HOME POINT CAPITAL INC.
Management's discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and notes thereto included elsewhere in this Report. The following
discussion includes forward-looking statements that reflect our plans, estimates
and assumptions and involves numerous risks and uncertainties, including, but
not limited to, those described in the " Item 1A. Risk Factors " section of
this Report. Refer to " Cautionary Note on Forward-Looking Statements ."
Future results could differ significantly from the historical results presented
in this section.
Overview
We are a leading residential mortgage originator and servicer 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 leveraging a nationwide network of partner
relationships to drive sustainable originations. 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 9,259 partnering independent mortgage brokers ("Broker
Partners ") to reach our end-borrower customers. We had 1,658 active broker
partners as of December 31, 2022 . Through our Wholesale channel, we propel the
success of our Broker Partners through a combination of full service, localized
sales coverage and an efficient loan fulfillment process supported by our fully
integrated technology platform. On June 1, 2022 , the Company completed the
previously announced sale of the Correspondent channel, through which we
purchased closed and funded mortgages from a trusted network of correspondent
sellers ("Correspondent Partners "). For additional information refer to Note 26
- Sale of The Correspondent Channel and Home Point Asset Management LLC . In our
Direct channel, we originate residential mortgages primarily for existing
servicing customers who are seeking new financing options.
While we initiate our customer relationships at the time the mortgage is
originated, we maintain ongoing connectivity with our approximately 315 thousand
servicing customers. In February 2022 , we announced an agreement with
ServiceMac, pursuant to which ServiceMac subservices all mortgage loans
underlying Mortgage servicing rights ("MSRs") we hold. ServiceMac began
subservicing newly originated agency loans for us in the second quarter of 2022.
The Company completed transitioning to ServiceMac the balance of the agency
portfolio and all of the Government National Mortgage Association ("Ginnie Mae")
portfolio in the third quarter of 2022. ServiceMac performs subservicing
functions on the Company's behalf, but we continue to hold the MSRs. We believe
that our relationship with ServiceMac allows us to maintain a leaner cost
structure with a greater variable component and provides greater flexibility
when strategically selling certain non-core MSRs. The number of our servicing
portfolio customers was 315,478 and 425,989, while the servicing portfolio
unpaid principal balance ("UPB") was $88.7 billion and $128.4 billion as of
December 31, 2022 and 2021, respectively.
In the environment of rapidly rising interest rates and increased competition,
we are strategically managing our business by managing our liquidity, reducing
expenses, and concentrating our efforts on margins over volume.
Year Ended
We generated$255.6 million of total revenue, net for the year endedDecember 31, 2022 compared to$961.5 million of total revenue, net for the year endedDecember 31, 2021 . We had$163.5 million of net loss for the year endedDecember 31, 2022 compared to$166.3 million of net income for the year endedDecember 31, 2021 . We generated$195.2 million of Adjusted revenue for the year endedDecember 31, 2022 compared to$746.2 million for the year endedDecember 31, 2021 . We had$189.6 million of Adjusted net loss for the year endedDecember 31, 2022 compared to$0.4 million Adjusted net loss for the year endedDecember 31, 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 accounting principles generally accepted inthe United States of America ("U.S. GAAP"). We originated$27.7 billion of mortgage loans for the year endedDecember 31, 2022 compared to$96.2 billion for the year endedDecember 31, 2021 , representing a decrease of$68.5 billion or 71.2%. Our MSR Servicing Portfolio was$88.7 billion as ofDecember 31, 2022 compared to$128.4 billion as ofDecember 31, 2021 . Year-over-year decreases were due to rising interest rates, increased competition in the industry, and MSR sales. Our gain on sale margins decreased 47 basis points for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . Additionally, according to the Mortgage Bankers Association Mortgage Finance Forecast, average 30-year mortgage rates increased by approximately 340 basis points fromDecember 31, 2021 toDecember 31, 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. 43
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However, when rates increase, we experience lower prepayment speeds and a subsequent upward adjustment to the fair value of our MSRs for the loans that 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 two distinct production
channels: Direct and Wholesale. As discussed in Note 26 - Sale of
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 a nationwide network of 9,259Broker Partners . Prior to its sale, the Correspondent channel consisted of closed and funded mortgages that we purchased from a trusted network ofCorrespondent Partners . Once a loan is locked, it becomes channel agnostic. The channels in our Origination segment function in unison through the following activities: hedging, funding, and production. Our Origination segment has contribution loss of$106.9 million and contribution margin of$237.1 million for the years endedDecember 31, 2022 and 2021, respectively. Our Servicing segment consists of servicing loans that were produced in our Originations segment where the Company retained the servicing rights. InFebruary 2022 , the Company entered into an agreement with ServiceMac, pursuant to which ServiceMac subservices all mortgage loans underlying the Company's MSRs. We also strategically buy and sell MSRs. Our Servicing segment generated Contribution margins of$121.8 million and$185.8 million for the years endedDecember 31, 2022 and 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 other industry participants that predominantly focus on either origination or servicing, instead of both.
Key Factors Affecting Results of Operations for Periods Presented
Residential Real Estate Market Conditions
Our Origination volume is impacted significantly 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 rapidly rising interest rates, high inflation, and home price appreciation due to limited housing supply, have led to a decrease in the affordability index and negatively impacted Origination volume.
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 impact the value of interest rate lock commitments
("IRLCs") and loans held for sale ("MLHS"). IRLCs 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 IRLC and MLHS inventory
fluctuates with changes in interest rates; for example, if we enter into IRLC at
low interest rates followed by an increase in interest rates in the market, the
value of our IRLC will decrease.
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.
To mitigate the interest rate risk impact, we employ economic hedging strategies through forward delivery commitments on mortgage-backed securities or whole loans and options on forward contracts.
Early 2021 had a falling interest rate environment. In the second half of 2021,
interest rates started to rise at a rapid pace, which continued into 2022. The
rapid rise in interest rates has adversely impacted our Origination volumes.
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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. Other key performance indicators include the number ofBroker Partners and, prior to the sale of our Correspondent channel, number ofCorrespondent Partners , which enable us to monitor key inputs of our business model. As noted above, in June, 2022 the Company completed the previously announced sale of the Correspondent channel. For additional information refer to Note 26 - Sale ofThe Correspondent Channel and Home Point Asset Management LLC . 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. 45
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Origination Segment KPIs
The following presents key performance indicators for our business:
Years Ended December 31,
2022 2021
(dollars in thousands)
Origination Volume by Channel
Wholesale $ 22,393,275 $ 69,450,704
Correspondent 4,529,238 21,872,389
Direct 757,771 4,880,301
Origination volume $ 27,680,284 $ 96,203,394
Fallout Adjusted ("FOA") Lock Volume by Channel
Wholesale $ 22,132,356 $ 61,021,701
Correspondent 3,879,896 18,827,684
Direct 592,908 3,295,243
FOA Lock Volume $ 26,605,160 $ 83,144,628
Gain on sale margin by Channel
Wholesale $ 139,704 $ 557,946
Correspondent 5,452 47,155
Direct 15,271 100,846
Gain on sale margin attributable to channels 160,427 705,947
Other (loss) gain on sale(a) (45,807) 44,633
Total gain on sale margin(b) $
114,620
Gain on sale margin by Channel (bps) Wholesale 63 91 Correspondent 14 25 Direct 258 306 Gain on sale margin attributable to channels 60 85 Other (loss) gain on sale(a) (17) 5 Total gain on sale margin(b) 43 90 Origination Volume by Purpose Purchase 61.3 % 31.1 % Refinance 38.7 % 68.9 % Market Share Overall share of origination market(c) 1.3 % 2.1 % Share of wholesale channel(d) 6.6 % 9.8 % Third Party Partners Number of Broker Partners(e) 9,259 8,012 Number of Correspondent Partners(f) N/A 676
(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.
(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, and interest income (expense), net for the Origination segment.
(c) Overall share of origination market share data for
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(d) Share of wholesale channel forDecember 31, 2022 is obtained from Inside Mortgage Finance, a third party provider of residential mortgage industry news and statistics.
(e) Number of
(f) Number of
Servicing Segment KPIs
The following presents key performance indicators for our business:
Years Ended December 31,
2022 2021
Mortgage Servicing MSR Servicing Portfolio - UPB (a) $ 88,668,633 $
128,359,574
MSR Servicing Portfolio - Units (b) 315,478
425,989
60 days or more delinquent (c) 0.9 % 0.7 % MSR Portfolio MSR Multiple (d) 6.0 4.6 Weighted Average Note Rate (e) 3.35 %
2.96 %
(a) The unpaid principal balance of loans we service on behalf of
(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.
(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 in this Report, including Adjusted revenue and Adjusted net income provide useful information to investors and others in understanding and evaluating our operating results. These measures are not financial measures calculated in accordance withU.S. GAAP and should not be considered as a substitute for net income, or any other operating performance measure calculated in accordance withU.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. We define Adjusted revenue as Total 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. We define Adjusted net (loss) income as Net (loss) 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.
The non-GAAP information presented below should be read in conjunction with the Company's consolidated financial statements and the related notes.
The following presents a reconciliation of Adjusted revenue and Adjusted net loss to the nearestU.S. GAAP financial measures of Total revenue, net and Net (loss) income, as applicable: 47
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Reconciliation of Total Revenue, Net to Adjusted Revenue
Years Ended December 31,
2022 2021
(dollars in thousands)
Total revenue, net $ 255,647 $ 961,516
(Loss) income from equity method investment (26,278) 15,373
Change in fair value of MSR (due to inputs and assumptions), net of
hedge(a) (34,132) (230,727)
Adjusted revenue $ 195,237 $ 746,162 Reconciliation of Total Net (Loss) Income to Adjusted Net Loss
Years Ended December 31,
2022 2021
(dollars in thousands)
Net (loss) income $ (163,454) $ 166,272 Change in fair value of MSR (due to inputs and assumptions), net of hedge(a)
(34,132) (230,727)
Income tax effect of change in fair value of MSR (due to inputs and assumptions), net of hedge(b)
7,988 64,059
Adjusted net loss $ (189,598) $ (396)
(a) MSR fair value changes due to valuation inputs and assumptions are measured
using a static 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 4 - Mortgage Servicing Rights to our
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 and Adjusted net loss 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 gain
(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 benefit (expense) divided by (Loss) income before income tax.
Description of Certain Components of our Results of Operations
Components of Revenue
Gain on loans, net includes the realized and unrealized gains and losses on mortgage loans, as well as the changes in fair value of all loan-related derivatives, including but not limited to, forward mortgage-backed securities sales commitments, IRLCs, freestanding loan-related derivative instruments and the representation and warranty reserve.
Loan fee income consists of fee income earned on all loan originations, including amounts earned related to application and underwriting fees. Fees associated with the origination and acquisition of mortgage loans are recognized when earned, which is the date the loan is originated or acquired.
Interest income (expense), net consists of interest income recognized on MLHS
for the period from loan funding to sale, which is typically less than 30 days.
Loans are placed on non-accrual status and the related accrued interests is
reserved when any portion of the principal or interest is 90 days past due or
earlier if factors indicate that the ultimate collectability of the principal or
interest is not probable. Interest received for loans on non-accrual status is
recorded as income when collected. Loans return to accrual status when the
principal and interest become current and it is probable that the amounts are
fully collectible. Interest income (expense), net is presented net of interest
expense related to our loan funding warehouse and other facilities as well as
expenses related to amortization of capitalized debt expense, original issue
discount, gains or losses upon extinguishment of debt, and commitment fees paid
on certain debt agreements.
Loan servicing fees consist of fees received from loan servicing. Loan servicing
involves the servicing of residential mortgage loans on behalf of an investor.
Total loan servicing fees include servicing and other ancillary servicing
revenue earned for servicing mortgage loans owned by investors. Servicing fees
received for servicing mortgage loans owned by investors are based on a
stipulated percentage of the outstanding monthly principal balance on such
loans, or the difference between the weighted-average yield received on the
mortgage loans and the amount paid to the investor, less guaranty fees and
interest on curtailments (reduction of principal balance). Loan servicing fees
are receivable only out of interest collected from mortgagors and are recorded
as income when earned, which is generally upon collection. Late charges and
other miscellaneous fees collected from mortgagors are also recorded as income
when collected.
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Change in fair value of mortgage servicing rights. MSRs represent the fair value assigned to contracts that obligate us to service the mortgage loans on behalf of the owners of the mortgage loans in exchange for service fees and the right to collect certain ancillary income from the borrower. We recognize MSRs at our estimate of the fair value of the contract to service loans. Changes in the fair value of MSRs are recognized as current period income as a component of Change in fair value of MSRs. To hedge against interest rate exposure on these assets, we enter into various derivative instruments, which may include but are not limited to swaps and forward loan purchase commitments. Changes in the value of derivatives designed to protect against MSR value fluctuations, or MSR hedging gains and losses, are also included as a component of Change in fair value of MSRs. This account also includes gains and losses from the sale of MSRs. Other income consists of income that is dissimilar in nature to revenues the Company earns from its ongoing central operations. Other income includes gain from the sale of certain assets.
Components of Operating Expenses
Compensation and benefits expense includes all salaries, commissions, bonuses and benefit-related expenses for our associates.
Loan expense primarily includes loan origination costs, loan processing costs, and fees related to loan funding. Certain passthrough fees such as flood certification, credit report, and appraisal fees, among others, are presented net within Loan expense.
Loan servicing expense primarily includes subservicing fees, non-performing servicing expenses, and general servicing expenses, such as printing expenses, recording fees, and title search fees.
Production technology includes origination and servicing system technology expenses.
General and administrative primarily includes occupancy and equipment, marketing and advertising costs, travel and entertainment, legal reserves, and professional services, such as audit and consulting fees.
Depreciation includes depreciation of Property and equipment.
Other expenses primarily consist of insurance, dues and subscriptions, and other employee-related expenses such as recruitment fees and training expenses.
Equity-Based Compensation
Equity-based compensation consists of equity awards and is measured and expensed accordingly under ASC 718, Compensation-Stock Compensation.
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Results of Operations - Years Ended
Consolidated Results of Operations
The following presents certain consolidated financial data:
Years Ended December 31,
2022 2021 $ Change % Change
(dollars in thousands)
Revenue:
Gain on loans, net $ 47,105 $ 585,762 $ (538,657) (92.0) %
Loan fee income 46,029 150,921 (104,892) (69.5) %
Interest income 91,417 136,477 (45,060) (33.0) %
Interest expense (112,281) (169,390) 57,109 (33.7) %
Interest expense, net (20,864) (32,913) 12,049 (36.6) %
Loan servicing fees 265,275 331,382 (66,107) (19.9) %
Change in fair value of mortgage servicing
rights (97,689) (76,831) (20,858) 27.1 %
Other income 15,791 3,195 12,596 394.2 %
Total revenue, net 255,647 961,516 (705,869) (73.4) %
Expenses:
Compensation and benefits 256,856 494,227 (237,371) (48.0) %
Loan expense 21,865 63,912 (42,047) (65.8) %
Loan servicing expense 35,382 27,373 8,009 29.3 %
Production technology 16,153 31,866 (15,713) (49.3) %
General and administrative 60,317 95,476 (35,159) (36.8) %
Depreciation 10,700 10,127 573 5.7 %
Impairment of goodwill 10,789 - 10,789 N/A
Other expenses 22,675 29,638 (6,963) (23.5) %
Total expenses 434,737 752,619 (317,882) (42.2) %
(Loss) income before income tax (179,090) 208,897 (387,987) (185.7) %
Income tax benefit (expense) 41,914 (57,998) 99,912 (172.3) %
(Loss) income from equity method
investment (26,278) 15,373 (41,651) (270.9) %
Net (loss) income $ (163,454) $ 166,272 $ (329,726) (198.3) %
Consolidated results are further analyzed in our segment disclosure below.
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Origination Segment
The following presents certain financial data for the Origination segment:
Years Ended December 31,
2022 2021 $ Change % Change
(dollars in thousands)
Revenue:
Gain on loans, net $ 47,105 $ 585,762 $ (538,657) (92.0) %
Loan fee income 46,029 150,921 (104,892) (69.5) %
Loan servicing fees - 8 (8) (100.0) %
Interest income 79,245 133,551 (54,306) (40.7) %
Interest expense (57,870) (119,654) 61,784 (51.6) %
Interest income, net 21,375 13,897 7,478 53.8 %
Other income 111 - 111 N/A
Total origination revenue, net 114,620 750,588 (635,968) (84.7) %
Expenses:
Compensation and benefits 157,373 373,127 (215,754) (57.8) %
Loan expense 21,865 62,809 (40,944) (65.2) %
Loan servicing expense - 32 (32) (100.0) %
Production technology 14,153 29,895 (15,742) (52.7) %
General and administrative 23,906 39,640 (15,734) (39.7) %
Other expenses 4,207 8,030 (3,823) (47.6) %
Total origination expenses 221,504 513,533
(292,029) (56.9) %
Origination net (loss) income
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TABLE OF CONTENTS Origination Revenue,Net Gains on loans, net
The following presents components of Gain on loans, net:
Years Ended December 31,
2022 2021
(dollars in thousands)
FOA Lock Volume by Channel
Wholesale $ 22,132,356 $ 61,021,701
Correspondent 3,879,896 18,827,684
Direct 592,908 3,295,243
FOA Lock Volume $ 26,605,160 $ 83,144,628
Gain on sale margin by Channel
Wholesale $ 139,704 $ 557,946
Correspondent 5,452 47,155
Direct 15,271 100,846
Gain on sale margin attributable to channels 160,427 705,947
Other (loss) gain on sale(a) (45,807) 44,633
Total gain on sale margin(b) $ 114,620 $ 750,580
Gain on sale margin by Channel (bps)
Wholesale 63 91
Correspondent 14 25
Direct 258 306
Gain on sale margin attributable to channels 60 85
Other (loss) gain on sale(a) (17)
5
Total gain on sale margin(b) 43
90
(a) Includes loan fee income, interest income (expense), net, realized and
unrealized gains (losses) on locks and MLHS, net hedging results, the provision
for the representation and warranty reserve, and differences between modeled and
actual pull-through.
(b) Gain on sale margin calculated as gain on sale divided by FOA Lock volume.
Gain on sale includes gain on loans, net, loan fee income, and interest income
(expense), net for the Origination segment.
The following presents details of the characteristics of our mortgage loan
production:
Years Ended December 31,
2022 2021
(dollars in thousands)
Origination volume $ 27,680,284 $ 96,203,394
Originated MSR UPB $ 30,802,034 $ 92,052,349
Gain on sale margin (%) (a) 0.43 % 0.90 %
Retained servicing (UPB) (%) (b) 97.8 % 96.8 %
(a) Includes loan fee income, interest income (expense), net, realized and
unrealized gains (losses) on locks and MLHS, net hedging results, the provision
for the representation and warranty reserve and differences between modeled and
actual pull-through.
(b) Represents the percentage of our loan sales UPBs for which we retained the underlying servicing UPB during the period.
Gain on loans, net decreased by$538.7 million , or 92.0% for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The decrease was primarily due to a reduction in origination volume, a decrease of$636.0 million , or 84.7% in gain on sale margin, as well as$56.9 million increase in provision for representation and warranty reserve. 52
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We experienced a decrease in FOA lock volume and Origination volume across all of our origination channels primarily due to rising interest rates. Additionally, we saw a significant decrease in gain on sale margins due to the competitive environment during the year endedDecember 31, 2022 compared to the prior year. As mortgage interest rates rise, the origination market contracts, primarily due to a decline in refinance volume, which generally leads to increased competition and lower gain on sale margins. Our origination market share decreased from 2.1% to 1.3%, and our share of the wholesale channel decreased from 9.8% to 6.6% compared to the prior year.
Loan fee income
Loan fee income decreased by
Interest income, net
Interest income, net increased by$7.5 million for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The increase in interest income, net was driven by$54.3 million decrease in interest income and$61.8 million decrease in interest expense. Interest income decreased due to lower MLHS balance partially offset by the impact of the rising interest rates. Interest expense decreased as a result of a decrease in warehouse borrowing and related fees due to the decrease in Origination volume. The Company continues to strategically rightsize its warehouse lines of credit to minimize associated costs and more efficiently operate in the environment of rising interest rates and increased competition. Expenses
Total expenses decreased by
Compensation and benefits expense decreased by$215.8 million , or 57.8%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The decrease was primarily driven by a decrease of$119.6 million in salary and benefits and$96.2 million decrease in variable compensation due to headcount reductions detailed in Note 18 - Restructuring, decrease in Origination volume, and the sale of the Correspondent channel detailed in Note 26 - Sale ofThe Correspondent Channel and Home Point Asset Management LLC . Compensation and benefits expense was 0.6% and 0.4% of Origination volume for the years endedDecember 31, 2022 and 2021, respectively.
Loan expense decreased by
Production technology expense decreased by$15.7 million , or 52.7%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The decrease was primarily driven by lower variable expenses associated with the Company's origination systems as a result of the decline in Origination volume, combined with the investment the Company made in improving and upgrading the Company's origination technologies in 2021. General and administrative expense decreased$15.7 million , or 39.7%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The decrease was primarily driven by decrease in outsourced loan review services due to the decline in origination volume, as well as lower expenses as a result of cost-saving initiatives implemented in the second half of 2021 and continuing during 2022. 53
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Servicing Segment
The following table sets forth certain servicing segment financial data for the
periods indicated:
Years Ended December 31,
2022 2021 $ Change % Change
(dollars in thousands)
Revenue:
Loan servicing fees $ 265,275 $ 331,374 $ (66,099) (19.9) %
Change in fair value of mortgage servicing
rights (97,689) (76,831) (20,858) 27.1 %
Interest income 12,172 2,926 9,246 316.0 %
Interest expense - (995) 995 (100.0) %
Interest income, net 12,172 1,931 10,241 530.3 %
Other income - 227 (227) (100.0) %
Total servicing revenue, net 179,758 256,701 (76,943) (30.0) %
Expenses:
Compensation and benefits 16,356 30,481 (14,125) (46.3) %
Loan expense - 1,104 (1,104) (100.0) %
Loan servicing expense 35,382 27,340 8,042 29.4 %
Production technology 2,000 1,971 29 1.5 %
General and administrative 4,139 9,417 (5,278) (56.0) %
Other expenses 116 564 (448) (79.4) %
Total servicing expenses 57,993 70,877 (12,884) (18.2) %
Servicing net income $ 121,765 $ 185,824 $ (64,059) (34.5) %
Servicing Revenue, Net
Loan servicing fees
The following presents certain characteristics of our mortgage loan servicing
portfolio:
December 31,
2022 2021
(dollars in thousands)
MSR Servicing Portfolio (UPB) $ 88,668,633 $ 128,359,574
Average MSR Servicing Portfolio (UPB)
315,478 425,989
MSRs Fair Value Multiple (x) 6.0
4.6
Delinquency Rates (%) 1.6 % 0.7 % Weighted average credit score 748
757
Weighted average servicing fee, net (bps) 27
26
Loan servicing fees decreased by$66.1 million , or 19.9%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The decrease was primarily driven by$20.0 million lower ancillary servicing income due to lower loan modification fees earned on GNMA loans and gains in 2021 as a result of the Company selling 77% of its GNMA MSR portfolio during the fourth quarter of 2021 and approximately 40% of its MSR servicing portfolio in 2022. 54
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Change in fair value of MSRs
Years Ended December 31,
2022 2021
(dollars in thousands)
Realization of cash flows
227,401
Economic hedging results (242,487) (33,699)
(Loss) gain on MSR sales (82,163) 37,025
Change in fair value of MSRs $ (97,689) $ (76,831)
Change in fair value of MSRs presented losses for both years ended December 31,
2022 and 2021. Fair value losses increased by $20.9 million , or 27.1%, for the
year ended December 31, 2022 compared to the year ended December 31, 2021 . The
change was primarily driven by the $82.2 million loss on MSR sales, which was
partially offset by changes in valuation inputs and assumptions net of hedge,
that were favorably affected by an increase in interest rates during the period,
as well as decrease in loss from realization of cash flows resulting from a
decrease in prepayments due to higher interest rates and higher scheduled
payments collected on loans in our MSR portfolio.
Expenses
Total expenses decreased by$12.9 million , or 18.2%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The decrease was primarily driven by decreases in compensation and benefits expense and general and administrative expenses, partially offset by the increases in loan servicing expense. Compensation and benefits expense decreased by$14.1 million , or 46.3%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The decrease was primarily driven by the salary expense decreases due to employee headcount reductions and efficiencies gained from the transition of subservicing to ServiceMac. Loan servicing expense increased by$8.0 million , or 29.4%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The increase was primarily due to$16.3 million increase in subservicing fee due to outsourcing of the servicing to ServiceMac, partially offset by$6.1 million decrease in recording fees and other reductions in loan servicing expense due to the sale of MSRs and other efficiencies gained from the subservicing to ServiceMac. General and administrative expense decreased$5.3 million , or 56.0%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The decrease was primarily driven by a decrease in professional services and consulting fees resulting from the Company's cost savings initiatives. 55
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Corporate Segment
The following presents corporate financial data:
Years Ended December 31,
2022 2021 $ Change % Change
(dollars in thousands)
Revenue:
Interest expense $ (54,411) $ (48,741) $ (5,670) 11.6 %
Interest expense, net (54,411) (48,741) (5,670) 11.6 %
Other (expense) income (10,598) 18,341 (28,939) (157.8) %
Total corporate revenue, net (65,009) (30,400) (34,609) 113.8 %
Expenses:
Compensation and benefits 83,127 90,619 (7,492) (8.3) %
General and administrative 32,272 46,419 (14,147) (30.5) %
Depreciation and amortization 10,700 10,127 573 5.7 %
Impairment of goodwill 10,789 - 10,789 N/A
Other expenses 18,352 21,044 (2,692) (12.8) %
Total corporate expenses 155,240 168,209 (12,969) (7.7) %
Corporate net loss $ (220,249) $ (198,609) $ (21,640) 10.9 %
Total Corporate Revenue
Interest expense, net increased by $5.7 million , or 11.6%, for the year ended
December 31, 2022 compared to the year ended December 31, 2021 . The increase in
expense was driven by an increase in corporate debt interest due to issuance of
the Senior Notes in January 2021 .
Other expense increased by $28.9 million for the year ended December 31, 2022
compared to the Other income for the year ended December 31, 2021 . The increase
in Other expense was primarily driven by $41.7 million increase in loss from our
equity method investment, which included an impairment charge of $8.8 million
detailed in Note 21 - Shareholders' Equity and Equity Method Investment ,
partially offset by $9.3 million debt extinguishment gain related to the
repurchase and retirement of $50.0 million of outstanding Senior Notes (as
defined below) during the year ended December 31, 2022 .
Expenses
Total expenses decreased by
Compensation and benefits expense decreased by$7.5 million , or 8.3%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The decrease was primarily driven by$11.5 million lower salary expense and$9.4 million lower variable compensation for the year endedDecember 31, 2022 , partially offset by$15.6 million increase in severance expense due to headcount reduction detailed in Note 18 - Restructuring resulting from the decrease in Origination volume.
Impairment of goodwill charge of
General and administrative expenses decreased by$14.1 million , or 30.5%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The decrease was primarily driven by a decrease in professional services fees of$12.5 million for the year endedDecember 31, 2022 , as a result of higher costs in 2021 associated with the Company's IPO. Other expenses decreased by$2.7 million , or 12.8%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The decrease was primarily driven by$3.4 million decrease in employee related expenses due to the reduction in employee headcount and$1.7 million reduction in other expenses due to the Company's cost saving initiatives. These decreases were partially offset by$2.4 million loss related to asset disposal and$0.4 million loss from the sale of the Correspondent channel. 56
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Income Tax Benefit (Expense)
Income tax benefit (expense) is recognized for the entire company rather than on a segment basis. Income tax benefit increased by$99.9 million for the year endedDecember 31, 2022 compared to the income tax expense for the year endedDecember 31, 2021 . The change is primarily due to the change in (loss) income before income tax. Our overall effective tax rate of 23.4% and 27.8% for the years endedDecember 31, 2022 and 2021, respectively, differed from theU.S. statutory rate of 21.0% primarily due to the impact of state incomes taxes, the equity investment, sale of its equity interests in HPAM and its wholly owned subsidiary HPMAC detailed in Note 26 - Sale ofThe Correspondent Channel and Home Point Asset Management LLC , goodwill impairment, limitations on the tax deductibility of officers' compensation applicable to a public entity in both periods, equity-based compensation, and non-deductible transaction costs in 2021 associated with the Company's IPO.
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,
•Proceeds from sale of mortgage servicing rights, and
•Cash and marketable securities on hand.
Historically, our primary uses of funds have included:
•Origination of loans,
•Payment of interest expense,
•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). 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.
We held mortgage warehouse lines of credit arrangements with eight separate
financial institutions with a total maximum borrowing capacity of
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In light of the recent decline in the Origination volumes, the Company continues to strategically rightsize its warehouse lines of credit in order to minimize associated costs and more efficiently operate in the environment of rising interest rates and increased competition. We maintained a servicing advance financing facility, MSR financing facility and an operating line of credit with total combined unused borrowing capacity of$459.2 million as ofDecember 31, 2022 . Refer to Note 11 - Term Debt and Other Borrowings, net of our consolidated financial statements.
The amount owed and outstanding on our loan funding facilities fluctuates significantly based on our Origination volume and the amount of time it takes us to sell the loans we 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 provisions that could result in all facilities terminating if an event of default or acceleration of maturity occurs under any facility. InJanuary 2021 , the Company issued$550.0 million aggregate principal amount of its Senior Notes (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 onFebruary 1, 2026 . The Indenture governing the Senior Notes (the "Indenture") 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. Refer to Note 11 - Term Debt and Other Borrowings, net of our consolidated financial statements.
The Company was in compliance with all covenants under the indenture and our
warehouse facilities and other lines of credit as of
The Company may, at any time and from time to time, seek to retire or purchase the Company's outstanding Senior Notes through cash purchases in the 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 and retired$50.0 million of outstanding Senior Notes during the second quarter of 2022.
Summary of Mortgage Loan Participation Agreement
InNovember 2021 , we entered into a Mortgage Loan Participation Sale Agreement (the "Gestation Agreement") withJPMorgan Chase Bank, National Association , as purchaser (the "Gestation Purchaser"). Subject to compliance with the terms and 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 lien residential mortgage loans that are intended to ultimately be included in mortgage-backed securities ("MBS") issued or guaranteed, as applicable, by Federal National Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage Corporation ("Freddie Mac"), andGinnie Mae . 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$400 million , which was reduced from$1.5 billion during the third quarter of 2022. OnJanuary 31, 2023 , HPF terminated the Gestation Agreement. For additional information, refer to Note 27 - Subsequent Events. 58
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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 ofDecember 31, 2022 .
Repurchase Obligation Relief
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. Historically, the Company received
relief of certain repurchase obligations on loans sold to the Federal National
Mortgage Association ("FNMA") or Federal Home Loan Mortgage Corporation
("FHLMC") by taking advantage of their repurchase alternative program. This
program provided the Company with the ability, in certain instances, to pay a
fee to FNMA or FHLMC, in lieu of being obligated to repurchase the loan. During
September and October 2022 , FNMA and FHMC notified the Company that they will
not provide repurchase obligation relief through the repurchase alternative
program beginning in the fourth quarter of 2022 until further notice.
Cash Flows
The following presents the summary of the Company's cash flows:
Years Ended December 31,
2022 2021
(dollars in thousands)
Net cash provided by (used for) operating activities $ 3,654,503 $ (2,356,148)
Net cash provided by investing activities 771,766 208,601
Net cash (used for) provided by financing activities (4,525,467) 2,158,444
Net (decrease) increase in cash, cash equivalents, and restricted cash (99,198)
10,897
Cash, cash equivalents, and restricted cash at end of period $
108,592
Our Cash and cash equivalents and restricted cash decreased by
Operating Activities
Our Cash flows from operating activities are primarily influenced by changes in the levels of our inventory of MLHS as shown below:
Years Ended December 31,
2022 2021
Cash flows from: (dollars in thousands)
Mortgage loans held for sale $ 3,654,789 $ (2,347,241)
Gain on loans, net (47,105) (585,762)
Decrease in fair value of derivative assets, net 36,148 215,550
Decrease in fair value of mortgage loans held for sale 138,530
41,824
Other operating sources 10,671
361,305
Net cash provided by (used for) operating activities
Cash provided by operating activities increased by$6.0 billion for the year endedDecember 31, 2022 compared to the cash used for operating activities for the year endedDecember 31, 2021 . The increase provided by operating activities is primarily driven by decrease in the level of inventory of loans held for sale as a result of a decrease in Origination volume for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . This increase was partially offset by the change in fair value of derivative assets of$179.4 million primarily due to interest rate lock commitment ("IRLC") revenue and margin call assets. Investing Activities Cash provided by investing activities increased by$563.2 million primarily due to proceeds from sale of MSRs of$757.3 million for the year endedDecember 31, 2022 compared to$262.0 million for the year endedDecember 31, 2021 . 59
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Financing Activities
Our Cash flows from financing activities are primarily influenced by changes in warehouse borrowings as shown below:
Years Ended December 31,
2022 2021
Cash flows from: (dollars in thousands)
Warehouse borrowings, net $ (4,222,177) $ 1,713,242
Distributions to parent, net1 - (294,897)
Other financing sources (303,290)
740,099
Net cash (used for) provided by financing activities
2,158,444
(1) distributions to
Cash used for financing activities increased for the year endedDecember 31, 2022 compared to the cash provided by financing activities for the year endedDecember 31, 2021 . The increase in use was primarily driven by decrease in proceeds, net of payments, on warehouse borrowings due to a decrease in Origination volume. As noted above, the Company continues to strategically rightsize its warehouse lines of credit in order to minimize associated costs and more efficiently operate in the environment of rising interest rates and increased competition.
Contractual Obligations and Other Commitments
Cash Requirements from Contractual and Other Obligations
As ofDecember 31, 2022 , our material cash requirements from known contractual and other obligations include interest and principal payments under the Senior Notes, payments under the MSR financing facility (the "MSR Facility"), and payments under our warehouse facilities. Annual cash payments for interest under the Senior Notes totaled approximately$25.6 million for the year endedDecember 31, 2022 and$500.0 million of the outstanding Senior Notes' principal is due in 2026. Annual cash payments for interest under the MSR Facility totaled approximately$25.1 million for the year endedDecember 31, 2022 and approximately$300.0 million outstanding under the MSR Facility matures in 2024 and$150.0 million matures in 2025. Approximately$0.5 billion of outstanding borrowings under the warehouse facilities mature in 2023, which are typically repaid using the proceeds from the sale of mortgage loans to investors, usually within 30 days. We do not have material commitments for capital expenditures as ofDecember 31, 2022 given the nature of our business. The sources of funds needed to satisfy these cash requirements include cash flows from operations and financing activities, including cash flows from sales of MSRs, sale of loans into the secondary market, loan origination fees, servicing fee income, and interest income on mortgage loans. Refer to "Note 10 - Warehouse Lines of Credit," "Note 11 - Term Debt and Other Borrowings, net," and "Note 13 - Commitments and Contingencies" of the notes to our consolidated financial statements for further discussion of contractual obligations, commercial commitments, and other contingencies, including legal contingencies.
Dividend Payments and Suspension of Dividend
During the year ended
Our board of directors (the "Board") has determined not to declare a dividend on our common stock for the second, third, and fourth quarters of 2022. 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 results of operations and financial 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.
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.
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Interest Rate Lock Commitments, Loan Sale and Forward Commitments
In the normal course of business, we are party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit to borrowers at either fixed or floating interest rates. IRLCs are binding agreements to lend to a borrower at a specified interest rate within a specified period of time as long as there is no violation of conditions established in the contract. Forward commitments generally have fixed expiration dates or other termination clauses which may require payment of a fee. As many of the commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. In addition, we have forward commitments to sell MBS at specified future dates and interest rates.
The following presents a summary of the notional amounts of commitments:
December 31,
2022 2021
(dollars in thousands)
Interest rate lock commitments-fixed rate $ 596,633 $ 5,979,475
Interest rate lock commitments-variable rate 2,337 89,288
Forward commitments to sell mortgage-backed securities 819,900 7,819,802 Critical Accounting Estimates The preparation of financial statements in conformity withU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We have identified certain accounting estimates as being critical because they require us to make difficult, subjective or complex judgments about matters that are uncertain. We believe that the judgment, estimates, and assumptions used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, actual results could differ, and the use of other assumptions or estimates could result in material differences in our results of operations or financial condition. Our critical accounting policies and estimates are discussed below and relate to fair value measurements, particularly those determined to be Level 2 and Level 3. Refer to "Note 16 - Fair Value Measurements" to our consolidated financial statements. Mortgage loans held for sale. We have elected to record MLHS at fair value. The majority of our 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 our MLHS consist of loans repurchased from theGovernment-Sponsored Enterprises ("GSEs") andGinnie Mae that have subsequently been deemed to be non-saleable to GSEs andGinnie Mae when certain representations and warranties are breached. These repurchased loans are considered Level 3 at collateral value less estimated costs to sell the properties. Changes in economic or other relevant conditions could cause our assumptions with respect to market prices of securities backed by similar mortgage loans to be different than our estimates. Increases in the market yields of similar mortgage loans result in a lower Mortgage loans held for sale at fair value. Derivative financial instruments. Our derivative financial instruments are accounted for as free-standing derivatives and are included in the consolidated balance sheets at fair value. These derivative financial instruments include, but are not limited to, forward MBS sales and purchase commitments, IRLCs, and other derivative instruments used to economically hedge fluctuations in MSRs' fair value. Interest rate lock commitments The Company estimates the fair value of 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 interest rate lock commitment. The Company estimates the fair value of forward sales commitments based on quoted MBS prices. The weighted average pull-through rate for IRLCs was 77.5% and 86.1% for the years endedDecember 31, 2022 and 2021, respectively. Given the significant and unobservable nature of the pull-through factor, IRLCs are classified as Level 3. Mortgage Servicing Rights. We have elected to record MSRs at fair value. MSRs are recognized as a component of Gain on loans, net when loans are sold, and the associated servicing rights are retained. Subsequent changes in fair value of MSRs due to the collection and realization of cash flows and changes in model inputs and assumptions are recognized in current period earnings and included as a separate line item in the consolidated statements of operations. 61
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We use 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. Changes in economic and other relevant conditions could cause our assumptions, such as with respect to the prepayment speeds, to be different than our estimates. The key assumptions used to estimate the fair value of MSRs are prepayment speeds and the discount rate. Increases in prepayment speeds generally have an adverse effect on the value of MSRs as the underlying loans prepay faster, which causes accelerated MSR amortization. Increases in the discount rate result in a lower MSR value and decreases in the discount rate result in a higher MSR value. Refer to "Note 4 - Mortgage Servicing Rights" to our consolidated financial statements. 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. The Company estimates the fair value of forward commitments based on quoted MBS prices. MSR derivatives: interest rate swap andTreasury futures purchase contracts. These derivatives represent a combination of derivatives used to offset possible adverse changes in the fair value of MSRs and include options on swap contracts, interest rate swap contracts, and other instruments. Fair value is determined by using quoted prices for similar instruments. Representation and warranty reserves Loans sold to investors which we believe met investor and agency guidelines at the time of sale may be subject to repurchase in the event of default by the borrower or subsequent discovery that guidelines were not satisfied. The Company establishes a reserve for the probable lifetime loss based on borrower performance, repurchase demand behavior, and historical loan defect experience. This reserve considers both the estimate of expected losses on loans sold during the current accounting period as well as adjustments to the Company's previous estimate of expected losses on loans sold.
New Accounting Pronouncements Not Yet Effective
Refer to "Note 2 - Basis of Presentation and Significant Accounting Policies" to our consolidated financial statements for a discussion of recent accounting developments and the expected effect on the Company.
Item 7A. Qualitative and Quantitative Disclosure About Market Risk
As a smaller reporting company, we are not required to provide information for this item.
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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Supplementary Data
Page
Report of Independent Registered Public Accounting Firm (
64
Consolidated Balance Sheets as of December 31, 2022 and 2021 66
Consolidated Statements of Operations for the Years Ended
67
Consolidated Statements of Shareholders' Equity for the Years Ended
68
Consolidated Statements of Cash Flows for the Years Ended
70
Notes to Consolidated Financial Statements 72
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Report of Independent Registered Public Accounting Firm
Shareholders and Board of DirectorsHome Point Capital Inc. & SubsidiariesAnn Arbor, Michigan
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets ofHome Point Capital, Inc. (the "Company") as ofDecember 31, 2022 and 2021, the related consolidated statements of operations, shareholders' equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company atDecember 31, 2022 and 2021, and the results of its operations and its cash flows for the years endedDecember 31, 2022 , in conformity with accounting principles generally accepted inthe United States of America .
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States ) ("PCAOB") and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Fair Value of Mortgage Servicing Rights
As described in Notes 2, 4 and 16 to the Company's consolidated financial
statements, the Company's balance of mortgage servicing rights ("MSRs") was
$1.40 billion as of December 31, 2022 . The Company has elected to account for
MSRs at fair value and determines the fair value by estimating the fair value of
the future servicing cash flows associated with the mortgage loans being
serviced. Prepayment speeds and discount rates are both significant unobservable
assumptions that are key to the valuation of MSRs. The fair value of MSRs is
classified as Level 3 in the valuation hierarchy.
We identified the valuation of MSRs as a critical audit matter because of (i)
the significant judgments made by management in determining the prepayment
speeds and discount rates assumptions, and (ii) the high degree of auditor
judgment and an increased extent of effort when performing audit procedures to
evaluate the appropriateness of these significant unobservable valuation
assumptions, including specialized skill and knowledge needed.
The primary procedures we performed to address this critical audit matter include:
-Testing the relevance and reliability of loan level data used in determining
the MSR valuation by verifying the completeness and accuracy of the data.
-Evaluating the reasonableness of management's MSR valuation methodology and the
design of the valuation model used to estimate the fair value of MSRs with the
assistance of personnel with specialized skill and knowledge.
-Assessing the reasonableness of the prepayment speed and discount rate
assumptions used by management in valuing the MSRs, by (i) comparing the
assumptions used by the Company with those used by peer institutions and (ii)
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comparing the assumptions used by the Company to independent market information
with the assistance of personnel with specialized skill and knowledge.
-Evaluating the Company's MSR fair value by (i) comparing it with an
independently determined estimate of fair value, and (ii) comparing it to values
implied by observable transactions with the assistance of personnel with
specialized skill and knowledge.
/s/ BDO USA, LLP We have served as the Company's auditor since 2017.
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HOME POINT CAPITAL INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
December 31,
2022 2021
Assets:
Cash and cash equivalents $ 97,248 $ 170,987
Restricted cash 11,344 36,803
Cash and cash equivalents and Restricted cash 108,592 207,790
Mortgage loans held for sale (at fair value) 642,993 5,107,161
Mortgage servicing rights (at fair value) 1,402,542 1,525,103
Property and equipment, net 11,660 21,892
Accounts receivable, net 124,691 129,092
Derivative assets 25,611 84,385
Goodwill - 10,789
85,937 65,237
Assets held for sale - 63,664
Other assets 36,166 43,228
Total assets $ 2,438,192 $ 7,258,341
Liabilities and Shareholders' Equity:
Liabilities:
Warehouse lines of credit $ 496,481 $ 4,718,658
Term debt and other borrowings, net 942,083 1,226,524
Accounts payable and accrued expenses 64,349 138,193
85,937 65,237
Deferred tax liabilities 183,860 229,752
Derivative liabilities 4,110 26,736
Other liabilities 57,836 76,588
Total liabilities 1,834,656 6,481,688Note 13 - Commitments and Contingencies
Shareholders' Equity:
Preferred stock (250,000,000 authorized shares, none issued and
outstanding,
- -
Common stock (1,000,000,000 authorized shares, 138,398,707 and
139,326,953 shares issued and outstanding; par value
- -
Additional paid-in capital 513,710 523,811
Retained earnings 89,826 252,842
Total shareholders' equity 603,536 776,653
Total liabilities and shareholders' equity $ 2,438,192 $ 7,258,341
See accompanying notes to the consolidated financial statements.
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HOME POINT CAPITAL INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
Years Ended December 31,
2022 2021
Revenue:
Gain on loans, net $ 47,105 $ 585,762
Loan fee income 46,029 150,921
Interest income 91,417 136,477
Interest expense (112,281) (169,390)
Interest expense, net (20,864) (32,913)
Loan servicing fees 265,275 331,382
Change in fair value of mortgage servicing rights (97,689) (76,831)
Other income 15,791 3,195
Total revenue, net 255,647 961,516
Expenses:
Compensation and benefits 256,856 494,227
Loan expense 21,865 63,912
Loan servicing expense 35,382 27,373
Production technology 16,153 31,866
General and administrative 60,317 95,476
Depreciation 10,700 10,127
Impairment of goodwill 10,789 -
Other expenses 22,675 29,638
Total expenses 434,737 752,619
(Loss) income before income tax (179,090) 208,897
Income tax benefit (expense) 41,914
(57,998)
(Loss) income from equity method investment (26,278) 15,373 Net (loss) income$ (163,454) $ 166,272 (Loss) earnings per share: Basic$ (1.18) $ 1.19 Diluted$ (1.18) $ 1.19
See accompanying notes to the consolidated financial statements.
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HOME POINT CAPITAL INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(dollars in thousands)
Common Stock Additional Total
Paid in Retained Shareholders'
Shares Amount Capital Treasury Stock Earnings Equity
Balance as of January 1, 2021 138,860,103 $ - $ 519,510 $ - $ 407,964 $ 927,474
Contributed capital - - - - 192 192
Distributions to parent - - - - (295,089) (295,089)
Dividends to shareholders - - - - (26,497) (26,497)
Employee stock purchases
(option exercise) 466,850 - (2,636) - - (2,636)
Equity-based compensation - - 6,937 - - 6,937
Net income - - - - 166,272 166,272
Balance as of January 1, 2022 139,326,953 $ - $ 523,811 $ - $ 252,842 $ 776,653
Stock repurchase - - - (3,774) (3,774)
Retirement of treasury stock (1,179,796) - (15,338) 3,774 11,564 -
Dividends to shareholders - - - - (11,126) (11,126)
Employee stock purchases
(option exercise) 126,772 - 60 - - 60
Equity-based compensation
(restricted stock units
vesting) 124,778 - 5,177 - - 5,177
Net loss - - - - (163,454) (163,454)
Balance as of December 31,
2022 138,398,707 $ - $ 513,710 $ - $ 89,826 $ 603,536
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See accompanying notes to the consolidated financial statements.
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HOME POINT CAPITAL INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(dollars in thousands)
Years Ended December 31,
2022 2021
Operating activities:
Net (loss) income $ (163,454) $ 166,272 Adjustments to reconcile net (loss) income to cash used in operating activities: Depreciation
10,700 10,127
Amortization of debt issuance costs 4,009 3,271
Impairment of goodwill 10,789 -
Impairment of equity method investment 8,795 -
Gain on loans, net (47,105) (585,762)
Provision for representation and warranty reserve, net of charge offs
2,028 6,497
Equity-based compensation expense 5,177 6,937
Deferred income tax (benefit) expense (45,165) 55,751
Loss (income) from equity method investment 17,483 (15,373)
Gain from sale of subsidiary (2,750) -
Originations and purchases of mortgage loans held for sale (28,622,069) (100,217,789)
Proceeds from sale and payments of mortgage loans held for sale 32,276,858 97,870,548
Loss (gain) on sale of mortgage servicing rights 82,163 (37,025)
Decrease in fair value of mortgage servicing rights 15,526 113,856
Decrease in fair value of mortgage loans held for sale 138,530 41,824
Decrease in fair value of derivative assets, net 36,148 215,550
Changes in operating assets and liabilities:
Decrease in accounts receivable, net 20,266 51,958
Decrease (increase) in other assets 6,824 (18,259)
Decrease in accounts payable and accrued expenses (78,742) (29,856)
(Decrease) increase in other liabilities (21,508) 5,325
Net cash provided by (used for) operating activities 3,654,503 (2,356,148)
See accompanying notes to the consolidated financial statements.
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HOME POINT CAPITAL INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(dollars in thousands)
Years Ended December 31,
2022 2021
Investing activities:
Purchases of property and equipment (555) (10,309)
Purchases of mortgage servicing rights (24,738) (43,056)
Proceeds from sale of mortgage servicing rights 757,253 261,966
Equity method investment (1,500) -
Proceeds from sale of equity method investments 38,886 -
Proceeds from sale of subsidiary 2,420 -
Net cash provided by investing activities 771,766 208,601
Financing activities:
Proceeds from warehouse borrowings 30,503,338 104,148,375
Payments on warehouse borrowings (34,725,515) (102,435,133)
Proceeds from term debt borrowings 595,000 1,483,400
Payments on term debt borrowings (880,000) (660,000)
Proceeds from other borrowings 70,000 111,000
Payments on other borrowings (73,250) (151,000)
Payments of debt issuance costs (200) (14,168)
Employee stock purchases (option exercise) 60 (2,636)
Common stock repurchases (3,774) -
Contributed capital from parent - 192
Dividends to shareholders (11,126) (26,497)
Distributions to parent - (295,089)
Net cash (used for) provided by financing activities (4,525,467) 2,158,444
Net (decrease) increase in cash, cash equivalents, and restricted cash
(99,198) 10,897
Cash, cash equivalents, and restricted cash at beginning of period
207,790 196,893 Cash, cash equivalents, and restricted cash at end of period$ 108,592 $ 207,790 Supplemental disclosure: Cash paid for interest$ 114,211 $ 141,819 Cash refunded for income taxes$ (2,774) $ (41,043) See accompanying notes to the consolidated financial statements. 71
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HOME POINT CAPITAL INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
Note 1 - Organization and Operations
Nature of Business
Home Point Capital Inc. , aDelaware 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 and its servicing operation. The Company's business operations are organized into the following two segments: (1) Origination and (2) Servicing.Home Point Financial Corporation ("HPF"), aNew Jersey corporation and a wholly owned subsidiary of the Company, originates, sells, and services residential real estate mortgage loans throughout theU.S. and owns certain servicing assets.Home Point Corporation Insurance Agency LLC ("HPCIA"), aMichigan limited liability company, is a wholly owned subsidiary of the Company that brokers home owner insurance policies. OnDecember 2, 2022 , HPC completed the previously announced sale of its equity interests inHome Point Asset Management LLC ("HPAM"), and its wholly owned subsidiary,Home Point Mortgage Acceptance Corporation ("HPMAC"). Prior to the sale, HPAM was a wholly owned subsidiary of the Company and managed certain servicing assets. HPMAC, anAlabama Corporation , serviced residential real estate mortgage loans. HPF is an approved seller and servicer 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 is an approved issuer by theGovernment National Mortgage Association ("GNMA" or "Ginnie Mae") (collectively, the "Agencies"), and as such, HPF must meet certain Agency eligibility requirements.
Note 2 - Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted inthe United States of America ("U.S. GAAP"). The consolidated financial statements include the financial statements of HPC and all its wholly owned subsidiaries, including HPF and HPCIA. All intercompany balances and transactions have been eliminated in consolidation. As noted above, inDecember 2022 HPC completed the sale of HPAM and HPMAC. The results of operations for HPAM and HPMAC through the date of sale are included in the consolidated financial statements.
Use of Estimates
The preparation of the Company's consolidated financial statements in conformity withU.S. GAAP requires HPC to make estimates and assumptions about future events that affect the amounts reported and disclosed in the 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 ("MLHS"), mortgage servicing rights ("MSRs"), servicing advances reserve, derivative assets, derivative liabilities, 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 and goodwill.
Initial Public Offering
OnFebruary 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 (the "Board") also approved a reorganization of the Company through mergingHome Point Capital LP ("HPLP") with and into the Company, with the Company as the surviving entity. Prior to the reorganization in connection with the IPO, HPLP was the direct parent of the Company (the "Parent"). As a secondary offering, there were no 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 byStone 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 Accounting Policies
Cash and cash equivalents are comprised of cash and other highly liquid
investments with a maturity of three months or less. Cash equivalents are stated
at cost, which approximates market value. The Company maintains its deposits in
financial
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
institutions that are guaranteed by various programs offered by the
Restricted cash is comprised of borrower escrow funds and cash reserves required by the Company's warehouse lenders.
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 consolidated statements of operations. Refer to "Note 3 - Mortgage Loans Held for Sale."
Mortgage servicing rights are recognized 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 MSRs include, but are not limited to, discount
rates and prepayment speeds. Other assumptions such as delinquencies, and cost
to service are also considered. 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 consolidated
statements of operations. Purchased MSRs are recorded at the fair value at the
date of purchase.
Property and equipment, net include furniture, equipment, leasehold
improvements, and work-in-process, which are stated at cost, net of accumulated
depreciation. Depreciation is computed on the straight-line basis over the
estimated useful lives of the assets for financial reporting, which range from
three to seven years for furniture, computers and office equipment, and the
shorter of the related lease term or useful life for leasehold improvements.
Servicing advances represent advances paid by the Company on behalf of customers
to fund delinquent balances for principal, interest, property taxes, insurance
premiums, and other out-of-pocket costs. Advances are made in accordance with
the servicing agreements and are recoverable upon collection of future borrower
payments or foreclosure of the underlying loans. The Company is exposed to
losses only to the extent that the respective servicing guidelines are not
followed or in the event there is a shortfall in liquidation proceeds and
records a reserve against the advances when it is probable that the servicing
advance will be uncollectible. The adequacy of the reserve is evaluated so that
the reserve represents management's estimate of current expected losses and is
maintained at a level that management considers adequate based upon continuing
assessments of collectability, current trends, and historical loss experience.
The reserve for uncollectible servicing advances is recorded in Accounts
receivable, net in the consolidated balance sheets and the change in the reserve
is recorded in Loan servicing expense in the consolidated statements of
operations. In certain circumstances, the Company may be required to remit funds
on a non-recoverable basis, which are expensed as incurred. Refer to "Note 9 -
Accounts Receivable, net."
Derivative financial instruments are recorded at fair value as either Derivative
assets or in Derivative liabilities on the 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
economically manage risk. The Company's derivative instruments include, but are
not limited to, forward mortgage-backed securities ("MBS") sales commitments,
interest rate lock commitments ("IRLCs"), and other derivative instruments used
to economically hedge fluctuations in MSRs' fair value. The impact of the
Company's Derivative assets and liabilities is reported in Change in fair value
of derivative assets, net on the 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 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 consolidated statements of operations.
Interest rate lock commitments 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
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. 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
consolidated statements of operations. Forward MBS sale commitments or whole
loan sale commitments and options on forward contracts are used to manage the
interest rate and price risk. These derivatives are not designated as hedging
instruments.
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.
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 production 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 in the consolidated statements of operations.
Goodwill represents the excess of the aggregate fair value of the consideration
transferred in a business combination over the fair value of the assets acquired
net of liabilities assumed. Goodwill is not amortized but rather subject to an
annual impairment test at the reporting unit level. Management performs its
annual goodwill impairment test on October 1 , or more frequently if events or
changes in circumstances indicate that the goodwill may be impaired. The Company
performed an interim impairment test during the third quarter ended September
30, 2022 , which resulted in a write off of the Goodwill balance. For additional
information refer to Note 6 - Goodwill .
GNMA loans eligible for repurchase are certain loans transferred to GNMA and
included in GNMA MBS for which the Company has the right, but not the
obligation, to repurchase the loan from the MBS, including loans delinquent more
than 90 days. Once the Company has the unilateral right to repurchase the
delinquent loan, the Company has effectively regained control over the loan and
must re-recognize the loan on the consolidated balance sheets and establish a
corresponding finance liability regardless of the Company's intention to
repurchase the loan. GNMA loans eligible for repurchase are presented at their
outstanding unpaid principal balance.
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 investment 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 investment initially at cost and are
adjusted for the Company's share of earnings or losses, contributions or
distributions. The Company held an equity method investment in Longbridge
Financial, LLC ("Longbridge"), which was sold on October 3, 2022 . For additional
information refer to Note 21 - Shareholders' Equity and Equity Method
Investment .
Representation and warranty reserves are maintained to account for expected
losses related to loans the Company may be required to repurchase or the
indemnity payments the Company may have to make to purchasers. The Company
originates and sells residential mortgage loans in the secondary market. When
the Company sells mortgage loans, it makes customary representations and
warranties to the purchasers about various characteristics of each loan, such as
the ownership of the loan, the validity of the lien securing the loan, the
nature and extent of underwriting standards applied, and the types of
documentation being provided. These representations and warranties are generally
enforceable over the life of the loan. If a defect in the origination process is
identified, the Company may be required to either repurchase the loan or
indemnify the purchaser for losses it sustains on the loan. If there are no such
defects, the Company has no liability to the purchaser for losses it may incur
on such loans.
The representation and warranty reserve reflects management's best estimate of
probable lifetime loss based on borrower performance, repurchase demand
behavior, and historical loan defect experience. The reserve considers both the
estimate of expected losses on loans sold during the current accounting period
as well as adjustments to the Company's previous estimate of
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
expected losses on loans sold. Management monitors the adequacy of the overall
reserve and adjusts the level of reserve, as necessary, after consideration of
other qualitative factors.
At the time a loan is sold, the representation and warranty reserve is recorded
as a decrease in Gain on loans, net, on the consolidated statements of
operations and recorded in Other liabilities on the Company's consolidated
balance sheets. Changes to the reserve are recorded as an increase or decrease
to Gain on loans, net, on the consolidated statements of operations.
Transfers of financial assets are accounted for as sales when control over the
assets has been surrendered. Control over transferred assets is deemed to be
surrendered when the assets have been isolated from the Company, the transferee
obtains the right (free of conditions that constrain it from taking advantage of
the right) to pledge or exchange the transferred assets, and the Company does
not maintain effective control over the transferred assets through an agreement
to repurchase them before their maturity. Gains and losses stemming from
transfers reported as sales, if any, are included in Gain on loans, net within
the Company's consolidated statements of operations. In instances where a
transfer of financial assets does not qualify for sale accounting, the assets
remain on the Company's consolidated balance sheets and continue to be reported
and accounted for as if the transfer had not occurred.
Gain on loans, net includes the realized and unrealized gains and losses on mortgage loans, as well as the changes in fair value of all loan-related derivatives, including but not limited to, forward MBS sales commitments, IRLCs, freestanding loan-related derivative instruments and the representation and warranty reserve.
Loan fee income consists of fee income earned on all loan originations, including amounts earned related to application and underwriting fees. Fees associated with the origination and acquisition of mortgage loans are recognized when earned, which is on the date the loan is originated or acquired.
Interest income is recognized on loans held for sale for the period from loan funding to sale, which is typically less than 30 days. Loans are placed on non-accrual status and the related accrued interests is reserved when any portion of the principal or interest is 90 days past due or earlier if factors indicate that the ultimate collectability of the principal or interest is not probable. Interest received for loans on non-accrual status is recorded as income when collected. Loans return to accrual status when the principal and interest become current and it is probable that the amounts are fully collectible. Prior to entering into a subservicing agreement with ServiceMac, the Company had a fiduciary responsibility for servicing accounts related to customer escrow funds and custodial funds. The Company receives certain benefits from these deposits, as allowable under federal and state laws and regulations, or as agreed to under certain subservicing agreements. Interest income is recorded as earned and included in the consolidated statements of operations within Interest income. Loan servicing fees involve the servicing of residential mortgage loans on behalf of an investor. Total Loan servicing fees include servicing and other ancillary servicing revenue earned for servicing mortgage loans owned by investors. Servicing fees received for servicing mortgage loans owned by investors are based on a stipulated percentage of the outstanding monthly principal balance of such loans, or the difference between the weighted-average yield received on the mortgage loans and the amount paid to the investor, less guaranty fees and interest on curtailments (reduction of principal balance). Loan servicing fees are receivable only out of interest collected from mortgagors and are recorded as income when earned, which is generally upon collection. Late charges and other miscellaneous fees collected from mortgagors are also recorded as income when collected.
Other income consists of income that is dissimilar in nature to revenues the Company earns from its ongoing central operations.
Equity-based compensation consists of stock options, restricted stock units, and
performance stock units. Expense is recognized at the fair value of equity
awards on the date of grant within Compensation and benefits expense in the
Company's consolidated statements of operations on a straight-line basis over
the requisite service period. Estimates of future forfeitures are made at the
grant date and revised, if necessary, in later periods if subsequent information
indicates actual forfeitures will differ from those estimates. Refer to "Note 19
- Equity-based Compensation".
Debt issuance costs are recorded for the Company's warehouse lines of credit and
other debt. Debt issuance costs are amortized on a straight-line basis, which
approximates the effective interest method, during the revolving period of the
warehouse facilities or during the total term of the term debt agreement.
Amortization of debt issuance costs is recorded in the consolidated statements
of operations within Interest expense.
Income taxes are accounted for under the asset and liability method. Deferred
tax assets are recognized for deductible temporary differences, and deferred tax
liabilities are recognized for taxable temporary differences, using the tax
rates expected to be in effect when the temporary differences reverse. Temporary
differences are the difference between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are also recognized for tax
attributes such as net operating loss carryforwards and tax credit
carryforwards. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Company recognized tax benefits from uncertain income tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authority based on the technical merits of the position. An uncertain income tax position that meets the "more likely than not" recognition threshold is then measured to determine the amount of the benefit to recognize.
Recently Adopted Accounting Standards
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 of the accounting for income taxes. This amendment is effective for annual periods beginning afterDecember 15, 2021 . The Company adopted ASU 2019-12 as ofJanuary 1, 2022 . The adoption of this standard did not have a material impact on the Company's consolidated financial statements. Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, subject to meeting certain criteria, provides optional expedients and exceptions related to applyingU.S. GAAP to certain contract modifications and hedging relationships that reference the London Interbank Offered Rate ("LIBOR") or another rate that is expected to be discontinued. This guidance was effective upon issuance and allows application to contract changes as early asJanuary 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 adopted ASU 2020-04 and ASU 2021-01 inSeptember 2022 . The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
Accounting Standards Issued but Not Yet Adopted
As of
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 MLHS at fair value, by
type:
December 31, 2022
Unpaid Fair Value Total
Principal Adjustment Fair Value
(dollars in thousands)
Conventional(a) $ 425,160 $ (31,639) $ 393,521
Government(b) 254,800 (5,664) 249,136
Reverse(c) 355 (19) 336
Total $ 680,315 $ (37,322) $ 642,993
December 31, 2021
Unpaid Fair Value Total
Principal Adjustment Fair Value
(dollars in thousands)
Conventional(a) $ 4,206,099 $ 79,389 $ 4,285,488
Government(b) 799,579 21,902 821,481
Reverse(c) 275 (83) 192
Total $ 5,005,953 $ 101,208 $ 5,107,161 (a) Conventional includes mortgage loans meeting the eligibility requirements to
be sold to
(b) Government includes mortgage loans meeting the eligibility requirements to
be sold to GNMA (including
(c) Reverse mortgages presented in MLHS on the consolidated balance sheets as a result of a repurchase
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
MLHS on nonaccrual status had
The Company had
The following presents a reconciliation of the changes in MLHS to the amounts presented on the consolidated statements of cash flows:
Years Ended December 31,
2022 2021
(dollars in thousands)
Fair value at beginning of period $ 5,107,161 $ 3,301,694
Mortgage loans originated and purchased(a) 28,622,069 100,217,789 Proceeds from sales and payments received(a) (32,276,858) (97,870,548) Change in fair value (138,530) (41,824) Loss on sale(a) (670,849) (499,950) Fair value at end of period$ 642,993 $ 5,107,161
(a) This line as presented on the consolidated statements of cash flows excludes originated mortgage servicing rights and MSR hedging.
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.
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 MSRs:
Years Ended December 31,
2022 2021
(dollars in thousands)
Balance at beginning of period $ 1,525,103 $ 748,457
MSRs originated 475,469 1,052,012
MSRs purchased 24,738 43,056
MSRs sold (849,729) (238,265)
Changes in valuation model inputs 358,782 227,401
Change due to cash payoffs and principal amortization (131,821)
(307,558) Balance at end of period$ 1,402,542 $ 1,525,103 77
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HOME POINT CAPITAL INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
The following presents the Company's total capitalized mortgage servicing
portfolio (based on the unpaid principal balance ("UPB") of the underlying
mortgage loans):
December 31,
2022 2021
(dollars in thousands)
Ginnie Mae $ 4,357,853 $ 5,602,582
Fannie Mae 47,198,689 70,174,987
Freddie Mac 37,082,471 52,547,588
Other 29,620 34,417
Total $ 88,668,633 $ 128,359,574 The following presents the key weighted average assumptions used in determining the fair value of the Company's MSRs:
December 31,
2022 2021
Discount rate 11.23 % 8.68 %
Weighted average prepayment speeds 5.44 % 8.30 %
The key assumptions used to estimate the fair value of the MSRs are discount
rate and the Conditional Prepayment Rate ("CPR" or "prepayment speeds"). An
increase in prepayment speeds generally 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.
A decrease in prepayment speeds generally 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. 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.
The following presents the impact on the fair value of the Company's MSR portfolio when applying the following hypothetical data points:
Discount Rate Prepayment Speeds
100 BPS 200 BPS 10% Adverse 20% Adverse
Adverse Change Adverse Change Change Change
(dollars in thousands)
December 31, 2022 $ (66,658) $ (127,263) $ (36,353) $ (70,814)
December 31, 2021 $ (66,885) $ (128,172) $ (56,278) $ (108,621) The following presents information related to loans serviced:
Years Ended December 31,
2022 2021
(dollars in thousands)
Total unpaid principal balance $ 89,280,085 $ 133,889,085
Loans 30-89 days delinquent 824,348
656,012
Loans delinquent 90 or more days or in foreclosure 555,293
777,650
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HOME POINT CAPITAL INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
The following presents components of Loan servicing fees as reported in the Company's consolidated statements of operations:
Years Ended December 31,
2022 2021
(dollars in thousands)
Contractual servicing fees $ 266,050 $ 312,181
Late fees 2,394 5,070
Other (3,169) 14,131
Total $ 265,275 $ 331,382 The Company held for its customers
The Company reported$82.2 million loss and a$37.0 million gain on MSR sales in the Change in fair value of mortgage servicing rights in the consolidated statement of operations for the year endedDecember 31, 2022 and 2021, respectively. The Company reclassified$37.0 million gain on MSR sales from Other income to the Change in fair value of mortgage servicing rights on the consolidated statement of operations for the year endedDecember 31, 2021 .
The following presents the components of Change in fair value of MSRs:
Years Ended December 31,
2022 2021
(dollars in thousands)
Realization of cash flows
227,401
Economic hedging results (242,487) (33,699)
(Loss) gain on MSR sales (82,163) 37,025
Change in fair value of MSRs
Note 5 - Derivative Financial Instruments
The following presents the outstanding notional amounts and fair values of derivative instruments not designated as hedging instruments:
December 31, 2022
Notional Derivative Derivative
Value Asset Liability
(dollars in thousands)
Forward sale contracts $ 819,900 $ 6,107 $ 1,200
Interest rate lock commitments 598,970 2,231 2,504
Forward purchase contracts 61,300 -
400
Treasury futures purchase contracts 897,500 - - Margin 17,273 6 Total$ 25,611 $ 4,110 79
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
December 31, 2021
Notional Derivative Derivative
Value Asset 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 1,540,000 111
5,662
Treasury futures purchase contracts 4,720,000 - - Margin 44,387 9,708 Total$ 84,385 $ 26,736 The following presents the recorded gain/(loss) on derivative financial instruments: Years Ended December 31, 2022 2021 (dollars in thousands) Forward sale contracts$ 5,956 $ 58,530 Interest rate lock commitments (26,880) (235,988) Forward purchase contracts (2,926) (1,669) Interest rate swap and Treasury futures purchase contracts (196,453) (20,632) 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 years endedDecember 31, 2022 and 2021. The following presents a summary of derivative assets and liabilities and related netting amounts: December 31, 2022
Gross Amounts Not Offset in the Statement of
Financial Position(1)
Gross Amount of
Assets (Liabilities) Financial
Recognized Instruments Cash Collateral Net Amount
(dollars in thousands)
Derivatives subject to master netting
agreements:
Assets:
Forward sale contracts $ 6,107 $ (1,062) $ (3,790) $ 1,255
Liabilities:
Forward sale contracts (1,200) 1,062 138 -
Forward purchase contracts (400) - 400 -
Derivatives not subject to master netting
agreements:
Assets:
Interest rate lock commitments 2,231 - - 2,231
Liabilities:
Interest rate lock commitments (2,504) - - (2,504) Total derivatives Assets $ 8,338$ (1,062) $ (3,790)$ 3,486 Liabilities $ (4,104) $ 1,062 $ 538$ (2,504) 80
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HOME POINT CAPITAL INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
December 31, 2021
GrossAmounts Not Offset in the Statement of
Financial Position(1)
Gross Amount of
Assets (Liabilities) Financial
Recognized Instruments Cash Collateral Net Amount
(dollars in thousands)
Derivatives subject to master netting
agreements:
Assets:
Forward sales contracts $ 6,969 $ (4,886) $ (1,272) $ 811
Forward purchase contracts 3,031 (258) (2,627) 146
Interest rate swap futures contracts 111 (111) - -
Liabilities:
Forward sale contracts (8,242) 4,886 1,252 (2,104)
Forward purchase contracts (281) 258 - (23)
Interest rate swap futures contracts (5,662) 111 5,551 -
Derivatives not subject to master netting
agreements:
Assets:
Interest rate lock commitments 29,887 - - 29,887
Liabilities:
Interest rate lock commitments (2,843) - - (2,843) Total derivatives Assets $ 39,998$ (5,255) $ (3,899)$ 30,844 Liabilities $ (17,028) $ 5,255 $ 6,803$ (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 16 - Fair Value Measurements.
Note 6 -
The Company performs its annual goodwill impairment analysis as ofOctober 1 or more frequently if events and circumstances indicate that goodwill may be impaired. The Company compares the fair value of each reporting unit with its carrying amount, including goodwill. If the quantitative assessment indicates that the reporting unit's carrying amount exceeds its fair value, the Company recognizes an impairment charge up to this amount but not to exceed the total carrying value of the reporting unit's goodwill. The Company performed an interim impairment test during the third quarter endedSeptember 30, 2022 , due to the impact of rising interest rates on the mortgage industry and the Company's recent stock performance. The Company used the market-based valuation approach to determine fair value of its reporting units and compare against the carrying value of the reporting units, and the fair value was measured using inputs classified as Level 3 in the fair value hierarchy. Based upon the results of this evaluation, the Company recorded$10.8 million goodwill impairment charges in Corporate Impairment of goodwill, driven predominantly by a significant decline in our market capitalization. The Company wrote off the$7.0 million and$3.8 million goodwill asset for the Origination and Servicing segments, respectively, and has no remaining goodwill balance as ofDecember 31, 2022 . 81
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
Note 7 - Other Assets And Other Liabilities
The following presents the principal categories of Other assets:
December 31,
2022 2021
(dollars in thousands)
Prepaid expenses and other $ 15,215 $ 23,418
Right of use lease asset 8,269 12,039
Foreclosure and real estate owned 12,682 7,771
Total $ 36,166 $ 43,228 The Company reclassified
The following presents the principal categories of Other liabilities:
December 31,
2022 2021
(dollars in thousands)
Escrow liability $ 5,088 $ 19,920
Repurchase reserves 26,605 24,577
Right of use lease liabilities, net 10,600 15,562
Unclaimed property 14,811 15,641
Other 732 888
Total $ 57,836 $ 76,588 Note 8 - Property and Equipment, net
The following presents the principal categories of Property and equipment, net:
December 31,
2022 2021
(dollars in thousands)
Computer and telephone $ 18,569 $ 31,187
Office furniture and equipment 2,281 3,027
Leasehold improvements 5,464
5,537
Work-in-process for internal use software 1,772
421
Gross property and equipment 28,086
40,172
Less accumulated depreciation (16,426) (18,280) Total$ 11,660 $ 21,892
Depreciation expense of
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
Note 9 - Accounts Receivable, net
The following presents principal categories of Accounts receivable, net:
December 31,
2022 2021
(dollars in thousands)
Servicing receivable-general $ 14,943 $ 359
Pair off receivable 619 3,738
Servicing sale receivable 29,503 14,364
Servicing advance receivable 77,257 71,884
Servicing advance reserve (3,355) (4,207)
Agency receivable 595 20,184
Income tax receivable 1,902 11,181
Warehouse receivable - 1,934
Interest on servicing deposits 302 464
Other 2,925 9,191
Total $ 124,691 $ 129,092
As part of managing the Company's servicing advances, servicing advance 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.
The following presents changes to the servicing advance reserve:
Years Ended December 31,
2022 2021
(dollars in thousands)
Servicing advance reserve at beginning of period
$ (8,380) Additions (2,620) (1,975) Charge-offs 3,472 6,148
Servicing advance reserve at end of period
Note 10 - 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 eight and eleven separate financial institutions with a total maximum borrowing capacity of$2.8 billion and$7.5 billion as ofDecember 31, 2022 and 2021, respectively. These funding arrangements are primarily uncommitted. The Company had$2.3 billion and$2.8 billion of unused capacity under its warehouse lines of credit as ofDecember 31, 2022 and 2021, respectively.
The following presents the amounts outstanding and maturity dates under the Company's various mortgage funding arrangements:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
Maturity Date December 31, 2022
(dollars in thousands)
$450 million Warehouse Facility(a) August 2023 $ 149,513
$200 million Warehouse Facility(b)September 2023
41,309
$200 million Warehouse Facility(c)September 2023
32,011
$200 million Warehouse Facility(d)March 2023
45,284
$50 million Warehouse Facility(e)March 2023
41,928
$1,200 million Warehouse Facility(f)May 2024
113,136
$88.5 million Warehouse Facility Evergreen
8,050
$400 million Warehouse Facility(g) Evergreen 65,250 Gestation Warehouse Facility Evergreen - Total $ 496,481
(a) Subsequent to
(b) Subsequent toDecember 31, 2021 , the capacity of this Warehouse Facility has been reduced from$500 million to$200 million . The maturity of this Warehouse Facility has been extended fromSeptember 2022 toSeptember 2023 . (c) Subsequent toDecember 31, 2021 , the capacity of this Warehouse Facility has been reduced from$500 million to$200 million . The maturity of this Warehouse Facility has been extended fromSeptember 2022 toSeptember 2023 . (d) Subsequent toDecember 31, 2021 , the capacity of this Warehouse Facility has been reduced from$500 million to$200 million . The maturity of this Warehouse Facility has been extended fromMarch 2022 toMarch 2023 . InFebruary 2023 , the maturity was extended toApril 2023 . Refer to Note 27 - Subsequent Events
(e) Subsequent to
(f) Subsequent to
(g) Subsequent to
Balance at
December 31,
Maturity Date(h) 2021
(dollars in
thousands)
$1,200 million Warehouse Facility(i) February 2022 $ 604,421
$500 million Warehouse Facility(j) March 2022 335,509
$500 million Warehouse Facility March 2022 381,087
$1,000 million Warehouse Facility(k) 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 Funding(l) 93,119
Total $ 4,718,658 (h) Maturity Dates in this table are as of
(i) The warehouse facility was terminated on
(j) The warehouse facility was terminated on
(k) The warehouse facility expired in
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(l) 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 enters into agreements to deliver certified pools of mortgage
loans 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.
The Company's warehouse facilities' variable interest rates are calculated using
an index rate generally tied to a Secured Overnight Financing Rate ("SOFR");
plus applicable interest rate margins, with varying interest rate floors. The
weighted average interest rate for the Company's warehouse facilities was 2.91%
and 2.36% for the years ended December 31, 2022 and 2021, respectively. The
Company's borrowings are secured by MLHS at fair value.
The Company's warehouse facilities require the maintenance of certain financial
covenants relating to net worth, profitability, liquidity, and ratio of
indebtedness to net worth among others. The Company's warehouse lines that
contain profitability covenants were amended to allow for a net loss for the
three months ended December 31, 2022 . The Company was in compliance with all
warehouse facility covenants as of December 31, 2022 .
Note 11 - Term Debt and Other Borrowings, net
The following presents the Company's term debt and other borrowings, net:
December 31,
Maturity Date Collateral 2022 2021
(dollars in thousands)
$1.0 billion MSR Facility May 2025 MSRs $ 450,000 $ 685,000
$550 million Senior Notes(a) February 2026 Unsecured 500,000 550,000
$85 million Servicing Advance May 2023 Servicing advances - 3,250
Facility(b), (c)
$35 million Operating Line of Credit(c) May 2023 Mortgage loans 1,000 1,000
Gross 951,000 1,239,250
Debt issuance costs (8,917) (12,726)
Total $ 942,083 $ 1,226,524 (a) The Company repurchased and retired
(b) Effective
(c) Subsequent to
The Company maintains a$1.0 billion MSR financing facility (the "MSR Facility"). OnApril 29, 2022 , the Company entered into an amendment to the MSR facility that, among other things, reduced the committed capacity from$650.0 million to$500 million . The amendment also replaced the LIBOR based interest rate with SOFR, plus the applicable interest rate margin, with advance rates generally ranging from 62.5% to 72.5% of the fair value of the underlying MSRs. The MSR Facility is collateralized by the Company'sFNMA , FHLMC, and GNMA MSRs. The MSR Facility has a three-year revolving period ending onMay 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 onMay 20, 2025 . The MSR Facility requires the maintenance of certain financial covenants relating to net worth, liquidity, and indebtedness of the Company. The Company was in compliance with all covenants under the MSR Facility as ofDecember 31, 2022 . InJanuary 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 onFebruary 1, 2026 . The company repurchased and retired$50.0 million of outstanding Senior Notes during the second quarter of 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 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. 85
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
The Senior Notes had a carrying value of $500 million and $550 million and an
estimated fair value of $343 million and $506 million as of December 31, 2022
and 2021, respectively. The valuation of the Senior Notes was determined based
on observable trading information considered Level 2 inputs under the fair value
hierarchy. For the Company's other long-term secured borrowings not recorded at
fair value, the carrying value approximated fair value due to the variable
interest rate on the borrowings and the repricing of collateral.
The Company has a $85.0 million servicing advance facility, which is
collateralized by all of the Company's servicing advances. The facility carries
an interest rate of Term SOFR plus a margin and an advance rate ranging from
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. The Company was in compliance with all covenants under the servicing
advance facility as of December 31, 2022 .
The Company also has a
The Company had total available capacity of$391.8 million and$67.4 million for its MSR Facility and servicing advance facility, respectively as ofDecember 31, 2022 . The Company has no available capacity for its operating line of credit as ofDecember 31, 2022 ,
The following presents the Company's debt maturity schedule for the operating line of credit, MSR Facility and the Senior Notes:
(dollars in thousands)
2023 $ 1,000
2024 300,000
2025 150,000
2026 500,000
2027 and thereafter -
Total $ 951,000
Note 12 - Leases
The Company determines if an arrangement is or contains a lease at contract
inception. The Company also considers whether its service arrangements include
the right to control the use of the asset. The initial measurement of the
Right-of-use ("ROU") asset and liability is based on the present value of future
lease payments over the lease term at lease commencement date. To determine the
present value of lease payments, the Company uses its incremental borrowing rate
based on the estimated rate of interest for a fully collateralized fully
amortizing borrowing over a similar term of the lease payments at commencement
date, since the leases generally do not have a readily determinable implicit
discount rates. The Company applies judgement in assessing factors such as
Company-specific credit risk, lease term, nature and quality of the underlying
collateral, and the economic environment in determining the lease-specific
borrowing rate.
The Company leases office space and equipment under non-cancelable operating
leases expiring through 2029, some of which include options to extend for up to
ten, by way of two five-year terms, and some of which include options to
terminate the leases within one year. However, the Company is not reasonably
certain to exercise options to renew or terminate, and therefore renewal and
termination options are not considered in the lease term or in the determination
of the ROU asset and liability balances. The Company's lease population does not
contain any material restrictive covenants. Operating lease costs amounted to
$4.5 million and $6.8 million for the years ended December 31, 2022 and 2021,
respectively. Operating lease costs are recorded on a straight-line basis over
the lease term in General and administrative expense in the consolidated
statements of operations. Short-term lease costs were insignificant as of
December 31, 2022 and 2021. The Company recorded $1.0 million and $1.5 million
sublease income in Other income in the consolidated statements of operations for
the years ended December 31, 2022 and 2021, respectively.
The Company has leases with variable payments, most commonly in the form of
Common Area Maintenance ("CAM") and tax charges which are based on actual costs
incurred. These variable payments were excluded from the determination of the
ROU asset and lease liability balances since they are not fixed or in-substance
fixed payments. Variable payments are expensed as incurred.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
The following presents supplemental cash flow information related to leases:
Years Ended December 31,
2022 2021
(dollars in thousands)
Cash paid for amounts included in measurement of lease
liabilities:
Operating cash flows from operating leases $
5,790
$
-
The following presents supplemental balance sheet information related to leases:
Years Ended December 31,
2022 2021
(dollars in thousands)
Operating leases:
Right-of-use assets $ 8,269 $ 12,039
Right-of-use liabilities $ 10,600 $ 15,562
Weighted average remaining lease term in years: 3.95 4.21
Weighted average discount rate: 5.22 %
5.08 %
Operating lease ROU assets are recorded within Other assets in the consolidated balance sheet. The operating lease ROU liabilities are recorded within Other liabilities in the consolidated balance sheet.
The following presents maturities of lease liabilities:
(dollars in thousands)
2023 $ 3,515
2024 3,294
2025 2,146
2026 781
2027 804
Thereafter 1,251
Total lease payments 11,791
Less: imputed interest (1,191)
Total $ 10,600
Note 13 - Commitments and Contingencies
Commitments to Extend Credit
The Company's IRLCs expose the Company to market risk if interest rates change and the loan is not economically hedged or committed to an investor. The Company is also exposed to credit loss if the loan is originated and not sold to an investor and the customer does not perform. The collateral upon extension of credit typically consists of a first deed of trust in the mortgagor's residential property. Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon. Total commitments to originate loans were$0.6 billion and$6.1 billion as ofDecember 31, 2022 and 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 consolidated balance sheets, statements of operations, or cash flows.
Regulatory Contingencies
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
The Company is subject to periodic audits and examinations, both formal and
informal in nature, from various federal and state agencies, including those
made as part of regulatory oversight of the Company's 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 the Company's 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 years ended December 31,
2022 or 2021 and is not currently required to pay any such penalties or fines.
Note 14 - Regulatory Net Worth Requirements
The Company is subject to various regulatory capital requirements administered by theDepartment of Housing and Urban Development ("HUD"), which govern non-supervised, direct endorsement mortgagees. The Company is also subject to regulatory capital requirements administered byGinnie Mae , Fannie Mae, and Freddie Mac, which govern issuers ofGinnie 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; these range from$0 to$1,000 , 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 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 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 theFederal Housing Finance Agency for Fannie Mae and Freddie Mac Seller/Servicers , andGinnie Mae for single family issuers. MinimumNet Worth
The minimum net worth requirement for Fannie Mae and Freddie Mac is defined as follows:
•Base Adjusted/Tangible
•Adjusted/TangibleNet Worth , 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
•Base Adjusted/Tangible
•Adjusted/TangibleNet Worth , as defined by HUD, is comprised of total equity less goodwill, intangible assets, affiliate receivables, deferred tax assets, prepaid expenses, and certain pledged assets.
Minimum Capital Ratio
For Fannie Mae, Freddie Mac and
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, in excess of 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 ofGovernment-Sponsored Enterprises ("GSEs"), US Treasury Obligations); and unused/available portion of committed servicing advance lines. 88
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
The minimum liquidity requirement for
•Maintain liquid assets equal to the greater of
The most restrictive of the requirements require the Company to maintain a
minimum adjusted net worth balance of
The Company is in compliance with all minimum requirements to which it was
subject as of
Note 15 - Representation and Warranty Reserve
The majority 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. Historically, the Company received relief of certain repurchase obligations on loans sold toFNMA or FHLMC by taking advantage of their repurchase alternative program. This program provided the Company with the ability, in certain instances, to pay a fee toFNMA or FHLMC, in lieu of being obligated to repurchase the loan. During September andOctober 2022 ,FNMA andFHMC notified the Company that they will not provide repurchase obligation relief through the repurchase alternative program beginning in the fourth quarter of 2022 until further notice. The Company has included considerations that it may receive relief of certain representations and warranty obligations on loans sold toFNMA or FHLMC on or afterJanuary 1, 2013 ifFNMA 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 toFNMA or 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 and loan volume. While the amount of repurchases is uncertain, the Company considers the liability to be appropriate.
The following presents the activity of the outstanding repurchase reserve:
Years Ended December 31,
2022 2021
(dollars in thousands)
Repurchase reserve, at beginning of period $ 24,577 $ 18,080
Additions 52,799 12,147
Charge-offs (50,771) (5,650)
Repurchase reserves, at end of period $ 26,605 $ 24,577
Note 16 - 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 Early buyout loans ("EBOs"). The Company has elected fair value accounting
for MLHS 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.
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FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
The Company uses a three-level fair value hierarchy that categorizes assets and
liabilities measured at fair value 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 significantobservable 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 areunavailable (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 financial statements.
Fair Value of Certain Assets and Liabilities
The following describes the methods used in estimating the fair values of certain assets and liabilities:
Mortgage loans held for sale. The majority of the Company's 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 MLHS consist of loans repurchased from the GSEs that have subsequently been deemed to be non-saleable to GSEs andGinnie 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 and are valued based on recent sales prices of similar loans. Interest rate lock commitments. The Company estimates the fair value of 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 average pull-through rate for IRLCs was 77.5% and 86.1% as ofDecember 31, 2022 and 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. The Company estimates the fair value of forward commitments based on quoted MBS prices. These derivatives are classified as Level 2.
Interest rate swap futures contracts. The Company uses options on swap contracts to offset changes in the fair value of MSRs. The Company estimates the fair value of these MSR-related derivatives using quoted prices for similar instruments. These derivatives are classified as Level 2.
Treasury futures purchase contracts. The Company usesTreasury 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. 90
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FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
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 quarterly basis to support the reasonableness of
the fair value estimate. Key assumptions used in measuring the fair value of
MSRs include, but are not limited to, discount rates and prepayment speeds.
Other assumptions such as delinquencies, and cost to service 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:
December 31, 2022
Level 1 Level 2 Level 3 Total
(dollars in thousands)
Assets:
Mortgage loans held for sale $ -
$ 642,993 Interest rate lock commitments - - 2,231 2,231 Forward sale contracts - 6,107 - 6,107 Mortgage servicing rights - - 1,402,542 1,402,542 Total $ -$ 635,215 $ 1,418,658 $ 2,053,873 Liabilities: Interest rate lock commitments $ - $ -$ 2,504 $ 2,504 Forward sale contracts - 1,200 - 1,200 Forward purchase contracts - 400 - 400 Total $ -$ 1,600 $ 2,504 $ 4,104 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 sales contracts - 6,969 - 6,969 Forward purchase contracts - 3,031 - 3,031 Interest rate swap futures contracts - 111 - 111 Mortgage servicing rights - - 1,525,103 1,525,103 Total $ -$ 5,097,054 $ 1,575,208 $ 6,672,262 Liabilities: Interest rate lock commitments $ - $ -$ 2,843 $ 2,843 Forward sales 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 91
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The following presents a reconciliation of Level 3 assets measured at fair value
on a recurring basis:
Year Ended December 31, 2022
MSRs IRLC-Asset MLHS IRLC-Liability
(dollars in thousands)
Balance at beginning of period $ 1,525,103 $ 29,887 $ 20,218 $ 2,843
Purchases, sales, issuances, contributions,
and settlements (349,522) - (5,621) -
Change in fair value 226,961 (27,656) 468 (339)
Transfers out(a) - - (1,180) -
Balance at end of period $ 1,402,542 $ 2,231 $ 13,885 $ 2,504
Year Ended December 31, 2021
MSRs IRLC-Asset MLHS IRLC-Liability
(dollars in thousands)
Balance at beginning of period $ 748,457 $ 257,785 $ 44,374 $ -
Purchases, sales, issuances, contributions,
and settlements 856,802 - (26,353) 2,843
Change in fair value (80,156) (227,898) (633) -
Transfers in(a) - - 2,830 -
Balance at end of period $ 1,525,103 $ 29,887 $ 20,218 $ 2,843 (a) Transfers in (out) represents transfers between Levels 2 and 3, and reclassifications to Real estate owned ("REO"), foreclosure or claims.
The following presents the fair value and UPB of MLHS that have contractual
principal amounts and for which the Company has elected the fair value option.
The fair value option was elected for MLHS as the Company believes fair value
best reflects its expected future economic performance:
Principal
Amount Due
Fair Value Upon Maturity Difference(a)
(dollars in thousands)
December 31, 2022 $ 642,993 $ 680,315 $ (37,322)
December 31, 2021 $ 5,107,161 $ 5,005,069 $ 102,092
(a) 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 consolidated statements of operations.
To evaluate Goodwill , the Company determined fair value of its reporting units
using inputs classified as Level 3 in the fair value hierarchy, refer to Note 6
- Goodwill . The Company had no other significant assets or liabilities measured
at fair value on a nonrecurring basis as of December 31, 2022 and 2021,
respectively.
The following is a summary of the key unobservable inputs used in the valuation of the Level 3 assets:
Year Ended December 31, 2022
Assets: Key Input Range Weighted Average
Mortgage servicing rights Discount rate 9.6% - 14.0% 11.2%
Prepayment speeds 4.6% - 8.2% 5.4%
Interest rate lock commitments Pull-through rate 21.0% - 100% 77.5%
Mortgage loans held for sale Investor pricing 65.0% - 103.6% 93.3%
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Year Ended December 31, 2021
Asset Key Input Range Weighted Average
Mortgage servicing rights Discount rate 8.6% - 12.2% 8.7%
Prepayment speeds 6.9% - 11.6% 8.3%
Interest rate lock commitments Pull-through rate 49.8% - 100.0% 86.1%
Mortgage loans held for sale Investor pricing 70.0% - 104.1% 91.3%
Fair Value of Other Financial Instruments
All financial instruments were either recorded at fair value or the carrying value approximated fair value as ofDecember 31, 2022 . 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, their carrying values approximated fair value due to the short-term nature of such instruments.
Note 17 - Retirement Benefit Plans
The Company maintains a 401(k) profit sharing plans covering substantially all employees. Employees may contribute amounts subject to certainIRS and plan limitations. The Company may make discretionary matching contributions, subject to certain limitations. Matching contribution made by the Company totaled$2.5 million and$3.7 million for the years endedDecember 31, 2022 and 2021, respectively.
Note 18 - Restructuring
Given the current market factors and industry trends, including the rapidly rising interest rates and increased competition in the industry, the Company took restructuring actions to enhance liquidity and align the Company's cost structure with the decrease in the Origination volume. InAugust 2022 , the Board approved the restructuring actions, which resulted in$14.2 million expense for cash severance and related benefits, retention, and termination costs in Compensation and benefits in the consolidated statements of operations for the year endedDecember 31, 2022 . The restructuring actions also included charges related to the write-down and write-off of office equipment totaling$2.3 million in Other expenses in the consolidated statement of operations for the year endedDecember 31, 2022 .
The activities associated with the current restructuring actions are complete as
of
The following is a summary of the Company's restructuring reserve:
Severance and
Employee-Related
Costs Office Equipment Total
(dollars in thousands)
Balance as of January 1, 2022 $ - $ - $ -
Restructuring charges 14,182 2,302 16,484
Payments (14,182) - (14,182)
Non-cash impairment of office equipment - (2,302) (2,302)
Balance as of December 31, 2022 $ - $ - $ -
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Note 19 - Equity-based Compensation
In January, 2021, the Company's Board approved the adoption of the Company's
2021 Incentive Plan ("2021 Plan") and designated 6.9 million shares of the
Company's authorized common stock 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 under 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 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 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:
Year ended
Weighted-Average Grant
Units 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 $1.5 million of compensation expense related to RSUs within
Compensation and benefits expense on the consolidated statements of operations
for both years ended December 31, 2022 and 2021.
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.
The following presents the summary of the Company's PSU activity:
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Year ended
Weighted-Average Grant
Units 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
years ended
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$3.7 million and$5.4 million of compensation expense related to stock options within Compensation and benefits expense in the consolidated statements of operations for the years endedDecember 31, 2022 and 2021, respectively. The unrecognized compensation expense related to outstanding and unvested stock options was$42.1 million as ofDecember 31, 2022 , which is expected to vest and get recognized over a weighted-average period of 5.2 years. The number of options vested and exercisable was 2,367,280 and the weighted-average exercise price of the options exercisable was$3.77 as ofDecember 31, 2022 . The following presents the summary of the Company's stock option activity under the 2021 Plan: Year ended December 31, 2022 Weighted Weighted Weighted Average Average Average Number of Exercise Contractual Grant Date Shares Price Life (Years) Fair Value Outstanding at beginning of period 11,751,031$ 4.45 6.87$ 8.38 Granted 337,043 1.81 4.09 9.79 Exercised (294,068) 1.86 1.52 9.77 Forfeited (661,130) 1.85 0.14 9.73 Expired (198,983) 1.79 1.00 9.76 Outstanding at end of period 10,933,893$ 4.64 4.70$ 8.27 The following presents the summary of the Company's non-vested activity under the 2021 Plan : Year ended December 31, 2022 Weighted Average Number of Grant Date Shares Fair Value Non-vested at beginning of period 9,627,033 $ 8.19 Granted 337,043 9.79 Vested (243,282) 9.20 Exercised (294,068) 9.77 Forfeited (661,130) 9.73 Expired (198,983) 9.76 Non-vested at end of period 8,566,613 $ 8.12 95
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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:
Years Ended December 31,
2022 2021
Expected life (in years) 8.3 8.2
Risk-free interest rate 0-3.0% 0.6%-3.0%
Expected volatility 24.9% 24.9%
Dividend yield - -
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% both as of December 31, 2022 and 2021.
Note 20 - 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:
Years Ended December 31,
2022 2021
(dollars in thousands, except per
share amounts )
Net (loss) income $ (163,454) $ 166,272 Numerator:
Net (loss) income attributable to common shareholders
Denominator (in thousands): Weighted average shares of common stock outstanding - basic 138,638
139,198
Dilutive effect of common stock equivalents - 798
Weighted average shares of common stock outstanding - diluted 138,638
139,996
(Loss) earnings per share of common stock outstanding - basic
$
(1.18)
As a result of the net loss from continuing operations for the year endedDecember 31, 2022 , the effect of certain dilutive securities was excluded from the computation of weighted average diluted shares outstanding, as inclusion would have resulted in antidilution. 96
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Note 21 - Shareholders' Equity and
Common Stock Repurchases
OnFebruary 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 includingDecember 31, 2022 pursuant to one or more plans adopted under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Stock Repurchase Program"). The Company repurchased 1,179,796 shares of Common Stock at an aggregate price of$3.8 million , including commissions and fees, through market purchase transactions under the Stock Repurchase Program during the year endedDecember 31, 2022 . Shares repurchased under the program have been subsequently retired.
The Company held an equity method investment in Longbridge through a 49.6% voting ownership interest, which was the only equity method investment held by the Company. The$63.7 million net investment was classified as held for sale as ofDecember 31, 2021 and was adjusted for HPC's 2022 share of Longbridge's earnings or losses, contributions and distributions, and impairment. The Company entered into a definitive agreement in February of 2022 to sell its investment in Longbridge. An impairment charge of$8.8 million was recognized for the held for sale balance of equity method investment in Loss from equity method investment in the consolidated statement of operations for the year endedDecember 31, 2022 . OnOctober 3, 2022 , the Company completed the previously announced sale for a purchase price of approximately$38.9 million in cash.
Note 22 - Income Taxes
The following presents the components of Income tax benefit (expense):
Year Ended December 31, 2022
Federal State Total
(dollars in thousands)
Current $ (1,551) $ (1,700) $ (3,251)
Deferred 39,386 5,779 45,165
Total income tax benefit $ 37,835 $ 4,079 $ 41,914
Year Ended December 31, 2021
Federal State Total
(dollars in thousands)
Current $ 64 $ (2,311) $ (2,247)
Deferred (43,039) (12,712) (55,751)
Total income tax expense
The following presents a reconciliation of the Income tax benefit (expense) recorded on the Company's consolidated statements of operations to the expected statutory federal corporate income tax rates:
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FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
Years Ended December 31,
2022 2021
(dollars in thousands)
Loss (income) before income taxes $ (179,090) Statutory federal income tax (benefit) expense (21%) (37,609)
43,868
State income tax expense, net of federal tax (6,914)
10,116
Impact of equity investments (5,518) 3,679 Impact of tax rate change 3,199 (494) HPMAC investment write Off 2,318 - Impairment of goodwill 1,879 - Change in valuation allowance -
1,812
Other 731
(983)
Total income tax (benefit) expense$ (41,914) $ 57,998 Effective tax rate 23.4 % 27.8 % The following presents the components of the Company's net deferred tax assets (liabilities): December 31, 2022 2021 (dollars in thousands) Deferred tax asset Federal NOL carryforward$ 93,151 $ 101,800 State NOL carryforward 23,603 23,825 Rep. & Warranty 6,715 6,120 ROU lease deferred asset 2,775 4,000 Other 6,249 13,281 Total deferred tax asset$ 132,493 $ 149,026 Deferred tax liability MSR (308,158) (348,417) Derivatives - (6,734) Investment in Longbridge - (11,546) ROU lease deferred liability (2,803) (3,900) Other (3,052) (5,785) Total deferred tax liability$ (314,013) $ (376,382) Valuation Allowance (2,340) (2,396) Net deferred tax liability$ (183,860) $ (229,752) The Company is required to establish a valuation allowance for deferred tax assets and record a charge to income if it is determined, based on all available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company's analysis focuses on identifying significant, objective evidence that it will more likely than not be able to realize its deferred tax assets in the future. The Company considers both positive and negative evidence when evaluating the need for a valuation allowance, which is highly judgmental and requires subjective weighting of such evidence on a jurisdiction-by-jurisdiction basis. 98
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The Company established a valuation allowance of $2.3 million and $2.4 million
related to state net operating losses ("NOLs") as of December 31, 2022 and 2021,
respectively. As of December 31, 2022 , the Company's deferred tax asset includes
gross federal and state NOL carryforwards of $443.6 million and $436.6 million ,
respectively. Certain of these carryforwards expire in 2035 through 2037. The
NOLs generated after 2017 carryforward indefinitely and are subject to a limit
of 80% of taxable income in taxable years beginning after December 31, 2020 .
Certain of the Company's NOLs are subject to limitation under IRC §382, limiting
the Company's ability to utilize the full NOL in any given period.
Unrecognized tax benefits are recognized related to tax positions included in
(i) previously filed income tax returns and (ii) financial results expected to
be included in income tax returns to be filed for periods through the date of
the consolidated financial statements. The Company recognizes tax benefits from
uncertain income tax positions only if it is more likely than not that the tax
position will be sustained on examination by the taxing authority based on the
technical merits of the position. An uncertain income tax position that meets
the "more likely than not" recognition threshold is then measured to determine
the amount of the benefit to recognize. The Company has $0.8 million and $0.7
million uncertain tax positions as of December 31, 2022 and 2021, respectively.
The liability is for unrecognized tax benefits related to state income tax
matters excluding interest and penalties.
The following presents a reconciliation of the beginning and ending amounts of
uncertain tax positions:
Years Ended December 31,
2022 2021
(dollars in thousands)
Balance at beginning of period $ 743 $ -
Increases related to positions taken during prior years - 743 Increases related to positions taken during the current year 92 - Decreases related to positions settled with tax authorities - - Decreases due to a lapse of applicable statute of limitations - - Balance at end of period $ 835$ 743 Total amount of unrecognized tax benefit that would affect the effective tax rate if recognized was$0.5 million and$0.4 million as ofDecember 31, 2022 and 2021, respectively. Less than$20 thousand for interest and penalties was accrued on the liability for unrecognized tax benefits for the year endedDecember 31, 2022 , which, in accordance with company policy, are a part of interest and penalty expense.
The Company's tax years that generally remain subject to examination by the
OnAugust 16, 2022 , Inflation Reduction Act ("IRA") of 2022 was signed into law, which, among other things, imposed a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. The Company is still analyzing the impact ofIRA , but do not expect it to be material to the financial statements .
Note 23 - Segments
Management has organized the Company into two reportable segments based
primarily on its services as follows: (1) Origination and (2) Servicing. Each
reportable segment has discrete financial information evaluated regularly by the
chief operating decision maker ("CODM") in monitoring performance, allocating
capital, and making strategic and operational decisions that align with the
Company and its internal operations.
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HOME POINT CAPITAL INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
Origination
In the Origination segment, the Company originates residential real estate
mortgage loans in the U.S. through 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 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 for sale
or securitization are also included in the 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. InFebruary 2022 , the Company entered into an agreement withServiceMac, LLC ("ServiceMac"), a wholly owned subsidiary of First American Financial Corporation, pursuant to which ServiceMac subservices all mortgage loans underlying the Company's MSRs. These services include maintaining borrower contact, facilitating borrower advances, generating borrower statements, collecting and processing payments of interest and principal, and facilitating loss-mitigation strategies in an attempt to keep defaulted borrowers in their homes. 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 two 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. Directly attributable expenses include salaries, commissions and associate benefits, general and administrative expenses, and other expenses, such as servicing and origination costs. Direct operating expenses 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. 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.
The following presents the key operating data for the Company's business segments:
Year Ended
Segments Reconciliation Total
Origination Servicing Total All Other Total Item(a) Consolidated
(dollars in thousands)
Revenue:
Gain on loans, net $ 47,105 $ - $ 47,105 $ - $ 47,105 - $ 47,105
Loan fee income 46,029 - 46,029 - 46,029 - 46,029
Loan servicing fees - 265,275 265,275 - 265,275 - 265,275
Change in fair value of
mortgage servicing rights - (97,689) (97,689) - (97,689) - (97,689)
Interest income (expense),
net 21,375 12,172 33,547 (54,411) (20,864) - (20,864)
Other income (expense) 111 - 111 (10,598) (10,487) 26,278 15,791
Total $ 114,620 $ 179,758 $ 294,378 $ (65,009) $ 229,369 $ 26,278 $ 255,647
Contribution (loss) margin $ (106,884) $ 121,765 $ 14,881 $ (220,249) $ (205,368)
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HOME POINT CAPITAL INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
Year Ended December 31, 2021
Segments Reconciliation Total
Origination Servicing Total All Other Total Item(a) Consolidated
(dollars in thousands)
Revenue:
Gain on loans, net $ 585,762 $ - $ 585,762 $ - $ 585,762 $ - $ 585,762
Loan fee income 150,921 - 150,921 - 150,921 - 150,921
Loan servicing fees 8 331,374 331,382 - 331,382 - 331,382
Change in fair value of
mortgage servicing rights - (76,831) (76,831) - (76,831) - (76,831)
Interest income (expense),
net 13,897 1,931 15,828 (48,741) (32,913) - (32,913)
Other income - 227 227 18,341 18,568 (15,373) 3,195
Total $ 750,588 $ 256,701 $ 1,007,289 $ (30,400) $ 976,889 $ (15,373) (a) The Company includes the results from its equity method investment in the All Other. Therefore, the loss (income) is removed to reconcile to Total revenue, net on the consolidated statements of operations.
The following presents a reconciliation of contribution (loss) margin to
consolidated
Years Ended December 31,
2022 2021
(dollars in thousands)
(Loss) income before income tax $ (179,090) $ 208,897
(Loss) income from equity method investment (26,278) 15,373 Contribution (loss) margin$ (205,368) $ 224,270
Note 24 - Concentrations of Risk
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to credit risk, consist of cash and cash equivalents, derivatives, and mortgage loans held for sale.
Credit risk is reduced by the Company's underwriting standards, monitoring pledged collateral, and other in-house monitoring procedures performed by management. The Company's credit exposure for amounts due from investors is minimized through its policy to sell mortgage loans only to highly reputable and financially sound financial institutions.
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HOME POINT CAPITAL INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
Concentrations
The Company originated or purchased loans in 50 states and the
Percentage of
Origination
2022
State:
California 26.5 %
Texas 7.5 %
Florida 7.1 %
2021
State:
California 31.8 %
Florida 7.4 %
New Jersey 5.4 %
The total unpaid principal balance of the servicing portfolio, including MLHS,
was approximately $89.3 billion and $133.9 billion as of December 31, 2022 and
2021, respectively. The unpaid principal balance of loans originated by the
Company and sold with servicing retained was $26.8 billion and $92.2 billion for
the year-end December 31, 2022 and 2021, respectively.
ServiceMac subservices all mortgage loans underlying the Company's MSRs in 50
states and the District of Columbia , with significant activity (approximately 5%
or greater of total servicing) in the following states:
Percentage of
Servicing Unpaid
Principal Balance
2022
State:
California 20.4 %
Texas 8.3 %
Florida 6.3 %
2021
State:
California 29.1 %
Florida 5.6 %
Texas 7.4 %
Significant Customers
Residential mortgage loans are sold through one of the following methods: (i)
sales to or pursuant to programs sponsored by Fannie Mae, Freddie Mac and Ginnie
Mae , or (ii) sales to private investors. 97.8% and 97.0% of mortgage loans sales
were to the Agencies for the years ended December 31, 2022 and 2021,
respectively.
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HOME POINT CAPITAL INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
The following presents newly originated loans that the Company sold to investors or transferred into GNMA securitization pools:
Years Ended December 31,
2022 2021
(dollars in thousands) Percentage (dollars in thousands) Percentage
GNMA $ 7,095,893 22.3 % $ 13,089,283 13.9 %
FNMA 11,632,784 36.5 % 42,721,394 45.3 %
FHLMC 11,858,369 37.2 % 35,824,414 38.0 %
Other 1,300,224 4.1 % 2,667,113 2.8 %
$ 31,887,270 100 % $ 94,302,204 100 %
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HOME POINT CAPITAL INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
Note 25 - Related Parties
The Company entered into transactions and agreements to purchase various
services and products from certain affiliates of our sponsor,
The following presents principal categories of the related party transactions recorded in the consolidated statements of operations.
Years Ended December 31,
2022 2021
(dollars in thousands)
Loan expense $ 9,134 $ 14,590
Loan servicing expense 1,911 1,014
General and administrative 9,450 5,268
Other expenses(a) 5,793 9,630
Other 208 10
Total $ 26,496 $ 30,512 (a) Includes amounts paid to related party insurance brokers which are passthrough to third party carriers.
Note 26 - Sale of
OnJune 1, 2022 (the "Closing Date"), HPF completed the previously announced sale of certain assets of HPF's delegated Correspondent channel toPlanet 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 consolidated statements of operations. The loss was more than offset by earnout income of$0.9 million for the year endedDecember 31, 2022 . OnDecember 2, 2022 , HPC completed the previously announced sale of its equity interests in HPAM and its wholly owned subsidiary HPMAC. Prior to the sale, HPAM was a wholly owned subsidiary of the Company and managed certain servicing assets. HPMAC serviced residential real estate mortgage loans.
The purchase price for this transaction was
Note 27 - Subsequent Events OnJanuary 31, 2023 , HPF terminated the Mortgage Loan Participation Sale Agreement (the "Gestation Agreement"), dated as of November, 2021, between HPF, as seller andJPMorgan Chase Bank, National Association , as purchaser ("Purchaser"). The Gestation Agreement permitted the Purchaser to purchase from HPF 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 lien residential mortgage loans that were intended to ultimately be included in residential MBS (the "Agency MBS") issued or guaranteed, as applicable, by Fannie Mae, Freddie Mac, andGinnie Mae . The aggregate purchase price of participation certificates owned by Purchaser at any given time for which Purchaser had not been paid the purchase price for the related Agency MBS by the applicable takeout investor as specified in the applicable takeout commitment could not exceed$400 million . The parties mutually agreed to terminate the JPM Gestation Agreement prior to its scheduled maturity date ofSeptember 29, 2023 . HPF did not incur any early termination penalties.
On
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