased from $85.0 million to $115.0 million in May 2021.~~ The facility carries an interest rate of 1-month LIBOR plus a margin and an advance rate ranging from ~~85-95%~~85.0-95.0%. The servicing advance facility requires the maintenance of certain financial covenants relating to net worth, liquidity, and indebtedness of the Company. As of ~~September~~June 30, ~~2021,~~2022, the Company was in compliance with all covenants under the servicing advance facility.

The Company also has a ~~$10.0~~$35.0 million operating line, with an interest rate based on the ~~Wall Street Journal prime rate.~~Prime Rate.

~~As of September 30, 2021, the~~The Company had total ~~unused~~available capacity of $468.1 million and $28.8 million for its MSR Facility and servicing advance facility, respectively as of June 30, 2022. The Company has no available capacity for its ~~servicing advance facility and~~ operating line of credit as of ~~$37.9 million and $9.0 million, respectively.~~

June 30, 2022.

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Note 9 – Commitments and Contingencies

Commitments to Extend Credit

The Company’s ~~IRLCs~~Interest rate lock commitments (“IRLCs”) expose the Company to market risk if interest rates change and the ~~applicable~~ loan is not economically hedged or committed to an investor. The Company is also exposed to credit loss if the ~~applicable~~ 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 were ~~$10.0~~$3.3 billion and $6.1 billion as of ~~September~~June 30, ~~2021~~2022 and ~~$16.0 billion as of~~ December 31, ~~2020.~~2021, respectively.

Litigation

The Company is subject to various legal proceedings arising out of the ordinary course of business. There were no current or pending claims against the Company which are expected to have a material impact on the Company's condensed consolidated balance sheets, statements of operations, or cash flows.

Regulatory Contingencies

The Company is subject to periodic audits and examinations, both formal and informal in nature, from various federal and state agencies, including those conducted as part of regulatory oversight of our mortgage origination, servicing, and financing activities. Such audits and examinations could result in additional actions, penalties, or fines by state or federal governmental bodies, regulators, or the courts with respect to our mortgage origination, servicing, and financing activities, which may be applicable generally to the mortgage industry or to the Company in particular. The Company did not pay any material penalties or fines during the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021 ~~or 2020~~ and is not currently required to pay any such penalties or fines.

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Note 10 – Regulatory Net Worth Requirements

The Company is subject to various regulatory capital requirements administered by the Department of Housing and Urban Development (“HUD”), which govern non-supervised, direct endorsement mortgagees. The Company is also subject to regulatory capital requirements administered by Ginnie Mae, Fannie Mae, and Freddie Mac, which govern issuers of Ginnie Mae, Fannie Mae, and Freddie Mac securities. Additionally, the Company is required to maintain minimum net worth ~~requirements for many of the states in which it sells and services loans. Each state has its own minimum net worth requirement;~~requirements; these range from $0 to $1.0 million depending on the state.

Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary remedial actions by regulators that, if undertaken, could (i) remove the Company’s ability to sell and service loans to, or on behalf of, the Agencies and (ii) have a direct material effect on the Company’s condensed consolidated financial statements. In accordance with the regulatory capital guidelines, the Company must meet specific quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. ~~Further, changes~~Changes in regulatory and accounting standards, as well as the impact of future events on the Company’s results, may significantly affect the Company’s net worth adequacy.

The Company is subject to the following minimum net worth, minimum capital ratio, and minimum liquidity requirements established by the Federal Housing Finance Agency for Fannie Mae and Freddie Mac Seller/Servicers, and Ginnie Mae for single family ~~issuers.~~issuers:

Minimum Net Worth

The minimum net worth requirement for Fannie Mae and Freddie Mac is defined as follows:

•Base Adjusted/Tangible Net Worth (as defined by HUD) of $2.5 million plus 25 basis points of outstanding UPB for total loans serviced.

•Adjusted/Tangible Net Worth, ~~consists~~as defined by HUD, is comprised of total equity less goodwill, intangible assets, affiliate receivables, deferred tax assets, prepaid expenses, and certain pledged assets.

The minimum net worth requirement for Ginnie Mae is defined as follows:

•Base Adjusted/Tangible Net Worth (as defined by HUD) of $2.5 million plus 35 basis points of the issuer’s total single-family effective outstanding obligations.

Minimum Capital Ratio

For Fannie Mae, Freddie Mac, and Ginnie Mae, the Company is also required to hold a ratio of Adjusted/Tangible Net Worth to Total Assets greater than 6%6.0%.

~~Table of Contents~~

Minimum Liquidity

The minimum liquidity requirement for Fannie Mae and Freddie Mac is defined as follows:

•3.5 basis points of total Agency servicing.

•Incremental 200 basis points of total nonperforming Agency servicing, measured as 90 plus day delinquencies, ~~servicing~~ in excess of 6%6.0% of the total Agency servicing UPB.

•Allowable assets for liquidity may include: cash and cash equivalents (unrestricted); available for sale or held for trading investment grade securities (e.g., Agency MBS, Obligations of ~~Government Sponsored Entities (“GSE”),~~GSEs, US Treasury Obligations); and unused/available portion of committed servicing advance lines.

The minimum liquidity requirement for Ginnie Mae is defined as follows:

•Maintain liquid assets equal to the greater of $1.0 million or 10 basis points of ~~our~~the Company’s outstanding single-family MBS.

The most restrictive of the minimum net worth and capital requirements require the Company to maintain a minimum adjusted net worth balance of ~~$322.2~~$218.5 million and $326.3 million as of ~~September~~June 30, ~~2021. As of September 30,~~2022 and December 31, 2021, ~~the~~respectively.

The Company ~~was~~is in compliance with ~~this requirement.~~

~~The Company met~~ all minimum ~~net worth~~ requirements to which it was subject as of ~~September~~June 30, ~~2021.~~2022.

~~The following presents the Company’s required and actual net worth amounts as of September 30, 2021 (in thousands~~):

Home Point Financial Corporation
Adjusted Net Worth Net Worth Required
HUD $ 1,185,943 $ 2,500
Ginnie Mae $ 1,185,943 $ 65,448
Fannie Mae $ 1,185,943 $ 322,231
Freddie Mac $ 1,185,943 $ 322,231
Various States $ 1,185,943 $0 - 1,000
Home Point Mortgage Acceptance Corporation
Adjusted Net Worth Net Worth Required
HUD $ 44,066 $ 2,500
Ginnie Mae $ 44,066 $ 2,761
Fannie Mae $ 44,066 $ 11,284
Freddie Mac $ 44,066 $ 11,284
Various States $ 44,066 $0 - 1,000

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Note 11 – Representation and Warranty Reserve

Certain of the Company’s loan sale contracts include provisions requiring the Company to repurchase a loan if a borrower fails to make certain initial loan payments due to the acquirer or if the accompanying mortgage loan fails to meet customary representations and warranties. ~~Additionally, the~~The Company has included considerations that it may receive relief of certain representations and warranty obligations on loans sold to FNMA or FHLMC on or after January 1, 2013 if FNMA or FHLMC satisfactorily concludes a quality control loan file review or if the borrower meets certain acceptable payment history requirements within 12 or 36 months after the loan is sold to FNMA or ~~FHLMC.~~FHLMC, respectively. The current UPB of loans sold by the Company represents the maximum potential exposure to repurchases related to representations and warranties. Reserve levels are a function of expected losses based on historical experience ~~current conditions,~~and loan ~~volume and reasonable and supportable forecasts.~~volume. While the amount of repurchases is uncertain, the Company considers the liability to be appropriate.

~~Table of Contents~~

The following presents the activity of the outstanding ~~reserves for the three and nine months ended September 30, 2021 and 2020 (in thousands~~):repurchase reserve:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Reserve at beginning of period		$	27,901	$	14,704	$	18,080	$	3,964
											(dollars in thousands)
Repurchase reserve at beginning of period										Repurchase reserve at beginning of period	$	24,918	$	23,810	$	24,577	$	18,080
Additions	Additions	1,258		2,770		12,262		17,017		Additions	38,467		4,411		42,418		11,004
Charge-offs	Charge-offs	(1,721)		(3,485)		(2,904)		(6,992)		Charge-offs	(25,084)		(320)		(28,694)		(1,183)
Reserve at end of period		$	27,438	$	13,989	$	27,438	$	13,989
Repurchase reserve at end of period										Repurchase reserve at end of period	$	38,301	$	27,901	$	38,301	$	27,901

Note 12 – Fair Value Measurements

The Company uses fair value measurements to record certain assets and liabilities at fair value on a recurring basis, such as MSRs, derivatives, MLHS and ~~mortgage~~Early buyout loans ~~held for sale.~~(“EBOs”). The Company has elected fair value accounting for loans held for sale and MSRs to more closely align the Company’s accounting with its interest rate risk strategies without having to apply the operational complexities of hedge accounting.

The Company ~~groups its~~uses a three-level fair value hierarchy that categorizes assets and liabilities measured at fair value ~~in three levels,~~ based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:


Level Input:						Input Definition:

Level 1						Unadjusted, quoted prices in active markets for identical assets or liabilities.

Level 2						Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Company. These may include quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk and others.

Level 3						Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity), unobservable inputs may be used. Unobservable inputs reflect the Company's own assumptions about the factors that market participants would use in pricing the asset or liability and are based on the best information available in the circumstances.

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

While the Company believes its valuation methods are appropriate and consistent with those used by other market participants, the use of different methods or assumptions to estimate the fair value of certain financial statement items could result in a different estimate of fair value at the reporting date. Those estimated values may differ significantly from the values that would have been used had a readily available market for such items existed, or had such items been liquidated, and those differences could be material to the ~~condensed consolidated~~ financial statements.

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Fair Value of Certain Assets and Liabilities

The following describes the methods used in estimating the fair values of certain ~~condensed consolidated financial statements items:~~assets and liabilities:

Mortgage ~~Loans Held~~loans held for ~~Sale:~~sale. The majority of the Company's ~~mortgage loans held for sale~~MLHS at fair value are saleable into the secondary mortgage markets and their fair values are estimated using observable quoted market or contracted prices or market price equivalents, which would be used by other market participants. These saleable loans are considered Level 2. A smaller portion of the Company's ~~mortgage loans held for sale~~MLHS consist of loans repurchased from the ~~GSEs~~Government-Sponsored Enterprises (“GSEs”) that have subsequently been deemed to be ~~non-saleable.~~non-saleable to GSEs and Ginnie Mae when certain representations and warranties are breached. These loans, however, are saleable to other entities and are classified on the consolidated balance sheets as Mortgage loans held for sale. These repurchased loans are considered Level 3.3 and are valued based on recent sales prices of similar loans.

~~Derivative Financial Instruments~~Interest rate lock commitments.: The Company estimates the fair value of ~~an IRLC~~IRLCs based on the value of the underlying mortgage loan, quoted MBS prices and estimates of the fair value of the MSRs and the probability that the mortgage loan will fund within the terms of the ~~IRLC. The Company estimates the fair value of forward sales commitments based on quoted MBS prices.~~interest rate lock commitment. The average pull-through rate for IRLCs was ~~87% for the nine months ended September~~81.0% and 86.1% as of June 30, ~~2021~~2022 and ~~73% for the year ended~~ December 31, ~~2020.~~2021, respectively. Given the significant and unobservable nature of the pull-through factor, IRLCs are classified as Level 3.

Forward sales and purchase commitments. The Company treats forward mortgage-backed securities purchase and sale commitments that have not settled as derivatives and recognizes them at fair value. These forward commitments will be fulfilled with loans not yet sold or securitized and new originations and purchases. The forward commitments allow the Company to reduce the risk related to market price volatility. ~~These derivatives are not designated as hedging instruments; therefore,~~The Company estimates the ~~Company reports the loss in~~ fair value ~~in Gain~~of forward commitments based on ~~loans, net in the unaudited condensed consolidated statements of operations.~~quoted MBS prices. These derivatives are classified as Level 2.

~~Table of Contents~~Interest rate swap futures contracts.

~~MSR-related derivatives represent a combination of derivatives used~~ The Company uses options on swap contracts to offset ~~possible adverse~~ changes in the fair value of ~~MSRs, which include options on swap contracts, interest rate swap contracts, and other instruments. These derivatives are not designated as hedging instruments, and~~MSRs. The Company estimates the ~~Company reports the loss in fair value in Change in~~ fair value of ~~mortgage servicing rights, net in the condensed consolidated statements of operations. The fair value of~~these MSR-related derivatives ~~is determined~~ using quoted prices for similar instruments. These derivatives are classified as Level 2.

Treasury futures purchase contracts. The Company uses Treasury futures contracts to offset changes in the fair value of MSRs. The Company estimates fair value of these MSR-related derivatives using quoted market prices. These derivatives are classified as Level 1.

Mortgage Servicing Rights: The Company uses a discounted cash flow approach to estimate the fair value of MSRs. This approach consists of projecting servicing cash flows discounted at a rate that management believes market participants would use in their determinations of value. The Company obtains valuations from an independent third party on a ~~monthly~~quarterly basis to support the reasonableness of the fair value estimate. ~~The key~~Key assumptions used in ~~the estimation of~~measuring the fair value of MSRs include, ~~prepayment speeds,~~but are not limited to, discount rates ~~default rates,~~and prepayment speeds. Other assumptions such as delinquencies, and cost to service ~~contractual servicing fees, and escrow earnings,~~are also considered resulting in a Level 3 classification.

The following presents the major categories of assets and liabilities measured at fair value on a recurring ~~basis (in thousands~~):basis:

September 30, 2021
Level 1 Level 2 Level 3 Total
Assets:
Mortgage loans held for sale $ — $ 6,660,384 $ 8,840 $ 6,669,224
Mortgage loans held for sale – EBO — — 10,972 10,972
Derivative assets (IRLCs) — — 38,315 38,315
Derivative assets (MBS forward trades) — 54,504 — 54,504
Derivative assets (MSRs) — 254 — 254
Mortgage servicing rights — — 1,402,140 1,402,140
Total assets $ — $ 6,715,142 $ 1,460,267 $ 8,175,409

Liabilities:
Derivative liabilities (MBS forward trades) $ — $ 6,068 $ — $ 6,068
Derivative liabilities (MSR) — 39,381 — 39,381
Total liabilities $ — $ 45,449 $ — $ 45,449

December 31, 2020
Level 1 Level 2 Level 3 Total
Assets:
Mortgage loans held for sale $ — $ 3,257,320 $ 3,800 $ 3,261,120
Mortgage loans held for sale – EBO — — 40,574 40,574
Derivative assets (IRLCs) — — 257,785 257,785
Derivative assets (MBS forward trades) — 2,994 — 2,994
Derivative assets (MSRs) — 15,254 — 15,254
Mortgage servicing rights — — 748,457 748,457
Total assets $ — $ 3,275,568 $ 1,050,616 $ 4,326,184
Liabilities:
Derivative liabilities (MBS forward trades) $ — $ 61,124 $ — $ 61,124
Total liabilities $ — $ 61,124 $ — $ 61,124


	June 30, 2022
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Assets:
Mortgage loans held for sale	$	—	$	2,004,714	$	13,926	$	2,018,640
Interest rate lock commitments	—		—		22,622		22,622
Forward sale contracts	—		13,718		—		13,718
Forward purchase contracts	—		77		—		77
Treasury futures purchase contracts	2,121		—		—		2,121
Mortgage servicing rights	—		—		1,419,105		1,419,105
Total	$	2,121	$	2,018,509	$	1,455,653	$	3,476,283
Liabilities:
Interest rate lock commitments	$	—	$	—	$	6,375	$	6,375
Forward sale contracts	—		14,434		—		14,434
Forward purchase contracts	—		3,741		—		3,741
Treasury futures purchase contracts	698		—		—		698
Total	$	698	$	18,175	$	6,375	$	25,248

1917

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	December 31, 2021
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Assets:
Mortgage loans held for sale	$	—	$	5,086,943	$	20,218	$	5,107,161
Interest rate lock commitments	—		—		29,887		29,887
Forward sale contracts	—		6,969		—		6,969
Forward purchase contracts	—		3,031		—		3,031
Interest rate swap futures contracts	—		111		—		111
Treasury futures purchase contracts	25,313		—		—		25,313
Mortgage servicing rights	—		—		1,525,103		1,525,103
Total	$	25,313	$	5,097,054	$	1,575,208	$	6,697,575
Liabilities:
Interest rate lock commitments	$	—	$	—	$	2,843	$	2,843��
Forward sale contracts	—		8,242		—		8,242
Forward purchase contracts	—		281		—		281
Interest rate swap futures contracts	—		5,662		—		5,662
Total	$	—	$	14,185	$	2,843	$	17,028

The following presents a reconciliation of Level 3 assets measured at fair value on a recurring ~~basis (~~basis:


	MSRs		IRLC		MLHS
	(dollars in thousands)
Balance at January 1, 2022	$	1,525,103	$	29,887	$	20,218
Purchases, sales, issuances, contributions, and settlements	(262,915)		—		(1,564)
Change in fair value	228,036		(17,746)		(52)
Transfers out(1)	—		—		(826)
Balance at March 31, 2022	$	1,490,224	$	12,141	$	17,776
Purchases, sales, issuances, contributions, and settlements	(110,125)		—		(1,147)
Change in fair value	39,006		10,481		(1,261)
Transfers out(1)	—		—		(1,442)
Balance at June 30, 2022	$	1,419,105	$	22,622	$	13,926

~~in thousands~~):

Three Months Ended September 30, 2021
MSRs IRLC MLHS EBO
Balance at beginning of period $ 1,267,253 $ 56,464 $ 9,344 $ 36,132
Purchases, sales, issuances, contributions and settlements 123,678 — (588) (24,261)
Change in fair value 11,209 (18,149) 84 (899)
Balance at end of period $ 1,402,140 $ 38,315 $ 8,840 $ 10,972
Nine Months Ended September 30, 2021
MSRs IRLC MLHS EBO
Balance at beginning of period $ 748,457 $ 257,785 $ 3,800 $ 40,573
Purchases, sales, issuances, contributions and settlements 706,185 — 5,480 (28,308)
Change in fair value (52,502) (219,470) (440) (1,293)
Balance at end of period $ 1,402,140 $ 38,315 $ 8,840 $ 10,972

Three Months Ended September 30, 2020
MSRs IRLC MLHS EBO
Balance at beginning of period $ 499,782 $ 201,873 $ 2,096 $ —
Purchases, Sales, Issuances, Contributions and Settlements 155,623 — 1,633 —
Change in fair value (72,142) 70,964 (516) —
Balance at end of period $ 583,263 $ 272,837 $ 3,213 $ —
Nine Months Ended September 30, 2020
MSRs IRLC MLHS EBO
Balance at beginning of period $ 575,035 $ 25,618 $ 1,159 $ 3,094
Purchases, Sales, Issuances, Contributions and Settlements 352,118 — 2,614 (3,094)
Change in fair value (343,890) 247,219 (560) 0
Balance at end of period $ 583,263 $ 272,837 $ 3,213 $ —


	MSRs		IRLC		MLHS
	(dollars in thousands)
Balance at January 1, 2021	$	748,457	$	257,785	$	44,374
Purchases, sales, issuances, contributions, and settlements	299,174		—		41
Change in fair value	108,726		(237,592)		(247)
Transfers out(1)	—		—		1,410
Balance at March 31, 2021	$	1,156,357	$	20,193	$	45,578
Purchases, sales, issuances, contributions, and settlements	283,333		—		415
Change in fair value	(172,437)		36,271		(517)
Transfers out(1)	—		—		—
Balance at June 30, 2021	$	1,267,253	$	56,464	$	45,476

(1)Transfers in (out) represents transfers between Levels 2 and 3, and reclassifications to Real estate owned (“REO”), foreclosure or claims.

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The following presents ~~an estimated~~the fair value and UPB of ~~mortgage loans held for sale~~MLHS that have contractual principal amounts and for which the Company has elected the fair value option. The fair value option was elected for mortgage loans held for sale as the Company believes fair value best reflects its expected future economic ~~performance (in thousands~~):performance:

Fair Value Principal
Amount Due
Upon Maturity
Difference(1)
Balance at September 30, 2021 $ 6,669,224 $ 6,529,999 $ 139,225
Balance at December 31, 2020 $ 3,261,121 $ 3,117,552 $ 143,569


	Fair Value		Principal Amount Due Upon Maturity		Difference(1)
	(dollars in thousands)
June 30, 2022	$	2,018,640	$	2,031,027	$	(12,387)
December 31, 2021	$	5,107,161	$	5,005,069	$	102,092

(1)Represents the amount of (losses) gains related to changes in fair value of items accounted for using the fair value option included in Gain on loans, net within the condensed consolidated statements of operations.

The Company ~~transferred in $5.2 million of assets to Level 3 during the nine months ended September 30, 2021 which consists of loans for which an active market currently does not exist. The Company~~ had no significant assets or liabilities measured at fair value on a nonrecurring basis ~~at September~~as of June 30, ~~2021~~2022 and December 31, ~~2020.~~2021, respectively.

The following is a summary of the key unobservable inputs used in the valuation of the Level 3 ~~assets as of September 30, 2021 and December 31, 2020:~~assets:

~~September~~June 30, ~~2021~~2022

~~Asset~~

Assets:

Key Input

Range

Weighted
Average

Mortgage servicing rights

Discount rate

~~8.6%~~7.7% - 12.2%

~~8.9%~~7.9%

Prepayment speeds

~~7.7%~~5.2% - ~~12.7%~~7.9%

~~12.7%~~6.4%

Interest rate lock commitments

Pull-through rate

~~51%~~44% - 100%

~~87%~~81.0%

Mortgage loans held for sale

Investor pricing

70.0% - 101.1%

83.2%

~~Table of Contents~~

December 31, ~~2020~~2021

~~Asset~~

Assets:

Key Input

Range

Weighted
Average

Mortgage servicing rights

Discount rate

~~9.0%~~8.6% - 12.2%

~~9.5%~~8.7%

Prepayment speeds

~~13.8%~~6.9% - ~~16.4%~~11.6%

~~14.4%~~8.3%

Interest rate lock commitments

Pull-through rate

~~16%~~49.8% - ~~100%~~100.0%

~~73%~~86.1%

Mortgage loans held for sale

Investor pricing

70.0% - 104.1%

91.3%

Fair Value of Other Financial Instruments: ~~As of September 30, 2021 and December 31, 2020, all~~All financial instruments were either recorded at fair value or the carrying value approximated fair ~~value.~~value as of June 30, 2022 and December 31, 2021. For financial instruments that were not recorded at fair value, such as cash and cash equivalents, restricted cash, servicing advances, warehouse and operating lines of credit, ~~and~~ accounts payable, and accrued expenses, their carrying values approximated fair value due to the short-term nature of such instruments. The Senior Notes had a carrying value of $500.0 million and $550.0 million and an estimated fair value of $345.4 million and $506.4 million as of June 30, 2022 and December 31, 2021, respectively. For ~~our~~the Company’s other long-term secured borrowings not recorded at fair value, the carrying value approximated fair value due to the ~~collateralization~~variable interest rate on the borrowings and the re-repricing of ~~such borrowings.~~collateral.

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Note 13 – ~~Stock Options~~Equity-based Compensation

~~The Company maintains its~~On January 21, 2021, the Company’s board of directors (the “Board”) approved the adoption of the Company’s 2021 Incentive Plan (“2021 Plan”) ~~with a~~and designated 6.9 million shares of the Company’s authorized common stock ~~that may be~~available for equity-based awards thereunder. The 2021 Plan allows for the assumption and substitution of outstanding options to purchase common units of HPLP granted asunder the Home Point Capital LP (“HPLP”) 2015 Option Plan (the “2015 Option Plan”), which was in place prior to the Company’s IPO. The expiration date of the 2021 Plan is the tenth (10th) anniversary of the effective date of the 2021 Plan, which is January 21, 2031. The 2021 Plan contains both time-vesting service criteria and performance based vesting terms, which are based on the achievement of specified performance criteria outlined in the underlying award agreement.

Prior to the consummation of the merger in connection with the IPO, the 2015 Option Plan governed awards of stock options to key persons conducting business for HPLP and ~~restricted~~its direct and indirect subsidiaries, including the Company. The 2015 Option Plan allowed awards in the form of options that are exercisable into common units of HPLP. In connection with the IPO, all outstanding options under the 2015 Option Plan were canceled and “substitute options” were granted under the 2021 Plan. The exercise price and number of shares of common stock of the substitute options result in the same (subject to rounding) intrinsic value as the outstanding options granted under the 2015 Option Plan.

Restricted Stock Units

Restricted stock units (“RSUs”) are awards ~~thereunder.~~that represent the potential to receive shares of the Company’s common stock at the end of the applicable vesting period, subject to the terms and conditions of the 2021 Plan and the applicable award documents. RSUs awarded under the 2021 Plan are fair valued based upon the fair market value of the Company’s common stock on the grant date. Any person who holds RSUs has no ownership interest in the shares of the Company’s common stock to which such RSUs relate until and unless shares of common stock are delivered to the holder. The RSUs will be credited with dividend equivalent payments, as provided in Section 13(c)(iii) of the 2021 Plan.

The following presents the summary of the Company’s RSU activity:


	Six Months Ended June 30, 2022
	Units	Weighted Average Grant Date Fair Value
Outstanding at beginning of period	367,991	$	10.18
Granted	233,550	3.85
Vested	(209,093)	10.75
Outstanding at end of period	392,448	$	6.12

The RSUs granted to the Company’s management team will vest in equal annual installments over a three-year period subject to the participants’ continued employment with the Company. The RSUs granted to the non-management members of the Company’s Board who are not affiliated with Stone Point Capital LLC vest at the next annual meeting of stockholders following the grant date. The Company recognized $0.6 million and $1.1 million of compensation expense related to RSUs within Compensation and benefits expense on the consolidated statement of operations for the three and six months ended June 30, 2022, respectively. The Company recognized $0.4 million and $0.6 million of compensation expense related to RSUs for the three and six months ended June 30, 2021, respectively.

Performance Stock Units

Performance stock units (“PSUs”) are fair valued on the date of grant and expensed over the service period using a straight-line method as the awards cliff vest at the end of a three-year performance period. The Company also estimates the number of shares expected to vest, which is based on management’s determination of the probable outcome of the Performance Condition (as defined below), which requires considerable judgment. The Company records a cumulative adjustment in periods in which the Company’s estimate of the number of shares expected to vest changes. Additionally, the Company ultimately adjusts the expense recognized to reflect the actual vested shares following the resolution of the Performance Condition. The PSUs will become earned based on the level of achievement of the Company’s average return on equity over a three-year performance period (the “Performance Condition”). The number of earned PSUs can range from 0% to 150% of the number of PSUs granted, depending on continued service with the Company and the extent to which the Performance Condition has been achieved at the end of the performance period. The PSUs will be credited with dividend equivalent payments, as provided in Section 13(c)(iii) of the 2021 Plan.

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The following table presents the summary of the Company’s PSU activity:


	Six Months Ended June 30, 2022
	Units	Weighted-Average Grant Date Fair Value
Outstanding at beginning of period	238,347	$	9.44
Granted	131,924	3.79
Outstanding at end of period	370,271	$	7.43

The Company did not recognize any compensation expense related to PSUs for the three and six months ended June 30, 2022 and 2021.

Stock Option Awards

The Company recognizes compensation expense associated with the stock option grants using the straight-line method over the requisite service period. The Company recognized ~~$1.7~~$0.8 million and ~~$0.1~~$2.1 million of compensation expense related to stock options for the three months ended September 30, 2021 and 2020, respectively, and $5.2 million and $0.5 million of compensation expense related to stock options for the nine months ended September 30, 2021 and 2020, respectively, within Compensation and benefits expense on the ~~unaudited~~ condensed consolidated statements of ~~operations.~~operations for the three and six months ended June 30, 2022, respectively, and $1.3 million and $2.9 million for the three and six months ended June 30, 2021, respectively. The unrecognized compensation expense related to outstanding and unvested stock options was ~~$10.3~~$65.3 million ~~for the three and nine months ended September~~as of June 30, ~~2021,~~2022, which is expected to vest and beget recognized over a weighted-average period of ~~2.5~~5.96 years. The number of options vested and exercisable was 2,265,344 and the weighted-average exercise price of the options exercisable was $3.85 as of June 30, 2022.

The following presents the ~~activity~~summary of the Company’s stock ~~options:~~option activity under the 2021 Plan:


		Number of Shares	Weighted Average Grant Date Fair Value			Six Months Ended June 30, 2022
Outstanding at December 31, 2020		—	$	—
						Number of Shares	Weighted Average Exercise Price		Weighted Average Contractual Life (Years)	Weighted Average Grant Date Fair Value
Outstanding at beginning of period					Outstanding at beginning of period	11,751,031	$	4.45	6.87	$	8.38
Granted	Granted	13,381,516	8.55		Granted	337,043	1.81		4.09	9.79
Exercised	Exercised	(1,039,594)	9.79		Exercised	(188,914)	1.86		3.26	9.81
Forfeited	Forfeited	(179,033)	9.82		Forfeited	(255,340)	1.86		1.17	9.72
Expired	Expired	(37,475)	$	9.79	Expired	(45,028)	1.74		—	9.45
Outstanding at September 30, 2021		12,125,414	$	8.43
Outstanding at end of period					Outstanding at end of period	11,598,792	$	4.48	6.18	$	8.35

The following presents athe summary of the Company’s non-vested ~~activity:~~activity under the 2021 Plan:


		Number of Shares	Weighted Average Grant Date Fair Value			Six Months Ended June 30, 2022
Non-vested at December 31, 2020		—	$	—
						Number of Shares	Weighted Average Grant Date Fair Value
Non-vested at beginning of period					Non-vested at beginning of period	9,627,033	$	8.19
Granted	Granted	13,381,516	8.55		Granted	337,043	9.79
Vested	Vested	(1,917,325)	9.19		Vested	(141,346)	8.77
Exercised	Exercised	(1,039,594)	9.79		Exercised	(188,914)	9.81
Forfeited	Forfeited	(179,033)	9.82		Forfeited	(255,340)	9.72
Expired	Expired	(37,475)	$	9.79	Expired	(45,028)	9.45
Non-vested at September 30, 2021		10,208,089	$	8.28
Non-vested at end of period					Non-vested at end of period	9,333,448	$	8.25

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The following presents assumptions used in the Black-Scholes option valuation model to determine the weighted-average fair value per stock option granted:


			June 30, 2022
Expected life (in years)			8.25
Risk-free interest rate			0 - 3.0%
Expected volatility			24.9%
Dividend yield			8.4%

The expected life of each stock option is estimated based on its vesting and contractual terms. The risk-free interest rate reflected the yield on zero-coupon Treasury securities with a term approximating the expected life of the stock options. The expected volatility was based on an analysis of the historical volatilities of peer companies, adjusted for certain characteristics specific to the Company. The Company applied an estimated forfeiture rate of 0%-10.4% as of June 30, 2022 and December 31, 2021.

Note 14 – Earnings Per Share

(Loss) earnings per share (“EPS”)is calculated and presented in the consolidated financial statements for both basic and diluted earnings per share. Basic EPS excludes all dilutive common stock equivalents and is calculated by dividing the net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted EPS, as calculated using the treasury stock method, reflects the potential dilution that would occur if the Company’s dilutive outstanding stock options and stock awards were issued and exercised.

The following presents the calculation of the basic and diluted (loss) earnings per share:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(dollars in thousands, except share and per share amounts )
Net (loss) income	$	(44,417)	$	(73,213)	$	(32,553)	$	75,756

Numerator:
Net (loss) income attributable to common shareholders	$	(44,417)	$	(73,213)	$	(32,553)	$	75,756
Net (loss) income attributable to Home Point - diluted	$	(44,417)	$	(73,213)	$	(32,553)	$	75,756

Denominator (in thousands):
Weighted average shares of common stock outstanding - basic	138,459		138,953		138,885		139,019
Dilutive effect of common stock equivalents	—		—		—		1,221
Weighted average shares of common stock outstanding - diluted	138,459		138,953		138,885		140,240

(Loss) earnings per share of common stock outstanding - basic	$	(0.32)	$	(0.53)	$	(0.23)	$	0.54
(Loss) earnings per share of common stock outstanding - diluted	$	(0.32)	$	(0.53)	$	(0.23)	$	0.54

As a result of the net loss from continuing operations for the three and six months ended June 30, 2022 and three months ended June 30, 2021, the effect of certain dilutive securities was excluded from the computation of weighted average diluted shares outstanding, as inclusion would have resulted in antidilution. Inclusion of these securities would not impact the disclosed EPS amounts.

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Note 1415 – Shareholders’ Equity and Equity Method Investment

Common Stock Repurchases

On February 24, 2022, the Company’s Board approved the repurchase of shares of the Company’s common stock, par value $0.0000000072 per share (the “Common Stock”), in an aggregate amount not to exceed $8.0 million, from time to time through and including December 31, 2022 (the “Stock Repurchase Program”). Repurchases under the Stock Repurchase Program may be made from time to time pursuant to one or more plans adopted under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The Company repurchased 718,106 and 1,179,796 shares of Common Stock at an aggregate price of $2.3 million and $3.8 million, including commissions and fees, through market purchase transactions under the Stock Repurchase Program during the three and six months ended June 30, 2022, respectively. Shares repurchased under the program have been subsequently retired.

Equity Method Investment

The Company holds an equity method investment in Longbridge Financial, LLC (“Longbridge”) through a 49.6% voting ownership interest, which is the only equity method investment held by the Company. The investment was initially recognized at cost and is adjusted for HPC’s share of Longbridge’s earnings or losses, contributions or distributions. HPC had a net investment of $50.7 million and $63.7 million in Longbridge as of June 30, 2022 and December 31, 2021, respectively. The Company entered into a definitive agreement in February of 2022 to sell its investment in Longbridge, subject to customary closing adjustments (the “Longbridge Transaction”). The Longbridge Transaction is subject to the satisfaction of closing conditions, including regulatory approvals and notices, which have not yet been satisfied. The Company’s investment in Longbridge is classified as Assets Held for Sale as of June 30, 2022 and December 31, 2021.

The following presents condensed financial information of Longbridge:


	June 30, 2022		December 31, 2021
	(dollars in thousands)
Total assets	$	7,547,293	$	6,727,807
Total liabilities	7,455,460		6,604,351


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(dollars in thousands)
Revenue	$	(73,766)	$	61,700	$	(131,507)	$	100,236
Net (loss) income	(24,014)		19,186		(34,665)		31,712
Net (loss) income attributable to the Company	(9,144)		13,198		(14,416)		17,361

Note 16 – Income Taxes

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Income before income taxes $ 99,277 $ 347,486 $ 180,580 $ 557,791
Total provision from income taxes 27,341 93,294 50,250 149,306
Effective tax provision rate 27.5% 26.8% 27.8% 26.8%

The Company’s effective income tax rate was ~~27.5%~~28.6% and ~~26.8%~~35.1% for the three and six months ended ~~September~~June 30, ~~2021 and 2020,~~2022, respectively and ~~27.8%~~23.9% and ~~26.8%~~28.2% for the ~~nine~~three and six months ended ~~September~~June 30, 2021, ~~and 2020,~~ respectively, compared to the statutory rate of ~~21%~~21.0%. The Company calculated the provision for income taxes by applying the estimated annual effective tax rate to year-to-date pre-tax income and adjusted for discrete items that occurred during the period. Several factors influence the effective tax rate, including the impact of equity ~~investments,~~investment, state taxes, and permanent disallowed deductions for tax such as officer's compensation limitations applicable to a public entity, equity-based compensation, and non-deductible transaction costs.

Note 1517 – Segments

Management has organized the Company into 2 reportable segments based primarily on its services as follows: (1) Origination and (2) Servicing. ~~The key factors used to identify these~~Each reportable ~~segments is how~~segment has discrete financial information evaluated regularly by the chief operating decision maker (“CODM”) ~~monitors~~in monitoring performance, ~~allocates~~allocating capital and ~~makes~~making strategic and operational decisions that ~~aligns~~align with the Company and ~~Company's~~its internal operations. The Origination segment consists of a combination of retail and third-party loan production options. The Servicing segment performs loan servicing for both newly originated loans the Company is holding for sale and loans the Company services for others.

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Origination

In the Origination segment, the Company originates ~~and sells~~ residential real estate mortgage loans in the ~~United States~~U.S. through ~~its~~the consumer direct third party originations, and prior to its sale, which was completed on June 1, 2022, the correspondent channel. The Company’s origination channels ~~that~~ offer a variety of loan programs that support the financial needs of the borrowers. In each of the channels, the Company’s primary source of revenue is the difference between the cost of originating or purchasing the loan and the price at which the loan is sold to investors as well as the fair value of originated MSRs and hedging gains and losses. Loan origination fees and interest income earned on loans held ~~pending~~for sale or securitization are also included in the ~~revenues~~revenue for this segment.

Servicing

In the Servicing segment, the Company generates revenue through contractual fees earned by performing daily administrative and management activities for mortgage loans. These activities include collecting loan payments, remitting payments to investors, sending monthly statements, managing escrow accounts, servicing delinquent loan work-outs, and managing and disposing of foreclosed properties. Servicing of the Company’s customers iswas primarily conducted ~~in-house.~~in-house as of June 30, 2022. In February 2022, the Company entered into an agreement with ServiceMac, LLC (“ServiceMac”), a wholly owned subsidiary of First American Financial Corporation, pursuant to which ServiceMac will subservice all mortgage loans underlying the Company’s MSRs. ServiceMac began subservicing loans for the Company in the second quarter of 2022.

Other Information About the Company’s Segments

The Company's CODM evaluates performance, makes operating decisions, and allocates resources based on the Company's contribution margin. Contribution margin is the Company’s measure of profitability for its 2 reportable segments. Contribution margin is defined as revenue from Gain on loans, net, Loan fee income, Loan servicing fees, Change in fair value of MSRs, Interest income, and Other income (which includes Income from equity method investment) adjusted for the change in fair value attributable to valuation assumptions of MSRs and less directly attributable expenses. ~~The accounting policies applied by the Company’s segments are the same as those described in~~ ~~Note 2 – Basis of Presentation and Significant Accounting Policies, and the decrease in MSRs due to valuation assumptions is consistent with the changes described in~~ ~~Note 4 - Mortgage Servicing Rights~~. Directly attributable expenses include salaries, commissions and associate benefits, general and administrative expenses, and other expenses, such as servicing ~~costs~~ and origination costs. Direct operating expenses ~~incurred in connection with~~driven by the activities of the segments are included in the respective segments.

The Company does not allocate assets to its reportable segments as they are not included in the review performed by the CODM for purposes of assessing segment performance and allocating resources. The balance sheet is managed on a consolidated basis and is not used in the context of segment reporting. ~~In addition,~~Additionally, the Company does not enter into transactions between its reportable segments.

The Company also reports an “All Other” category that includes unallocated corporate expenses, such as IT, finance, and human resources. These operations are neither significant individually or in aggregate and therefore do not constitute a reportable segment.

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The following ~~tables present~~presents the key operating data for our business ~~segments for the three and nine months ended September 30, 2021 and 2020 (in thousands~~). Starting with the three months ended March 31, 2021, the Company changed how contribution margin is calculated. Contribution margin is calculated as Total U.S. GAAP Revenue less directly attributable expenses. The Company previously calculated the contribution margin by excluding the Change in MSRs due to valuation assumptions, net of hedge. The updated calculation of the contribution margin presented herein aligns with how management and the CODM view the contribution margin for the Servicing segment. The Company commenced using such presentation for the three months ended March 31, 2021 and intends to use such presentation on a go-forward basis; previous periods have been revised to conform with this new calculation.segments:


		Three Months Ended September 30, 2021															Three Months Ended June 30, 2022
		Origination		Servicing		Segments Total		All Other		Total		Reconciliation Item(1)		Total Consolidated			Origination		Servicing		Segments Total		All Other		Total		Reconciling Item(1)		Total Consolidated
Revenue
																	(dollars in thousands)
Revenue:																Revenue:
Gain on loans, net	Gain on loans, net	$	145,302	$	173	$	145,475	$	(4)	$	145,471	$	—	$	145,471	Gain on loans, net	$	13,234	$	—	$	13,234	$	—	$	13,234	$	—	$	13,234
Loan fee income	Loan fee income	34,484		—		34,484		—		34,484		—		34,484		Loan fee income	15,255		—		15,255		—		15,255		—		15,255
Loan servicing fees	Loan servicing fees	28		91,803		91,831		—		91,831		—		91,831		Loan servicing fees	—		62,872		62,872		—		62,872		—		62,872
Change in FV of MSRs, net		—		3,544		3,544		—		3,544		—		3,544
Interest income (expense), net		4,035		623		4,658		(13,471)		(8,813)		—		(8,813)
Other income (loss)		—		7,476		7,476		(105)		7,371		713		8,084
Total U.S. GAAP Revenue		183,849		103,619		287,468		(13,580)		273,888		713		274,601
Contribution margin		$	67,325	$	86,179	$	153,504	$	(54,940)	$	98,564	$	—	$	—

		Three Months Ended September 30, 2020
		Origination		Servicing		Segments Total		All Other		Total		Reconciliation Item(1)		Total Consolidated
Revenue
Gain on loans, net		$	503,344	$	—	$	503,344	$	—	$	503,344	$	—	$	503,344
Loan fee income		28,205		—		28,205		—		28,205		—		28,205
Loan servicing fees		236		48,114		48,350		—		48,350		—		48,350
Change in FV of MSRs, net		—		(66,749)		(66,749)		—		(66,749)		—		(66,749)
Change in fair value of mortgage servicing rights																Change in fair value of mortgage servicing rights	—		(29,887)		(29,887)		—		(29,887)		—		(29,887)
Interest income (expense), net	Interest income (expense), net	318		598		916		(3,766)		(2,850)		—		(2,850)		Interest income (expense), net	8,641		1,429		10,070		(11,457)		(1,387)		—		(1,387)
Other income	Other income	—		89		89		10,279		10,368		(9,870)		498		Other income	55		—		55		722		777		9,144		9,921
Total U.S. GAAP Revenue		532,103		(17,948)		514,155		6,513		520,668		(9,870)		510,798
Total																Total	$	37,185	$	34,414	$	71,599	$	(10,735)	$	60,864	$	9,144	$	70,008
Contribution margin	Contribution margin	$	424,026	$	(31,885)	$	392,141	$	(34,785)	$	357,356	$	—	$	—	Contribution margin	$	(29,857)	$	20,023	$	(9,834)	$	(48,704)	$	(58,538)	0		0

		Nine Months Ended September 30, 2021
		Origination		Servicing		Segments Total		All Other		Total		Reconciliation Item(1)		Total Consolidated
Revenue
Gain on loans, net		$	521,534	$	190	$	521,724	$	3	$	521,727	$	—	$	521,727
Loan fee income		118,099		—		118,099		—		118,099		—		118,099
Loan servicing fees		20		247,733		247,753		—		247,753		—		247,753
Change in FV of MSRs, net		—		(90,513)		(90,513)		—		(90,513)		—		(90,513)
Interest income (expense), net		8,021		1,291		9,312		(34,971)		(25,659)		—		(25,659)
Other income		—		7,653		7,653		18,533		26,186		(16,649)		9,537
Total U.S. GAAP Revenue		647,674		166,354		814,028		(16,435)		797,593		$	(16,649)	$	780,944
Contribution margin		$	233,811	$	111,424	$	345,388	$	(148,006)	$	197,229	$	—	$	—


	Six Months Ended June 30, 2022
	Origination		Servicing		Segments Total		All Other		Total		Reconciling Item(1)		Total Consolidated
	(dollars in thousands)
Revenue:
Gain on loans, net	$	58,638	$	—	$	58,638	0		$	58,638	0		$	58,638
Loan fee income	35,159		—		35,159		0		35,159		0		35,159
Loan servicing fees	—		143,936		143,936		0		143,936		0		143,936
Change in fair value of mortgage servicing rights	—		(12,704)		(12,704)		0		(12,704)		0		(12,704)
Interest income (expense), net	16,097		2,135		18,232		(25,637)		(7,405)		0		(7,405)
Other income (expense)	55		—		55		(3,916)		(3,861)		14,416		10,555
Total	$	109,949	$	133,367	$	243,316	$	(29,553)	$	213,763	$	14,416	$	228,179
Contribution margin	$	(38,247)	$	103,257	$	65,010	$	(107,361)	$	(42,351)	0		0

(1)The Company includes the ~~income~~(income) loss from its equity method investment in the All Other segment. Therefore, it must be removed to reconcile to Total revenue, net on the condensed consolidated statements of operations.


	Three Months Ended June 30, 2021
	Origination		Servicing		Segments Total		All Other		Total		Reconciling Item(1)		Total Consolidated
	(dollars in thousands)
Revenue:
Gain on loans, net	$	75,011	$	18	$	75,029	$	—	$	75,029	$	—	$	75,029
Loan fee income	39,500		—		39,500		—		39,500		—		39,500
Loan servicing fees	—		85,584		85,584		—		85,584		—		85,584
Change in fair value of mortgage servicing rights	—		(106,905)		(106,905)		—		(106,905)		—		(106,905)
Interest income (expense), net	2,698		416		3,114		(12,602)		(9,488)		—		(9,488)
Other income	—		48		48		13,802		13,850		(13,198)		652
Total	$	117,209	$	(20,839)	$	96,370	$	1,200	$	97,570	$	(13,198)	$	84,372
Contribution margin	$	(20,850)	$	(39,596)	$	(60,446)	$	(39,975)	$	(100,421)	0		0

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	Six Months Ended June 30, 2021
	Origination		Servicing		Segments Total		All Other		Total		Reconciling Item(1)		Total Consolidated
	(dollars in thousands)
Revenue:
Gain on loans, net	$	376,239	$	18	$	376,257	$	—	$	376,257	$	—	$	376,257
Loan fee income	83,615		—		83,615		—		83,615		—		83,615
Loan servicing fees	—		155,922		155,922		—		155,922		—		155,922
Change in fair value of mortgage servicing rights	—		(94,057)		(94,057)		—		(94,057)		—		(94,057)
Interest income (expense), net	3,986		668		4,654		(21,500)		(16,846)		—		(16,846)
Other income	—		176		176		18,638		18,814		(17,361)		1,453
Total	$	463,840	$	62,727	$	526,567	$	(2,862)	$	523,705	$	(17,361)	$	506,344
Contribution margin	$	166,412	$	25,248	$	191,660	$	(92,996)	$	98,664	0		0

(1)The Company includes the (income) loss from its equity method investments in the All Other ~~category.~~segment. In order to reconcile to Total revenue, net ~~revenue~~ on the condensed consolidated statements of operations, it must be removed as is presented above.

~~Table of Contents~~

Nine Months Ended September 30, 2020
Origination Servicing Segments
Total All Other Total
Reconciliation
Item(1)
Total
Consolidated
Revenue
Gain on loans, net $ 962,778 $ — $ 962,778 $ — $ 962,778 $ — $ 962,778
Loan fee income 60,630 — 60,630 — 60,630 — 60,630
Loan servicing fees (1,982) 135,886 133,904 — 133,904 — 133,904
Change in FV of MSRs, net — (230,524) (230,524) — (230,524) — (230,524)
Interest income (expense), net 1,804 7,132 8,936 (14,411) (5,475) — (5,475)
Other income — 205 205 15,983 16,188 (14,050) 2,138
Total U.S. GAAP Revenue 1,023,230 (87,301) 935,929 1,572 937,501 (14,050) 923,451
Contribution margin $ 790,538 $ (129,965) $ 660,573 $ (88,732) $ 571,841 $ — $ —

~~(1)~~The Company includes the income from its equity method investments in the All Other segment. In order to reconcile to Total net revenue on the condensed consolidated statements of operations, it must be removed as is presented above.

The following ~~table~~ presents a reconciliation of contribution margin to consolidated U.S. GAAP ~~Income (loss)~~Loss (income) before income ~~tax (in thousands~~):tax:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Income before income tax		$	99,277	$	347,486	$	180,580	$	557,791
											(dollars in thousands)
(Loss) income before income tax										(Loss) income before income tax	$	(49,394)	$	(113,620)	$	(27,935)	$	81,303
(Loss) income from equity method investment	(Loss) income from equity method investment	(713)		9,870		16,649		14,050		(Loss) income from equity method investment	(9,144)		13,198		(14,416)		17,361
Contribution margin	Contribution margin	$	98,564	$	357,356	$	197,229	$	571,841	Contribution margin	$	(58,538)	$	(100,422)	$	(42,351)	$	98,664

Note 1618 – Related Parties

The Company ~~has~~ entered into transactions and agreements to purchase various services and products from certain affiliates of our sponsor, Stone Point Capital LLC. The services ~~range from~~include valuation ~~services~~ of ~~mortgage servicing rights, mortgage related services,~~MSRs, insurance brokerage services, ~~and~~ loan review and tax payment services for certain loan originations. The Company ~~incurred expenses of $6.0~~recorded $4.7 million and ~~$0.3 million, in the three months ended September 30, 2021 and 2020, respectively, and $16.1 million and $0.7~~$20.8 million for the ~~nine~~three and six months ended ~~September~~June 30, ~~2021~~2022, respectively,and$3.8 million and ~~2020,~~$10.1 million for the three and six months ended June 30, 2021, respectively, for products, services, and other transactions ~~which are included~~ in Loan expense, Loan servicing expense, Production technology, General and administrative and Other expenses in the ~~unaudited~~condensed consolidated statements of operations.

Note 19 – Sale of The Correspondent Channel

On June 1, 2022 (the “Closing Date”), HPF completed the previously announced sale of certain assets of HPF’s delegated Correspondent channel to Planet Home Lending, LLC (“Planet”). The sale of the correspondent channel reduces the Company’s expenses and enables reallocation of resources to our Wholesale channel.

The purchase price for such assets was $2.5 million in cash, plus an earnout payment based on certain of Planet’s correspondent origination volume during the two-year period commencing on the Closing Date. The Company records the earnout payment when the consideration is determined to be realizable. The sale resulted in a $0.4 million loss in Other expenses in the condensed consolidated statements of operations.

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Note 1720 – Subsequent Events

~~The Company has evaluated all subsequent events through the date these condensed consolidated financial statements were issued.~~Credit Suisse Warehouse Facility Amendment

~~Dividend Payment~~

On ~~November 4, 2021,~~ August 8, 2022, the Company ~~announced that its board~~amended $1.2 billion warehouse facility with Credit Suisse. The amendment reduced the capacity of ~~directors declared a dividend of $0.04 per share for the third quarter of 2021~~this warehouse facility to ~~stockholders of record at the close of business on November 15, 2021, payable on or about November 30, 2021.~~$300 million.

~~Gestation Agreement~~HPMAC

On ~~November 2, 2021, HPF~~August 9, 2022, HPC entered into a ~~Mortgage Loan Participation Sale Agreement (the “Gestation Agreement”)~~definitive agreement with ~~JPMorgan Chase Bank, National Association, as purchaser (“Purchaser”). Subject~~MS Investorco, LLC to ~~compliance with~~sell its equity interests in HPAM for the ~~terms and conditions~~estimated tangible book value of the ~~Gestation Agreement, including~~Acquired Companies (as defined below) plus an immaterial cash amount (the “HPAM Transaction”). HPAM is the ~~affirmative and negative covenants contained therein, the Gestation Agreement permits Purchaser to purchase from HPF from time to time during the term~~owner of 100% of the ~~Gestation Agreement participation certificates evidencing a 100% undivided beneficial ownership interest~~outstanding and issued shares of capital stock in ~~designated pools~~HPMAC (each of ~~fully amortizing first lien residential mortgage loans that are intended~~HPAM and HPMAC, an “Acquired Company”, and collectively the “Acquired Companies”). The HPAM Transaction is expected to ~~ultimately be included in residential mortgage-backed securities (the “Agency MBS”) issued or guaranteed, as applicable, by Fannie Mae, Freddie Mac, and Ginnie Mae.~~

The aggregate purchase price of participation certificates owned by Purchaser at any given time for which Purchaser has not been paid the purchase price for the related Agency MBS by the applicable takeout investor as specifiedclose in the ~~applicable takeout commitment cannot exceed $1.5 billion. Unless terminated earlier in accordance with its terms, the Gestation Agreement expires on November 2, 2022.~~second half of 2022, subject to customary closing conditions, including regulatory approvals and notices.

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The Gestation Agreement and certain ancillary agreements thereto contain various financial and non-financial covenants, including, among other covenants, financial covenants relating to the maintenance of tangible net worth, liquidity, and a ratio of total indebtedness to tangible net worth. HPF is also generally required to maintain its status as an approved issuer by Ginnie Mae, an approved lender by Fannie Mae, and an approved seller/servicer by Freddie Mac.

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

The following discussion and analysis supplements our management’s discussion and analysis for the year ended December 31, ~~2020~~2021 as contained in our ~~2020~~2021 Annual Report, and presumes that readers have read or have access to such discussion and analysis. The following discussion and analysis should also be read together with the ~~unaudited~~ condensed consolidated financial statements and the related notes thereto included elsewhere in this Report. This discussion contains forward-looking statements that reflect our plans and strategy for our business, and involve risks and uncertainties. You should review the “Risk Factors” section of our ~~2020~~2021 Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read “Cautionary Note on Forward-Looking Statements” in this ~~Report.~~Report .

Data as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September 30, 2020,~~2021, have been derived from our ~~unaudited~~ condensed consolidated financial statements included elsewhere in this Report.

Overview

We are a leading residential mortgage originator and servicer ~~with~~driven by a mission to create financially healthy, happy homeowners. We do this by delivering scale, efficiency and savings to our partners and customers. Our business model is focused on growing originations through highly leverageable partner networks supported by at-scale operations, and managing the customer experience through our in-house servicing operation and proprietary Home Ownership Platform. We partner withleveraging a nationwide network of ~~more than 7,400~~partner relationships to drive sustainable origination growth. We support our origination operations through a robust operational infrastructure and a highly responsive customer experience. We then leverage our servicing platform to manage the customer experience. We believe that the complementary relationship between our origination and servicing businesses allows us to provide a best-in-class experience to our customers throughout their homeownership lifecycle.

Our primary focus is our Wholesale channel, which is a business-to-business-to-customer distribution model in which we utilize our relationships with 8,744 partnering independent mortgage brokerages or(“Broker Partners”) to reach our end-borrower customers. In the second quarter of 2022, we had 3,573 active broker partners. Through our Wholesale channel, we propel the success of our Broker Partners ~~and provide in market~~through a combination of full service, localized sales coverage, and an efficient ~~and scaled~~ loan fulfillment process ~~through~~supported by our fully integrated technology platform. ~~We also source customers~~On June 1, 2022, the Company completed the previously announced sale of the Correspondent channel, through ~~nearly 650~~which we purchased closed and funded mortgages from a trusted network of 670 correspondent sellers or(“Correspondent Partners”). For additional information refer to Note 19 – Sale of The Correspondent Channel. In our ~~Correspondent Partners.~~Direct channel, we originate residential mortgages primarily for existing servicing customers who are seeking new financing options.

WeWhile we initiate our customer relationships at the time the mortgage is originated, we maintain ongoing connectivity with our approximately ~~430,000~~320 thousand servicing customers, ~~through~~with the ultimate objective of securing them as a Customer for Life. In February 2022, we announced an agreement with ServiceMac, pursuant to which ServiceMac will subservice all mortgage loans underlying MSRs we hold. ServiceMac began subservicing newly originated agency loans for us in the second quarter of 2022. The balance of the agency portfolio and all of the Ginnie Mae portfolio will transition to ServiceMac in the third quarter of 2022. ServiceMac will perform servicing functions on the Company’s behalf, but we will continue to hold the MSRs. We expect that our relationship with ServiceMac will allow us to maintain a leaner cost structure with a greater variable component and will provide greater flexibility when strategically selling certain non-core MSRs. The number of our servicing ~~platform.~~portfolio customers was 320 thousand and 426 thousand, while the unpaid principal balance (“UPB”) was $92.2 billion and $133.9 billion as of June 30, 2022 and December 31, 2021, respectively.

According to Inside Mortgage Finance, we are the third largest wholesale lender by origination volume for the year ended December 31, 2021.

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021 Summary

We generated $70.0 million of total revenue, net for the three months ended June 30, 2022 compared to $84.4 million of total revenue, net for the three months ended June 30, 2021. We had $44.4 million of net loss for the three months ended June 30, 2022 compared to $73.2 million of net loss for the three months ended June 30, 2021. We generated $57.4 million of Adjusted revenue for the three months ended June 30, 2022 compared to $126.8 million for the three months ended June 30, 2021. We had $46.9 million of Adjusted net loss for the three months ended June 30, 2022 compared to $51.0 million Adjusted net loss for the three months ended June 30, 2021. Refer to “Non-GAAP Financial Measures” for further information regarding our use of Adjusted revenue and Adjusted net income, including limitations related to such non-GAAP measures and a reconciliation of such measures to net income, the nearest comparable financial measure calculated and presented in accordance with U.S. GAAP.

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We originated $9.3 billion of mortgage loans for the three months ended June 30, 2022 compared to $25.5 billion for the three months ended June 30, 2021, representing a decrease of $16.2 billion or 63.5%. Our MSR Servicing isPortfolio was $90.5 billion as of June 30, 2022 compared to $124.3 billion as of June 30, 2021. Year-over-year decreases were due to rising interest rates and increased competition in the industry. Our gain on sale margins decreased 16 basis points for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Additionally, according to the Mortgage Bankers Association Mortgage Finance Forecast, average 30-year mortgage rates increased by approximately 210 basis points from June 30, 2021 to June 30, 2022. An increase of this nature generally results in our Origination volume declining as refinance opportunities decrease, which also increases competition, resulting in lower gain on sale margins. However, when rates increase, we experience lower prepayment speeds and a ~~strategic cornerstone~~subsequent upward adjustment to the fair value of our ~~business and central~~MSRs for the loans that still exist in our portfolio.

Six Months Ended June 30, 2022 Compared to ~~our strategy. Retaining our servicing and managing~~Six Months Ended June 30, 2021 Summary

We generated $228.2 million of total revenue, net for the ~~servicing platform in-house gives us~~six months ended June 30, 2022 compared to $506.3 million of total revenue, net for the ~~opportunity~~six months ended June 30, 2021. We had $32.6 million of net loss for the six months ended June 30, 2022 compared to ~~establish a deeper relationship with~~$75.8 million of net income for the six months ended June 30, 2021. We generated $144.1 million of Adjusted revenue for the six months ended June 30, 2022 compared to $450.9 million for the six months ended June 30, 2021. We had $77.8 million of Adjusted net loss for the six months ended June 30, 2022 compared to $23.4 million Adjusted net income for the six months ended June 30, 2021. Refer to “Non-GAAP Financial Measures” for further information regarding our ~~customers that personalizes the experience for borrowers through the~~ use of Adjusted revenue and Adjusted net income, including limitations related to such non-GAAP measures and a reconciliation of such measures to net income, the nearest comparable financial measure calculated and presented in accordance with U.S. GAAP.

We originated $21.8 billion of mortgage loans for the six months ended June 30, 2022 compared to $54.9 billion for the six months ended June 30, 2021, representing a decrease of $33.1 billion or 60.2%. As noted above, our ~~Home Ownership Platform’s customized dashboards~~MSR Servicing Portfolio was $90.5 billion as of June 30, 2022 compared to $124.3 billion as of June 30, 2021. Year-over-year decreases were due to rising interest rates and increased competition in the industry. Our gain on sale margins also decreased 50 basis points for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Additionally, as noted above, average 30-year mortgage rates increased by approximately 210 basis points from June 30, 2021 to June 30, 2022. As noted above, an increase of this nature generally results in lower Origination volume and lower gain on sale margins. However, the higher rates result in an upward adjustment to the fair value of our MSRs for the loans that deliver critical information about borrowers’ accounts such as payment deadlines, forbearance status and escrow distributions and customized offerings through other third-party financial products such as insurance policies and home equity loans.still exist in our portfolio.

Segments

Our operations are organized into two separate reportable segments: Origination and Servicing.

In our Origination segment, we source loans through three distinct production channels: Direct, Wholesale and Correspondent. The Direct channel provides the Company’s existing servicing customers with various financing options. At the same time, it supports the servicing assets in the ecosystem by retaining existing servicing customers who may otherwise refinance their existing mortgage loans with a competitor. The Wholesale channel consists of mortgages originated through ~~our~~a nationwide network of 8,744 Broker Partners. The Correspondent channel consists of closed and funded mortgages that we purchase from a trusted network of Correspondent Partners. Once a loan is locked, it becomes channel agnostic. As discussed in Note 19 – Sale of The Correspondent Channel above, on June 1, 2022, the Company completed the previously announced sale of the Correspondent channel. The channels in our Origination segment function in unison through the following activities: hedging, funding, and production. Our Origination segment generated contribution margin of $(29.9) million and $(38.2) million for the three and six months ended June 30, 2022, respectively and $(20.9) million and $166.4 million for the three and six months ended June 30, 2021, respectively.

Our Servicing segment consists ~~primarily~~ of servicing loans that were produced in our Originations segment where the Company retained the servicing rights. Servicing consists of collecting loan payments, remitting principal and interest payments to investors, managing escrow funds for the payment of mortgage-related expenses, such as taxes and insurance, performing loss mitigation activities on behalf of investors and otherwise administering our mortgage loan servicing portfolio in compliance with state and federal regulations. We also strategically buy and sell ~~servicing rights.~~

~~Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020 Summary~~

~~For the three months ended September 30, 2021, we originated $20.8 billion~~MSRs. Our Servicing segment generated Contribution margins of ~~mortgage loans compared to $18.1 billion for the three months ended September 30, 2020, representing an increase of $2.7 billion or 15%. We generated $274.6~~$20.0 million ~~of revenue for the three months ended September 30, 2021 compared to $510.8~~and $103.3 million for the three and six months ended ~~September~~June 30, ~~2020. We generated $71.2~~2022, respectively and $(39.6) million ~~of net income for the three months ended September 30, 2021 compared to a net income of $264.1~~and $25.2 million for the three and six months ended ~~September 30, 2020. We generated $196.4 million of Adjusted revenue for the three months ended September~~June 30, 2021, respectively.

We believe that maintaining both an Origination segment and a Servicing segment provides us with a more balanced business model in both rising and declining interest rate environments, as compared to ~~$532.5 million for the three months ended September 30, 2020. We generated $15.1 million~~other industry participants that predominantly focus on either origination or servicing, instead of ~~Adjusted net income for the three months ended September 30, 2021 compared to $272.7 million of Adjusted net income for the three months ended September 30, 2020. Refer to “Non-GAAP Financial Measures~~” for further information regarding our use of Adjusted revenue and Adjusted net income, including limitations related to such non-GAAP measures and a reconciliation of such measures to net income, the nearest comparable financial measure calculated and presented in accordance with U.S. GAAP.both.

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The above-described decreases in revenue, net income, Adjusted revenue and Adjusted net income were primarily due to the decrease in Gain on loans, net of $357.9 million which was driven by a decrease in margins as a result of the competitive environment for the three months ended September 30, 2021. Gain on sale margins decreased by 202 basis points or 71% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The decline in margins was partially offset by an increase in fallout adjusted locks of $3.3 billion for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to an increase in our overall share of the origination market between the two periods. The decrease in Gain on loans, net was partially offset by an increase in loan servicing fees of $43.5 million due to a larger average servicing portfolio and a favorable Change in fair value of MSR of $70.3 million for the three months ended September 30, 2021 compared to three months ended September 30, 2020.

~~Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020 Summary~~

For the nine months ended September 30, 2021, we originated $75.7 billion of mortgage loans compared to $38.0 billion for the nine months ended September 30, 2020, representing an increase of $37.6 billion or 99%. We generated $780.9 million of revenue for the nine months ended September 30, 2021 compared to $923.5 million for the nine months ended September 30, 2020. We generated $147.0 million of net income for the nine months ended September 30, 2021 compared to a net income of $422.5 million for the nine months ended September 30, 2020. We generated $647.3 million of Adjusted revenue for the nine months ended September 30, 2021 compared to $1.0 billion for the nine months ended September 30, 2020. We generated $38.5 million of Adjusted net income for the nine months ended September 30, 2021 compared to $494.5 million for the nine months ended September 30, 2020. Refer to “~~Non-GAAP Financial Measures~~” for further information regarding our use of Adjusted Revenue and Adjusted net income, including limitations related to such non-GAAP measures and a reconciliation of such measures to net income (loss), the nearest comparable financial measure calculated and presented in accordance with U.S. GAAP.

The above-described decreases in net income, Adjusted revenue and Adjusted net income were primarily due to the decrease in Gain on loans, net of $441.1 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Gain on sale margins decreased by 142 basis points or 59% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The decrease in Gain on loans, net was driven by decreases in our margins as a result of the competitive environment for the nine months ended September 30, 2021. The decline in margins was partially offset by an increase in fallout adjusted locks of $23.2 billion for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to an increase in our overall share of the origination market between the two periods. The decrease in Gain on loans, net was partially offset by an increase in loan servicing fees of $113.8 million due to a larger servicing portfolio and a favorable Change in fair value of MSR of $140.0 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Key Factors Affecting Results of Operations for Periods Presented

Residential Real Estate Market Conditions

Our Origination volume is impacted by broader residential real estate market conditions and the general economy. Housing affordability, availability and general economic conditions influence the demand for our products. Housing affordability and availability are impacted by mortgage interest rates, availability of funds to finance purchases, availability of alternative investment products and the relative relationship of supply and demand. General economic conditions are impacted by unemployment rates, changes in real wages, inflation, consumer confidence, seasonality and the overall economic environment. Recent market conditions, such as ~~low~~rising interest rates, high inflation and ~~limited supply of housing, have led to~~ home price appreciation ~~and~~due to limited housing supply, have led to a decrease in the affordability ~~index.~~index and negatively impacted Origination volume. These trends are partially offset by the effects of strong employment market with continuing wage growth.

Changes in Interest Rates

Origination volume is impacted by changes in interest rates. Decreasing interest rates tend to increase the volume of purchase loan origination and refinancing whereas increasing interest rates tend to decrease the volume of purchase loan origination and refinancing.

Changes in interest rates ~~also~~ impact the value of ~~IRLCs~~interest rate lock commitments and loans held for sale. ~~IRLCs~~Interest rate lock commitments represent an agreement to extend credit to a customer whereby the interest rate is set prior to the loan funding. These commitments bind us to fund the loan at a specified rate. When loans are funded, they are classified as held for sale until they are sold. During the origination and sale process, the value of ~~IRLCs~~interest rate lock commitments and loans held for sale inventory ~~rises and falls~~fluctuates with changes in interest rates; for example, if we enter into ~~IRLCs~~interest rate lock commitments at low interest rates followed by an increase in interest rates in the market, the ~~values~~value of our ~~IRLCs~~interest rate lock commitment will decrease.

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The fair value of MSRs is also driven primarily by interest rates, which impact the likelihood of loan prepayments. In periods of rising interest rates, the fair value of the MSRs generally increases as prepayments decrease, and therefore the estimated life of the MSRs and related expected cash flows increase. In a declining interest rate environment, the fair value of MSRs generally decreases as prepayments increase and therefore the estimated life of the MSRs, and related cash flows, decrease.

WeEarly 2021 had a falling interest rate environment. In the second half of 2021, interest rates started to rise, which continued into the first half of 2022. Because origination volumes tend to increase in declining interest rate environments and decrease in increasing rate environments, we believe that our two principal sources of revenue, mortgage origination and mortgage loan servicing, ~~contribute to a stable business profile by creating~~create a natural hedge against changes in the interest rate environment. Additionally, to mitigate the interest rate risk impact, we employ economic hedging strategies. Our economic hedging strategies allow us to protect our investment and help us manage our liquidity through forward delivery commitments on mortgage-backed securities or whole loans and options on forward contracts.

Key Performance Indicators

We review several operating metrics, including the following key performance indicators to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. We believe these key metrics are useful to investors both because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making, and they may be used by investors to help analyze the health of our business.

Our origination metrics enable us to monitor our ability to generate revenue and expand our market share across different channels. In addition, they help us track origination quality and compare our performance against the nationwide originations market and our competitors. We monitor both Origination volume, which represents funded volume, and Fallout Adjusted (“FOA”) lock volume which represents pull through adjusted volume expected from locks taken during the period at the inception of the lock. We also view gain on sale margins by channel which helps us to view the margin drivers that are attributable to the specific channels and those that are attributable to capital markets activities. Other key performance indicators include the number of Broker Partners, ~~and~~prior to the sale of our Correspondent channel, number of Correspondent Partners, which enable us to monitor key inputs of our business model. As noted above, on June 1, 2022, the Company completed the previously announced sale of the Correspondent channel. For additional information refer to Note 19 – Sale of The Correspondent Channel. Our servicing metrics enable us to monitor the size of our customer base, the characteristics and value of our MSR Servicing Portfolio, and help drive retention efforts.

~~Origination Segment KPIs~~

~~The following summarizes key performance indicators for our business for the three and nine months ended September 30, 2021 and 2020:~~

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Three Months Ended September 30, Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Origination Volume by Channel
Wholesale $ 16,355,449 $ 10,981,395 $ 54,405,648 $ 23,772,112
Correspondent 3,434,186 6,280,039 17,375,985 12,696,815
Direct 1,005,985 852,433 3,910,769 1,576,959
Origination volume $ 20,795,621 $ 18,113,867 $ 75,692,402 $ 38,045,886
FOA Lock Volume by Channel
Wholesale $ 16,709,845 $ 11,242,589 $ 48,415,960 $ 26,375,827
Correspondent 4,149,963 6,547,672 14,785,605 14,469,776
Direct 1,034,634 799,514 2,610,410 1,725,915
FOA Lock Volume $ 21,894,442 $ 18,589,775 $ 65,811,975 $ 42,571,518
Three Months Ended September 30,
2021 2020
Gain on Sale Margin by Channel
Amount bps Amount bps
Wholesale $ 121,999 73 $ 359,512 320
Correspondent 8,351 20 40,431 62
Direct 30,252 292 33,564 420
Gain on sale margin attributable to channels
160,602 73 433,507 233
Other gain on sale(a)
23,247 11 98,596 53
Gain on sale margin (b)
$ 183,849 84 $ 532,103 286
Origination Segment KPIs

Nine Months Ended September 30,
2021 2020
Gain on Sale Margin by Channel
Amount bps Amount bps
Wholesale $ 481,535 99 $ 742,217 281
Correspondent 39,784 27 112,006 77
Direct 83,332 319 74,086 429
Gain on sale margin attributable to channels
604,651 91 928,309 218
Other gain on sale(a)
43,023 7 94,921 22
Gain on sale margin (b)
$ 647,674 98 $ 1,023,230 240
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Market Share
Overall share of origination market(c)
2.2 % 1.4 % 2.2 % 1.4 %
Share of wholesale channel(d)
10.2 % 6.4 % 10.2 % 6.4 %
Origination Volume by Purpose
Purchase 34.6 % 29.0 % 29.3 % 31.7 %
Refinance 65.4 % 71.0 % 70.7 % 68.3 %
Third Party Partners
Number of Broker Partners(e)
7,452 4,921 7,452 4,921
Number of Correspondent Partners(f)
652 587 652 587
The following presents key performance indicators for our business:

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	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
	(dollars in thousands)
Origination Volume by Channel
Wholesale	$	7,382,358		$	18,380,041		$	16,700,059		$	38,048,305
Correspondent	1,731,820			5,695,078			4,465,121			13,938,458
Direct	177,689			1,390,698			681,760			2,904,985
Origination volume	$	9,291,867		$	25,465,817		$	21,846,940		$	54,891,748

Fallout Adjusted (“FOA”) Lock Volume by Channel
Wholesale	$	7,483,278		$	15,566,192		$	17,046,986		$	31,706,115
Correspondent	1,269,053			3,962,583			3,879,896			10,635,642
Direct	125,874			835,980			540,444			1,575,776
FOA Lock Volume	$	8,878,205		$	20,364,755		$	21,467,326		$	43,917,533

Gain on sale margin by Channel
Wholesale	$	47,654		$	114,486		$	110,240		$	359,536
Correspondent	2,002			9,270			5,452			31,432
Direct	3,214			26,322			13,911			53,080
Gain on sale margin attributable to channels	52,870			150,078			129,603			444,048
Other (loss) gain on sale(a)	(15,685)			(32,869)			(19,653)			19,791
Total gain on sale margin(b)	$	37,185		$	117,209		$	109,950		$	463,839

Gain on sale margin by Channel (bps)
Wholesale	64			74			65			113
Correspondent	16			23			14			29
Direct	256			315			257			334
Gain on sale margin attributable to channels	60			74			60			101
Other (loss) gain on sale(a)	(18)			(16)			(9)			—
Total gain on sale margin(b)	42			58			51			101

Origination Volume by Purpose
Purchase	71.3		%	35.2		%	55.9		%	20.4		%
Refinance	28.7		%	64.8		%	44.1		%	79.6		%


	June 30,
	2022		2021
Market Share
Overall share of origination market(c)	1.7	%	2.2	%
Share of wholesale channel(d)	8.3	%	10.2	%

Third Party Partners
Number of Broker Partners(e)	8,744		6,738
Number of Correspondent Partners(f)	670		642

(a)Includes loan fee income, interest income (expense), net, realized and unrealized gains (losses) on locks and mortgage loans held for sale, net hedging results, the provision for the representation and warranty reserve and differences between modeled and actual pull-through.

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(b)Gain on sale margin calculated as gain on sale divided by Fallout Adjusted Lock volume. Gain on sale includes gain on loans, net, loan fee income, interest income (expense), net, and loan servicing fees (expense) for the Origination segment.

(c)Overall share of origination market share data for June 30, 2022 is as of ~~June 30, 2021~~March 31, 2022 obtained from Inside Mortgage Finance, a third party provider of residential mortgage industry news and statistics. The data as of ~~September~~June 30, ~~2021~~2022 is not yet available from Inside Mortgage Finance as of the date of this filing.

(d)Share of wholesale channel for June 30, 2022 is as of ~~June 30, 2021~~March 31, 2022 obtained from Inside Mortgage Finance, a third party provider of residential mortgage industry news and statistics. The data as of ~~September~~June 30, ~~2021~~2022 is not yet available from Inside Mortgage Finance as of the date of this filing.

(e)Number of Broker Partners with whom the Company sources loans.

(f)Number of Correspondent Partners from whom the Company ~~purchases loans.~~

purchased loans prior to the completion of the previously announced sale of the Correspondent channel on June 1, 2022.

Servicing Segment KPIs

The following ~~summarizes~~presents key performance indicators for our ~~business as of September 30, 2021 and 2020:~~business:


		As of September 30,							June 30,
($ in thousands)		2021			2020
									2022			2021
									(dollars in thousands)
Mortgage Servicing	Mortgage Servicing							Mortgage Servicing
MSR Servicing Portfolio - UPB(a)	MSR Servicing Portfolio - UPB(a)	$	125,832,286		$	73,951,042		MSR Servicing Portfolio - UPB(a)	$	90,516,421		$	124,258,935
MSR Servicing Portfolio - Units(b)	MSR Servicing Portfolio - Units(b)	428,622			307,236			MSR Servicing Portfolio - Units(b)	320,215			449,029

60 days or more delinquent(c)	60 days or more delinquent(c)	0.9		%	6.6		%	60 days or more delinquent(c)	0.9		%	1.6		%

MSR Portfolio	MSR Portfolio							MSR Portfolio
MSR multiple(d)	MSR multiple(d)	4.20			2.57			MSR multiple(d)	5.83			3.69
Weighted Average Note Rate (e)	Weighted Average Note Rate (e)	2.98		%	3.63		%	Weighted Average Note Rate (e)	3.18		%	3.09		%

(a)The unpaid principal balance of loans we service on behalf of Ginnie Mae, Fannie Mae, Freddie Mae and others, at period end.

(b)Number of loans in our capitalized servicing portfolio at period end.

(c)Total balances of outstanding loan principals for which installment payments are at least 60 days past due as a percentage of the outstanding loan principal as of a specified date. ~~Includes delinquent loans in COVID-19 pandemic-related forbearance plans provided in the CARES Act.~~

(d)Calculated as the MSR fair market value as of a specified date divided by the related UPB divided by the weighted average service fee.

(e)Weighted average interest rate of our MSR portfolio at period end.

Non-GAAP Financial Measures

We believe that certain non-GAAP financial measures presented ~~herein,~~in this Report, including Adjusted revenue and Adjusted net income ~~can~~ provide useful information to investors and others in understanding and evaluating our operating results. These measures are not financial measures calculated in accordance with U.S. GAAP and should not be considered as a substitute for net income, or any other operating performance measure calculated in accordance with U.S. GAAP and may not be comparable to a similarly titled measure reported by other companies.

We believe that the presentation of Adjusted revenue and Adjusted net income provides 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. Adjusted revenue and Adjusted net income provide indicators of performance that are not affected by fluctuations in certain costs or other items. Accordingly, management believes that these measurements are useful for comparing general operating performance from period to period, and management relies on these measures for planning and forecasting of future periods. The Company measures the performance of the segments primarily on a contribution margin basis. Additionally, these measures allow management to compare our results with those of other companies that have different financing and capital structures. However, other companies may define Adjusted revenue and Adjusted net income differently, and as a result, our measures of Adjusted revenue and Adjusted net income may not be directly comparable to those of other companies.

Adjusted ~~revenue~~revenue. . We define Adjusted revenue as Total net revenue ~~net~~ exclusive of the impact of the change in fair value of MSRs related to changes in valuation inputs and assumptions, net of MSRs hedge, and adjusted for Income from equity method investment.

Adjusted net ~~income~~income.. We define Adjusted net income as Net income exclusive of the impact of the change in fair value of MSRs related to changes in valuation inputs and assumptions, net of MSRs economic hedging results.

~~Table of Contents~~

The non-GAAP information presented below should be read in conjunction with the Company’s ~~unaudited condensed~~ consolidated financial statements and the related notes.

Table of Contents

The following ispresents a reconciliation of Adjusted revenue and Adjusted net (loss) income to the nearest U.S. GAAP financial measures of Total revenue, net and Net (loss) income, as applicable:

Reconciliation of Adjusted Revenue to Total Revenue, Net


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands)		2021		2020		2021		2020
											2022		2021		2022		2021
											(dollars in thousands)
Total revenue, net	Total revenue, net	$	274,601	$	510,798	$	780,944	$	923,451	Total revenue, net	$	70,008	$	84,372	$	228,179	$	506,344
(Loss) income from equity method investment	(Loss) income from equity method investment	(713)		9,870		16,649		14,050		(Loss) income from equity method investment	(9,144)		13,198		(14,416)		17,361
Change in fair value of MSR (due to inputs and assumptions), net of hedge(a)	Change in fair value of MSR (due to inputs and assumptions), net of hedge(a)	(77,486)		11,816		(150,323)		98,302		Change in fair value of MSR (due to inputs and assumptions), net of hedge(a)	(3,502)		29,181		(69,635)		(72,837)
Adjusted revenue	Adjusted revenue	$	196,402	$	532,484	$	647,270	$	1,035,803	Adjusted revenue	$	57,362	$	126,751	$	144,128	$	450,868

Reconciliation of Adjusted Net (Loss) Income to Total Net (Loss) Income

Three Months Ended September 30, Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Total net income $ 71,223 $ 264,062 $ 146,979 $ 422,535
Change in fair value of MSR (due to inputs and assumptions), net of hedge(a)
(77,486) 11,816 (150,323) 98,302
Income tax effect of change in fair value of MSR (due to inputs and assumptions), net of hedge(b)
21,340 (3,172) 41,830 (26,313)
Adjusted net income $ 15,077 $ 272,706 $ 38,486 $ 494,524


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(dollars in thousands)
Net (loss) income	$	(44,417)	$	(73,213)	$	(32,553)	$	75,756
Change in fair value of MSR (due to inputs and assumptions), net of hedge(a)	(3,502)		29,181		(69,635)		(72,837)
Income tax effect of change in fair value of MSR (due to inputs and assumptions), net of hedge(b)	1,001		(6,988)		24,424		20,523
Adjusted net (loss) income	$	(46,918)	$	(51,020)	$	(77,764)	$	23,442

(a)MSR fair value changes due to valuation inputs and assumptions are measured using a stochastic discounted cash flow model that includes assumptions such as prepayment speeds, delinquencies, discount rates, and effects of changes in market interest rates. Refer to ~~Note 2 – Basis of Presentation and Significant Accounting Policies~~ ~~and~~ Note 4 – Mortgage Servicing Rights to our ~~unaudited~~ condensed consolidated financial statements included elsewhere in this Report. We exclude changes in fair value of MSRs (due to inputs and assumptions), net of hedge from Adjusted revenue as they add volatility and we believe that they are not indicative of the Company’s operating performance or results of operations. This adjustment does not include changes in fair value of MSRs due to realization of cash flows. Realization of cash flows occurs when cash is collected as customers make scheduled payments, partial prepayments of principal, or pay their mortgage in full. The adjustment includes the loss on MSR sales since it is not indicative of the Company’s results of operations.

(b)The income tax effect of change in fair value of MSR (due to inputs and assumptions), net of hedge is calculated as the MSR valuation change, net of hedge multiplied by the quotient of Income tax expense (benefit) divided by Income (loss) before income tax.

Results of Operations ~~—Three~~– Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021

Consolidated Results of Operations

The following ~~table sets forth~~presents certain consolidated financial ~~data for each of the periods indicated:~~data:

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		Three Months Ended September 30,									Three Months Ended June 30,
($ in thousands)		2021		2020		$ Change		% Change
											2022		2021		$ Change		% Change
											(dollars in thousands)
Revenue:										Revenue:
Gain on loans, net	Gain on loans, net	$	145,471	$	503,344	$	(357,873)	(71.1	%)	Gain on loans, net	$	13,234	$	75,029	$	(61,795)	(82.4	%)
Loan fee income	Loan fee income	34,484		28,205		6,279		22.3	%	Loan fee income	15,255		39,500		(24,245)		(61.4	%)

Interest income	Interest income	36,719		14,709		22,010		149.6	%	Interest income	27,533		34,648		(7,115)		(20.5	%)
Interest expense	Interest expense	(45,532)		(17,559)		(27,973)		159.3	%	Interest expense	(28,920)		(44,136)		15,216		(34.5	%)
Interest expense, net	Interest expense, net	(8,813)		(2,850)		(5,963)		209.2	%	Interest expense, net	(1,387)		(9,488)		8,101		(85.4	%)
Loan servicing fees	Loan servicing fees	91,831		48,350		43,481		89.9	%	Loan servicing fees	62,872		85,584		(22,712)		(26.5	%)
Change in fair value of mortgage servicing rights, net		3,544		(66,749)		70,293		(105.3	%)
Change in fair value of mortgage servicing rights										Change in fair value of mortgage servicing rights	(29,887)		(106,905)		77,018		(72.0	%)
Other income	Other income	8,084		498		7,586		1523.3	%	Other income	9,921		652		9,269		1421.6	%
Total revenue, net	Total revenue, net	274,601		510,798		(236,197)		(46.2	%)	Total revenue, net	70,008		84,372		(14,364)		(17.0	%)

Expenses:										Expenses:
Compensation and benefits	Compensation and benefits	114,612		117,177		(2,565)		(2.2	%)	Compensation and benefits	75,601		127,296		(51,695)		(40.6	%)
Loan expense	Loan expense	16,618		8,733		7,885		90.3	%	Loan expense	6,969		17,483		(10,514)		(60.1	%)
Loan servicing expense	Loan servicing expense	6,681		6,481		200		3.1	%	Loan servicing expense	7,121		7,507		(386)		(5.1	%)
Production Technology		7,583		6,378		1,205		18.9	%
Production technology										Production technology	4,343		8,170		(3,827)		(46.8	%)
General and administrative	General and administrative	21,741		16,213		5,528		34.1	%	General and administrative	16,969		26,549		(9,580)		(36.1	%)
Depreciation and amortization	Depreciation and amortization	2,440		1,236		1,204		97.4	%	Depreciation and amortization	2,627		2,350		277		11.8	%
Other expenses	Other expenses	5,649		7,094		(1,445)		(20.4	%)	Other expenses	5,772		8,637		(2,865)		(33.2	%)
Total expenses	Total expenses	175,324		163,312		12,012		7.4	%	Total expenses	119,402		197,992		(78,590)		(39.7	%)

Income before income tax		99,277		347,486		(248,209)		(71.4	%)
Income tax expense		27,341		93,294		(65,953)		(70.7	%)
Loss before income tax										Loss before income tax	(49,394)		(113,620)		64,226		(56.5	%)
Income tax benefit										Income tax benefit	14,121		27,209		(13,088)		(48.1	%)
(Loss) income from equity method investment	(Loss) income from equity method investment	(713)		9,870		(10,583)		(107.2	%)	(Loss) income from equity method investment	(9,144)		13,198		(22,342)		(169.3	%)
Total net income		$	71,223	$	264,062	(192,839)		(73.0	%)

		Nine Months Ended September 30,
($ in thousands)		2021		2020		$ Change		% Change
Gain on loans, net		$	521,727	$	962,778	$	(441,051)	(45.8	%)
Loan fee income		118,099		60,630		57,469		94.8	%
Interest income		96,944		42,370		54,574		128.8	%
Interest expense		(122,603)		(47,845)		(74,758)		156.3	%
Interest expense, net		(25,659)		(5,475)		(20,184)		(368.7	%)
Loan servicing fees		247,753		133,904		113,849		85.0	%
Change in fair value of mortgage servicing rights, net		(90,513)		(230,524)		140,011		(60.7	%)
Other income		9,537		2,138		7,399		346.1	%
Total revenue, net		780,944		923,451		(142,507)		(15.4	%)

Compensation and benefits		395,550		251,462		144,088		57.3	%
Loan expense		51,796		21,686		30,110		138.8	%
Loan servicing expense		22,282		22,742		(460)		(2.0	%)
Production Technology		25,038		14,540		10,498		72.2	%
General and administrative		74,527		38,981		35,546		91.2	%
Depreciation and amortization		7,551		4,162		3,389		81.4	%
Other expenses		23,620		12,087		11,533		95.4	%
Total expenses		600,364		365,660		234,704		64.2	%

Income before income tax		180,580		557,791		(377,211)		67.6	%
Income tax expense		50,250		149,306		(99,056)		66.3	%
Income from equity method investment		16,649		14,050		2,599		18.5	%
Total net income		$	146,979	$	422,535	(275,556)		65.2	%
Net (loss) income										Net (loss) income	$	(44,417)	$	(73,213)	$	54,972	(75.1	%)

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	Six Months Ended June 30,
	2022		2021		$ Change		% Change
	(dollars in thousands)
Revenue:
Gain on loans, net	$	58,638	$	376,257	$	(317,619)	(84.4	%)
Loan fee income	35,159		83,615		(48,456)		(58.0	%)

Interest income	54,610		60,225		(5,615)		(9.3	%)
Interest expense	(62,015)		(77,071)		15,056		(19.5	%)
Interest expense, net	(7,405)		(16,846)		9,441		(56.0	%)
Loan servicing fees	143,936		155,922		(11,986)		(7.7	%)
Change in fair value of mortgage servicing rights	(12,704)		(94,057)		81,353		(86.5	%)
Other income	10,555		1,453		9,102		626.4	%
Total revenue, net	228,179		506,344		(278,165)		(54.9	%)
Expenses:
Compensation and benefits	165,033		280,938		(115,905)		(41.3	%)
Loan expense	15,984		35,178		(19,194)		(54.6	%)
Loan servicing expense	12,867		15,600		(2,733)		(17.5	%)
Production technology	9,208		17,455		(8,247)		(47.2	%)
General and administrative	36,640		52,786		(16,146)		(30.6	%)
Depreciation and amortization	5,314		5,111		203		4.0	%
Other expenses	11,068		17,973		(6,905)		(38.4	%)
Total expenses	256,114		425,041		(168,927)		(39.7	%)
(Loss) income before income tax	(27,935)		81,303		(109,238)		(134.4	%)
Income tax benefit (expense)	9,798		(22,908)		32,706		(142.8	%)
(Loss) income from equity method investment	(14,416)		17,361		(31,777)		(183.0	%)
Net (loss) income	$	(32,553)	$	75,756	$	(173,721)	(229.3	%)

Consolidated results are further analyzed in our segment disclosure below.

Table of Contents

Origination Segment

The ~~decrease in Net income~~following presents certain financial data for the ~~three and nine months ended September 30, 2021 was primarily the result~~Origination segment:


	Three Months Ended June 30,
	2022		2021		$ Change		% Change
	(dollars in thousands)
Revenue:
Gain on loans, net	$	13,234	$	75,011	$	(61,777)	(82.4)	%
Loan fee income	15,255		39,500		(24,245)		(61.4)	%

Interest income	26,104		33,903		(7,799)		(23.0)	%
Interest expense	(17,463)		(31,205)		13,742		(44.0)	%
Interest income, net	8,641		2,698		5,943		220.3	%
Other income	55		—		55		N/A
Total origination revenue, net	37,185		117,209		(80,024)		(68.3)	%
Expenses:
Compensation and benefits	48,094		98,806		(50,712)		(51.3)	%
Loan expense	6,969		17,277		(10,308)		(59.7)	%
Loan servicing expense	—		20		(20)		(100.0)	%
Production technology	3,893		7,613		(3,720)		(48.9)	%
General and administrative	6,849		12,053		(5,204)		(43.2)	%
Other expenses	1,237		2,290		(1,053)		(46.0)	%
Total origination expenses	67,042		138,059		(71,017)		(51.4)	%
Origination net loss	$	(29,857)	$	(20,850)	$	(9,007)	43.2	%


	Six Months Ended June 30,
	2022		2021		$ Change		% Change
	(dollars in thousands)
Revenue:
Gain on loans, net	$	58,638	$	376,239	$	(317,601)	(84.4)	%
Loan fee income	35,159		83,615		(48,456)		(58.0)	%

Interest income	52,475		58,894		(6,419)		(10.9)	%
Interest expense	(36,378)		(54,908)		18,530		(33.7)	%
Interest income, net	16,097		3,986		12,111		303.8	%
Other income	55		—		55		N/A
Total origination revenue, net	109,949		463,840		(353,891)		(76.3)	%
Expenses:
Compensation and benefits	106,489		219,384		(112,895)		(51.5)	%
Loan expense	15,984		34,672		(18,688)		(53.9)	%
Loan servicing expense	—		319		(319)		(100.0)	%
Production technology	8,000		16,511		(8,511)		(51.5)	%
General and administrative	15,136		21,901		(6,765)		(30.9)	%
Other expenses	2,587		4,641		(2,054)		(44.3)	%
Total origination expenses	148,196		297,428		(149,232)		(50.2)	%
Origination net (loss) income	$	(38,247)	$	166,412	$	(204,659)	(123.0)	%

Table of a decrease in Gain on loans, net due to decreased margins as a result of the competitive environment during the three and nine months ended September 30, 2021. The decrease in Total net income was partially offset by a favorable Change in fair value of mortgage servicing rights due to the increase in mortgage interest rates. The decrease in Total net income was also partially offset by an increase in Loan servicing fees due to an increase in our mortgage servicing portfolio. Total expenses increased slightly for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 due to an increase in Loan expense as a result of increased loan origination volume and a slight increase in General and administrative expense due to an increase in marketing expenses for advertising and professional services expense.Contents

~~Total~~Origination Revenue, net

Gain on loans, net

The following presents components of Gain on loans, ~~net is driven by volume (FOA locks), our gain on sale margin within each channel of our Origination segment, and other for each of the periods presented:~~net:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands)		2021		2020		2021		2020
											2022		2021		2022		2021
											(dollars in thousands)
FOA Lock Volume by Channel	FOA Lock Volume by Channel									FOA Lock Volume by Channel
Wholesale	Wholesale	$	16,709,845	$	11,242,589	$	48,415,960	$	26,375,827	Wholesale	$	7,483,278	$	15,566,192	$	17,046,986	$	31,706,115
Correspondent	Correspondent	4,149,963		6,547,672		14,785,605		14,469,776		Correspondent	1,269,053		3,962,583		3,879,896		10,635,642
Direct	Direct	1,034,634		799,514		2,610,410		1,725,915		Direct	125,874		835,980		540,444		1,575,776
FOA Lock Volume	FOA Lock Volume	$	21,894,442	$	18,589,775	$	65,811,975	$	42,571,518	FOA Lock Volume	$	8,878,205	$	20,364,755	$	21,467,326	$	43,917,533

		Three Months Ended September 30,
		2021				2020
Gain on Sale Margin by Channel		Amount		bps		Amount		bps
Gain on sale margin by Channel										Gain on sale margin by Channel
Wholesale	Wholesale	$	121,999	73		$	359,512	320		Wholesale	$	47,654	$	114,486	$	110,240	$	359,536
Correspondent	Correspondent	8,351		20		40,431		62		Correspondent	2,002		9,270		5,452		31,432
Direct	Direct	30,252		292		33,564		420		Direct	3,214		26,322		13,911		53,080
Gain on sale margin attributable to channels	Gain on sale margin attributable to channels	160,602		73		433,507		233		Gain on sale margin attributable to channels	52,870		150,078		129,603		444,048
Other gain on sale(a)		23,247		11		98,596		53
Gain on sale margin (b)		$	183,849	84		$	532,103	286
Other (loss) gain on sale(a)										Other (loss) gain on sale(a)	(15,685)		(32,869)		(19,653)		19,791
Total gain on sale margin(b)										Total gain on sale margin(b)	$	37,185	$	117,209	$	109,950	$	463,839

		Nine Months Ended September 30,
		2021				2020
Gain on Sale Margin by Channel		Amount		bps		Amount		bps
Gain on sale margin by Channel (bps)										Gain on sale margin by Channel (bps)
Wholesale	Wholesale	$	481,535	99		$	742,217	281		Wholesale	64		74		65		113
Correspondent	Correspondent	39,784		27		112,006		77		Correspondent	16		23		14		29
Direct	Direct	83,332		319		74,086		429		Direct	256		315		257		334
Gain on sale margin attributable to channels	Gain on sale margin attributable to channels	604,651		91		928,309		218		Gain on sale margin attributable to channels	60		74		60		101
Other gain on sale(a)		43,023		7		94,921		22
Gain on sale margin (b)		$	647,674	98		$	1,023,230	240
Other (loss) gain on sale(a)										Other (loss) gain on sale(a)	(18)		(16)		(9)		—
Total gain on sale margin(b)										Total gain on sale margin(b)	42		58		51		101

(a)Includes loan fee income, interest income (expense), net, realized and unrealized gains (losses) on ~~FOA~~ locks and mortgage loans held for sale, net hedging results, the provision for the representation and warranty reserve, and differences between modeled and actual pull-through.

~~Table of Contents~~

~~In addition, the table below provides~~The following presents details of the characteristics of our mortgage loan ~~production~~production:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(dollars in thousands)
Origination volume	$	9,291,867	$	25,465,817	$	21,846,940	$	54,891,748
Originated MSR UPB	9,730,325		26,284,323		23,793,090		54,306,349
Gain on sale margin (a)	0.42%		0.58%		0.51%		1.01%
Retained servicing (UPB)(b)	97.3%		95.8%		97.3%		97.1%

(a) Includes loan fee income, interest income (expense), net, realized and unrealized gains (losses) on locks and mortgage loans held for ~~each of~~sale, net hedging results, the ~~periods presented:~~provision for the representation and warranty reserve and differences between modeled and actual pull-through.

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Origination volume $ 20,795,621 $ 18,113,867 $ 75,692,401 $ 38,045,886
Originated MSR - UPB $ 27,946,562 $ 17,749,342 $ 82,252,911 $ 37,066,235
Retained servicing (UPB)(a)
95.1% 100.0% 96.7% 99.4%

~~(a)~~(b) Represents the percentage of our loan sales UPBs for which we retained the underlying servicing UPB during the period.

~~For~~Gain on loans, net decreased by $61.8 million, or 82.4% and $317.6 million, or 84.4% for the three and six months ended ~~September~~June 30, ~~2021~~2022 compared to the three and six months ended ~~September~~June 30, ~~2020, the~~2021, respectively. The decrease ~~in Gain on loans, net~~ was primarily due to ~~a decrease~~decreases of ~~$348.3~~$80.0 million and $353.9 million or ~~65%~~68.3% and 76.3% in gain on sale ~~margin.~~margin for the respective periods.

~~For the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, the decrease in Gain on loans, net was primarily due to~~

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We experienced a decrease ~~of $375.6 million, or 37% in gain on sale margin.~~

~~Although we experienced increases~~ in FOA lock volume and Origination volume across all of our origination channels primarily due to ~~an increase in our overall share of the origination market, which increased to 2.2% from 1.4% and our share of the wholesale channel which increased to 10.2% from 6.4%,~~rising interest rates. Additionally, we saw a significant decrease in gain on sale margins due to the competitive environment during the three and six months ended ~~September~~June 30, ~~2021~~2022 compared to the prior ~~year,~~year. As mortgage interest rates rise, the origination market contracts, primarily due to a decline in refinance volume, which ~~also negatively impacted~~generally leads to increased competition and lower gain on sale margins. Our origination market share decreased from 2.2% to 1.7% and our ~~results for~~share of the ~~nine months ended September 30, 2021~~wholesale channel decreased from 10.2% to 8.3% compared to the ~~nine months ended September 30, 2020.~~prior year.

Loan fee income

Loan fee income decreased by $24.2 million and $48.5 million, or 61.4% and 58.0%, for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021. The decrease was consistent with the decrease in Origination volume.

Interest expense, net

Interest income, net increased by $5.9 million and $12.1 million for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021. The increase in ~~Loan fee~~interest income, net was driven by a decrease in warehouse borrowing and related fees due to the decrease in origination volume. Interest income decreased $7.9 million and $6.9 million for the respective three and six months periods due to lower loans held for sale balance partially offset by the impact of the rising interest rates.

Expenses

Total expenses decreased by $71.0 million and $149.2 million, or 51.4% and 50.2%, for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021. The decrease was primarily driven by ~~an increase~~decreases in ~~Origination volume discussed above.~~compensation and benefits expense, loan expense, production technology expense, and general and administrative expenses.

~~Loan servicing fees~~

Three Months Ended September 30, Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Retained servicing fees, net of guarantee fees $ 84,271 $ 49,387 $ 229,369 $ 135,813
Late fees and other 7,560 (1,037) 18,384 (1,909)
Loan servicing fees $ 91,831 $ 48,350 $ 247,753 $ 133,904

~~The table below provides details of the characteristics of our mortgage loan servicing portfolio for each of the periods presented:~~

As of September 30,
($ in thousands) 2021 2020
MSR Servicing Portfolio - UPB $ 125,832,286 $ 73,951,042
Average MSR Servicing Portfolio - UPB for the three months ended $ 125,045,611 $ 70,426,343
Average MSR Servicing Portfolio - UPB for the nine months ended $ 107,054,768 $ 63,275,794
MSR Servicing Portfolio – units 428,622 307,236
MSRs Fair Value Multiple (x) 4.2x 2.6x
Delinquency Rates (%) 0.9% 6.6%
Weighted average credit score 742 734
Weighted average servicing fee, net (bps) 26.5 30.7

~~The increase in loan servicing fees~~Compensation and benefits expense decreased by $50.7 million and $112.9 million, or 51.3% and 51.5%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021. The decrease in the respective three and six months periods was primarily driven by ~~an increase~~a decrease of $27.9 million and $54.7 million in salary and benefits due to a decrease in employee headcount and a $22.9 million and $58.5 million decrease in variable compensation resulting from the ~~Average MSR Servicing Portfolio~~decrease in Origination volume and the sale of ~~$54.6 billion, or a 78% increase~~the Correspondent channel. Compensation and benefits expense was 0.5% of Origination volume for the three and six months ended ~~September~~June 30, ~~2021~~2022 and 0.5% and 0.4% for the three and six months ended June 30, 2021.

Loan expense decreased by $10.3 million and $18.7 million, or 59.7% and 53.9%, for the three and six months ended June 30, 2022 compared to the three and six months ended ~~September~~June 30, ~~2020,~~2021. The decrease was consistent with the decrease in Origination volume.

Production technology expense decreased by $3.7 million and ~~$43.8 billion,~~$8.5 million, or ~~a 69.2% increase~~48.9% and 51.5%, for the ~~nine~~three and six months ended ~~September~~June 30, ~~2021~~2022 compared to the ~~nine~~three and six months ended ~~September~~June 30, ~~2020.~~2021. The ~~increases~~decrease was primarily driven bylower variable expenses associated with the Company’s origination systems as a result of the decline in origination volume, combined with the ~~Average MSR Servicing Portfolio during~~investment the Company made in improving and upgrading the Company’s origination technologies in 2021.

General and administrative expenses decreased $5.2 million and $6.8 million, or 43.2% and 30.9%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the three and six months ended June 30, 2021. The decrease was primarily driven by decrease in outsourced loan review services due to ~~an increase~~the decline in ~~Origination~~origination volume, ~~which increased Retained~~ as well as lower expenses as a result of cost-saving initiatives implemented in the second half of 2021 and continuing during the first half of 2022.

Servicing ~~fees, net of guarantee fees.~~Segment

The following presents certain financial data for the Servicing segment:

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	Three Months Ended June 30,
	2022			2021		$ Change		% Change
	(dollars in thousands)
Revenue:
Gain on loans, net	$	—		$	18	$	(18)	(100.0)	%
Loan servicing fees	62,872			85,584		(22,712)		(26.5)	%
Change in fair value of mortgage servicing rights	(29,887)			(106,905)		77,018		(72.0)	%

Interest income	1,429			746		683		91.6	%
Interest expense	—		—	(330)		330		(100.0)	%
Interest income, net	1,429			416		1,013		243.5	%
Other income	—			48		(48)		(100.0)	%
Total servicing revenue, net	34,414			(20,839)		55,253		(265.1)	%
Expenses:
Compensation and benefits	5,201			7,580		(2,379)		(31.4)	%
Loan expense	—			206		(206)		(100.0)	%
Loan servicing expense	7,121			7,487		(366)		(4.9)	%
Production technology	450			556		(106)		(19.1)	%
General and administrative	1,597			2,986		(1,389)		(46.5)	%
Other expenses	22			(58)		80		(137.9)	%
Total servicing expenses	14,391			18,757		(4,366)		(23.3)	%
Servicing net income	$	20,023		$	(39,596)	$	59,619	(150.6)	%


	Six Months Ended June 30,
	2022		2021		$ Change		% Change
	(dollars in thousands)
Revenue:
Gain on loans, net	$	—	$	18	$	(18)	(100.0)	%
Loan servicing fees	143,936		155,922		(11,986)		(7.7)	%
Change in fair value of mortgage servicing rights	(12,704)		(94,057)		81,353		(86.5)	%

Interest income	2,135		1,332		803		60.3	%
Interest expense	—		(664)		664		(100.0)	%
Interest income, net	2,135		668		1,467		219.6	%
Other income	—		176		(176)		(100.0)	%
Total servicing revenue, net	133,367		62,727		70,640		112.6	%
Expenses:
Compensation and benefits	12,885		15,160		(2,275)		(15.0)	%
Loan expense	—		506		(506)		(100.0)	%
Loan servicing expense	12,867		15,281		(2,414)		(15.8)	%
Production technology	1,206		944		262		27.8	%
General and administrative	3,084		5,348		(2,264)		(42.3)	%
Other expenses	68		240		(172)		(71.7)	%
Total servicing expenses	30,110		37,479		(7,369)		(19.7)	%
Servicing net income	$	103,257	$	25,248	$	78,009	309.0	%

Servicing Revenue, Net

Loan servicing fees

The following presents certain characteristics of our mortgage loan servicing portfolio:

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	June 30,
	2022			2021
	(dollars in thousands)
MSR Servicing Portfolio (UPB)	$	90,516,421		$	124,258,935
Average MSR Servicing Portfolio (UPB)	$	96,250,600		$	106,268,092
MSR Servicing Portfolio (Loan Count)	320,215			449,029
MSRs Fair Value Multiple (x)	5.83			3.69
Delinquency Rates (%)	1.7		%	1.6		%
Weighted average credit score	747			746
Weighted average servicing fee, net (bps)	26.9			27.7

Loan servicing fees decreased by $22.7 million and $12.0 million, or 26.5% and 7.7%, for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021. The decrease for the respective three and six month periods was primarily driven by $7.7 million and $10.3 million lower ancillary servicing income due to lower loan modification fees earned on GNMA loans as a result of the Company selling 77% of its GNMA MSR portfolio during the fourth quarter of 2021. Additionally, a decrease in servicing fees of $15.0 million and $1.7 million was due to a decrease in the Average MSR Servicing Portfolio of $10.0 billion, or 9.4%, as of June 30, 2022 compared to June 30, 2021.

Change in fair value of MSRs


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands)		2021		2020		2021		2020
											2022		2021		2022		2021
											(dollars in thousands)
Realization of cash flows	Realization of cash flows	$	(73,942)	$	(54,933)	$	(240,836)	$	(132,222)	Realization of cash flows	$	(33,389)	$	(77,724)	$	(82,339)	$	(166,894)
Valuation inputs and assumptions	Valuation inputs and assumptions	85,150		(17,210)		188,334		(211,667)		Valuation inputs and assumptions	72,395		(94,713)		349,381		103,183
Economic hedging activities		(7,665)		5,394		(38,011)		113,365
Economic hedging results										Economic hedging results	(68,893)		65,532		(279,746)		(30,346)
Change in fair value of MSRs	Change in fair value of MSRs	$	3,544	$	(66,749)	$	(90,513)	$	(230,524)	Change in fair value of MSRs	$	(29,887)	$	(106,905)	$	(12,704)	$	(94,057)

~~The increase in~~ Change in fair value of MSRs presented losses for both three and six months ended June 30, 2022 and 2021. Fair value losses decreased by $77.0 million, or 72.0% and $81.4 million, or 86.5% for the three and six months ended ~~September~~June 30, ~~2021~~2022 compared to the three and six months ended ~~September~~June 30, ~~2020~~2021. The change was primarily driven by the ~~Valuation~~changes in valuation inputs and assumptions ~~gain recorded for the three months ended September 30, 2021~~net of hedge that ~~was primarily due to~~were favorably affected by an increase in interest rates during the ~~period as well as the favorable impact resulting from the MSR sale executed during the three months ended September 30, 2021.~~period. The ~~favorable~~ change ~~from Valuation inputs and assumptions~~in fair value of MSRs was ~~partially offset by an increase~~also attributable to a decrease in loss from realization of cash flows resulting from a decrease in prepayments due to ~~an increase in actual prepayments, combined with~~higher interest rates and higher scheduled payments collected on loans in our MSR ~~portfolio as a result of a 78% increase in our average servicing portfolio,~~portfolio. These favorable changes were partially offset by $21.4 million and $77.5 million MSR sale losses for the three and six months ended June 30, 2022.

Expenses

Total expenses decreased by $4.4 million and $7.4 million, or 23.3% and 19.7% for the three and six months ended June 30, 2022 compared to the three and six months ended ~~September~~June 30, ~~2020. Valuation inputs~~2021. The decrease was primarily driven by decreases in compensation and ~~assumptions gains are partially offset~~benefits expense, loan servicing expense, and general and administrative expenses.

Compensation and benefits expense decreased by ~~our economic hedging activities designed to offset the effects of changes in interest rates on valuation input~~$2.4 million and ~~assumptions.~~

~~The increase in Change in fair value of MSRs~~$2.3 million, or 31.4% and 15.0% for the ~~nine~~three and six months ended ~~September~~June 30, ~~2021~~2022 compared to the ~~nine~~three and six months ended ~~September~~June 30, ~~2020~~2021. The decrease was primarily driven by the ~~Valuation inputs~~salary expense decreases due to employee headcount reductions and ~~assumptions gain recorded for the nine months ended September 30, 2021 that was driven by an increase in interest rates during the period as well as the favorable impact resulting~~efficiencies gained from the ~~MSR sale executed during the nine months ended September 30, 2021. The favorable change from Valuation inputs~~subservicing to ServiceMac.

Loan servicing expense decreased by $0.4 million and assumptions was partially offset by an increase in loss from realization of cash flows due to an increase in actual prepayments, combined with higher scheduled payments collected on loans in our MSR portfolio as a result of a 69.2% increase in our average servicing portfolio, compared to the nine months ended September 30, 2020. Valuation inputs$2.4 million, or 4.9% and ~~assumptions gains are offset by our economic hedging activities designed to offset the effects of changes in interest rates on valuation input and assumptions.~~

~~Interest expense, net~~

~~The components for Interest expense, net for the periods presented were as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Interest income $ 36,719 $ 14,709 $ 96,944 $ 42,370
Interest expense $ (45,532) (17,559) $ (122,603) (47,845)
Interest expense, net $ (8,813) $ (2,850) $ (25,659) $ (5,475)

~~The increase in interest expense, net~~15.8%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021. The decrease for the respective three and six month periods was primarily due to ~~an increase~~$1.5 million and $3.1 million reduction in ~~average warehouse borrowings outstanding as a result~~the provision for servicing advance reserves resulting from the sale of our increased origination volume combined with an increase in our term debt interest expense as a result of the Senior Notes (as defined below) issued during the first quarter of 2021. The increase in interest expense wasMSRs partially offset by an$1.0 million and $1.1 million increase in ~~interest income from higher interest earned on mortgage loans held for sale~~subservicing fee due to ~~an increase in average mortgage loans held for sale which was driven by~~outsourcing of the ~~increase in Origination volume.~~servicing to ServiceMac.

~~Expenses~~

~~The increase in total~~General and administrative expenses decreased $1.4 million and $2.3 million, or 46.5% and 42.3%, for the three and six months ended ~~September~~June 30, ~~2021~~2022 compared to the three and six months ended ~~September~~June 30, ~~2020~~2021. The decrease was primarily driven by ~~increases~~a decrease in ~~Loan expense~~professional services and ~~General and administrative expense.~~

~~Loan expense~~

~~TheLoan expense increase for~~consulting fees resulting from the three months ended September 30, 2021 was primarily due to the increase in Origination volume compared to the respective periods in 2020. Additionally, we experienced increases in various loan processing fees in the current year periods compared to prior periods as third party costs increased.Company’s cost savings initiatives.

~~General and administrative expense~~Corporate

General and administrative expense increased by $5.5 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily driven by an increase in Professional services fees of $3.9 million to meet additional compliance andThe following presents certain corporate requirements, an increase in Occupancy and equipment expense of $1.1 million due to increased headcount for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, and an increase in Advertising and marketing expense of $0.6 million to support our market share increase.financial data:

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	Three Months Ended June 30,
	2022		2021		$ Change		% Change
	(dollars in thousands)
Revenue:
Interest expense	$	(11,457)	$	(12,602)	$	1,145	(9.1)	%
Interest expense, net	(11,457)		(12,602)		1,145		(9.1)	%
Other income	722		13,802		(13,080)		(94.8)	%
Total corporate revenue, net	(10,735)		1,200		(11,935)		(994.6)	%
Expenses:
Compensation and benefits	22,306		20,910		1,396		6.7	%
Production technology	—		—		—		N/A
General and administrative	8,523		11,510		(2,987)		(26.0)	%
Depreciation and amortization	2,804		2,350		454		19.3	%
Other expenses	4,336		6,405		(2,069)		(32.3)	%
Total corporate expenses	37,969		41,175		(3,206)		(7.8)	%
Corporate net loss	$	(48,704)	$	(39,975)	$	(8,729)	21.8	%


	Six Months Ended June 30,
	2022		2021		$ Change		% Change
	(dollars in thousands)
Revenue:
Interest expense	$	(25,637)	$	(21,500)	$	(4,137)	19.2	%
Interest expense, net	(25,637)		(21,500)		(4,137)		19.2	%
Other income	(3,916)		18,638		(22,554)		(121.0)	%
Total corporate revenue, net	(29,553)		(2,862)		(26,691)		932.6	%
Expenses:
Compensation and benefits	45,659		46,394		(735)		(1.6)	%
Production technology	2		—		2		N/A
General and administrative	18,420		25,537		(7,117)		(27.9)	%
Depreciation and amortization	5,491		5,111		380		7.4	%
Other expenses	8,236		13,092		(4,856)		(37.1)	%
Total corporate expenses	77,808		90,134		(12,326)		(13.7)	%
Corporate net loss	$	(107,361)	$	(92,996)	$	(14,365)	15.4	%

Total Corporate Revenue

Interest expense, net

Interest expense, net decreased by $1.1 million, or 9.1% and increased $4.1 million, or 19.2%, for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021, respectively. The decrease in interest expense for the three month period was driven by the reduction in the Company’s outstanding debt during the three months ended June 30, 2021.The increase in ~~total expenses~~expense for the ~~nine~~six months was driven by an increase in corporate debt interest due to issuance of the Senior Notes in January 2021.

Other income

Other income decreased by $13.1 million and $22.6 million for the three and six months ended ~~September~~June 30, ~~2021~~2022 compared to the ~~nine~~three and six months ended ~~September~~June 30, ~~2020~~2021. The decrease was primarily driven by $22.3 million and $31.8 million decrease in income from our equity method investment for the respective three and six month periods, partially offset by $9.3 million debt extinguishment gain related to the repurchase and retirement of $50 million Senior Notes during the three and six months ended June 30, 2022.

Expenses

Total expenses decreased by $3.2 million and $12.3 million, or 7.8% and 13.7%, for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021. The decrease was primarily driven by decreases in compensation and benefits, general and administrative, and other expenses.

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Compensation and benefits expense increased by $1.4 million, or 6.7%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The increase was primarily driven by an increase in severance expense due to headcount reduction resulting from the decrease in Origination volume and variable compensation, partially offset by $2.5 million lower salary expense. Compensation and benefits expense ~~Loan expense, Production technology expense,~~ decreased by $0.7 million, or 1.6%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease was primarily driven by a $3.0 million decrease in salaries, partially offset by $2.2 million higher severance pay due to headcount reductions.

General and administrative expense decreased $3.0 million and ~~Other expenses.~~

~~Compensation~~$7.1 million, or 26.0% and ~~benefits expense~~

~~Compensation and benefits expense increased by $144.1 million~~27.9%, for the ~~nine~~three and six months ended ~~September~~June 30, ~~2021~~2022 compared to the ~~nine~~three and six months ended ~~September~~June 30, 2020 driven by an increase of $8.4 million in commissions and bonuses resulting from an increase in Origination volume, as well as an increase of $135.7 million in salary and benefits expense largely driven by an 33% increase in employee headcount to support our increased Origination volume for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. As a percentage of volume, Compensation and benefits expense2021. The decrease was ~~0.5% and 0.7% of Origination volume for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.~~

~~Loan expense~~

~~The~~Loan expense increase for the nine months ended September 30, 2021 was primarily due to the increase in Origination volume compared to the respective periods in 2020. Additionally, we experienced increases in various loan processing fees in the current year periods compared to prior periods as third party costs increased.

~~Production technology expense~~

~~Production technology expense increased by $10.5 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020,~~ primarily driven by ~~an increase in equipment and information technology associated expense driven by our increased headcount, higher Origination volume and the increased size of our servicing portfolio.~~

~~General and administrative expense~~

~~General and administrative expense increased by $35.5 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily driven by an increase~~a decrease in professional services fees of ~~$27.4~~$2.7 million ~~for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 to meet additional compliance~~ and ~~corporate requirements and an increase in Occupancy and equipment expense of $8.4~~$7.3 million ~~related to the increase in Origination volume and an increase in headcount.~~

~~Other expense~~

Other expense increased by $11.5 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily driven by an increase in other employee benefit expenses of $6.1 million provided during the year to recognize employee contributions and for work from home expenses as well as an increase in insurance expense of $5.3 million related to D&O insurance expense the Company incurred in light of its status as a publicly traded entity.

~~Income tax expense~~

~~Income tax expense on continuing operations decreased~~ for the three and ~~nine~~six months periods respectively, as a result of increased costs in 2021 associated with the Company’s IPO.

Other expenses decreased $2.1 million, or 32.3% and $4.9 million, or 37.1% for the three and six months ended ~~September~~June 30, ~~2021~~2022 compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021. The decrease was driven by $1.1 million and $2.6 million reduction in employee related costs for the respective three and six month periods as well as $1.2 million reduction in loss on asset disposal. The decrease in other expense was partially offset by the $0.4 million loss from the sale of the Correspondent channel.

Income Tax Benefit (Expense)

Income tax benefit (expense) is recognized for the entire company rather than on a segment basis. Income tax benefit decreased by $13.1 million and increased by $32.7 million for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021. The change is primarily due to ~~a decrease~~the change in ~~pre-tax income.~~(loss) income before income tax. Our overall effective tax rate of ~~27.5%~~28.6% and ~~26.8%~~35.1% for the three and six months ended ~~September~~June 30, ~~2021 and 2020,~~2022, respectively and ~~27.8%~~23.9% and ~~26.8%~~28.2% for the ~~nine~~three and six months ended ~~September~~June 30, 2021, ~~and 2020,~~ respectively, differed from the U.S. statutory rate of 21.0% primarily due to the impact of ~~income from~~the equity ~~method~~ investment, ~~and~~ state incomes taxes, ~~in both years. In addition, in 2021, the difference from the statutory rate was also attributable to non-deductible transaction costs related to our initial public offering (the “IPO”) and~~ limitations on the tax deductibility of officers’ compensation applicable to a public ~~entity.~~

~~Summary Results by Segment for~~entity in both periods, equity-based compensation, and non-deductible transaction costs in 2021 associated with the ~~Three and Nine Months Ended September 30, 2021 and 2020~~

~~We have two segments:~~

•Company’s IPO.Our Origination segment consists of a combination of retail and third-party loan production operations. The increase in revenues for the Origination segment was primarily driven by an increase in loan Origination volume.

•Our Servicing segment consists of servicing loans the Company had initially originated and subsequently sold, for which the Company retained servicing rights as well as MSRs the Company occasionally purchases from others. The increase in revenues for the Servicing segment was primarily driven by an increase in servicing fees due to increase in our servicing portfolio and a gain we recorded in the Change in fair value of mortgage servicing rights, net due to an increase in interest rates that resulted in lower modeled prepayment speeds.

~~Table of Contents~~

~~Origination~~

~~The table below presents details of Revenue and Contribution margin for the Origination segment for the three and nine months ended September 30, 2021 and 2020:~~

Three Months Ended September 30, Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Gain on loans, net $ 145,302 $ 503,344 $ 521,534 $ 962,778
Loan fee income 34,484 28,205 118,099 60,630
Loan servicing fees 28 236 20 (1,982)
Change in fair value of mortgage servicing rights, net — — — —
Interest income 4,035 318 8,021 1,804
Total Origination segment revenue 183,849 532,103 647,674 1,023,230
Directly attributable expense 116,524 108,077 413,863 232,692
Contribution margin $ 67,325 $ 424,026 $ 233,811 $ 790,538

~~Servicing~~

~~The table below presents details of Revenue and Contribution margin for the Servicing segment for the three and nine months ended September 30, 2021 and 2020:~~

Three Months Ended September 30, Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Gain on loans, net $ 173 $ — $ 190 $ —
Loan servicing fees 91,803 48,114 247,733 135,886
Interest income 623 598 1,291 7,132
Other income 7,476 89 7,653 205
Total Servicing segment revenue 100,075 48,801 256,867 143,223
Directly attributable expense 17,440 13,937 54,930 42,664
Primary margin 82,635 34,864 201,937 100,559
Change in MSR fair value: amortization (73,942) (54,933) (240,836) (132,222)
Adjusted contribution margin 8,693 (20,069) (38,899) (31,663)
Change in MSR fair value: mark-to-market, net of hedge 77,486 (11,816) 150,323 (98,302)
Contribution margin $ 86,179 $ (31,885) $ 111,424 $ (129,965)

Liquidity and Capital Resources

Sources and Uses of Cash

Historically, our primary sources of liquidity have included:

•Borrowings, including under our warehouse funding facilities and other secured and unsecured financing facilities

•Cash flow from our operations, including:

•Sale of mortgage loans held for sale

•Loan origination fees

•Servicing fee income

•Interest income on loans held for sale, and

•Cash and marketable securities on hand

Historically, our primary uses of funds have included:

•Origination of loans

•Payment of interest expense

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•Repayment of debt

•Payment of operating expenses, and

•Changes in margin requirements for derivative contracts

We are also subject to contingencies which may have a significant impact on the use of our cash.

Summary of Certain Indebtedness

To originate and aggregate loans for sale into the secondary market, we use our own working capital and borrow on a short-term basis primarily through committed and uncommitted mortgage warehouse lines of credit that we have established with different large global and regional banks and financial institutions. Our loan funding facilities are primarily in the form of master repurchase agreements and participation agreements. New loan originations that are financed under these facilities are generally financed at approximately 95% to 100% of the principal balance of the loan (although certain types of loans are financed at lower percentages of the principal balance of the loan).

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At the time of either the funding or purchase, mortgage loans are pledged as collateral for borrowings on mortgage warehouse lines of credit. In most cases, loans will remain on one of the warehouse lines of credit facilities for only a short time, generally less than one month, until the loans are pooled and sold. During the time the loans are held for sale, we earn Interest income from the borrower on the underlying mortgage loan. This income is partially offset by the interest and fees we have to pay under the mortgage warehouse lines of credit.

When we sell a pool of loans in the secondary market, the proceeds received from the sale of the loans are used to pay back the amounts we owe on the mortgage warehouse lines of credit. We rely on the cash generated from the sale of loans to fund future loans and repay borrowings under our mortgage warehouse lines of credit. Delays or failures to sell loans in the secondary market could have an adverse effect on our liquidity position.

~~As of September 30, 2021, we~~We held mortgage warehouse lines of credit arrangements with 11 separate financial institutions with a total maximum borrowing capacity of ~~$7.5~~$6.0 billion and an unused borrowing capacity of ~~$1.9 billion.~~$4.1 billion as of June 30, 2022. Refer to Note 7 – Warehouse Lines of Credit of our ~~unaudited~~ condensed consolidated financial statements.

~~As of September 30, 2021, we~~We maintained a servicing advance financing facility, MSR financing facility and an operating line of credit with total combined maximum borrowing capacity of ~~$918.5~~$632.7 million and unused borrowing capacity of ~~$389.2 million.~~$496.9 million as of June 30, 2022. Refer to Note 8 – Term Debt and Other Borrowings, net of our ~~unaudited~~ condensed consolidated financial statements.

The amount owed and outstanding on our loan funding facilities fluctuates significantly based on our ~~origination~~Origination volume and the amount of time it takes us to sell the loans we ~~originate, and the amount of loans being self-funded with cash.~~originate.

Our debt financing agreements also contain margin call provisions that, upon notice from the applicable lender at its option, require us to transfer cash or, in some instances, additional assets in an amount sufficient to eliminate any margin deficit. A margin deficit generally will result from any decline in the market value (as determined by the applicable lender) of the assets subject to the related financing agreement relative to the available financing and offsetting hedges. Upon notice from the applicable lender, we generally will be required to satisfy the margin call on the day of such notice or the following business day.

The warehouse facilities and other lines of credit require maintenance of certain operating and financial covenants, and the availability of funds under these facilities is subject to, among other conditions, our continued compliance with these covenants. These financial covenants include, but are not limited to, maintaining a certain minimum tangible net worth, minimum liquidity, minimum profitability levels, and ratio of indebtedness to tangible net worth, among others. A breach of these covenants can result in an event of default under these facilities following which the lenders would be able to pursue certain remedies against us. In addition, each of these facilities includes cross-default or ~~cross- acceleration~~cross-acceleration provisions that could result in all facilities terminating if an event of default or acceleration of maturity occurs under any facility.

In January, of 2021, wethe Company issued $550.0 million aggregate principal amount of ~~our 5.0%~~its Senior Notes ~~due 2026~~ (the “Senior Notes”) in a private placement transaction. ~~Interest~~The Senior Notes are guaranteed on a senior unsecured basis by each of the Company’s wholly owned subsidiaries existing on the date of issuance, other than HPAM and HPMAC. The Senior Notes ~~is payable~~bear interest at a rate of 5.0% per annum, payable semi-annually ~~on February 1 and August 1 of each year, beginning August 1, 2021.~~in arrears. The Senior Notes will mature on February 1, 2026.

The Indenture governing the Senior Notes (the “Indenture”) contains ~~customary~~ covenants and ~~events~~restrictions that, among other things and subject to certain exceptions, limit the ability of ~~default.~~the Company and its restricted subsidiaries to (i) incur certain additional debt or issue certain preferred shares; (ii) incur liens; (iii) make certain distributions, investments, and other restricted payments; (iv) engage in certain transactions with affiliates; and (v) merge or consolidate or sell, transfer, lease, or otherwise dispose of all or substantially all of their assets. The Indenture governing the Senior Notes does not include any financial maintenance covenants. Refer to Note 8 – Term Debt and Other Borrowings, net of our condensed consolidated financial statements.

~~As of September 30, 2021, the~~The Company was in compliance with all ~~warehouse facility covenants and with all~~ covenants under the ~~Indenture governing~~indenture and our warehouse facilities and other lines of credit as of June 30, 2022.

The Company may, at any time and from time to time, seek to retire or purchase the Company’s outstanding Senior ~~Notes.~~

~~Cash Flows~~

~~Our~~Notes through cash ~~flows for~~purchases in the ~~nine~~form of open-market purchases, privately negotiated transactions, or otherwise. Such repurchases, if any, will be upon such terms and at such prices as the Company may determine, and will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material. The Company repurchased $50 million Senior Notes during the six months ended ~~September~~June 30, 2022.

Summary of Mortgage Loan Participation Agreement

In November, 2021, we entered into a Mortgage Loan Participation Sale Agreement (the “Gestation Agreement”) with JPMorgan Chase Bank, National Association, as purchaser (the “Gestation Purchaser”). Subject to compliance with the terms and ~~September 30, 2020 are summarized below.~~conditions of the Gestation Agreement, including the affirmative and negative covenants contained therein, the Gestation Agreement permits the Gestation Purchaser to purchase from us from time to time during the term of the Gestation Agreement participation certificates evidencing a 100% undivided beneficial ownership interest in designated pools of fully amortizing first

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Nine Months Ended September 30,
($ in thousands) 2021 2020
Net cash used in operating activities $ (3,657,464) $ (385,095)
Net cash provided (used) in investing activities 69,796 (9,914)
Net cash provided by financing activities 3,593,902 626,668
Net increase in Cash and cash equivalents and restricted cash 6,234 231,659
Cash and cash equivalents and restricted cash at end of period $ 203,127 $ 313,390
lien residential mortgage loans that are intended to ultimately be included in MBS issued or guaranteed, as applicable, by Fannie Mae, Freddie Mac, and Ginnie Mae.

~~Net~~The aggregate purchase price of participation certificates owned by the Gestation Purchaser at any given time for which the Gestation Purchaser has not been paid the purchase price for the related MBS by the applicable takeout investor as specified in the applicable takeout commitment cannot exceed $1.5 billion. The Gestation Agreement expires on November 2, 2022.

The Gestation Agreement and certain ancillary agreements thereto contain various financial and non-financial covenants, including financial covenants relating to the maintenance of tangible net worth, liquidity, and a ratio of total indebtedness to tangible net worth. The Company was in compliance with these covenants as of June 30, 2022.

Cash Flows

The following presents the summary of the Company’s cash ~~used~~flows:


	Six Months Ended June 30,
	2022		2021
	(dollars in thousands)
Net cash provided by (used for) operating activities	$	2,551,017	$	(2,384,211)
Net cash provided by (used for) investing activities	609,828		(25,452)
Net cash (used for) provided by financing activities	(3,205,727)		2,465,644
Net (decrease) increase in cash, cash equivalents and restricted cash	(44,882)		55,981
Cash, cash equivalents and restricted cash at end of period	$	162,908	$	252,874

Our Cash and cash equivalents and restricted cash as of June 30, 2022 decreased by $90.0 million from June 30, 2021.

Operating Activities

Our Cash flows from operating activities are primarily influenced by changes in the levels of our inventory of loans held for sale as shown below:


	Six Months Ended June 30,
	2022		2021
Cash flows from:	(dollars in thousands)
Mortgage loans held for sale	$	2,463,815	$	(2,339,287)
Gain on loans, net	(58,638)		(376,257)
Decrease in fair value of derivative assets	25,105		209,106
Other operating sources	120,735		122,227
Net cash provided by (used for) operating activities	$	2,551,017	$	(2,384,211)

Cash provided by operating activities increased by ~~$3.3 billion~~$4,935.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the ~~nine~~cash used for operating activities for the six months ended ~~September~~June 30, ~~2020.~~2021. The increase provided by operating activities is primarily driven by ~~increase~~decrease in the level of ~~our~~ inventory of loans held for sale as a result of ~~an increase~~a decrease in ~~origination~~Origination volume ~~at lower margins~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

Investing Activities

Cash provided by investing activities increased by ~~$79.7~~$635.3 million primarily due to proceeds from sale of ~~mortgage servicing rights~~MSRs of ~~$111.6~~$630.6 million ~~offset by purchase of mortgage servicing rights of $33.0 million during~~for the ~~nine~~six months ended ~~September~~June 30, 2022 compared to the six months ended June 30, 2021.

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Financing Activities

Our Cash flows from financing activities are primarily influenced by changes in Warehouse borrowings as shown below:


	Six Months Ended June 30,
	2022		2021
Cash flows from:	(dollars in thousands)
Warehouse borrowings, net	$	(2,808,263)	$	2,052,175
Distributions to parent, net (a)	—		(294,897)
Other financing sources	(397,464)		708,366
Net cash (used for) provided by financing activities	$	(3,205,727)	$	2,465,644
(a) distributions to HPLP, our direct parent prior to the consummation of the merger consummated in connection with the IPO.

Cash used for financing activities increased for the six months ended June 30, 2022 compared to the cash provided by financing activities ~~increased by $3.0 billion primarily due to an~~for the six months ended June 30, 2021. The increase in use was primarily driven by decrease in proceeds, ~~from warehouse borrowings~~ net of payments, on warehouse borrowings due to be utilized for funding our increased loan origination volume for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Additionally, we issued $550 million of Senior Notes during the nine months ended September 30, 2021. Increasesa decrease in cash provided by the financing activities were offset by approximately $295 million of distributions paid to Home Point Capital LP (“HPLP”), our direct parent prior to the consummation of the merger consummated in connection with the IPO, during the nine months ended September 30, 2021 compared to $63.8 million of contribution from HPLP recorded during the nine months ended September 30, 2020 as well as $20.9 million of dividends paid to shareholders during the nine months ended September 30, 2021.Origination volume.

Contractual Obligations and Other Commitments

For a discussion of our contractual obligations, refer to “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations—~~Operations - Contractual Obligations and Other Commitments” in our ~~2020~~2021 Annual Report. There have not been any material changes to our contractual obligations since December 31, ~~2020.~~2021.

Repurchase and Indemnification Obligations

In the ordinary course of business, we are exposed to liability with respect to certain representations and warranties that we make to the investors who purchase the loans that we originate. Under certain circumstances, we may be required to repurchase mortgage loans, or indemnify the purchaser of such loans for losses incurred, if there has been a breach of these representations and warranties, or in the case of early payment defaults. In addition, in the event of an early payment default, we are contractually obligated to refund certain premiums paid to us by the investors who purchased the related loan. Refer to Note 11 – Representation and Warranty Reserve to our ~~unaudited~~ condensed consolidated financial statements for additional information.

~~Off Balance Sheet Arrangements~~Suspension of Dividend

~~Refer~~Our Board has determined not to declare a dividend on our common stock for the three month period ended June 30, 2022. ~~Note 9 – Commitments and Contingencies~~The Board’s determination reflects our desire to maintain a strong liquidity position to support operations in the current macroeconomic environment, including rising interest rates and inflationary pressure, and the potential impact on our ~~unaudited condensed consolidated~~results of operations and financial ~~statements included elsewhere in this form.~~condition.

The Board intends to reassess the payment of cash dividends on a quarterly basis. Future determinations to declare and pay cash dividends, if any, will be made at the discretion of the Board and will depend on a variety of factors, including general macroeconomic, business and financial market conditions; applicable laws; our financial condition, results of operations, contractual restrictions, capital requirements, and business prospects; and other factors the Board may deem relevant at the time.

New Accounting Pronouncements Not Yet Effective

Refer to Note 2 – Basis of Presentation and ~~Significant~~New Accounting ~~Policies~~Pronouncements to our ~~unaudited~~ condensed consolidated financial statements for a discussion of recent accounting developments and the expected effect on the Company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~In the normal course of business, as~~As a ~~mortgage lender,~~smaller reporting company, we are ~~subject~~not required to ~~a variety of risks which can affect our operations and profitability. We broadly define these areas of risk as interest rate risk, credit risk, and risk related to the COVID-19 pandemic.~~

Our 2020 Annual Report provides a detailed discussion of the market risks affecting our operations. No material change has occurred in our market risks since the disclosure contained in our 2020 Annual Report.

provide information for this item.

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Item 4. Controls and Procedures

Management's Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”) Rules 13a-15(e) and 15d-15(e)) are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the appropriate time periods, and that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to

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allow timely discussions regarding required disclosure. We, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2021.~~2022.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, 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.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of our “Legal Proceedings,” refer to Note 9 – Commitments and Contingencies of our unaudited condensed consolidated financial statements included elsewhere in this Report.

Item 1A. Risk Factors

We have disclosed the risk factors affecting our business, financial condition and operating results in the section entitled “Risk Factors” in our ~~2020~~2021 Annual Report. There have been no material changes from the risk factors previously disclosed.

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

Recent Sales of Unregistered Equity Securities

None.

Issuer Repurchases of Equity Securities

~~None.~~The following table summarizes the Company’s common stock repurchase activity for the three months ended June 30, 2022.


ISSUER REPURCHASES OF COMMON STOCK
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs(a)	Approximate Dollar Value of Shares that May Yet be Purchased Under the Programs(a)
April 1, 2022 - April 30, 2022	487,808	$	3.07	487,808	$	4,997,630
May 1, 2022 - May 31, 2022	230,298	3.17		230,298	4,250,020
June 1, 2022 - June 30, 2022	—	—		—	4,250,020
Total for the three months ended June 30, 2022	718,106	$	3.13	718,106	$	4,250,020

(a) On February 24, 2022, we announced a stock repurchase program whereby we may repurchase up to a total of $8.0 million of our issued and outstanding common stock from time to time until the program’s expiration on December 31, 2022 on the open market or in privately negotiated transactions. The timing and amount of stock repurchases, if any, will depend on price, market conditions, applicable regulatory requirements, and other factors. Repurchases under the stock repurchase program may also be made from time to time pursuant to one or more plans adopted under Rule 10b5-1 of the Exchange Act. The program does not require us to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without prior notice. Shares repurchased under the program are subsequently retired.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

~~Stockholder Proposal Deadline~~

The Company expects to hold its 2022 Annual Meeting of Stockholders (the “2022 Annual Meeting”) at a date, time, and location to be announced, which will be the Company’s first annual meeting of stockholders after the IPO.

In accordance with Section 2.03 of the Company’s Amended and Restated Bylaws (the “Bylaws”), the Company has set the time period for receipt of stockholder proposals for inclusion in the Company’s proxy materials for the 2022 Annual Meeting as no earlier than the close of business on January 31, 2022 and no later than the close of business on March 2, 2022. Any stockholder proposal requested to be included in the proxy materials must (i) be received by the Company at 2211 Old Earhart Road, Suite 250, Ann Arbor, Michigan 48105, Attn: Corporate Secretary and (ii) satisfy all of the requirements of the Bylaws and not otherwise be permitted to be excluded under Rule 14a-8 of the Exchange Act.None.

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Item 6. Exhibits


Exhibit Number						Description
3.1						Amended and Restated Certificate of Incorporation of Home Point Capital Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K on February 3, 2021 and incorporated herein by reference).
3.2						Amended and Restated Bylaws of Home Point Capital Inc. (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K on February 3, 2021 and incorporated herein by reference).
10.1*+						Third Amendment ~~No. 1~~ to ~~the~~Second Amended and Restated ~~Master Repurchase~~Credit Agreement, dated as of ~~July 22, 2021,~~April 29, 2022, by and among Home Point Financial Corporation, as borrower, Home Point Capital Inc., as guarantor, Goldman Sachs Bank USA, as ~~buyer, HPFC Sub 1 LLC, as seller,~~administrative agent, and ~~Home Point Financial Corporation, as guarantor.~~the lenders party thereto.
10.2*						~~Confirmation and Amendment of Participation Agreement, dated as of~~ ~~July 21, 2021, by and between Home Point Financial Corporation, as seller, and Merchants Bank of Indiana, as participant.~~
~~10.3+~~						~~Mortgage Warehouse Agreement, dated as of September 1, 2021, by and between Home Point Financial Corporation, as seller, and Texas Capital Bank, National Association(filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on September~~ 7 ~~, 2021 and incorporated herein by reference)~~.
10.4*						~~Confirmation and Amendment of Participation Agreement, dated as of September 13, 2021, by and between Home Point Financial Corporation, as seller, and Merchants Bank of Indiana, as participant.~~
~~10.5~~10.2						Amendment No. 1719 to Master Repurchase Agreement, dated as of ~~September 17, 2021,~~May 1, 2022, by and between UBS AG, as buyer, and Home Point Financial Corporation, as seller (filed as Exhibit ~~10.1~~10.3.1 to the Company’s ~~Current~~Quarterly Report on Form ~~8-K~~10-Q on ~~September 21, 2021~~May 12, 2022 and incorporated herein by reference).
~~10.6+~~10.3*+						Change in Terms Agreement, dated as of May 11, 2022, by and between Home Point Financial Corporation, as Seller, and Texas Capital Bank.
10.3.1*+						Change in Terms Agreement, dated as of June 28, 2022, by and between Home Point Financial Corporation, as Seller, and Texas Capital Bank.
10.4*+						Amendment No. 52 to Master Repurchase Agreement, dated as of May 13, 2022, by and between Barclays Bank PLC, as purchaser and agent, and Home Point Financial Corporation, as seller.
10.5*						Rate Amendment to Master Repurchase Agreement, dated as of May 19, 2022, by and between Wells Fargo Bank, N.A., as buyer, and Home Point Financial Corporation, as seller.
10.6*+						Eighth Amendment to the Amended and Restated Master Repurchase Agreement and Amended and Restated Pricing Letter, dated as of ~~September 17, 2021,~~June 29, 2022, by and among Home Point Financial Corporation, as seller, TIAA, FSB, formerly known as EverBank, as administrative agent and a buyer, and Capital One, National Association, as ~~a buyer (filed as Exhibit 10.2~~buyer.
10.7*+						Amendment No. 8 to the ~~Company’s Current Report on Form 8-K on September 21, 2021~~Master Repurchase Agreement, dated as of June 30, 2022, by and ~~incorporated herein~~among Credit Suisse First Boston Mortgage Capital LLC, as administrative agent, Credit Suisse AG, acting through its Cayman Islands Branch, as buyer, Alpine Securitization LTD, as buyer, and Home Point Financial Corporation, as seller.
10.8*+						Amendment No. 10 to Master Repurchase Agreement and Securities Contract, dated as of June 30, 2022, by ~~reference).~~and between Home Point Financial Corporation, as seller, Morgan Stanley Bank, N.A., as buyer, and Morgan Stanley Mortgage Capital Holdings LLC, as agent.
31.1*						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.
31.2*						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.
32.1*						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.
101.INS*						Inline XBRL 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*						Inline XBRL Taxonomy Extension Schema Document.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith.

+ Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The Company agrees to furnish supplementally an unredacted copy of the exhibit to the Securities and Exchange Commission upon its request.

++ Certain schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish a copy of such schedules and exhibits to the Securities and Exchange Commission upon its request.

The agreements and other documents filed as exhibits to this Report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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SIGNATURES

Pursuant to the requirements 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.


	HOME POINT CAPITAL INC.


Dated: ~~November 5, 2021~~August 11, 2022	By:	/s/ William A. Newman
	Name:	William A. Newman
	Title:	President and Chief Executive Officer (Principal Executive Officer)

Dated: ~~November 5, 2021~~August 11, 2022	By:	/s/ Mark E. Elbaum
	Name:	Mark E. Elbaum
	Title:	Chief Financial Officer (Principal Financial Officer)

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	Common Stock		Additional Paid in Capital		Retained Earnings (Accumulated Deficit)		Total Shareholders’ Equity
	Shares	Amount
Beginning balance, June 30, 2020	138,860,103	—	$	519,033	$	113,924	$	632,957

Distributions to parent	—	—	—		(154,492)		(154,492)
Stock based compensation	—	—	144		—		144
Net income	—	—	—		264,062		264,062
Ending balance, September 30, 2020	138,860,103	—	$	519,177	$	223,494	$	742,671

	Common Stock		Additional Paid in Capital		Retained Earnings (Accumulated Deficit)		Total Shareholders’ Equity
	Shares	Amount
Beginning balance, June 30, 2021	139,487,097	—	$	520,505	$	188,823	$	709,328
Contributed capital	—	—	—		—		—
Dividend to shareholders	—	—	—		(20,924)		(20,924)
EE stock purchase (option exercise)	39,927	—	(105)		—		(105)
Stock based compensation	—	—	1,680		—		1,680
Net income	—	—	—		71,223		71,223
Ending balance, September 30, 2021	139,527,024	—	$	522,080	$	239,122	$	761,202

	Common Stock		Additional Paid in Capital		Retained Earnings (Accumulated Deficit)		Total Shareholders’ Equity
	Shares	Amount
Beginning balance, December 31, 2019	138,860,103	—	$	454,861	$	(44,549)	$	410,312
Contributed capital	—	—	63,774		—		63,774
Distributions to parent	—	—	—		(154,492)		(154,492)
Stock based compensation	—	—	542		—		542
Net income	—	—	—		422,535		422,535
Ending balance, September 30, 2020	138,860,103	—	$	519,177	$	223,494	$	742,671

	Common Stock		Additional Paid in Capital		Retained Earnings (Accumulated Deficit)		Total Shareholders’ Equity
	Shares	Amount
Beginning balance, December 31, 2020	138,860,103	—	$	519,510	$	407,964	$	927,474
Contributed capital	—	—	—		192		192
Dividend to shareholders	—	—	—		(20,924)		(20,924)
Distribution to parent	—	—	—		(295,089)		(295,089)
EE stock purchase (option exercise)	666,921	—	(2,636)		—		(2,636)
Stock based compensation	—	—	5,206		—		$	5,206
Net income	—	—	—		146,979		146,979
Ending balance, September 30, 2021	139,527,024	—	$	522,080	$	239,122	$	761,202


Investing activities:
Purchases of property and equipment, net of disposals	(8,786)		(9,914)
Purchases of mortgage servicing rights	(33,027)		—
Proceeds from sale of mortgage servicing rights	111,609		—
Net cash provided (used) in investing activities	69,796		(9,914)

Financing activities:
Proceeds from warehouse borrowings	81,365,921		38,381,219
Payments on warehouse borrowings	(78,062,859)		(37,766,925)
Proceeds from term debt borrowings	1,213,400		47,600
Payments on term debt borrowings	(550,000)		(60,000)
Proceeds from other borrowings	75,000		64,500
Payments on other borrowings	(115,000)		(103,500)
Payments of debt issuance costs	(14,103)		—
Employee stock purchases (option expense)	(2,636)		—
Capital contributions from parent	192		63,774
Dividends to shareholders	(20,924)		—
Distribution to parent	(295,089)		—
Net cash provided by financing activities	3,593,902		626,668
Net increase in cash, cash equivalents and restricted cash	6,234		231,659
Cash, cash equivalents and restricted cash at beginning of period	196,893		81,731
Cash, cash equivalents and restricted cash at end of period	$	203,127	$	313,390
Supplemental disclosure:
Cash paid for interest	$	104,119	$	46,715
Cash (refunded) paid for taxes	$	(33,740)	$	22,034


	September 30, 2020
	Notional Value		Derivative Asset		Derivative Liability		Recorded Gain/(Loss)
Mortgage-backed securities forward trades	$	9,637,702	$	2,793	$	23,586	$	(8,444)
Interest rate lock commitments	15,103,027		272,837		—		26,082
Hedging mortgage servicing rights	4,306,000		8,730		—		2,161
Margin			30,642		208
Total			$	315,002	$	23,794
Cash held from counterparties, net			$	30,434


Home Point Financial Corporation
	Adjusted Net Worth		Net Worth Required
HUD	$	1,185,943	$	2,500
Ginnie Mae	$	1,185,943	$	65,448
Fannie Mae	$	1,185,943	$	322,231
Freddie Mac	$	1,185,943	$	322,231
Various States	$	1,185,943	$0 - 1,000
Home Point Mortgage Acceptance Corporation
	Adjusted Net Worth		Net Worth Required
HUD	$	44,066	$	2,500
Ginnie Mae	$	44,066	$	2,761
Fannie Mae	$	44,066	$	11,284
Freddie Mac	$	44,066	$	11,284
Various States	$	44,066	$0 - 1,000


Liabilities:
Derivative liabilities (MBS forward trades)	$	—	$	6,068	$	—	$	6,068
Derivative liabilities (MSR)	—		39,381		—		39,381
Total liabilities	$	—	$	45,449	$	—	$	45,449


	Nine Months Ended September 30, 2020
	Origination		Servicing		Segments Total		All Other		Total		Reconciliation Item(1)		Total Consolidated
Revenue
Gain on loans, net	$	962,778	$	—	$	962,778	$	—	$	962,778	$	—	$	962,778
Loan fee income	60,630		—		60,630		—		60,630		—		60,630
Loan servicing fees	(1,982)		135,886		133,904		—		133,904		—		133,904
Change in FV of MSRs, net	—		(230,524)		(230,524)		—		(230,524)		—		(230,524)
Interest income (expense), net	1,804		7,132		8,936		(14,411)		(5,475)		—		(5,475)
Other income	—		205		205		15,983		16,188		(14,050)		2,138
Total U.S. GAAP Revenue	1,023,230		(87,301)		935,929		1,572		937,501		(14,050)		923,451
Contribution margin	$	790,538	$	(129,965)	$	660,573	$	(88,732)	$	571,841	$	—	$	—


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020
Origination volume	$	20,795,621	$	18,113,867	$	75,692,401	$	38,045,886
Originated MSR - UPB	$	27,946,562	$	17,749,342	$	82,252,911	$	37,066,235
Retained servicing (UPB)(a)	95.1%		100.0%		96.7%		99.4%