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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  ______________  to ______________
Commission File Number: 001-39964
Home Point Capital Inc.
(Exact name of registrant as specified in its charter)
Delaware90-1116426
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer Identification No.)
2211 Old Earhart Road, Suite 250
Ann Arbor, Michigan
48105
(Address of Principal Executive Offices)(Zip Code)
(888) 616-6866
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which
registered
Common Stock, par value
$0.0000000072 per share		HMPT
The Nasdaq Stock Market LLC
(The Nasdaq Global Select Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☒
Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of November 4, 2022, the registrant had 138,398,707 shares of common stock, par value $0.0000000072 per share, outstanding.

TABLE OF CONTENTS
Page
PART I—FINANCIAL INFORMATION
PART II—OTHER INFORMATION

i
Cautionary Note on Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”) contains certain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements include, but are not limited to, statements relating to our future financial performance, our business prospects and strategy, anticipated financial position, liquidity and capital needs, the industry in which we operate and other similar matters. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “continue,” “potential,” “should” and the negative of these terms or other comparable terminology often identify forward-looking statements. Forward-looking statements are not guarantees of future performance, are based upon assumptions, and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements, including the risks discussed in Part I, Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed on March 17, 2022 (our “2021 Annual Report”). Factors, risks, and uncertainties that could cause actual outcomes and results to be materially different from those contemplated include, among others:
•our reliance on our financing arrangements to fund mortgage loans and otherwise operate our business;
•the dependence of our loan origination and servicing revenues on macroeconomic and U.S. residential real estate market conditions;
•the requirement to repurchase mortgage loans or indemnify investors if we breach representations and warranties;
•counterparty risk;
•the requirement to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances;
•risks related to any subservicer;
•competition for mortgage assets that may limit the availability of desirable originations, acquisitions and result in reduced risk-adjusted returns;
•our ability to continue to grow our loan origination business or effectively manage significant increases in our loan production volume;
•difficult conditions or disruptions in the mortgage-backed securities (“MBS”), mortgage, real estate and financial markets;
•competition in the industry in which we operate;
•our ability to acquire loans and sell the resulting MBS in the secondary markets on favorable terms in our production activities;
•our ability to adapt to and implement technological changes;
•the effectiveness of our risk management efforts;
•our ability to detect misconduct and fraud;
•any failure to attract and retain a highly skilled workforce, including our senior executives;
•our ability to obtain, maintain, protect and enforce our intellectual property;
•any cybersecurity risks, cyber incidents and technology failures;
•material changes to the laws, regulations or practices applicable to reverse mortgage programs operated by the Federal Housing Administration (“FHA”) and the U.S. Department of Housing and Urban Development;
•our vendor relationships;
•our failure to deal appropriately with various issues that may give rise to reputational risk, including legal and regulatory requirements;
•any employment litigation and related unfavorable publicity;
•exposure to new risks and increased costs as a result of initiating new business activities or strategies or significantly expanding existing business activities or strategies;
ii
•the impact of changes in political or economic stability or by government policies on our material vendors with operations in India;
•our ability to fully utilize our net operating loss (“NOL”) and other tax carryforwards;
•any challenge by the Internal Revenue Service of the amount, timing and/or use of our NOL carryforwards;
•possible changes in legislation and the effect on our ability to use the tax benefits associated with our NOL carryforwards;
•the impact of other changes in tax laws;
•the impact of interest rate fluctuations;
•risks associated with hedging against interest rate exposure;
•the impact of any prolonged economic slowdown, recession or declining real estate values;
•risks associated with financing our assets with borrowings;
•risks associated with a decrease in value of our collateral;
•the dependence of our operations on access to our financing arrangements, which are mostly uncommitted;
•risks associated with the financial and restrictive covenants included in our financing agreements;
•risks associated with changes in the London Inter-Bank Offered Rate reporting practices and the use of alternative reference rates;
•our ability to raise the debt or equity capital required to finance our assets and maintain and grow our business;
•risks associated with derivative financial instruments;
•our ability to comply with continually changing federal, state and local laws and regulations;
•the impact of revised rules and regulations and enforcement of existing rules and regulations by the Consumer Financial Protection Bureau;
•the impact of revised rules and regulations and enforcement of existing rules and regulations by state regulatory agencies;
•our ability to comply with the Government-Sponsored Enterprises (“GSE”), FHA, U.S. Department of Veterans Affairs (“VA”) and U.S. Department of Agriculture (“USDA”) guidelines and changes in these guidelines or GSE and Government National Mortgage Association (“Ginnie Mae”) guarantees;
•changes in regulations or the occurrence of other events that impact the business, operations or prospects of government agencies such as Ginnie Mae, the FHA or the VA, the USDA, or GSEs such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, or such changes that increase the cost of doing business with such entities;
•our ability to obtain and/or maintain licenses and other approvals in those jurisdictions where required to conduct our business;
•our ability to comply with the regulations applicable to our investment management subsidiary;
•the impact of private legal proceedings;
•risks associated with our acquisition of mortgage servicing rights;
•the impact of our counterparties terminating our servicing rights under which we conduct servicing activities;
•risks associated with higher risk loans that we service;
•our ability to foreclose on our mortgage assets in a timely manner or at all; and
•the effects of the COVID-19 pandemic on our business.

iii
Many of the important factors that will determine these results are beyond our ability to control or predict. You are cautioned not to put undue reliance on any forward-looking statements, which speak only as of the date of this Report. Except as otherwise required by law, we do not assume any obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events. You should refer to the risks and uncertainties listed under the heading “Risk Factors” in our 2021 Annual Report, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (“SEC”), for a discussion of other important factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements.
Unless the context otherwise indicates, any reference in this Report to “Home Point,” “our Company,” “the Company,” “us,” “we” and “our” refers to Home Point Capital Inc. and its subsidiaries.
Website and Social Media Disclosure
We use our website (www.investors.homepoint.com) and our corporate Facebook, LinkedIn, and Twitter accounts as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. The contents of our website and social media channels are not, however, a part of this Report.

iv
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements

HOME POINT CAPITAL INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share and per share amounts)
(Unaudited)
September 30, 2022December 31, 2021
Assets:
Cash and cash equivalents$130,338 $170,987 
Restricted cash18,083 36,803 
Cash and cash equivalents and Restricted cash148,421 207,790 
Mortgage loans held for sale (at fair value)917,752 5,107,161 
Mortgage servicing rights (at fair value)1,492,547 1,525,103 
Property and equipment, net13,356 21,892 
Accounts receivable, net167,744 129,092 
Derivative assets72,160 84,385 
Goodwill— 10,789 
Government National Mortgage Association loans eligible for repurchase194,473 65,237 
Assets held for sale38,886 63,664 
Other assets36,947 43,228 
Total assets$3,082,286 $7,258,341 
Liabilities and Shareholders’ Equity:
Liabilities:
Warehouse lines of credit$870,640 $4,718,658 
Term debt and other borrowings, net941,297 1,226,524 
Accounts payable and accrued expenses82,896 138,193 
Government National Mortgage Association loans eligible for repurchase194,473 65,237 
Deferred tax liabilities193,919 229,752 
Derivative liabilities92,825 26,736 
Other liabilities67,019 76,588 
Total liabilities2,443,069 6,481,688 
Note 9 – Commitments and Contingencies
Shareholders’ Equity:
Preferred stock (250,000,000 authorized shares, none issued and outstanding, $0.0000000072 par value per share)
— — 
Common stock (1,000,000,000 authorized shares, 138,399,748 and 139,326,953 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively, $0.0000000072 par value per share)
— — 
Additional paid-in capital512,620 523,811 
Retained earnings126,597 252,842 
Total shareholders’ equity639,217 776,653 
Total liabilities and shareholders’ equity$3,082,286 $7,258,341 





See accompanying notes to the unaudited condensed consolidated financial statements.
1
HOME POINT CAPITAL INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited – dollars in thousands, except per share amounts)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue:
(Loss) gain on loans, net$(10,278)$145,471 $48,360 $521,727 
Loan fee income7,606 34,484 42,765 118,099 
Interest income21,452 36,719 76,062 96,944 
Interest expense(26,341)(45,532)(88,356)(122,603)
Interest expense, net(4,889)(8,813)(12,294)(25,659)
Loan servicing fees60,140 91,831 204,076 247,753 
Change in fair value of mortgage servicing rights(46,187)10,970 (58,891)(83,087)
Other income1,925 658 12,480 2,111 
Total revenue, net8,317 274,601 236,496 780,944 
Expenses:
Compensation and benefits62,765 114,612 227,798 395,550 
Loan expense3,977 16,618 19,961 51,796 
Loan servicing expense11,221 6,681 24,088 22,282 
Production technology3,676 7,583 12,884 25,038 
General and administrative12,479 21,741 49,119 74,527 
Depreciation and amortization2,599 2,440 7,913 7,551 
Impairment of goodwill10,789 — 10,789 — 
Other expenses8,118 5,649 19,186 23,620 
Total expenses115,624 175,324 371,738 600,364 
(Loss) income before income tax(107,307)99,277 (135,242)180,580 
Income tax benefit (expense)25,039 (27,341)34,837 (50,250)
(Loss) income from equity method investment(11,862)(713)(26,278)16,649 
Net (loss) income$(94,130)$71,223 $(126,683)$146,979 
(Loss) earnings per share:
Basic$(0.68)$0.51 $(0.91)$1.06 
Diluted$(0.68)$0.51 $(0.91)$1.05 









See accompanying notes to the unaudited condensed consolidated financial statements.
2
HOME POINT CAPITAL INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited – dollars in thousands, except share amounts)
Common StockAdditional
Paid in Capital		Treasury
Stock		Retained
Earnings		Total
Shareholders’
Equity
SharesAmount
Beginning balance, January 1, 2022139,326,953 $— $523,811 $— $252,842 $776,653 
Stock repurchase(461,690)— — (1,513)— (1,513)
Dividends to shareholders— — — — (5,575)(5,575)
Employee stock purchases (option exercise)97,223 — 122 — — 122 
Equity-based compensation— — 1,706 — — 1,706 
Net income— — — — 11,864 11,864 
Balance at March 31, 2022138,962,486 $— $525,639 $(1,513)$259,131 $783,257 
Stock repurchase(718,106)— — (2,261)— (2,261)
Retirement of treasury stock— — (15,338)3,774 11,564 — 
Dividends to shareholders— — — — (5,551)(5,551)
Employee stock purchases (option exercise)11,114 — (33)— — (33)
Equity-based compensation (restricted stock units vesting)124,778 — 1,407 — — 1,407 
Net loss— — — — (44,417)(44,417)
Balance at June 30, 2022138,380,272 $— $511,675 $— $220,727 $732,402 
Employee stock purchases (option exercise)19,476 — (29)— — (29)
Equity-based compensation (restricted stock units vesting)— — 974 — — 974 
Net loss— — — — (94,130)(94,130)
Ending balance, September 30, 2022138,399,748 $— $512,620 $— $126,597 $639,217 
Common StockAdditional
Paid in Capital		Retained
Earnings		Total
Shareholders’
Equity
SharesAmount
Beginning balance, January 1, 2021138,860,103 $— $519,510 $407,964 $927,474 
Contributed capital— — — 192 192 
Distributions to parent— — — (295,089)(295,089)
Employee stock purchases (option exercise)185,073 — (1,028)— (1,028)
Equity-based compensation— — 1,779 — 1,779 
Net income— — — 148,969 148,969 
Balance at March 31, 2021139,045,176 $— $520,261 $262,036 $782,297 
Employee stock purchases (option exercise)441,921 — (1,503)— (1,503)
Equity-based compensation— — 1,747 — 1,747 
Net loss— — — (73,213)(73,213)
Balance at June 30, 2021139,487,097 $— $520,505 $188,823 $709,328 
Dividend to shareholders— — — (20,924)(20,924)
Employee stock purchases (option exercise)39,927 — (105)— (105)
Equity-based compensation— — 1,680 — 1,680 
Net income— — — 71,223 71,223 
Ending balance, September 30, 2021139,527,024 $— $522,080 $239,122 $761,202 
See accompanying notes to the unaudited condensed consolidated financial statements.
3
HOME POINT CAPITAL INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited – dollars in thousands)
Nine Months Ended September 30,
20222021
Operating activities:
Net (loss) income$(126,683)$146,979 
Adjustments to reconcile net (loss) income to cash used in operating activities:
Depreciation7,913 7,551 
Amortization of debt issuance costs2,451 2,444 
Impairment of goodwill10,789 — 
Impairment of equity method investment8,795 — 
Gain on loans, net(48,360)(521,727)
Provision for representation and warranty reserve7,016 9,358 
Equity-based compensation expense4,067 5,206 
Deferred income tax (benefit) expense(35,833)50,301 
Loss (income) from equity method investment17,483 (16,649)
Originations and purchases of mortgage loans held for sale(26,835,939)(79,464,436)
Proceeds from sale and payments of mortgage loans held for sale30,233,888 75,786,570 
Decrease in fair value of mortgage servicing rights58,891 83,087 
Decrease in fair value of mortgage loans held for sale155,228 6,906 
(Increase) decrease in fair value of derivative assets12,226 169,721 
Changes in operating assets and liabilities:
Decrease in accounts receivable, net10,756 35,360 
Decrease (increase) in other assets6,281 (7,369)
Decrease in accounts payable and accrued expenses(59,402)(40,959)
Increase in other liabilities49,498 90,193 
Net cash provided by (used for) operating activities3,479,065 (3,657,464)
Investing activities:
Purchases of property and equipment, net of disposals623 (8,786)
Purchase of mortgage servicing rights(23,033)(33,027)
Proceeds from sale of mortgage servicing rights635,992 111,609 
Equity method investment(1,500)— 
Net cash provided by investing activities612,082 69,796 
See accompanying notes to the unaudited condensed consolidated financial statements.
4
Financing activities:
Proceeds from warehouse borrowings28,584,681 81,365,921 
Payments on warehouse borrowings(32,432,698)(78,062,859)
Proceeds from term debt borrowings595,000 1,213,400 
Payments on term debt borrowings(880,000)(550,000)
Proceeds from other borrowings70,000 75,000 
Payments on other borrowings(73,250)(115,000)
Write off (payments of debt issuance costs),net572 (14,103)
Employee stock purchases (option expense)60 (2,636)
Common stock repurchases(3,774)— 
Contributed capital from parent— 192 
Dividends to shareholders(11,107)(20,924)
Distributions to parent— (295,089)
Net cash (used for) provided by financing activities(4,150,516)3,593,902 
Net (decrease) increase in cash, cash equivalents and restricted cash(59,369)6,234 
Cash, cash equivalents and restricted cash at beginning of period207,790 196,893 
Cash, cash equivalents and restricted cash at end of period$148,421 $203,127 
Supplemental disclosure:
Cash paid for interest$97,667 $104,119 
Cash refunded for income taxes$(2,897)$(33,740)
See accompanying notes to the unaudited condensed consolidated financial statements.
5
HOME POINT CAPITAL INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Amounts)
(unaudited)
Note 1 – Organization and Operations
Nature of Business
Home Point Capital Inc., a Delaware corporation (“HPC”, or the “Company”), through its subsidiaries, is a residential mortgage originator and servicer with a business model focused on growing originations by leveraging a network of partner relationships 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”), a New Jersey corporation and a wholly owned subsidiary of the Company, originates, sells, and services residential real estate mortgage loans throughout the United States of America (“U.S.”). Home Point Asset Management LLC (“HPAM”), a Delaware limited liability company, is a wholly owned subsidiary of the Company and manages certain servicing assets. HPAM’s wholly owned subsidiary, Home Point Mortgage Acceptance Corporation (“HPMAC”), an Alabama Corporation, services residential real estate mortgage loans. Home Point Corporation Insurance Agency LLC (“HPCIA”), a Michigan limited liability company, is a wholly owned subsidiary of the Company that brokers home owner insurance policies.
Both HPF and HPMAC are approved sellers and servicers of one-to-four family first mortgages by the Federal National Mortgage Association (“FNMA” or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”) and are approved issuers by the Government National Mortgage Association (“GNMA” or “Ginnie Mae”) (collectively, the “Agencies”), and as such, HPF and HPMAC must meet certain Agency eligibility requirements.
Note 2 – Basis of Presentation and New Accounting Pronouncements
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. The condensed consolidated financial statements include the financial statements of HPC and its wholly owned subsidiaries. The accompanying condensed consolidated financial statements have been prepared in conformity with Article 10 of Regulation S-X promulgated under the Securities Act of 1933, as amended (the “Securities Act”). The consolidated balance sheet as of December 31, 2021 and related notes were derived from the audited consolidated financial statements but do not include all disclosures required by U.S. GAAP for complete financial statements. Certain information and footnote disclosures normally included in complete financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These condensed consolidated financial statements reflect, in the opinion of management, all material adjustments (which include normal recurring adjustments) necessary to fairly state, in all material respects, the Company’s financial position as of September 30, 2022, its results of operations for the three and nine months ended September 30, 2022 and 2021, and its cash flows for the nine months ended September 30, 2022 and 2021. The condensed consolidated financial information should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2021.
All intercompany balances and transactions have been eliminated in consolidation.
Reclassifications
The Company reclassified gains and losses on MSR sales from Other income to the Change in fair value of mortgage servicing rights on the condensed consolidated statement of operations. Prior periods have been reclassified to conform to current period presentation.
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with U.S. GAAP requires HPC to make estimates and assumptions about future events that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable.
Examples of reported amounts that rely on significant estimates include mortgage loans held for sale, mortgage servicing rights (“MSRs”), servicing advances reserve, derivative assets, derivative liabilities, 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.
6
Recently Adopted Accounting Pronouncements
ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, eliminates particular exceptions related to the method for intra period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This amendment is effective for annual periods beginning after December 15, 2021. The Company adopted ASU 2019-12 as of January 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 applying U.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 as January 1, 2020. Subsequently, in 2021, the FASB issued ASU 2021-01, Reference Rate Reform, to further clarify and expand certain aspects of Topic 848. The Company is in the process of reviewing its derivative and hedging instruments that utilize LIBOR as the reference rate. The Company adopted ASU 2020-04 and ASU 2021-01 in September, 2022. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
Accounting Pronouncements Issued but Not Yet Adopted
As of September 30, 2022, there have been no new accounting pronouncements recently issued or adopted that have had or are reasonably likely to have a material impact on the Company’s condensed consolidated financial statements.
Note 3 – Mortgage Loans Held for Sale
The Company sells its originated mortgage loans into the secondary market. The Company may retain the right to service some of these loans upon sale through ownership of servicing rights. The following presents mortgage loans held for sale (“MLHS”) at fair value, by type:
September 30, 2022
Unpaid
Principal		Fair Value
Adjustment		Total
Fair Value
(dollars in thousands)
Conventional(1)
$601,365 $(36,953)$564,412 
Government(2)
370,132 (17,004)353,128 
Reverse(3)
275 (63)212 
Total$971,772 $(54,020)$917,752 
December 31, 2021
Unpaid
Principal		Fair Value
Adjustment		Total
Fair Value
(dollars in thousands)
Conventional(1)
$4,206,099 $79,389 $4,285,488 
Government(2)
799,579 21,902 821,481 
Reverse(3)
275 (83)192 
Total$5,005,953 $101,208 $5,107,161 
(1)Conventional includes mortgage loans meeting the eligibility requirements to be sold to FNMA or FHLMC.
(2)Government includes mortgage loans meeting the eligibility requirements to be sold to GNMA (including Federal Housing Administration, Department of Veterans Affairs and United States Department of Agricultural mortgage loans).
(3)Reverse loan presented in MLHS on the condensed consolidated balance sheets as a result of a repurchase.
MLHS on nonaccrual status had $35.5 million and $26.1 million of unpaid principal balances and $27.6 million and $21.6 million estimated fair value, as of September 30, 2022 and December 31, 2021, respectively.
The Company had $0.9 billion in unpaid principal balance pledged to secure its mortgage warehouse line of credit as of September 30, 2022.
7
The following presents a reconciliation of the changes in MLHS to the amounts presented on the condensed consolidated statements of cash flows:
Nine Months Ended September 30,
20222021
Fair value at beginning of period$5,107,161 $3,301,694 
Mortgage loans originated and purchased26,835,939 79,464,436 
Proceeds on sales and payments received(30,233,888)(75,786,570)
Change in fair value(155,228)(6,906)
Loss on loans(1)
(636,232)(292,458)
Fair value at end of period$917,752 $6,680,196 
(1)This line as presented on the condensed consolidated statements of cash flows excludes originated mortgage servicing rights and mortgage servicing rights 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.
Mortgage Servicing Rights (“MSRs”) give the Company the contractual right to receive service fees and other remuneration in exchange for performing loan servicing functions on behalf of investors in mortgage loans and securities. Upon sale of a mortgage loan for which the Company retains the underlying servicing, an MSR asset is capitalized, which represents the current fair value of the future net cash flows that are expected to be realized for performing servicing activities.
The following presents an analysis of the changes in capitalized MSRs:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(dollars in thousands)
Balance at beginning of period$1,419,105 $1,267,253 $1,525,103 $748,457 
MSRs originated78,610212,368443,293776,174
MSRs purchased5,25414,32623,03333,027
MSRs sold—(103,017)(755,502)(103,017)
Changes in valuation model inputs18,25685,150367,637188,334
Change due to cash payoffs and principal amortization(28,678)(73,940)(111,017)(240,835)
Balance at end of period$1,492,547 $1,402,140 $1,492,547 $1,402,140 
The following presents the Company’s total capitalized mortgage servicing portfolio (based on the unpaid principal balance (“UPB”) of the underlying mortgage loans):
September 30, 2022December 31, 2021
(dollars in thousands)
Ginnie Mae$9,811,192$5,602,582
Fannie Mae47,114,22770,174,987
Freddie Mac37,132,11652,547,588
Other30,29034,417
Total$94,087,825$128,359,574
MSR balance$1,492,547 $1,525,103 
The following presents the key weighted average assumptions used in determining the fair value of the Company’s MSRs:
September 30, 2022December 31, 2021
Discount rate9.36 %8.68 %
Weighted average prepayment speeds6.27 %8.30 %
8
The key assumptions used to estimate the fair value of the MSRs are discount rate and the Conditional Prepayment Rate (“CPR” or “prepayment speeds”). An increase in prepayment speeds generally has an adverse effect on the value of MSRs as the underlying loans prepay faster. In a declining interest rate environment, the fair value of MSRs generally decreases as prepayments increase. A decrease in prepayment speeds generally has a positive effect on the value of the MSRs as the underlying loans prepay less frequently. In a rising interest rate environment, the fair value of MSRs generally increases as prepayments decrease. Increases in the discount rate result in a lower MSR value and decreases in the discount rate result in a higher MSR value. MSR uncertainties are hypothetical and do not always have a direct correlation with each assumption. Changes in one assumption may result in changes to another assumption, which might magnify or counteract the uncertainties.
The following presents the impact on the fair value of the Company’s MSR portfolio when applying the following hypothetical data points:
Discount Rate
Prepayment Speeds
100 BPS
Adverse Change
200 BPS
Adverse Change
10% Adverse
Change
20% Adverse
Change
(dollars in thousands)
September 30, 2022$(66,356)$(126,825)$(39,568)$(76,960)
December 31, 2021$(66,885)$(128,172)$(56,278)$(108,621)
The following presents information related to loans serviced:
September 30, 2022December 31, 2021
(dollars in thousands)
Total unpaid principal balance$95,032,958 $133,889,085 
Loans 30-89 days delinquent848,812 656,012 
Loans delinquent 90 or more days or in foreclosure719,878 777,650 
The following presents components of Loan servicing fees as reported in the Company’s condensed consolidated statements of operations:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(dollars in thousands)
Contractual servicing fees$61,522 $84,271 $204,903 $229,369 
Late fees129 1,458 2,145 3,923 
Other(1,511)6,102 (2,972)14,461 
Total$60,140 $91,831 $204,076 $247,753 
The Company held for its customers $10.8 million and $19.9 million of escrow funds recorded in Other liabilities in the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively. The Company reported $0.5 million gain and $74.2 million loss on MSR sales in the Change in fair value of mortgage servicing rights in the condensed consolidated statement of operations for the three and nine months ended September 30, 2022, respectively. The Company reclassified $7.4 million gain on MSR sales from Other income to the Change in fair value of mortgage servicing rights on the condensed consolidated statement of operations for the three and nine months ended September 30, 2021.
9
Note 5 – Derivative Financial Instruments
The following presents the outstanding notional amounts and fair values of derivative instruments not designated as hedging instruments:
September 30, 2022
Notional
Value		Derivative
Asset		Derivative
Liability
(dollars in thousands)
Forward sale contracts$1,739,739 $59,714 $600 
Interest rate lock commitments1,521,029 2,199 29,176 
Forward purchase contracts67,000 — 3,399 
Interest rate swap futures contracts2,880,000 1,478 — 
Treasury futures purchase contracts940,000 — — 
Margin8,769 59,650 
Total$72,160 $92,825 
December 31, 2021
Notional
Value		Derivative
Asset		Derivative
Liability
(dollars in thousands)
Forward sale contracts$7,819,802 $6,969 $8,242 
Interest rate lock commitments6,068,763 29,887 2,843 
Forward purchase contracts1,521,000 3,031 281 
Interest rate swap futures contracts1,540,000 111 5,662 
Treasury futures purchase contracts4,720,000 — — 
Margin44,387 9,708 
Total$84,385 $26,736 
10
The following presents the recorded gain (loss) on derivative financial instruments:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(dollars in thousands)
Forward sale contracts$61,234 $67,436 $58,430 $111,004 
Interest rate lock commitments(43,814)(36,175)(53,584)(242,466)
Forward purchase contracts(1,138)(8,098)(4,191)(11,976)
Interest rate swap and Treasury futures purchase contracts$(33,018)$(7,810)$(194,971)$(25,859)
Counterparty agreements for forward commitments contain master netting agreements. The master netting agreements contain a legal right to offset amounts due to and from the same counterparty. The Company incurred no credit losses due to nonperformance of any of its counterparties for the three and nine months ended September 30, 2022 and 2021.
The following presents a summary of derivative assets and liabilities and related netting amounts:
September 30, 2022
Gross Amounts Not Offset in the Statement of Financial Position(1)
Gross Amount of Assets (Liabilities) RecognizedFinancial InstrumentsCash CollateralNet Amount
(dollars in thousands)
Derivatives subject to master netting agreements:
Assets:
Forward sale contracts$59,714 $(600)$(42,100)$17,014 
Forward purchase contracts— — — — 
Interest rate swap futures contracts1,478 (1,478)— — 
Liabilities:
Forward sale contracts(600)600 — — 
Forward purchase contracts(3,399)— 3,134 (265)
Treasury futures purchase contracts— 1,478 (1,478)— 
Derivatives not subject to master netting agreements:
Assets:
Interest rate lock commitments2,199 — — 2,199 
Liabilities:
Interest rate lock commitments(29,176)— — (29,176)
Total derivatives
Assets$63,391 $(2,078)$(42,100)$19,213 
Liabilities$(33,175)$2,078 $1,656 $(29,441)
11

December 31, 2021
Gross Amounts Not Offset in the Statement of Financial Position(1)
Gross Amount of Assets (Liabilities) RecognizedFinancial InstrumentsCash CollateralNet Amount
(dollars in thousands)
Derivatives subject to master netting agreements:
Assets:
Forward sale contracts$6,969 $(4,886)$(1,272)$811 
Forward purchase contracts3,031 (258)(2,627)146 
Interest rate swap futures contracts111 (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 commitments29,887 — — 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 $1,252 $(10,521)
(1) Amounts disclosed for collateral received from or posted to the same counterparty includes cash up to and not exceeding the net amount of the derivative asset or liability presented in the balance sheet. The fair value of the total collateral received from or posted to the same counterparty may exceed the amounts presented. The amounts of collateral received from or posted to counterparty are presented as margin and included as a component of either Derivative assets or Other liabilities in the Balance Sheet.
For information on the determination of fair value, refer to Note 12 – Fair Value Measurements.
Note 6 – Accounts Receivable, net
The following presents principal categories of Accounts receivable, net:
September 30, 2022December 31, 2021
(dollars in thousands)
Servicing receivable-general
$23,097 $359 
Pair off receivable32,169 3,738 
Servicing sale receivable63,734 14,364 
Servicing advance receivable
36,023 71,884 
Servicing advance reserve
(2,308)(4,207)
Agency receivable3,003 20,184 
Income tax receivable
7,287 11,181 
Warehouse receivable2,027 1,934 
Interest on servicing deposits
157 464 
Other
2,555 9,191 
Total
$167,744 $129,092 
As part of managing the Company’s servicing advances, servicing advance reserve is recognized with management’s estimate of current expected losses and maintained at a level that management considers adequate based upon continuing assessments of collectability, historical loss experience, current trends, and reasonable and supportable forecasts.
12
The following presents changes to the servicing advance reserve:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(dollars in thousands)
Servicing advance reserve at beginning of period$(1,769)$(9,098)$(4,207)$(8,380)
Additions(1,157)1,500 (1,259)(724)
Charge-offs618 869 3,158 2,375 
Servicing advance reserve at end of period$(2,308)$(6,729)$(2,308)$(6,729)
Note 7 – Warehouse Lines of Credit
The Company maintains mortgage warehouse lines of credit arrangements with various financial institutions, primarily to fund the origination of mortgage loans. The Company held mortgage funding arrangements with 9 separate financial institutions with a total maximum borrowing capacity of $3.2 billion and $7.5 billion as of September 30, 2022 and December 31, 2021, respectively, which is primarily uncommitted. The Company had $2.3 billion and $2.8 billion of unused capacity under its warehouse lines of credit as of September 30, 2022 and December 31, 2021, respectively.
The following presents the amounts outstanding and maturity dates under the Company’s various mortgage funding arrangements:
Maturity Date
September 30, 2022
(dollars in thousands)
$450 million Warehouse Facility1
August 2023284,797 
$200 million Warehouse Facility2
September 202323,366 
$200 million Warehouse Facility3
September 202334,984 
$300 million Warehouse Facility4
October 2023140,651 
$200 million Warehouse Facility5
March 202324,727 
$50 million Warehouse Facility6
March 20231,658 
$1,200 million Warehouse Facility7
May 2024145,293 
$88.5 million Warehouse Facility
Evergreen8,289 
$400 million Warehouse Facility8
Evergreen144,599 
Gestation Warehouse FacilityEvergreen62,276 
Total$870,640 
(1)The maturity of this Warehouse Facility has been extended from September 2022 to August 2023.
(2)The capacity of this Warehouse Facility has been reduced from $500 million to $200 million. The maturity of this Warehouse Facility has been extended from September 2022 to September 2023.
(3)The capacity of this Warehouse Facility has been reduced from $500 million to $200 million. The maturity of this Warehouse Facility has been extended from September 2022 to September 2023.
(4)The capacity of this Warehouse Facility has been reduced from $1,200 million to $300 million. The warehouse facility was terminated on October 7, 2022. Refer to Note 22 – Subsequent Events.
(5)The capacity of this Warehouse Facility has been reduced from $400 million to $200 million.
(6)The capacity of this Warehouse Facility has been reduced from $500 million to $250 million as of June 30, 2022 and $50 million as of September 30, 2022.
(7)The maturity of this Warehouse Facility has been extended from May 2023 to May 2024.
(8)The capacity of this Warehouse Facility has been reduced from $550 million to $400 million.

13
Maturity Date9
December 31, 2021
(dollars in thousands)
$1,200 million Warehouse Facility
February 2022$604,421 
$500 million Warehouse Facility10
March 2022335,509 
$500 million Warehouse Facility
March 2022381,087 
$1,000 million Warehouse Facility11
August 2022716,802 
$450 million Warehouse Facility
September 2022277,060 
$500 million Warehouse Facility
September 2022339,521 
$500 million Warehouse Facility
September 2022375,381 
$500 million Warehouse Facility
March 2023309,898 
$1,500 million Warehouse Facility
May 2023731,132 
$88.5 million Warehouse Facility
Evergreen11,409 
$550 million Warehouse Facility
Evergreen363,959 
Gestation Warehouse FacilityEvergreen179,360 
Early Funding12
93,119 
Total$4,718,658 
(9)Maturity Dates in this table are as of December 31, 2021. The Maturity Dates as of September 30, 2022 are reflected in the table above.
(10)The warehouse facility was terminated on September 23, 2022.
(11)The Warehouse Facility expired in August 2022.
(12)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 index interest and interest rate margin floors. The weighted average interest rate for the Company’s warehouse facilities was 2.70% and 2.36% for the nine months ended September 30, 2022 and twelve months ended December 31, 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 September 30, 2022. The Company was in compliance with all warehouse facility covenants as of September 30, 2022.
Note 8 – Term Debt and Other Borrowings, net
The following presents the Company’s term debt and other borrowings, net:
Maturity DateCollateralSeptember 30, 2022December 31, 2021
(dollars in thousands)
$1.0 billion MSR Facility
May 2025MSRs$450,000 $685,000 
$550 million Senior Notes1
February 2026Unsecured500,000 550,000 
$85 million Servicing Advance Facility2
May 2023Servicing Advances— 3,250 
$35 million Operating Line of Credit
May 2023Mortgage loans1,000 1,000 
Gross951,000 1,239,250 
Debt issuance costs(9,703)(12,726)
Total$941,297 $1,226,524 
(1)The Company repurchased and retired $50 million Senior Notes during the nine months ended September 30, 2022.
(2)Effective June 9, 2022, the capacity of the Servicing Advance Facility has been reduced from $90 million to $85 million.
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The Company maintains a $1.0 billion MSR financing facility (the “MSR Facility”). On April 29, 2022, the Company entered into an amendment to the MSR facility that, among other things, reduced the committed capacity from $650.0 million to $500.0 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 value of the underlying MSRs. The MSR Facility is collateralized by the Company’s FNMA, FHLMC, and GNMA MSRs. The MSR Facility has a three-year revolving period ending on May 4, 2024 followed by a one-year period during which the balance drawn must be repaid and no further amounts may be drawn down, which ends on May 20, 2025. The MSR Facility requires the maintenance of certain financial covenants relating to net worth, liquidity, and indebtedness of the Company. As of September 30, 2022, the Company was in compliance with all covenants under the MSR Facility.
In January 2021, the Company issued $550.0 million aggregate principal amount of its 5.0% Senior Notes due 2026 (the “Senior Notes”) in a private placement transaction. The Senior Notes are guaranteed on a senior unsecured basis by each of the Company’s wholly owned subsidiaries existing on the date of issuance, other than HPAM and HPMAC. The Senior Notes bear interest at a rate of 5.0% per annum, payable semi-annually in arrears. The Senior Notes will mature on February 1, 2026. The Company repurchased and retired $50 million Senior Notes during the 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.
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. As of September 30, 2022, the Company was in compliance with all covenants under the servicing advance facility.
The Company also has a $35.0 million operating line, with an interest rate based on the Prime Rate.
The Company had total available capacity of $399.0 million and $29.6 million for its MSR Facility and servicing advance facility, respectively as of September 30, 2022. The Company has no available capacity for its operating line of credit as of September 30, 2022.
Note 9 – Commitments and Contingencies
Commitments to Extend Credit
The Company’s Interest rate lock commitments (“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 $1.5 billion and $6.1 billion as of September 30, 2022 and December 31, 2021, respectively.
Litigation
The Company is subject to various legal proceedings arising out of the ordinary course of business. There were no current or pending claims against the Company which are expected to have a material impact on the Company's condensed consolidated balance sheets, statements of operations, or cash flows.
Regulatory Contingencies
The Company is subject to periodic audits and examinations, both formal and informal in nature, from various federal and state agencies, including those conducted as part of regulatory oversight of our mortgage origination, servicing, and financing activities. Such audits and examinations could result in additional actions, penalties, or fines by state or federal governmental bodies, regulators, or the courts with respect to our mortgage origination, servicing, and financing activities, which may be applicable generally to the mortgage industry or to the Company in particular. The Company did not pay any material penalties or fines during the nine months ended September 30, 2022 and 2021 and is not currently required to pay any such penalties or fines.
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Note 10 – Regulatory Net Worth Requirements
The Company is subject to various regulatory capital requirements administered by the Department of Housing and Urban Development (“HUD”), which govern non-supervised, direct endorsement mortgagees. The Company is also subject to regulatory capital requirements administered by Ginnie Mae, Fannie Mae, and Freddie Mac, which govern issuers of Ginnie Mae, Fannie Mae, and Freddie Mac securities. Additionally, the Company is required to maintain minimum net worth requirements; these range from $0 to $1.0 million depending on the state.
Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary remedial actions by regulators that, if undertaken, could (i) remove the Company’s ability to sell and service loans to, or on behalf of, the Agencies and (ii) have a direct material effect on the Company’s condensed consolidated financial statements. In accordance with the regulatory capital guidelines, the Company must meet specific quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Changes in regulatory and accounting standards, as well as the impact of future events on the Company’s results, may significantly affect the Company’s net worth adequacy.
The Company is subject to the following minimum net worth, minimum capital ratio, and minimum liquidity requirements established by the Federal Housing Finance Agency for Fannie Mae and Freddie Mac Seller/Servicers, and Ginnie Mae for single family issuers:
Minimum Net Worth
The minimum net worth requirement for Fannie Mae and Freddie Mac is defined as follows:
•Base Adjusted/Tangible Net Worth (as defined by HUD) of $2.5 million plus 25 basis points of outstanding UPB for total loans serviced.
•Adjusted/Tangible Net Worth, as defined by HUD, is comprised of total equity less goodwill, intangible assets, affiliate receivables, deferred tax assets, prepaid expenses, and certain pledged assets.
The minimum net worth requirement for Ginnie Mae is defined as follows:
•Base Adjusted/Tangible Net Worth (as defined by HUD) of $2.5 million plus 35 basis points of the issuer’s total single-family effective outstanding obligations.
•Adjusted/Tangible Net 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 Ginnie Mae, the Company is also required to hold a ratio of Adjusted/Tangible Net Worth to Total Assets greater than 6.0%.
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 of GSEs, US Treasury Obligations); and unused/available portion of committed servicing advance lines.
The minimum liquidity requirement for Ginnie Mae is defined as follows:
•Maintain liquid assets equal to the greater of $1.0 million or 10 basis points of the Company’s outstanding single-family MBS.
The most restrictive of the minimum net worth and capital requirements require the Company to maintain a minimum adjusted net worth balance of $224.6 million and $326.3 million as of September 30, 2022 and December 31, 2021, respectively.
The Company is in compliance with all minimum requirements to which it was subject as of September 30, 2022.
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Note 11 – Representation and Warranty Reserve
Certain of the Company’s loan sale contracts include provisions requiring the Company to repurchase a loan if a borrower fails to make certain initial loan payments due to the acquirer or if the accompanying mortgage loan fails to meet customary representations and warranties. The Company has included considerations that it may receive relief of certain representations and warranty obligations on loans sold to FNMA or FHLMC on or after January 1, 2013 if FNMA or FHLMC satisfactorily concludes a quality control loan file review or if the borrower meets certain acceptable payment history requirements within 12 or 36 months after the loan is sold to FNMA or FHLMC, 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:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(dollars in thousands)
Repurchase reserve at beginning of period
$38,301 $27,901 $24,577 $18,080 
Additions
14,748 1,258 57,166 12,262 
Charge-offs
(21,456)(1,721)(50,150)(2,904)
Repurchase reserve at end of period
$31,593 $27,438 $31,593 $27,438 
Note 12 – Fair Value Measurements
The Company uses fair value measurements to record certain assets and liabilities at fair value on a recurring basis, such as MSRs, derivatives, MLHS and Early buyout loans (“EBOs”). The Company has elected fair value accounting for loans held for sale and MSRs to more closely align the Company’s accounting with its interest rate risk strategies without having to apply the operational complexities of hedge accounting.
The Company 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 1Unadjusted, quoted prices in active markets for identical assets or liabilities.
Level 2Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Company. These may include quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk and others.
Level 3Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity), unobservable inputs may be used. Unobservable inputs reflect the Company's own assumptions about the factors that market participants would use in pricing the asset or liability and are based on the best information available in the circumstances.
An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
While the Company believes its valuation methods are appropriate and consistent with those used by other market participants, the use of different methods or assumptions to estimate the fair value of certain financial statement items could result in a different estimate of fair value at the reporting date. Those estimated values may differ significantly from the values that would have been used had a readily available market for such items existed, or had such items been liquidated, and those differences could be material to the financial statements.
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Fair Value of Certain Assets and Liabilities
The following describes the methods used in estimating the fair values of certain 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 Government-Sponsored Enterprises (“GSEs”) that have subsequently been deemed to be non-saleable to GSEs and Ginnie Mae when certain representations and warranties are breached. These loans, however, are saleable to other entities and are classified on the consolidated balance sheets as Mortgage loans held for sale. These repurchased loans are considered Level 3 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 interest rate lock commitment. The average pull-through rate for IRLCs was 81.1% and 86.1% as of September 30, 2022 and December 31, 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 uses Treasury futures contracts to offset changes in the fair value of MSRs. The Company estimates fair value of these MSR-related derivatives using quoted market prices. These derivatives are classified as Level 1.
Mortgage Servicing Rights: The Company uses a discounted cash flow approach to estimate the fair value of MSRs. This approach consists of projecting servicing cash flows discounted at a rate that management believes market participants would use in their determinations of value. The Company obtains valuations from an independent third party on a 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:
September 30, 2022
Level 1
Level 2
Level 3
Total
(dollars in thousands)
Assets:
Mortgage loans held for sale
$— $904,354 $13,398 $917,752 
Interest rate lock commitments— — 2,199 2,199 
Forward sale contracts— 59,714 — 59,714 
Interest rate swap futures contracts— 1,478 — 1,478 
Mortgage servicing rights
— — 1,492,547 1,492,547 
Total
$— $965,546 $1,508,144 $2,473,690 
Liabilities:
Interest rate lock commitments$— $— $29,176 $29,176 
Forward sale contracts— 600 — 600 
Forward purchase contracts— 3,399 — 3,399 
Total$— $3,999 $29,176 $33,175 

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December 31, 2021
Level 1Level 2Level 3Total
(dollars in thousands)
Assets:
Mortgage loans held for sale
$— $5,086,943 $20,218 $5,107,161 
Interest rate lock commitments— — 29,887 29,887 
Forward sale contracts— 6,969 — 6,969 
Forward purchase contracts— 3,031 — 3,031 
Interest rate swap futures contracts— 111 — 111 
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 $2,843 
Forward sale contracts— 8,242 — 8,242 
Forward purchase contracts— 281 — 281 
Interest rate swap futures contracts— 5,662 — 5,662 
Total$— $14,185 $2,843 $17,028 
The following presents a reconciliation of Level 3 assets measured at fair value on a recurring basis:
MSRs
IRLC
MLHS
(dollars in thousands)
Balance at January 1, 2022
$1,525,103 $29,887 $20,218 
Purchases, sales, issuances, contributions, and settlements
(262,915)— (1,564)
Change in fair value
228,036 (17,746)(52)
Transfers out(1)
— — (826)
Balance at March 31, 2022
$1,490,224 $12,141 $17,776 
Purchases, sales, issuances, contributions, and settlements
(110,125)— (1,147)
Change in fair value
39,006 10,481 (1,261)
Transfers out(1)
— — (1,442)
Balance at June 30, 2022
$1,419,105 $22,622 $13,926 
Purchases, sales, issuances, contributions, and settlements
83,865 — (1,820)
Change in fair value
(10,423)(20,423)(126)
Transfers out(1)
— — 1,418 
Balance at September 30, 2022
$1,492,547 $2,199 $13,398 

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MSRsIRLCMLHS
(dollars in thousands)
Balance at January 1, 2021
$748,457 $257,785 $44,374 
Purchases, sales, issuances, contributions, and settlements
299,174 — 41 
Change in fair value
108,726 (237,592)(247)
Transfers out(1)
— — 1,410 
Balance at March 31, 2021
$1,156,357 $20,193 $45,578 
Purchases, sales, issuances, contributions, and settlements
283,333 — 415 
Change in fair value
(172,437)36,271 (517)
Transfers out(1)
— — — 
Balance at June 30, 2021
$1,267,253 $56,464 $45,476 
Purchases, sales, issuances, contributions, and settlements
123,678 — (24,748)
Change in fair value
11,209 (18,149)(947)
Transfers out(1)
— — 31 
Balance at September 30, 2021
$1,402,140 $38,315 $19,812 
(1)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:
Fair ValuePrincipal
Amount Due
Upon Maturity
Difference(1)
(dollars in thousands)
September 30, 2022$917,752 $971,772 $(54,020)
December 31, 2021$5,107,161 $5,005,069 $102,092 
(1)Represents the amount of (losses) gains related to changes in fair value of items accounted for using the fair value option included in Gain on loans, net within the condensed consolidated statements of operations.
The Company had no significant assets or liabilities measured at fair value on a nonrecurring basis as of September 30, 2022 and December 31, 2021, respectively.
The following is a summary of the key unobservable inputs used in the valuation of the Level 3 assets:
September 30, 2022
Assets:
Key InputRangeWeighted
Average
Mortgage servicing rights
Discount rate
8.6% - 16.4%
9.4%
Prepayment speeds
4.4% - 8.1%
6.3%
Interest rate lock commitmentsPull-through rate
48.3% - 100.0%
81.1%
Mortgage loans held for sale
Investor pricing
72.5% - 101.1%
79.7%
December 31, 2021
Assets:
Key InputRangeWeighted
Average
Mortgage servicing rights
Discount rate
8.6% - 12.2%
8.7%
Prepayment speeds
6.9% - 11.6%
8.3%
Interest rate lock commitmentsPull-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 of September 30, 2022 and December 31, 2021. For financial instruments that were not recorded at fair value, such as cash and cash equivalents, restricted cash, servicing advances, warehouse and operating lines of credit, accounts payable, and accrued expenses, their carrying values approximated fair value due to the short-term nature of such instruments. The Senior Notes had a carrying value of $500.0 million and $550.0 million and an estimated fair value of $313.9 million and $506.4 million as of September 30, 2022 and December 31, 2021, respectively. For the Company’s other long-term secured
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borrowings not recorded at fair value, the carrying value approximated fair value due to the variable interest rate on the borrowings and the re-repricing of collateral.
Note 13 – 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.
In August 2022, the Company’s board of directors (the “Board”) approved the restructuring actions, which resulted in $13.4 million expense for cash severance and related benefits, retention, and termination costs in Compensation and benefits in the condensed consolidated statements of operations for the three and nine months ended September 30, 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 condensed consolidated statements of operations for the three and nine months ended September 30, 2022.
Restructuring reserve balance of $8.0 million as of September 30, 2022 is classified as Accrued payroll and accrued expenses. The Company anticipates that the activities associated with the current restructuring actions will be substantially complete by the end of 2022.
The following is a summary of the Company’s restructuring reserve:
(dollars in thousands)
Balance at June 30, 2022$— 
Restructuring charges13,407 
Payments(5,361)
Balance at September 30, 2022$8,046 
Note 14 – Goodwill
The Company performs its annual goodwill impairment analysis as of October 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 three months ended September 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. 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 of September 30, 2022.
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Note 15 – Equity-based Compensation
On January 21, 2021, the 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 the Home Point Capital LP (“HPLP”) 2015 Option Plan (the “2015 Option Plan”), which was in place prior to the Company’s IPO. The expiration date of the 2021 Plan is the tenth (10th) anniversary of the effective date of the 2021 Plan, which is January 21, 2031. The 2021 Plan contains both time-vesting service criteria and performance based vesting terms, which are based on the achievement of specified performance criteria outlined in the underlying award agreement.
Prior to the consummation of the merger in connection with the IPO, the 2015 Option Plan governed awards of stock options to key persons conducting business for HPLP and 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:
Nine Months Ended September 30, 2022
UnitsWeighted
Average
Grant Date Fair Value
Outstanding at beginning of period367,991 $10.18 
Granted233,550 3.85 
Vested(209,093)10.75 
Outstanding at end of period392,448 $6.12 
The RSUs granted to the Company’s management team will vest in equal annual installments over a three-year period subject to the participants’ continued employment with the Company. The RSUs granted to the non-management members of the Company’s Board who are not affiliated with Stone Point Capital LLC vest at the next annual meeting of stockholders following the grant date. The Company recognized $0.2 million and $1.3 million of compensation expense related to RSUs within Compensation and benefits expense on the consolidated statements of operations for the three and nine months ended September 30, 2022, respectively. The Company recognized $0.5 million and $1.1 million of compensation expense related to RSUs for the three and nine months ended September 30, 2021, respectively.
Performance Stock Units
Performance stock units (“PSUs”) are fair valued on the date of grant and expensed over the service period using a straight-line method as the awards cliff vest at the end of a three-year performance period. The Company also estimates the number of shares expected to vest, which is based on management’s determination of the probable outcome of the Performance Condition (as defined below), which requires considerable judgment. The Company records a cumulative adjustment in periods in which the Company’s estimate of the number of shares expected to vest changes. Additionally, the Company ultimately adjusts the expense recognized to reflect the actual vested shares following the resolution of the Performance Condition. The PSUs will become earned based on the level of achievement of the Company’s average return on equity over a three-year performance period (the “Performance Condition”). The number of earned PSUs can range from 0% to 150% of the number of PSUs granted, depending on continued service with the Company and the extent to which the Performance Condition has been achieved at the end of the performance period. The PSUs will be credited with dividend equivalent payments, as provided in Section 13(c)(iii) of the 2021 Plan.
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The following table presents the summary of the Company’s PSU activity:

Nine Months Ended September 30, 2022
UnitsWeighted-Average Grant Date Fair Value
Outstanding at beginning of period238,347 $9.44 
Granted131,924 3.79 
Outstanding at end of period370,271 $7.43 
The Company did not recognize any compensation expense related to PSUs for the three and nine months ended September 30, 2022 and 2021.
Stock Option Awards
The Company recognizes compensation expense associated with the stock option grants using the straight-line method over the requisite service period. The Company recognized $0.7 million and $2.8 million of compensation expense related to stock options within Compensation and benefits expense on the condensed consolidated statements of operations for the three and nine months ended September 30, 2022, respectively, and $1.2 million and $4.1 million for the three and nine months ended September 30, 2021, respectively. The unrecognized compensation expense related to outstanding and unvested stock options was $61.2 million as of September 30, 2022, which is expected to vest and get recognized over a weighted-average period of 5.79 years. The number of options vested and exercisable was 2,262,385 and the weighted-average exercise price of the options exercisable was $3.85 as of September 30, 2022.
The following presents the summary of the Company’s stock option activity under the 2021 Plan:
Nine Months Ended September 30, 2022
Number of
Shares		Weighted
Average
Exercise
Price		Weighted
Average
Contractual
Life (Years)		Weighted
Average
Grant Date
Fair Value
Outstanding at beginning of period11,751,031 $4.45 6.87$8.38 
Granted337,043 1.81 4.099.79 
Exercised(294,068)1.86 2.019.77 
Forfeited(551,929)1.85 0.179.77 
Expired(51,768)1.75 1.009.50 
Outstanding at end of period11,190,309 $4.58 5.88$8.30 
The following presents the summary of the Company’s non-vested activity under the 2021 Plan:
Nine Months Ended September 30, 2022
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Non-vested at beginning of period9,627,033 $8.19 
Granted337,043 9.79 
Vested
(138,387)9.16 
Exercised(294,068)9.77 
Forfeited(551,929)9.77 
Expired(51,768)9.50 
Non-vested at end of period8,927,924 $8.18 
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The following presents assumptions used in the Black-Scholes option valuation model to determine the weighted-average fair value per stock option granted:
 September 30, 2022
Expected life (in years)8.25
Risk-free interest rate
0 - 3.0%
Expected volatility24.9%
Dividend yield—%
The expected life of each stock option is estimated based on its vesting and contractual terms. The risk-free interest rate reflected the yield on zero-coupon Treasury securities with a term approximating the expected life of the stock options. The expected volatility was based on an analysis of the historical volatilities of peer companies, adjusted for certain characteristics specific to the Company. The Company applied an estimated forfeiture rate of 0%-10.4% as of September 30, 2022 and December 31, 2021.
Note 16 – Earnings Per Share
(Loss) earnings per share (“EPS”) is calculated and presented in the consolidated financial statements for both basic and diluted earnings per share. Basic EPS excludes all dilutive common stock equivalents and is calculated by dividing the net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted EPS, as calculated using the treasury stock method, reflects the potential dilution that would occur if the Company’s dilutive outstanding stock options and stock awards were issued and exercised.
The following presents the calculation of the basic and diluted (loss) earnings per share:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(dollars in thousands, except per share amounts )
Net (loss) income$(94,130)$71,223 $(126,683)$146,979 
Numerator:
Net (loss) income attributable to common shareholders$(94,130)$71,223 $(126,683)$146,979 
Net (loss) income attributable to Home Point - diluted$(94,130)$71,223 $(126,683)$146,979 
Denominator (in thousands):
Weighted average shares of common stock outstanding - basic138,393 139,057 138,718 139,167 
Dilutive effect of common stock equivalents— 899 — 517 
Weighted average shares of common stock outstanding - diluted138,393 139,957 138,718 139,685 
(Loss) earnings per share of common stock outstanding - basic$(0.68)$0.51 $(0.91)$1.06 
(Loss) earnings per share of common stock outstanding - diluted$(0.68)$0.51 $(0.91)$1.05 
As a result of the net loss from continuing operations for the three and nine months ended September 30, 2022 and three months ended September 30, 2021, the effect of certain dilutive securities was excluded from the computation of weighted average diluted shares outstanding, as inclusion would have resulted in antidilution.

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Note 17 – Shareholders’ Equity and Equity Method Investment
Common Stock Repurchases
On February 24, 2022, the Company’s Board approved the repurchase of shares of the Company’s common stock, par value $0.0000000072 per share (the “Common Stock”), in an aggregate amount not to exceed $8.0 million, from time to time through and including December 31, 2022 (the “Stock Repurchase Program”). Repurchases under the Stock Repurchase Program may be made from time to time pursuant to one or more plans adopted under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. No repurchases were made during the three months ended September 30, 2022. 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 nine months ended September 30, 2022. Shares repurchased under the program have been subsequently retired.
Equity Method Investment
The Company holds an equity method investment in Longbridge Financial, LLC (“Longbridge”) through a 49.6% voting ownership interest, which is the only equity method investment held by the Company. The investment was initially recognized at cost and is adjusted for HPC’s share of Longbridge’s earnings or losses, contributions or distributions. The Company’s investment in Longbridge is classified as Assets Held for Sale as of September 30, 2022 and December 31, 2021.
HPC had a net investment of $38.9 million and $63.7 million in Longbridge as of September 30, 2022 and December 31, 2021, respectively. The Company entered into a definitive agreement in February of 2022 to sell its investment in Longbridge, and the transaction closed on October 3, 2022 for a purchase price of approximately $38.9 million. Refer to Note 22 – Subsequent Events. An impairment charge of $8.8 million was recognized for the held for sale balance of the equity method investment in Loss from equity method investment in the condensed consolidated statements of operations during the three and nine months ended September 30, 2022.
The following presents condensed financial information of Longbridge:
September 30, 2022December 31, 2021
(dollars in thousands)
Total assets$7,856,706 $6,727,807 
Total liabilities7,760,531 6,604,351 
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(dollars in thousands)
Revenue$52,301 $(67,084)$(79,206)$33,152 
Net (loss) income4,416 (8,243)(30,249)23,469 
Net (loss) income attributable to the Company(11,862)(713)(26,278)16,649 
Note 18 – Income Taxes
The Company’s effective income tax rate was 23.3% and 25.8% for the three and nine months ended September 30, 2022, respectively and 27.5% and 27.8% for the three and nine months ended September 30, 2021, respectively, compared to the statutory rate of 21.0%. The Company calculated the provision for income taxes by applying the estimated annual effective tax rate to year-to-date pre-tax income and adjusted for discrete items that occurred during the period. Several factors influence the effective tax rate, including the impact of equity investment, state taxes, and permanent disallowed deductions for tax such as officer's compensation limitations applicable to a public entity, equity-based compensation, goodwill impairment, and non-deductible transaction costs.
Note 19 – 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. The Origination segment consists of a combination of retail and third-party loan production options. The Servicing segment performs loan servicing for both newly originated loans the Company is holding for sale and loans the Company services for others.
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Origination
In the Origination segment, the Company originates 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. In February 2022, the Company entered into an agreement with ServiceMac, LLC (“ServiceMac”), a wholly owned subsidiary of First American Financial Corporation, pursuant to which ServiceMac 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.
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The following presents the key operating data for our business segments:
Three Months Ended September 30, 2022
OriginationServicingSegments
Total		All OtherTotal
Reconciling
Item(1)
Total
Consolidated
(dollars in thousands)
Revenue:
Loss on loans, net$(10,278)$— $(10,278)$— $(10,278)$— $(10,278)
Loan fee income7,606 — 7,606 — 7,606 — 7,606 
Loan servicing fees— 60,140 60,140 — 60,140 — 60,140 
Change in fair value of mortgage servicing rights— (46,187)(46,187)— (46,187)— (46,187)
Interest income (expense), net4,254 4,129 8,383 (13,272)(4,889)— (4,889)
Other (expense) income46 — 46 (9,983)(9,937)11,862 1,925 
Total$1,628 $18,082 $19,710 $(23,255)$(3,545)$11,862 $8,317 
Contribution margin$(44,404)$3,180 $(41,224)$(77,945)$(119,169)
Nine Months Ended September 30, 2022
OriginationServicingSegments
Total		All OtherTotal
Reconciling
Item(1)
Total
Consolidated
(dollars in thousands)
Revenue:
Gain on loans, net$48,360 $— $48,360 $— $48,360 $— $48,360 
Loan fee income42,765 — 42,765 — 42,765 — 42,765 
Loan servicing fees— 204,076 204,076 — 204,076 — 204,076 
Change in fair value of mortgage servicing rights— (58,891)(58,891)— (58,891)— (58,891)
Interest income (expense), net20,351 6,264 26,615 (38,909)(12,294)— (12,294)
Other income (expense)101 — 101 (13,899)(13,798)26,278 12,480 
Total$111,577 $151,449 $263,026 $(52,808)$210,218 $26,278 $236,496 
Contribution margin$(82,651)$106,437 $23,786 $(185,306)$(161,520)
(1)The Company includes the (income) loss from its equity method investment in the All Other segment. Therefore, it must be removed to reconcile to Total revenue, net on the condensed consolidated statements of operations.
Three Months Ended September 30, 2021
OriginationServicingSegments
Total		All OtherTotal
Reconciling
Item(1)
Total
Consolidated
(dollars in thousands)
Revenue:
Gain on loans, net$145,298 $173 $145,471 $— $145,471 $— $145,471 
Loan fee income34,484 — 34,484 — 34,484 — 34,484 
Loan servicing fees28 91,803 91,831 — 91,831 — 91,831 
Change in fair value of mortgage servicing rights— 10,970 10,970 — 10,970 — 10,970 
Interest income (expense), net4,035 623 4,658 (13,471)(8,813)— (8,813)
Other income (expense)— 50 50 (105)(55)713 658 
Total$183,845 $103,619 $287,464 $(13,576)$273,888 $713 $274,601 
Contribution margin$67,196 $86,179 $153,375 $(54,811)$98,564 
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Nine Months Ended September 30, 2021
OriginationServicingSegments
Total		All OtherTotal
Reconciling
Item(1)
Total
Consolidated
(dollars in thousands)
Revenue:
Gain on loans, net$521,537 $190 $521,727 $— $521,727 $— $521,727 
Loan fee income118,099 — 118,099 — 118,099 — 118,099 
Loan servicing fees28 247,725 247,753 — 247,753 — 247,753 
Change in fair value of mortgage servicing rights— (83,087)(83,087)— (83,087)— (83,087)
Interest income (expense), net8,021 1,291 9,312 (34,971)(25,659)— (25,659)
Other income (expense)— 227 227 18,533 18,760 (16,649)2,111 
Total$647,685 $166,346 $814,031 $(16,438)$797,593 $(16,649)$780,944 
Contribution margin$233,609 $111,427 $345,036 $(147,807)$197,229 
(1)The Company includes the (income) loss from its equity method investments in the All Other segment. In order to reconcile to Total revenue, net on the condensed consolidated statements of operations, it must be removed as is presented above.
The following presents a reconciliation of contribution margin to consolidated U.S. GAAP Loss (income) before income tax:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(dollars in thousands)
(Loss) income before income tax$(107,307)$99,277 $(135,242)$180,580 
(Loss) income from equity method investment(11,862)(713)(26,278)16,649 
Contribution margin$(119,169)$98,564 $(161,520)$197,229 
Note 20 – Related Parties
The Company entered into transactions and agreements to purchase various services and products from certain affiliates of our sponsor, Stone Point Capital LLC. The services include valuation of MSRs, insurance brokerage services, loan review and tax payment services for certain loan originations. The Company recorded $2.7 million and $23.5 million for the three and nine months ended September 30, 2022, respectively, and $6.0 million and $16.1 million for the three and nine months ended September 30, 2021, respectively, for products, services, and other transactions in Loan expense, Loan servicing expense, Production technology, General and administrative and Other expenses in the condensed consolidated statements of operations.
Note 21 – Sale of The Correspondent Channel
On June 1, 2022 (the “Closing Date”), HPF completed the previously announced sale of certain assets of HPF’s delegated Correspondent channel to Planet Home Lending, LLC (“Planet”). The sale of the correspondent channel reduces the Company’s expenses and enables reallocation of resources to our Wholesale channel.
The purchase price for such assets was $2.5 million in cash, plus an earnout payment based on certain of Planet’s correspondent origination volume during the two-year period commencing on the Closing Date. The Company records the earnout payment when the consideration is determined to be realizable. The sale resulted in a $0.4 million loss in Other expenses in the condensed consolidated statements of operations.
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Note 22 – Subsequent Events
Credit Suisse Warehouse Facility Termination
On October 7, 2022, HPF terminated its $300 million warehouse facility with Credit Suisse First Boston Mortgage Capital LLC. The parties mutually agreed to terminate the warehouse facility prior to its scheduled maturity date of February 23, 2023. HPF did not incur any early termination penalties.
Longbridge
On October 3, 2022, the Company completed the previously announced sale of its 49.6% investment in Longbridge to EF Holdco RER Assets, LLC, an indirect subsidiary of Ellington Financial Inc., for a purchase price of approximately $38.9 million in cash.
HPMAC
On August 9, 2022, HPC entered into a definitive agreement with MS Investorco, LLC to sell its equity interests in HPAM for the estimated tangible book value of HPAM and HPMAC (“Acquired Companies”) plus an immaterial cash amount (the “HPAM Transaction”). The Acquired Companies will have an immaterial amount of net equity at the time of closing, since their MSRs were transferred to HPC during the first week of November, 2022. The HPAM Transaction is expected to close in the fourth quarter of 2022, subject to customary closing conditions, including regulatory approvals and notices.
Repurchase Obligation Relief
As noted above, 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 FNMA 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 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.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis supplements our management’s discussion and analysis for the year ended December 31, 2021 as contained in our 2021 Annual Report, and presumes that readers have read or have access to such discussion and analysis. The following discussion and analysis should also be read together with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Report. This discussion contains forward-looking statements that reflect our plans and strategy for our business, and involve risks and uncertainties. You should review the “Risk Factors” section of our 2021 Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read “Cautionary Note on Forward-Looking Statements” in this Report .
Data as of and for the three and nine months ended September 30, 2022 and 2021, have been derived from our condensed consolidated financial statements included elsewhere in this Report.
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 origination growth. We support our origination operations through a robust operational infrastructure and a highly responsive customer experience. We then leverage our servicing platform to manage the customer experience. We believe that the complementary relationship between our origination and servicing businesses allows us to provide a best-in-class experience to our customers throughout their homeownership lifecycle.
Our primary focus is our Wholesale channel, which is a business-to-business-to-customer distribution model in which we utilize our relationships with 9,116 partnering independent mortgage brokerages (“Broker Partners”) to reach our end-borrower customers. In the third quarter of 2022, we had 2,569 active broker partners. 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 21 – Sale of The Correspondent Channel. 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 331 thousand servicing customers, with the ultimate objective of securing them as a Customer for Life. In February 2022, we announced an agreement with ServiceMac, pursuant to which ServiceMac will subservice all mortgage loans underlying MSRs we hold. ServiceMac began subservicing newly originated agency loans for us in the second quarter of 2022. The Company completed transitioning to ServiceMac the balance of the agency portfolio and all of the Ginnie Mae portfolio in the third quarter of 2022. ServiceMac performs servicing 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 will provide greater flexibility when strategically selling certain non-core MSRs. The number of our servicing portfolio customers was 331 thousand and 426 thousand, while the servicing portfolio unpaid principal balance (“UPB”) was $94.1 billion and $125.8 billion as of September 30, 2022 and December 31, 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.
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021 Summary
We generated $8.3 million of total revenue, net for the three months ended September 30, 2022 compared to $274.6 million of total revenue, net for the three months ended September 30, 2021. We had $94.1 million of net loss for the three months ended September 30, 2022 compared to $71.2 million of net income for the three months ended September 30, 2021. We generated $14.0 million of Adjusted revenue for the three months ended September 30, 2022 compared to $189.0 million for the three months ended September 30, 2021. We had $80.7 million of Adjusted net loss for the three months ended September 30, 2022 compared to $9.7 million Adjusted net income for the three months ended September 30, 2021. Refer to “Non-GAAP Financial Measures” for further information regarding our use of Adjusted revenue and Adjusted net income, including limitations related to such non-GAAP measures and a reconciliation of such measures to net income, the nearest comparable financial measure calculated and presented in accordance with U.S. GAAP.
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We originated $4.1 billion of mortgage loans for the three months ended September 30, 2022 compared to $20.8 billion for the three months ended September 30, 2021, representing a decrease of $16.7 billion or 80.1%. Our MSR Servicing Portfolio was $94.1 billion as of September 30, 2022 compared to $125.8 billion as of September 30, 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 80 basis points for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. Additionally, according to the Mortgage Bankers Association Mortgage Finance Forecast, average 30-year mortgage rates increased by approximately 260 basis points from September 30, 2021 to September 30, 2022. An increase of this nature generally results in our Origination volume declining as refinance opportunities decrease, which also increases competition, resulting in lower gain on sale margins. However, when rates increase, we experience lower prepayment speeds and a subsequent upward adjustment to the fair value of our MSRs for the loans that still exist in our portfolio.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021 Summary
We generated $236.5 million of total revenue, net for the nine months ended September 30, 2022 compared to $780.9 million of total revenue, net for the nine months ended September 30, 2021. We had $126.7 million of net loss for the nine months ended September 30, 2022 compared to $147.0 million of net income for the nine months ended September 30, 2021. We generated $158.1 million of Adjusted revenue for the nine months ended September 30, 2022 compared to $639.8 million for the nine months ended September 30, 2021. We had $165.4 million of Adjusted net loss for the nine months ended September 30, 2022 compared to $33.1 million Adjusted net income for the nine months ended September 30, 2021. Refer to “Non-GAAP Financial Measures” for further information regarding our use of Adjusted revenue and Adjusted net income, including limitations related to such non-GAAP measures and a reconciliation of such measures to net income, the nearest comparable financial measure calculated and presented in accordance with U.S. GAAP.
We originated $26.0 billion of mortgage loans for the nine months ended September 30, 2022 compared to $75.7 billion for the nine months ended September 30, 2021, representing a decrease of $49.7 billion or 65.7%. Year-over-year decreases were due to rising interest rates and increased competition in the industry. As noted above, our MSR Servicing Portfolio was $94.1 billion as of September 30, 2022 compared to $125.8 billion as of September 30, 2021. Our gain on sale margins decreased 52 basis points for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. Additionally, as noted above, average 30-year mortgage rates increased by approximately 260 basis points from September 30, 2021 to September 30, 2022. An increase of this nature generally results in lower Origination volume and lower gain on sale margins. However, the higher rates result in an upward adjustment to the fair value of our MSRs for the loans that 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 21 – Sale of The Correspondent Channel above, on June 1, 2022, the Company completed the sale of its Correspondent channel.
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 9,116 Broker Partners. The Correspondent channel consisted of closed and funded mortgages that we purchased from a trusted network of Correspondent 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 generated contribution margin of $(44.4) million and $(82.7) million for the three and nine months ended September 30, 2022, respectively and $67.2 million and $233.6 million for the three and nine months ended September 30, 2021, respectively.
Our Servicing segment consists of servicing loans that were produced in our Originations segment where the Company retained the servicing rights. Servicing consists of collecting loan payments, remitting principal and interest payments to investors, managing escrow funds for the payment of mortgage-related expenses, such as taxes and insurance, performing loss mitigation activities on behalf of investors and otherwise administering our mortgage loan servicing portfolio in compliance with state and federal regulations. We also strategically buy and sell MSRs. Our Servicing segment generated Contribution margins of $3.2 million and $106.4 million for the three and nine months ended September 30, 2022, respectively and $86.2 million and $111.4 million for the three and nine months ended September 30, 2021, respectively.
We believe that maintaining both an Origination segment and a Servicing segment provides us with a more balanced business model in both rising and declining interest rate environments, as compared to other industry participants that predominantly focus on either origination or servicing, instead of both.
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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 and loans held for sale. Interest rate lock commitments represent an agreement to extend credit to a customer whereby the interest rate is set prior to the loan funding. These commitments bind us to fund the loan at a specified rate. When loans are funded, they are classified as held for sale until they are sold. During the origination and sale process, the value of interest rate lock commitments and loans held for sale inventory fluctuates with changes in interest rates; for example, if we enter into interest rate lock commitments at low interest rates followed by an increase in interest rates in the market, the value of our interest rate lock commitment 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 the third quarter of 2022. The rapid rise in interest rates has adversely impacted our origination volumes.
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 of Broker Partners, prior to the sale of our Correspondent channel, number of Correspondent Partners, which enable us to monitor key inputs of our business model. As noted above, on June 1, 2022, the Company completed the previously announced sale of the Correspondent channel. For additional information refer to Note 21 – Sale of The Correspondent Channel. Our servicing metrics enable us to monitor the size of our customer base, the characteristics and value of our MSR Servicing Portfolio, and help drive retention efforts.
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Origination Segment KPIs
The following presents key performance indicators for our business:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(dollars in thousands)
Origination Volume by Channel
Wholesale$4,019,910 $16,355,449 $20,719,969 $54,403,754 
Correspondent64,117 3,434,186 4,529,238 17,372,644 
Direct57,975 1,005,985 739,735 3,910,970 
Origination volume$4,142,002 $20,795,620 $25,988,942 $75,687,368 
Fallout Adjusted (“FOA”) Lock Volume by Channel
Wholesale$3,688,795 $16,709,845 $20,735,781 $48,415,960 
CorrespondentN/A4,149,963 3,879,896 14,785,605 
Direct45,942 1,034,634 586,386 2,610,411 
FOA Lock Volume$3,734,737 $21,894,442 $25,202,063 $65,811,976 
Gain on sale margin by Channel
Wholesale$17,862 $121,999 $128,102 $481,535 
CorrespondentN/A8,351 5,452 39,783 
Direct1,194 30,252 15,105 83,332 
Gain on sale margin attributable to channels
19,056 160,602 148,659 604,650 
Other (loss) gain on sale(a)
(17,428)23,243 (37,082)43,034 
Total gain on sale margin(b)
$1,628 $183,845 $111,577 $647,684 
Gain on sale margin by Channel (bps)
Wholesale48736299
CorrespondentN/A201425
Direct260292258318
Gain on sale margin attributable to channels
51735991
Other (loss) gain on sale(a)
(47)11(15)5
Total gain on sale margin(b)
4844496
Origination Volume by Purpose
Purchase81.1 %34.6 %59.9 %29.3 %
Refinance18.9 %65.4 %40.1 %70.7 %
September 30,
20222021
Market Share
Overall share of origination market(c)
1.6 %2.1 %
Share of wholesale channel(d)
8.1 %9.8 %
Third Party Partners
Number of Broker Partners(e)
9,1167,452
Number of Correspondent Partners(f)
N/A652
(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.
33
(b) Gain on sale margin calculated as gain on sale divided by Fallout Adjusted Lock volume. Gain on sale includes gain on loans, net, loan fee income, interest income (expense), net, and loan servicing fees (expense) for the Origination segment.
(c) Overall share of origination market share data for September 30, 2022 is as of June 30, 2022 obtained from Inside Mortgage Finance, a third party provider of residential mortgage industry news and statistics. The data as of September 30, 2022 is not yet available from Inside Mortgage Finance as of the date of this filing.
(d) Share of wholesale channel for September 30, 2022 is as of June 30, 2022 obtained from Inside Mortgage Finance, a third party provider of residential mortgage industry news and statistics. The data as of September 30, 2022 is not yet available from Inside Mortgage Finance as of the date of this filing.
(e) Number of Broker Partners with whom the Company sources loans.
(f) Number of Correspondent Partners from whom the Company purchased loans prior to the completion of the previously announced sale of the Correspondent channel on June 1, 2022.
Servicing Segment KPIs
The following presents key performance indicators for our business:
September 30,
20222021
(dollars in thousands)
Mortgage Servicing
MSR Servicing Portfolio - UPB(a)
$94,087,825$125,832,286
MSR Servicing Portfolio - Units(b)
331,264428,622
60 days or more delinquent(c)
1.0 %0.9 %
MSR Portfolio
MSR multiple(d)
5.824.19
Weighted Average Note Rate (e)
3.30 %2.98 %
(a) The unpaid principal balance of loans we service on behalf of Ginnie Mae, Fannie Mae, Freddie Mae and others, at period end.
(b) Number of loans in our capitalized servicing portfolio at period end.
(c) Total balances of outstanding loan principals for which installment payments are at least 60 days past due as a percentage of the outstanding loan principal as of a specified date.
(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 with U.S. GAAP and should not be considered as a substitute for net income, or any other operating performance measure calculated in accordance with U.S. GAAP and may not be comparable to a similarly titled measure reported by other companies.
We believe that the presentation of Adjusted revenue and Adjusted net income provides useful information to investors regarding our results of operations because each measure assists both investors and management in analyzing and benchmarking the performance and value of our business. Adjusted revenue and Adjusted net income provide indicators of performance that are not affected by fluctuations in certain costs or other items. Accordingly, management believes that these measurements are useful for comparing general operating performance from period to period, and management relies on these measures for planning and forecasting of future periods. The Company measures the performance of the segments primarily on a contribution margin basis. Additionally, these measures allow management to compare our results with those of other companies that have different financing and capital structures. However, other companies may define Adjusted revenue and Adjusted net income differently, and as a result, our measures of Adjusted revenue and Adjusted net income may not be directly comparable to those of other companies.
Adjusted revenue. We define Adjusted revenue as Total net revenue 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 income as Net income exclusive of the impact of the change in fair value of MSRs related to changes in valuation inputs and assumptions, net of MSRs economic hedging results.
The non-GAAP information presented below should be read in conjunction with the Company’s consolidated financial statements and the related notes.
34
The following presents a reconciliation of Adjusted revenue and Adjusted net (loss) income to the nearest U.S. GAAP financial measures of Total revenue, net and Net (loss) income, as applicable:
Reconciliation of Total Revenue, Net to Adjusted Revenue
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(dollars in thousands)
Total revenue, net$8,317 $274,601 $236,496 $780,944 
(Loss) income from equity method investment(11,862)(713)(26,278)16,649 
Change in fair value of MSR (due to inputs and assumptions), net of hedge(a)
17,509 (84,911)(52,126)(157,748)
Adjusted revenue$13,964 $188,977 $158,092 $639,845 
Reconciliation of Total Net (Loss) Income to Adjusted Net (Loss) Income
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(dollars in thousands)
Net (loss) income$(94,130)$71,223 $(126,683)$146,979 
Change in fair value of MSR (due to inputs and assumptions), net of hedge(a)
17,509 (84,911)(52,126)(157,748)
Income tax effect of change in fair value of MSR (due to inputs and assumptions), net of hedge(b)
(4,086)23,385 13,427 43,897 
Adjusted net (loss) income$(80,707)$9,697 $(165,382)$33,128 
(a)MSR fair value changes due to valuation inputs and assumptions are measured using a static discounted cash flow model that includes assumptions such as prepayment speeds, delinquencies, discount rates, and effects of changes in market interest rates. Refer to Note 4 – Mortgage Servicing Rights to our condensed consolidated financial statements included elsewhere in this Report. We exclude changes in fair value of MSRs (due to inputs and assumptions), net of hedge from Adjusted revenue as they add volatility and we believe that they are not indicative of the Company’s operating performance or results of operations. This adjustment does not include changes in fair value of MSRs due to realization of cash flows. Realization of cash flows occurs when cash is collected as customers make scheduled payments, partial prepayments of principal, or pay their mortgage in full. The adjustment includes the loss on MSR sales since it is not indicative of the Company’s results of operations.
(b)The income tax effect of change in fair value of MSR (due to inputs and assumptions), net of hedge is calculated as the MSR valuation change, net of hedge multiplied by the quotient of Income tax expense (benefit) divided by Income (loss) before income tax.
35
Results of Operations – Three and Nine Months Ended September 30, 2022 and 2021
Consolidated Results of Operations
The following presents certain consolidated financial data:
Three Months Ended September 30,
20222021$ Change% Change
(dollars in thousands)
Revenue:
(Loss) gain on loans, net$(10,278)$145,471 $(155,749)(107.1 %)
Loan fee income7,606 34,484 (26,878)(77.9 %)
Interest income21,452 36,719 (15,267)(41.6 %)
Interest expense(26,341)(45,532)19,191 (42.1 %)
Interest expense, net(4,889)(8,813)3,924 (44.5 %)
Loan servicing fees60,140 91,831 (31,691)(34.5 %)
Change in fair value of mortgage servicing rights(46,187)10,970 (57,157)(521.0 %)
Other income1,925 658 1,267 192.6 %
Total revenue, net8,317 274,601 (266,284)(97.0 %)
Expenses:
Compensation and benefits62,765 114,612 (51,847)(45.2 %)
Loan expense3,977 16,618 (12,641)(76.1 %)
Loan servicing expense11,221 6,681 4,540 68.0 %
Production technology3,676 7,583 (3,907)(51.5 %)
General and administrative12,479 21,741 (9,262)(42.6 %)
Depreciation and amortization2,599 2,440 159 6.5 %
Impairment of goodwill10,789 — 10,789 N/A
Other expenses8,118 5,649 2,469 43.7 %
Total expenses115,624 175,324 (59,700)(34.1 %)
Loss (income) before income tax(107,307)99,277 (206,584)(208.1 %)
Income tax benefit (expense)25,039 (27,341)52,380 (191.6 %)
Loss from equity method investment(11,862)(713)(11,149)1563.7 %
Net (loss) income$(94,130)$71,223 $(165,353)(232.2 %)
36

Nine Months Ended September 30,
20222021$ Change% Change
(dollars in thousands)
Revenue:
Gain on loans, net$48,360 $521,727 $(473,367)(90.7 %)
Loan fee income42,765 118,099 (75,334)(63.8 %)
Interest income76,062 96,944 (20,882)(21.5 %)
Interest expense(88,356)(122,603)34,247 (27.9 %)
Interest expense, net(12,294)(25,659)13,365 (52.1 %)
Loan servicing fees204,076 247,753 (43,677)(17.6 %)
Change in fair value of mortgage servicing rights(58,891)(83,087)24,196 (29.1 %)
Other income12,480 2,111 10,369 491.2 %
Total revenue, net236,496 780,944 (544,448)(69.7 %)
Expenses:
Compensation and benefits227,798 395,550 (167,752)(42.4 %)
Loan expense19,961 51,796 (31,835)(61.5 %)
Loan servicing expense24,088 22,282 1,806 8.1 %
Production technology12,884 25,038 (12,154)(48.5 %)
General and administrative49,119 74,527 (25,408)(34.1 %)
Depreciation and amortization7,913 7,551 362 4.8 %
Impairment of goodwill10,789 — 10,789 N/A
Other expenses19,186 23,620 (4,434)(18.8)%
Total expenses371,738 600,364 (228,626)(38.1 %)
(Loss) income before income tax(135,242)180,580 (315,822)(174.9 %)
Income tax benefit (expense)34,837 (50,250)85,087 (169.3 %)
(Loss) income from equity method investment(26,278)16,649 (42,927)(257.8 %)
Net (loss) income$(126,683)$146,979 $(273,662)(186.2 %)
Consolidated results are further analyzed in our segment disclosure below.

37
Origination Segment
The following presents certain financial data for the Origination segment:
Three Months Ended September 30,
20222021$ Change% Change
(dollars in thousands)
Revenue:
(Loss) gain on loans, net$(10,278)$145,298 $(155,576)(107.1)%
Loan fee income7,606 34,484 (26,878)(77.9)%
Loan servicing fees— 28 (28)(100.0)%
Interest income17,323 35,869 (18,546)(51.7)%
Interest expense(13,069)(31,834)18,765 (58.9)%
Interest income, net4,254 4,035 219 5.4 %
Other income46 — 46 N/A
Total origination revenue, net1,628 183,845 (182,217)(99.1)%
Expenses:
Compensation and benefits32,824 82,090 (49,266)(60.0)%
Loan expense3,977 16,431 (12,454)(75.8)%
Loan servicing expense— (38)38 (100.0)%
Production technology3,212 7,098 (3,886)(54.7)%
General and administrative5,017 9,304 (4,287)(46.1)%
Other expenses1,002 1,764 (762)(43.2)%
Total origination expenses46,032 116,649 (70,617)(60.5)%
Origination net (loss) income$(44,404)$67,196 $(111,600)(166.1)%

Nine Months Ended September 30,
20222021$ Change% Change
(dollars in thousands)
Revenue:
Gain on loans, net$48,360 $521,537 $(473,177)(90.7)%
Loan fee income42,765 118,099 (75,334)(63.8)%
Interest income69,798 94,763 (24,965)(26.3)%
Interest expense(49,447)(86,742)37,295 (43.0)%
Interest income, net20,351 8,021 12,330 153.7 %
Other income101 — 101 N/A
Total origination revenue, net111,577 647,657 (536,080)(82.8)%
Expenses:
Compensation and benefits139,313 301,474 (162,161)(53.8)%
Loan expense19,961 51,102 (31,141)(60.9)%
Loan servicing expense— 281 (281)(100.0)%
Production technology11,212 23,609 (12,397)(52.5)%
General and administrative20,153 31,205 (11,052)(35.4)%
Other expenses3,589 6,405 (2,816)(44.0)%
Total origination expenses194,228 414,076 (219,848)(53.1)%
Origination net (loss) income$(82,651)$233,609 $(316,260)(135.4)%
38
Origination Revenue, net
Gain on loans, net
The following presents components of Gain on loans, net:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(dollars in thousands)
FOA Lock Volume by Channel
Wholesale$3,688,795 $16,709,845$20,735,781 $48,415,960
CorrespondentN/A4,149,9633,879,896 14,785,605
Direct45,942 1,034,634586,386 2,610,411
FOA Lock Volume$3,734,737 $21,894,442 $25,202,063 $65,811,976 
Gain on sale margin by Channel
Wholesale$17,862 $121,999 $128,102 $481,535 
CorrespondentN/A8,351 5,452 39,783 
Direct1,194 30,252 15,105 83,332 
Gain on sale margin attributable to channels
19,056 160,602 148,659 604,650 
Other (loss) gain on sale(a)
(17,428)23,243 (37,082)43,034 
Total gain on sale margin(b)
$1,628 $183,845 $111,577 $647,684 
Gain on sale margin by Channel (bps)
Wholesale48 73 62 99 
CorrespondentN/A20 14 25 
Direct260 292 258 318 
Gain on sale margin attributable to channels
51 73 59 91 
Other (loss) gain on sale(a)
(47)11 (15)5 
Total gain on sale margin(b)
4 84 44 96 
(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, interest income (expense), net, and loan servicing fees (expense) for the Origination segment.
The following presents details of the characteristics of our mortgage loan production:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(dollars in thousands)
Origination volume$4,142,002$20,795,620$25,988,942$75,687,368
Originated MSR UPB4,967,60027,946,56228,760,69082,252,911
Gain on sale margin (a)
0.04%0.84%0.44%0.96%
Retained servicing (UPB)(b)
96.4%95.1%97.2%96.7%
(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) 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 $155.6 million, or 107.1% and $473.2 million, or 90.7% for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021, respectively. The decrease was primarily due to decreases of $182.2 million and $536.1 million or 99.1% and 82.8% in gain on sale margin for the respective periods.

39
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 three and nine months ended September 30, 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 1.6% and our share of the wholesale channel decreased from 9.8% to 8.1% compared to the prior year.
Loan fee income
Loan fee income decreased by $26.9 million and $75.3 million, or 77.9% and 63.8%, for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. The decrease was consistent with the decrease in Origination volume.
Interest expense, net
Interest income, net increased by $0.2 million and $12.3 million for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. The increase in interest income, net was driven by a decrease in warehouse borrowing and related fees due to the decrease in origination volume. Interest income decreased $18.5 million and $25.0 million for the respective three and nine months periods due to lower loans held for sale balance partially offset by the impact of the rising interest rates.
Expenses
Total expenses decreased by $70.6 million and $219.8 million, or 60.5% and 53.1%, for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. The decrease was primarily driven by decreases in compensation and benefits expense, loan expense, production technology expense, and general and administrative expenses.
Compensation and benefits expense decreased by $49.3 million and $162.2 million, or 60.0% and 53.8%, for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. The decrease in the respective three and nine months periods was primarily driven by a decrease of $30.2 million and $84.9 million in salary and benefits due to a decrease in employee headcount and a $19.1 million and $77.2 million decrease in variable compensation resulting from the decrease in Origination volume, the sale of the Correspondent channel, and the decrease in employee headcount. Compensation and benefits expense was 0.8% and 0.5% of Origination volume for the three and nine months ended September 30, 2022, respectively and 0.4% for the three and nine months ended September 30, 2021.
Loan expense decreased by $12.5 million and $31.1 million, or 75.8% and 60.9%, for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. The decrease was consistent with the decrease in Origination volume.
Production technology expense decreased by $3.9 million and $12.4 million, or 54.7% and 52.5%, for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 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 expenses decreased $4.3 million and $11.1 million, or 46.1% and 35.4%, for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. The decrease was primarily driven by decrease in outsourced loan review services due to the decline in origination volume, as well as lower expenses as a result of cost-saving initiatives implemented in the second half of 2021 and continuing during the first half of 2022.
Servicing Segment
The following presents certain financial data for the Servicing segment:
40
Three Months Ended September 30,
20222021$ Change% Change
(dollars in thousands)
Revenue:
(Loss) gain on loans, net$— $173 $(173)(100.0)%
Loan servicing fees60,140 91,803 (31,663)(34.5)%
Change in fair value of mortgage servicing rights(46,187)10,970 (57,157)(521.0)%
Interest income4,129 849 3,280 386.3 %
Interest expense— — (226)226 (100.0)%
Interest income, net4,129 623 3,506 562.8 %
Other income— 50 (50)(100.0)%
Total servicing revenue, net18,082 103,619 (85,537)(82.5)%
Expenses:
Compensation and benefits2,566 7,759 (5,193)(66.9)%
Loan expense— 187 (187)(100.0)%
Loan servicing expense11,221 6,719 4,502 67.0 %
Production technology466 485 (19)(3.9)%
General and administrative630 2,251 (1,621)(72.0)%
Other expenses19 39 (20)(51.3)%
Total servicing expenses14,902 17,440 (2,538)(14.6)%
Servicing net income$3,180 $86,179 $(82,999)(96.3)%
Nine Months Ended September 30,
20222021$ Change% Change
(dollars in thousands)
Revenue:
(Loss) gain on loans, net$— $190 $(190)(100.0)%
Loan servicing fees204,076 247,725 (43,649)(17.6)%
Change in fair value of mortgage servicing rights(58,891)(83,087)24,196 (29.1)%
Interest income6,264 2,181 4,083 187.2 %
Interest expense— (890)890 (100.0)%
Interest income, net6,264 1,291 4,973 385.2 %
Other income— 227 (227)(100.0)%
Total servicing revenue, net151,449 166,346 (14,897)(9.0)%
Expenses:
Compensation and benefits15,451 22,919 (7,468)(32.6)%
Loan expense— 694 (694)(100.0)%
Loan servicing expense24,088 22,001 2,087 9.5 %
Production technology1,672 1,429 243 17.0 %
General and administrative3,714 7,599 (3,885)(51.1)%
Other expenses87 277 (190)(68.6)%
Total servicing expenses45,012 54,919 (9,907)(18.0)%
Servicing net income$106,437 $111,427 $(4,990)(4.5)%
Servicing Revenue, Net
Loan servicing fees
The following presents certain characteristics of our mortgage loan servicing portfolio:
41
September 30,
20222021
(dollars in thousands)
MSR Servicing Portfolio (UPB)$94,087,825 $125,832,286 
Average MSR Servicing Portfolio (UPB)$92,302,123 $125,045,611 
MSR Servicing Portfolio (Loan Count)331,264 428,622 
MSRs Fair Value Multiple (x)5.82 4.19 
Delinquency Rates (%)1.6 %0.9 %
Weighted average credit score746 742 
Weighted average servicing fee, net (bps)27.3 26.5 
Loan servicing fees decreased by $31.7 million and $43.6 million, or 34.5% and 17.6%, for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. The decrease for the respective three and nine month periods was primarily driven by $8.9 million and $19.2 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. Additionally, a decrease in servicing fees of $22.7 million and $24.5 million was due to a decrease in the Average MSR Servicing Portfolio of $32.7 billion, or 26.2%, as of September 30, 2022 compared to September 30, 2021.
Change in fair value of MSRs
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(dollars in thousands)
Realization of cash flows$(28,678)$(73,940)$(111,017)$(240,835)
Valuation inputs and assumptions18,256 85,150 367,637 188,334 
Economic hedging results(35,765)(240)(315,511)(30,586)
Change in fair value of MSRs$(46,187)$10,970 $(58,891)$(83,087)
Change in fair value of MSRs presented losses for both three and nine months ended September 30, 2022. Fair value losses increased by $57.2 million and decreased $24.2 million for the three and nine months ended September 30, 2022, respectively compared to the three and nine months ended September 30, 2021. The changes during the nine months were primarily driven by the changes in valuation inputs and assumptions net of hedge, that were favorably affected by an increase in interest rates during the period. The change in fair value of MSRs was also attributable to a 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. These favorable changes were partially offset by the $74.2 million loss on MSR sales. The changes during the three months were similarly affected by the valuation inputs and assumptions net of hedge and a decrease in loss from realization of cash flow. The Company reported $7.4 million gain on sale of servicing for the three months ended September 30, 2021, which positively impacted the prior period results.
Expenses
Total expenses decreased by $2.5 million and $9.9 million, or 14.6% and 18.0% for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 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 $5.2 million and $7.5 million, or 66.9% and 32.6% for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 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 $4.5 million and $2.1 million, or 67.0% and 9.5%, for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. The increase for the respective three and nine month periods was primarily due to $7.6 million and $8.7 million increase in subservicing fee due to outsourcing of the servicing to ServiceMac, partially offset by other reductions in loan servicing expense due to the sale of MSRs and other efficiencies gained from the subservicing to ServiceMac.
General and administrative expenses decreased $1.6 million and $3.9 million, or 72.0% and 51.1%, for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. The decrease was primarily driven by a decrease in professional services and consulting fees resulting from the Company’s cost savings initiatives.
Corporate
42
The following presents certain corporate financial data:
Three Months Ended September 30,
20222021$ Change% Change
(dollars in thousands)
Revenue:
Interest expense$(13,272)$(13,471)$199 (1.5)%
Interest expense, net(13,272)(13,471)199 (1.5)%
Other income(9,983)(105)(9,878)9407.6 %
Total corporate revenue, net(23,255)(13,576)(9,679)71.3 %
Expenses:
Compensation and benefits27,375 24,763 2,612 10.5 %
Production technology(2)— (2)N/A
General and administrative6,832 10,186 (3,354)(32.9)%
Depreciation and amortization2,599 2,440 159 6.5 %
Impairment of goodwill10,789 — 10,789 N/A
Other expenses7,097 3,846 3,251 84.5 %
Total corporate expenses54,690 41,235 13,455 32.6 %
Corporate net loss$(77,945)$(54,811)$(23,134)42.2 %

Nine Months Ended September 30,
20222021$ Change% Change
(dollars in thousands)
Revenue:
Interest expense$(38,909)$(34,971)$(3,938)11.3 %
Interest expense, net(38,909)(34,971)(3,938)11.3 %
Other income(13,899)18,533 (32,432)(175.0)%
Total corporate revenue, net(52,808)(16,438)(36,370)221.3 %
Expenses:
Compensation and benefits73,034 71,157 1,877 2.6 %
General and administrative25,252 35,723 (10,471)(29.3)%
Depreciation and amortization8,090 7,551 539 7.1 %
Impairment of goodwill10,789 — 10,789 N/A
Other expenses15,333 16,938 (1,605)(9.5)%
Total corporate expenses132,498 131,369 1,129 0.9 %
Corporate net loss$(185,306)$(147,807)$(37,499)25.4 %
Total Corporate Revenue
Interest expense, net
Interest expense, net decreased by $0.2 million, or 1.5% and increased $3.9 million, or 11.3%, for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021, respectively. The decrease in interest expense for the three month period was driven by the reduction in the Company’s outstanding debt. The increase in expense for the nine months was driven by an increase in corporate debt interest due to issuance of the Senior Notes in January 2021.
Other income
Other income decreased by $9.9 million and $32.4 million for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. The decrease was primarily driven by $11.1 million and $42.9 million decrease in income from our equity method investment for the respective three and nine month periods, partially offset by $9.3 million debt extinguishment gain related to the repurchase and retirement of $50 million Senior Notes during the nine months ended September 30, 2022.
Expenses
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Total expenses increased by $13.5 million and $1.1 million, or 32.6% and 0.9%, for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. The increase was primarily driven by changes in compensation and benefits, impairment of goodwill, general and administrative, and other expenses.
Compensation and benefits expense increased by $2.6 million, or 10.5%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. Compensation and benefits expense increased by $1.9 million, or 2.6%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The increase was primarily driven by $13.2 million and $15.4 million increase in severance expense due to headcount reduction detailed in Note 13 – Restructuring resulting from the decrease in Origination volume, partially offset by $2.7 million and $5.8 million lower salary expense and $7.9 million and $7.7 million lower variable compensation for the three and nine months ended September 30, 2022.
Impairment of goodwill charge of $10.8 million was recorded for the three and nine months ended September 30, 2022 as discussed in Note 14 – Goodwill.
General and administrative expense decreased $3.4 million and $10.5 million, or 32.9% and 29.3%, for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. The decrease was primarily driven by a decrease in professional services fees of $2.6 million and $9.9 million for the three and nine months periods respectively, as a result of increased costs in 2021 associated with the Company’s IPO.
Other expenses increased $3.3 million, or 84.5% and decreased $1.6 million, or 9.5% for the three and nine months ended September 30, 2022, respectively compared to the three and nine months ended September 30, 2021. The increase for the three months was primarily driven by $3.6 million increase in asset disposal expense, $2.3 million of which related to the write-down and write-off of office equipment totaling due to the Company’s Restructuring Program detailed in Note 13 – Restructuring. The decrease for the nine months was driven by the $2.8 million decrease in employee related expenses due to the reduction in employee headcount and $2.7 million reduction in other expenses due to the Company’s cost saving initiatives. These decreases were partially offset by $2.4 million related to asset disposal and $0.4 million loss from the sale of the Correspondent channel.
Income Tax Benefit (Expense)
Income tax benefit (expense) is recognized for the entire company rather than on a segment basis. Income tax benefit increased by $52.4 million and $85.1 million for the three and nine months ended September 30, 2022 compared to the income tax expense for the three and nine months ended September 30, 2021. The change is primarily due to the change in (loss) income before income tax. Our overall effective tax rate of 23.3% and 25.8% for the three and nine months ended September 30, 2022, respectively and 27.5% and 27.8% for the three and nine months ended September 30, 2021, respectively, differed from the U.S. statutory rate of 21.0% primarily due to the impact of the equity investment, state incomes taxes, limitations on the tax deductibility of officers’ compensation applicable to a public entity in both periods, equity-based compensation, goodwill impairment, 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, 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.
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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 9 separate financial institutions with a total maximum borrowing capacity of $3.2 billion and an unused borrowing capacity of $2.3 billion as of September 30, 2022, approximately $10.1 million of which is available and undrawn. Refer to Note 7 – Warehouse Lines of Credit of our condensed consolidated financial statements.
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 maximum borrowing capacity of $558.9 million and unused borrowing capacity of $428.6 million as of September 30, 2022. Refer to Note 8 – Term Debt and Other Borrowings, net of our condensed 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.
In January, 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 on February 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 8 – Term Debt and Other Borrowings, net of our condensed 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 September 30, 2022.
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
45
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 million Senior Notes during the second quarter of 2022.
Summary of Mortgage Loan Participation Agreement
In November, 2021, we entered into a Mortgage Loan Participation Sale Agreement (the “Gestation Agreement”) with JPMorgan Chase Bank, National Association, as purchaser (the “Gestation Purchaser”). Subject to compliance with the terms and 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 MBS issued or guaranteed, as applicable, by Fannie Mae, Freddie Mac, and Ginnie 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 has been reduced from $1.5 billion in the prior quarter. The Gestation Agreement was extended from November 2, 2022 to September 29, 2023 during the three months ended September 30, 2022.
The Gestation Agreement and certain ancillary agreements thereto contain various financial and non-financial covenants, including financial covenants relating to the maintenance of tangible net worth, liquidity, and a ratio of total indebtedness to tangible net worth. The Company was in compliance with these covenants as of September 30, 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 FNMA 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 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:
Nine Months Ended September 30,
20222021
(dollars in thousands)
Net cash provided by (used for) operating activities$3,479,065 $(3,657,464)
Net cash provided by investing activities612,082 69,796 
Net cash (used for) provided by financing activities(4,150,516)3,593,902 
Net (decrease) increase in cash, cash equivalents and restricted cash(59,369)6,234 
Cash, cash equivalents and restricted cash at end of period$148,421 $203,127 
Our Cash and cash equivalents and restricted cash as of September 30, 2022 decreased by $54.7 million from September 30, 2021.
Operating Activities
46
Our Cash flows from operating activities are primarily influenced by changes in the levels of our inventory of loans held for sale as shown below:
Nine Months Ended September 30,
20222021
Cash flows from:(dollars in thousands)
Mortgage loans held for sale $3,397,949 $(3,677,866)
Gain on loans, net(48,360)(521,727)
(Increase) decrease in fair value of derivative assets12,226 169,721 
Decrease in fair value of mortgage loans held for sale155,228 6,906 
Other operating sources(37,978)365,502 
Net cash provided by (used for) operating activities$3,479,065 $(3,657,464)
Cash provided by operating activities increased by $7,136.5 million for the nine months ended September 30, 2022 compared to the cash used for operating activities for the nine months ended September 30, 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 nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase was partially offset by the change in fair value of derivative assets of $157.5 million primarily due to interest rate lock commitment revenue and margin call assets.
Investing Activities
Cash provided by investing activities increased by $542.3 million primarily due to proceeds from sale of MSRs of $636.0 million for the nine months ended September 30, 2022 compared to $111.6 million for the nine months ended September 30, 2021.
Financing Activities
Our Cash flows from financing activities are primarily influenced by changes in Warehouse borrowings as shown below:
Nine Months Ended September 30,
20222021
Cash flows from:(dollars in thousands)
Warehouse borrowings, net$(3,848,017)$3,303,062 
Distributions to parent, net (a)
— (294,897)
Other financing sources(302,499)585,737 
Net cash (used for) provided by financing activities$(4,150,516)$3,593,902 
(a) distributions to HPLP, our direct parent prior to the merger consummated in connection with the IPO.
Cash used for financing activities increased for the nine months ended September 30, 2022 compared to the cash provided by financing activities for the nine months ended September 30, 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.
47
Contractual Obligations and Other Commitments
For a discussion of our contractual obligations, refer to “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations and Other Commitments” in our 2021 Annual Report. There have not been any material changes to our contractual obligations since December 31, 2021.
Repurchase and Indemnification Obligations
In the ordinary course of business, we are exposed to liability with respect to certain representations and warranties that we make to the investors who purchase the loans that we originate. Under certain circumstances, we may be required to repurchase mortgage loans, or indemnify the purchaser of such loans for losses incurred, if there has been a breach of these representations and warranties, or in the case of early payment defaults. In addition, in the event of an early payment default, we are contractually obligated to refund certain premiums paid to us by the investors who purchased the related loan. Refer to Note 11 – Representation and Warranty Reserve to our condensed consolidated financial statements for additional information.
Suspension of Dividend
Our Board has determined not to declare a dividend on our common stock for the three month period ended September 30, 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.
New Accounting Pronouncements Not Yet Effective
Refer to Note 2 – Basis of Presentation and New Accounting Pronouncements to our condensed consolidated financial statements for a discussion of recent accounting developments and the expected effect on the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide information for this item.
Item 4. Controls and Procedures
Management's Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”) Rules 13a-15(e) and 15d-15(e)) are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the appropriate time periods, and that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. We, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective as of September 30, 2022.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
48
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of our “Legal Proceedings,” refer to Note 9 – Commitments and Contingencies of our unaudited condensed consolidated financial statements included elsewhere in this Report.
Item 1A. Risk Factors
We have disclosed the risk factors affecting our business, financial condition and operating results in the section entitled “Risk Factors” in our 2021 Annual Report. There have been no material changes from the risk factors previously disclosed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Equity Securities
None.
Issuer Repurchases of Equity Securities
On February 24, 2022, we announced a stock repurchase program whereby we may repurchase up to a total of $8.0 million of our issued and outstanding common stock from time to time until the program’s expiration on December 31, 2022 on the open market or in privately negotiated transactions. The timing and amount of stock repurchases, if any, will depend on price, market conditions, applicable regulatory requirements, and other factors. Repurchases under the stock repurchase program may also be made from time to time pursuant to one or more plans adopted under Rule 10b5-1 of the Exchange Act. The program does not require us to repurchase any specific number of shares, and may be modified, suspended or terminated at any time without prior notice. Shares repurchased under the program are subsequently retired.
The Company did not have any common stock repurchase activity for the three months ended September 30, 2022. The approximate dollar value of shares that may yet be purchased under the program is $4.3 million.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
49
Item 6. Exhibits
Exhibit NumberDescription
10.1
10.2
10.3
10.4
10.5*+
10.6*+
10.7*+
31.1*
31.2*
32.1*
101.INS*Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH*Inline XBRL Taxonomy Extension Schema Document.
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*    Filed herewith.
+    Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The Company agrees to furnish supplementally an unredacted copy of the exhibit to the Securities and Exchange Commission upon its request.
++    Certain schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish a copy of such schedules and exhibits to the Securities and Exchange Commission upon its request.
The agreements and other documents filed as exhibits to this Report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
50
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HOME POINT CAPITAL INC.
Dated: November 14, 2022By:/s/ William A. Newman
Name:William A. Newman
Title:President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 14, 2022By:/s/ Mark E. Elbaum
Name: Mark E. Elbaum
Title:Chief Financial Officer
(Principal Financial Officer)


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