LOANDEPOT, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included under Part II. Item 8 of this report. The results of operations described below are not necessarily indicative of the results to be expected for any future periods. This discussion includes forward-looking information that involves risks and assumptions which could cause actual results to differ materially from management's expectations. See our cautionary language at the beginning of this report under "Special Note Regarding Forward-Looking Statements" and for a more complete discussion of the factors that could affect our future results refer to Part I. "Item IA. Risk Factors" Overview loanDepot is a customer-centric and technology-enabled residential mortgage platform. We launched our business in 2010 to provide mortgage loan solutions to consumers who were dissatisfied with the services offered by banks and other traditional market participants. Since our inception, we have significantly expanded our origination platform both in terms of size and capabilities. Our primary sources of revenue are derived from the origination of conventional and government mortgage loans, servicing conventional and government mortgage loans, and providing a growing suite of ancillary services. OnFebruary 11, 2021 we completed the IPO of 3,850,000 shares of Class A common stock,$0.001 par value per share, at an offering price of$14.00 per share, pursuant to a Registration Statement on Form S-1. We are a publicly traded company whose Class A common stock is traded on theNew York Stock Exchange under the ticker symbol "LDI."
A summary of our critical accounting policies and estimates is included in Critical Accounting Policies and Estimates.
Key Factors Influencing Our Results of Operations
Market and Economic Environment
The consumer lending market and the associated loan origination volumes for mortgage loans are influenced by interest rates and economic conditions. While borrower demand for consumer credit has typically remained strong in most economic environments, general market conditions, including the interest rate environment, unemployment rates, home price appreciation and consumer confidence may affect borrower willingness to seek financing and investor desire and ability to invest in loans. For example, a significant interest rate increase or rise in unemployment could cause potential borrowers to defer seeking financing as they wait for interest rates to stabilize or the general economic environment to improve. Additionally, if the economy weakens and actual or expected default rates increase, loan investors may postpone or reduce their investments in loan products. The volume of mortgage loan originations associated with home purchases is generally less affected by interest rate fluctuations and more sensitive to broader economic factors as well as the overall strength of the economy and housing prices. Purchase mortgage loan origination volume can be subject to seasonal trends as home sales typically rise during the spring and summer seasons and decline in the fall and winter seasons. This is somewhat offset by purchase loan originations sourced from our joint ventures which experience their highest level of activity during November and December as home builders focus on completing and selling homes prior to year-end. Seasonality has less of an impact on mortgage loan refinancing volumes, which are primarily driven by fluctuations in mortgage loan interest rates.
Current Market Conditions:
Residential mortgages represent the largest segment of the broaderUnited States consumer finance market. According to the MBA's Mortgage Finance Forecast publishedFebruary 22, 2022 , there was approximately$11.6 trillion of residential mortgage debt outstanding inthe United States atDecember 31, 2021 that is forecasted to increase to$12.3 trillion by the end of 2022. During 2021, annual one-to-four family residential mortgage origination volume remained elevated at$4.0 trillion , of this$2.3 trillion was comprised of refinance volume driven by lower interest rates. Annual one-to-four family residential mortgage origination volumes are expected to decrease by 34% to$2.6 trillion in 2022. The primary driver of this decrease is refinance volume, which is expected to decrease by$1.5 trillion during the year. Purchase volume however, is expected to 54 --------------------------------------------------------------------------------
remain strong and increase by
Looking forward, we expect to continue our growth in market share driven by ongoing strength in the residential housing market supported by increasing homeowners' equity creating demand for cash-out refinance transactions; decreasing number of borrowers experiencing distress, with lower delinquencies and fewer borrowers in forbearance; and a sharper focus on expansion of ancillary products and services from expanded customer engagement points that will result in additional revenue sources.
Impact of the COVID-19 Pandemic
The financial markets demonstrated significant volatility due to the economic
impacts of COVID-19 as interest rates fell to historic lows during 2020, which
resulted in increased mortgage refinance originations and favorable margins
during 2020. Our efficient and scalable platform enabled us to respond quickly
to the increased market demand which resulted in increased loan originations
throughout 2021. During 2021, the COVID-19 pandemic continued to bring some risk
and uncertainty to the economy, including the risk of unemployment, borrower
delinquency rates, increased servicing advances, the health and safety of our
workers, and our overall profitability and liquidity. As a servicer, we are
required to advance principal and interest to the investor for up to four months
on GSE backed mortgages and longer on other government agency backed mortgages
on behalf of clients who have entered into forbearance plans including those
under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). As
of December 31, 2021 , approximately 0.6%, or $1.0 billion UPB, of our servicing
portfolio was in active forbearance. While these advance requirements may be
somewhat higher levels of forbearance, we believe we are well-positioned in
terms of our liquidity.
Fluctuations in Interest Rates
Our mortgage loan refinancing volumes (and to a lesser degree, our purchase
volumes), balance sheets, and results of operations are influenced by changes in
interest rates and how we effectively manage the related interest rate risk. As
interest rates decline, mortgage loan refinance volumes tend to increase, while
an increasing interest rate environment may cause a decrease in refinance
volumes and purchase volumes. In addition, the majority of our assets are
subject to interest rate risk, including LHFS, which consist of mortgage loans
held on our consolidated balance sheets for a short period of time after
origination until we are able to sell them, IRLCs, servicing rights and
mandatory trades, forward sales contracts, interest rate swap futures and put
options that we enter into to manage interest rate risk created by IRLCs and
uncommitted LHFS. We refer to such mandatory trades, forward sales contracts,
interest rate swap futures and put options collectively as "Hedging
Instruments." As interest rates increase, our LHFS and IRLCs generally decrease
in value while our Hedging Instruments utilized to hedge against interest rate
risk typically increase in value. Rising interest rates cause our expected
mortgage loan servicing revenues to increase due to a decline in mortgage loan
prepayments which extends the average life of our servicing portfolio and
increases the value of our servicing rights. Conversely, as interest rates
decline, our LHFS and IRLCs generally increase in value while our Hedging
Instruments decrease in value. In a declining interest rate environment,
borrowers tend to refinance their mortgage loans, which increases prepayment
speed and causes our expected mortgage loan servicing revenues to decrease,
which reduces the average life of our servicing portfolio and decreases the
value of our servicing rights. The changes in fair value of our servicing rights
are recorded as unrealized gains and losses in changes in fair value of
servicing rights, net, in our consolidated statements of operations.
When interest rates rise, rate and term refinancings become less attractive to
consumers after a historically long period of low interest rates. However,
rising interest rates are also indicative of overall economic growth and
inflation that should create more opportunities with respect to cash-out
refinancings. In addition, inflation which may result from increases in asset
prices and stronger economic growth (leading to higher consumer confidence)
typically should generate more purchase-focused transactions requiring loans and
greater opportunities for home equity loans, which we expect may offset, at
least in part, any decline in rate and term refinancings in a rising interest
rate environment.
Key Performance Indicators
We manage and assess the performance of our business by evaluating a variety of
metrics. Selected key performance metrics include loan originations and sales
and servicing metrics.
Loan Origination and Sales
55-------------------------------------------------------------------------------- Loan originations and sales by volume and units are a measure of how successful we are at growing sales of mortgage loan products and a metric used by management in an attempt to isolate how effectively we are performing. We believe that originations and sales are an indicator of our market penetration in mortgage loans and that this provides useful information because it allows investors to better assess the underlying growth rate of our core business. Loan originations and sales include brokered loan originations not funded by us. We enter into IRLCs to originate loans, at specified interest rates, with customers who have applied for a mortgage and meet certain credit and underwriting criteria. We believe the volume of our IRLCs is another measure of our growth in originations. Gain on sale margin represents the total of (i) gain on origination and sale of loans, net, and (ii) origination income, net, divided by loan origination volume during period. Gain on the origination and sale of loans, net was adjusted to exclude the change in fair value of forward sale contracts, including pair-offs, hedging MSRs, which are now included in the change in fair value of servicing rights, net on the consolidated statements of operations. We determined that this change would more appropriately reflect the hedged item and better align with industry practices. Gain on origination and sale of loans, net and change in fair value of servicing rights, net, in the current and prior periods along with the related disclosures have been adjusted to reflect this reclassification. Pull through weighted gain on sale margin represents the total of (i) gain on origination and sale of loans, net, and (ii) origination income, net, divided by the pull through weighted rate lock volume. Pull through weighted rate lock volume is the unpaid principal balance of loans subject to interest rate lock commitments, net of a pull-through factor for the loan funding probability.
Servicing Metrics
Servicing metrics include the unpaid principal balance of our servicing
portfolio and servicing portfolio units, which represent the number of mortgage
loan customers we service. We believe that the net additions to our portfolio
and number of units are indicators of the growth of our mortgage loans serviced
and our servicing income, but may be offset by sales of servicing rights.
Year Ended December 31,
(Dollars in thousands except per share amounts) 2021 2020 2019
Financial statement data
Total revenue $ 3,724,704 $ 4,312,174 $ 1,337,131
Total expenses 3,058,187 2,296,816 1,304,460
Net income 623,146 2,013,110 34,420
Earnings per share of Class A and Class D common
stock
Basic $ 0.87 N/A N/A
Diluted $ 0.87 N/A N/A
Non-GAAP financial measures(1)
Adjusted total revenue $
3,739,182
555,576 1,486,137 34,535
Adjusted EBITDA 869,368 2,084,905 123,451
Adjusted Diluted EPS $ 1.72 N/A N/A
Loan origination and sales
Loan originations by channel:
Retail $ 108,708,990 $ 80,256,666 $ 32,700,837
Partner 28,291,757 20,503,485 12,623,189
Total $ 137,000,747 $ 100,760,151 $ 45,324,026
Loan originations by purpose:
Purchase $ 39,321,538 $ 28,301,076 $ 18,513,555
Refinance 97,679,209 72,459,075 26,810,471
Total $
137,000,747
392,737 297,450 152,588
56
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Year Ended December 31,
(Dollars in thousands except per share amounts) 2021 2020 2019
Licensed loan officers:
Retail 3,102 2,385 2,040
Partner 271 227 197
Total 3,373 2,612 2,237
Loans sold:
Servicing-retained $
117,934,385
18,148,290 10,353,541 23,134,883
Total $
136,082,675
392,213 289,512 148,426
Gain on sale margin 2.61 % 4.13 % 2.77 %
Gain on sale margin - retail 2.93 4.41 3.39
Gain on sale margin - partner 1.38 3.06 1.16
Pull through weighted gain on sale margin 3.07 3.65 2.76
IRLCs $ 166,263,478 $ 160,984,531 $ 75,262,459
IRLCs (units) 506,176 471,723 268,692
Pull through weighted lock volume $
116,628,597
$
162,112,965
524,992 342,600 148,750
60+ days delinquent ($) $
1,510,261
0.93 % 2.10 % 1.05 %
Servicing rights at fair value, net(2) $
1,999,402
0.29 % 0.31 % 0.35 %
Multiple (3)(4) 4.4x 3.2x 3.6x
(1)Refer to the section titled "Non-GAAP Financial Measures" for a discussion
and reconciliation of our Non-GAAP financial measures.
(2)Amount represents the fair value of servicing rights, net of servicing
liabilities, which are included in accounts payable, accrued expenses, and other
liabilities in the consolidated balance sheets.
(3)Agency only.
(4)Amounts represent the fair value of servicing rights, net, divided by the
weighted average annualized servicing fee.
57
--------------------------------------------------------------------------------Results of Operations
The following table sets forth our consolidated financial statement data for 2021 compared to 2020. A comparative discussion of results for 2020 compared to 2019 is provided in the "Results of Operations" section within the Company's Annual Report of loanDepot, Inc. on Form 10-K for the year endedDecember 31, 2020 . Year Ended December 31, Change Change (Dollars in thousands) 2021
$ 2020 %
REVENUES:
Net interest income $ 44,021 $ 11,436 $ 32,585 284.9 %
Gain on origination and sale of loans, net 3,213,351 3,905,986 (692,635) (17.7)
Origination income, net 362,257 258,807 103,450 40.0
Servicing fee income 393,680 185,895 207,785 111.8
Change in fair value of servicing rights,
net (445,862) (144,348) (301,514) (208.9)
Other income 157,257 94,398 62,859 66.6
Total net revenues 3,724,704 4,312,174 (587,470) (13.6)
EXPENSES:
Personnel expense 1,929,752 1,531,371 398,381 26.0
Marketing and advertising expense 467,590 264,337 203,253 76.9
Direct origination expense 193,264 124,754 68,510 54.9
General and administrative expense 214,965 171,712 43,253 25.2
Occupancy expense 38,443 39,262 (819) (2.1)
Depreciation and amortization 35,541 35,669 (128) (0.4)
Subservicing expense 99,068 81,710 17,358 21.2
Other interest expense 79,564 48,001 31,563 65.8
Total expenses 3,058,187 2,296,816 761,371 33.1
Income before income taxes 666,517 2,015,358 (1,348,841) (66.9)
Income tax expense 43,371 2,248 41,123 1,829.3
Net income 623,146 2,013,110 (1,389,964) (69.0)
Net income attributable to noncontrolling
interests 509,622 2,013,110 (1,503,488) (74.7)
Net income (loss) attributable to
loanDepot, Inc. $ 113,524 $ - $ 113,524 N/M
Net income was $623.1 million for the year ended December 31, 2021 , a decrease
of $1.4 billion , compared to $2.0 billion for the year ended December 31, 2020 .
The decrease between periods was primarily driven by higher expenses of $761.4
million that included higher personnel expense to support increased loan
originations and marketing expense to grow brand awareness. Total originations
were $137.0 billion for the year ended December 31, 2021 , as compared to $100.8
billion for the year ended December 31, 2020 , representing an increase of $36.2
billion or 36.0%. Of the total originations for the year ended December 31,
2021 , our Retail and Partner Channels originated $108.7 billion and $28.3
billion , respectively, as compared to $80.3 billion and $20.5 billion ,
respectively, for the year ended December 31, 2020 .
Revenues
Net Interest Income (Expense). Net interest income is earned on LHFS offset by interest expense on amounts borrowed under warehouse lines to finance such loans until sold. The increase in net interest income reflects a$4.6 billion increase in the average balances of LHFS and a$4.2 billion increase in the average balance of warehouse lines. A reduction in cost of funds also contributed to the increase in net interest income.
Gain on Origination and Sale of Loans, Net. Gain on origination and sale of loans, net was comprised of the following components:
58
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Year Ended
December 31, Change Change
(Dollars in thousands) 2021 2020 $ %
Premium from loan sales $ 1,882,557 $ 3,178,213 $ (1,295,656) (40.8) %
Servicing rights 1,610,596 986,050 624,546 63.3
Fair value (losses) gains on IRLC and LHFS (571,137) 704,721 (1,275,858) (181.0)
Fair value gains (losses) from Hedging
Instruments 505,236 (788,507) 1,293,743 164.1
Discount points, rebates and lender paid
costs (206,716) (148,518) (58,198) (39.2)
Provision for loan loss obligation for
loans sold (7,185) (25,973) 18,788 72.3
$ 3,213,351 $ 3,905,986 $ (692,635) (17.7)
•Premiums on loan sales represent the net premium or discount we receive or pay
in excess of the loan principal amount and certain fees charged by investors
upon sale of the loans. The decrease in premiums from loan sales was a result of
margin compression. Gain on sale margin for 2021 was 2.61% compared to 4.13% for
2020.
•Servicing rights represent the fair value of servicing rights generated by
loans sold on a servicing-retained basis. The increase of $624.5 million or
63.3% was driven by an increase in volume of servicing-retained loan sales to
$117.9 billion for the year ended December 31, 2021 , as compared to $87.2
billion for the year ended December 31, 2020 .
•Fair value gains or losses on IRLC and LHFS represent the change in fair value
of LHFS and IRLC, the decrease of $1.3 billion or 181.0% was primarily due to
increasing interest rates and decreasing margins during the year ended
December 31, 2021 compared to decreasing market rates during the year ended
December 31, 2020 , partially offset by the increase in volume between periods.
•Fair value gains or losses on Hedging Instruments represent the unrealized
gains or losses on mandatory trades, forward sales contracts, interest rate swap
futures, and put options hedging IRLCs and LHFS as well as realized gains or
losses from pair-off settlements. Fair value gains on Hedging Instruments of
$505.2 million for the year ended December 31, 2021 reflect increasing interest
rates and volumes compared to fair value losses of $788.5 million and decreasing
market rates for the year ended December 31, 2020 .
•Discount points, rebates, and lender paid costs represent discount points
collected, rebates paid to borrowers, and lender paid costs for the origination
of loans (including broker fee compensation paid to independent wholesale
brokers and brokerage fees paid to our joint ventures for referred loans). The
increase of $58.2 million or 39.2% was primarily related to the increase in
origination volumes between periods;
•Provision for loan loss obligation related to loans sold represents the
provision to establish our estimated liability for loan losses that we may
experience as a result of a breach of representation or warranty provided to the
purchasers or insurers of loans that we have sold. The decrease of $18.8 million
or 72.3% included an $8.0 million reversal during the first quarter of 2021 due
to a decrease in estimated losses on repurchase requests and decreased severity
of losses on repurchased loans.
Origination Income, Net. Origination income, net, reflects the fees that we
earn, net of lender credits we pay, from originating loans. Origination income
includes loan origination fees, processing fees, underwriting fees, and other
fees collected from the borrower at the time of funding. Lender credits
typically include rebates or concessions to borrowers for certain loan
origination costs. The $103.5 million or 40.0%, increase in origination income
was the result of increased loan originations.
Servicing Fee Income. Servicing fee income reflects contractual servicing fees
and ancillary and other fees (including late charges) related to the servicing
of mortgage loans. The increase of $207.8 million or 111.8% in servicing income
between periods was the result of an increase of $71.9 billion in the average
UPB of our servicing portfolio due to an increase in servicing-retained loan
sales.
59
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Change in Fair Value of Servicing Rights, Net. Change in fair value of servicing
rights, net include (i) fair value gains or losses net of Hedging Instrument
gains or losses; (ii) fallout and decay, which includes principal amortization
and prepayments; and (iii) realized gains or losses on the sales of servicing
rights. Change in fair value of servicing rights, net was a loss of $445.9
million for the year ended December 31, 2021 and $144.3 million for the year
ended December 31, 2020 , the increase in loss was primarily due to an increase
in fallout and decay of $221.1 million and a $73.4 million increase in fair
value loss net of hedge.
Other Income. Other income includes our pro rata share of the net earnings from
joint ventures and fee income from title, escrow and settlement services for
mortgage loan transactions performed by LDSS. The increase of $62.9 million or
66.6% in other income between periods was primarily the result of an increase of
$64.3 million in escrow and title fee income due to increased mortgage loan
settlement services.
Expenses
Personnel Expense. Personnel expense reflects employee compensation related to salaries, commissions, incentive compensation, benefits, and other employee costs. The$398.4 million or 26.0% increase in personnel expense between periods was primarily the result of an increase of$191.5 million in commissions due to the increase in loan origination volumes, coupled with increases in salaries and benefits expense of$206.8 million due to the increase in headcount to support the increased loan origination volumes. As ofDecember 31, 2021 , we had 11,307 employees, as compared to 9,892 employees as ofDecember 31, 2020 , representing an increase of 14.3%. Marketing and Advertising Expense. Marketing and advertising expense primarily reflects online advertising costs, including fees paid to search engines, television, print and radio, distribution partners, master service agreements with brokers, and desk rental agreements with realtors. The$203.3 million or 76.9% increase in marketing expense was primarily the result of acquired leads, partnerships with MajorLeague Baseball and theMiami Marlins , and national television campaigns to increase brand awareness. Direct Origination Expense. Direct origination expense reflects the unreimbursed portion of direct out-of-pocket expenses that we incur in the loan origination process, including underwriting, appraisal, credit report, loan document and other expenses paid to non-affiliates. The$68.5 million or 54.9% increase in direct origination expense was attributable to increased costs for underwriting, credit reports, appraisals, loan documents, and other loan origination costs associated with increased loan origination volumes during the period. General and Administrative Expense. General and administrative expense reflects professional fees, data processing expense, communications expense, and other operating expenses. The$43.3 million or 25.2% increase in general and administrative expense included a$31.2 million increase in professional and consulting services driven by production related processing and other services to support the 36.0% increase in loan originations and a$6.0 million increase in IPO related expenses. Subservicing Expense. Subservicing expense reflects servicing costs as well as amounts that we pay to our subservicers to service our mortgage loan servicing portfolio. The$17.4 million or 21.2% increase in subservicing expense was the result of the$71.9 billion increase in our average servicing portfolio to$134.0 billion for the year endedDecember 31, 2021 , as compared to$62.1 billion for the year endedDecember 31, 2020 . Other Interest Expense. The$31.6 million or 65.8% increase in other interest expense between periods was the result of a$649.0 million or 92.3% increase in average outstanding debt obligations primarily resulting from increases of$600.0 million in Senior Notes and$323.1 million in secured credit facilities. The increase in average outstanding debt obligations were partially offset by decreases in 30-day LIBOR between periods. Income Tax Expense (Benefit). Income tax expense was$43.4 million for the year endedDecember 31, 2021 , as compared to$2.2 million for the year endedDecember 31, 2020 . The increase represents the Company's share of net taxable income ofLD Holdings following the IPO and Reorganization that was completed inFebruary 2021 . 60 --------------------------------------------------------------------------------
BBalance Sheet Highlights
December 31, Change Change
(Dollars in thousands) 2021 2020 $ %
Cash and cash equivalents $ 419,571 $ 284,224 $ 135,347 47.6 %
Loans held for sale, at fair value 8,136,817 6,955,424 1,181,393 17.0
Derivative assets, at fair value 194,665 647,939 (453,274) (70.0)
Servicing rights, at fair value 2,006,712 1,127,866 878,846 77.9
Trading securities, at fair value 72,874 - 72,874 N/M
Total assets 11,812,313 10,893,228 919,085 8.4
Warehouse and other lines of credit 7,457,199 6,577,429
879,770 13.4
Derivative liabilities, at fair value 37,797 168,169 (130,372) (77.5) Debt obligations, net 1,628,208 712,466 915,742 128.5 Total liabilities 10,182,953 9,236,615 946,338 10.2 Total equity 1,629,360 1,656,613 (27,253) (1.6) Cash and Cash Equivalents. The$135.3 million or 47.6% increase in cash and cash equivalents included net proceeds from the bulk sale of MSRs and net proceeds from debt obligations, partially offset by dividends and distributions. Loans Held for Sale, at Fair Value. Loans held for sale, at fair value, are primarily fixed and variable rate, 15- to 30-year term first-lien loans that are secured by residential property. The$1.2 billion or 17.0%. increase was primarily the result of originations totaling$137.0 billion , partially offset by$136.1 billion in sales. Derivative Assets, at Fair Value. The$453.3 million or 70.0% decrease in derivative assets, at fair value was primarily the result of a$463.0 million decrease in fair value of IRLCs due to a reduction in volume as well as an increase in interest rates, partially offset by a$9.7 million increase in Hedging Instruments. AtDecember 31, 2021 , derivative assets included IRLCs with fair value of$184.4 million compared to$647.3 million atDecember 31, 2020 . Servicing Rights, at Fair Value. The$878.8 million or 77.9% increase in servicing rights, at fair value included$1.6 billion from servicing-retained loan sales and a$68.4 million increase in estimated fair value due to a decrease in prepayment speed assumptions from increased interest rates, partially offset by a$382.3 million decrease from the sale of$30.0 billion in UPB of servicing rights and a$421.6 million decrease from principal amortization and prepayments. Trading Securities. Trading securities of$72.9 million as ofDecember 31, 2021 are associated with our Mello Mortgage Capital Acceptance securitizations completed in 2021. We retained a five percent economic interest in the credit risk of the assets collateralizing the securitization pursuant to theU.S. credit risk retention rules.
Warehouse and Other Lines of Credit. The increase of
Derivative Liabilities, at Fair Value. The decrease of$130.4 million or 77.5% in derivative liabilities, at fair value reflects a$133.8 million decrease in Hedging Instrument liabilities due to the rising rate environment during the year endedDecember 31, 2021 , partially offset by a$3.5 million increase in interest rate lock liabilities.
Debt Obligations, net. The increase of
Equity. Total equity was$1.6 billion and$1.7 billion as ofDecember 31, 2021 andDecember 31, 2020 , respectively. The decrease was attributed to dividends and distributions totaling$501.4 million , reductions to additional paid in capital of 61 --------------------------------------------------------------------------------$203.2 million for deferred tax liabilities and other tax adjustments associated with the IPO and reorganization, and the repurchase of treasury shares, at cost of$12.9 million to net settle and withhold tax on vested RSUs, partially offset by net income of$623.1 million and stock-based compensation of$67.1 million .
Liquidity and Capital Resources
Liquidity
Our liquidity reflects our ability to meet our current obligations (including our operating expenses and, when applicable, the retirement of our debt and margin calls relating to our Hedging Instruments, warehouse lines and secured credit facilities), fund new originations and purchases, meet servicing requirements, and make investments as we identify them. We forecast the need to have adequate liquid funds available to operate and grow our business. As ofDecember 31, 2021 , unrestricted cash and cash equivalents were$419.6 million and committed and uncommitted available capacity under our warehouse lines was$4.3 billion . We fund substantially all of the mortgage loans we close through borrowings under our warehouse lines. The impact of the COVID-19 pandemic on the financial markets could continue to result in an increase in our liquidity demands. Our mortgage origination liquidity could also be affected as our lenders reassess their exposure to the mortgage origination industry and either curtail access to uncommitted mortgage warehouse financing capacity or impose higher costs to access such capacity. Our liquidity may be further constrained as there may be less demand by investors to acquire our mortgage loans in the secondary market. In response to the COVID-19 pandemic, we increased our cash position and total loan funding capacity with our current and new lending partners. As a servicer, we are required to advance principal and interest to the investor for up to four months on GSE backed mortgages and longer on other government agency backed mortgages on behalf of clients who have entered a forbearance plan. As ofDecember 31, 2021 , approximately 0.6%, or$1.0 billion UPB, of our servicing portfolio was in active forbearance. While these advance requirements have decreased from the higher levels during 2020, the economic impact of COVID-19 could continue to result in additional advance requirements related to forbearance plans. Sources and Uses of Cash Our primary sources of liquidity have been as follows: (i) funds obtained from our warehouse lines; (ii) proceeds from debt obligations; (iii) proceeds received from the sale and securitization of loans; (iv) proceeds from the sale of servicing rights; (v) loan fees from the origination of loans; (vi) servicing fees; (vii) title and escrow fees from settlement services; (viii) real estate referral fees; and (ix) interest income from LHFS. Our primary uses of funds for liquidity have included the following: (i) funding mortgage loans; (ii) funding loan origination costs; (iii) payment of warehouse line haircuts required at loan origination; (iv) payment of interest expense on warehouse lines; (v) payment of interest expense under debt obligations; (vi) payment of operating expenses; (vii) repayment of warehouse lines; (viii) repayment of debt obligations; (ix) funding of servicing advances; (x) margin calls on warehouse lines or Hedging Instruments; (xi) payment of tax distributions to holders of Holdco Units; (xii) payments of cash dividends subject to the discretion of our board of directors, (xiii) repurchases of loans under representation and warranty breaches; (xiv) earnout payments from acquisitions; and (xv) costs relating to servicing and subservicing. We rely on the secondary mortgage market as a source of long-term capital to support our mortgage lending operations. Approximately 87% of the mortgage loans that we originated during the year endedDecember 31, 2021 were sold in the secondary mortgage market to Fannie Mae or Freddie Mac or, in the case of MBS guaranteed byGinnie Mae , are mortgage loans insured or guaranteed by the FHA orVA . We also sell loans to many private investors. At this time, we believe that there are no material market trends that would affect our access to long-term or short-term borrowings sufficient to maintain our current operations, or that would likely cause us to cease to be in compliance with applicable covenants for our indebtedness or that would inhibit our ability to fund our loan operations and capital commitments for the next twelve months. However, should those trends change, we believe we could retain less or sell additional servicing rights, scale back growth or take other actions to mitigate any significant increase in demands on our liquidity. 62 --------------------------------------------------------------------------------
Warehouse Lines and Debt Obligations
Warehouse lines are discussed in Note 12- Warehouse and Other Lines of Credit and debt obligations are discussed in Note 13- Debt Obligations of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data." We finance most of our loan originations on a short-term basis using our warehouse lines. Under our warehouse lines, we agree to transfer certain loans to our counterparties against the transfer of funds by them, with a simultaneous agreement by the counterparties to transfer the loans back to us at the date loans are sold, or on demand by us, against the transfer of funds from us. We do not recognize these transfers as sales for accounting purposes. On average, loans are repurchased within 16 days of funding. Our warehouse lines are short-term borrowings which mature in less than one year with the exception of our securitization facilities which have terms of two and three years. We utilize both committed and uncommitted loan funding facilities and we evaluate our needs under these facilities based on forecasted volume of loan originations and sales. As ofDecember 31, 2021 , we maintained warehouse lines with fifteen counterparties, our borrowing capacity was$11.8 billion , of which$3.9 billion was committed. During 2021 our borrowing capacity under our warehouse lines increased by$3.7 billion from$8.1 billion atDecember 31, 2020 , primarily due to the addition of four new facilities and a$1.0 billion increase in existing facilities, partially offset by the repayment of three facilities. Our$11.8 billion of capacity as ofDecember 31, 2021 was comprised of$7.8 billion with maturities staggered throughout 2022,$2.5 billion maturing in 2023 and$1.5 billion maturing in 2024. As ofDecember 31, 2021 , we had$7.5 billion of borrowings outstanding and$4.3 billion of additional availability under our warehouse lines. When we draw on the warehouse lines, we must pledge eligible loan collateral and make a capital investment, or "haircut," upon financing the loans, which is generally determined by the type of collateral provided and the warehouse line terms. Our warehouse line providers require a haircut based on product types and the market value of the loans. The haircuts are normally recovered from sales proceeds. As ofDecember 31, 2021 , we had$122.4 million in restricted cash posted as additional collateral with our warehouse lenders and securitization facilities, as compared to$190.6 million as ofDecember 31, 2020 . Interest on our warehouse lines varies by facility and depends on the type of loan that is being financed or the period of time that a loan is transferred to our warehouse line counterparty. As ofDecember 31, 2021 , interest expense under our warehouse lines was generally based on 30-day LIBOR, or other alternative base rate such as SOFR, plus a margin and in some cases a minimum interest rate and certain commitment and utilization fees apply. Interest is generally payable monthly in arrears or on the repurchase date of a loan, and outstanding principal is payable upon receipt of loan sale proceeds or on the repurchase date of a loan. Outstanding principal related to a particular loan must also be repaid after the expiration of a contractual period of time or, if applicable, upon the occurrence of certain events of default with respect to the underlying loan. Our warehouse lines require us to comply with various financial covenants including tangible net worth, liquidity, leverage ratios and net income. As ofDecember 31, 2021 , we were in compliance with all of our warehouse lending covenants. Although these financial covenants limit the amount of indebtedness that we may incur and affect our liquidity through minimum cash reserve requirements, we believe that these covenants currently provide us with sufficient flexibility to successfully operate our business and obtain the financing necessary to achieve that purpose. In addition to our warehouse lines, we fund our balance sheet through our secured and unsecured debt obligations. The availability and cost of funds to us can vary depending on market conditions. From time to time, and subject to any applicable laws or regulations, we may take steps to reduce or repurchase our debt through redemptions, tender offers, cash purchases, prepayments, refinancing, exchange offers, open market or privately-negotiated transactions. The amount of debt, if any, that may be reduced or repurchased will depend on various factors, such as market conditions, trading levels of our debt, our cash positions, our compliance with debt covenants, and other considerations. Secured debt obligations as ofDecember 31, 2021 totaled$542.9 million net of$2.7 million of deferred financing costs, as compared to$221.2 million net of$2.4 million of deferred financing costs as ofDecember 31, 2020 . Secured debt obligations as ofDecember 31, 2021 included our Original Secured Credit Facility, GMSR VFN, 2020-VF1 Notes, Securities Financing, and Term Notes. The Original Secured Credit Facility is secured by servicing rights and matures inJune 2022 . The GMSR VFN is secured byGinnie Mae mortgage servicing rights and matures inNovember 2022 . The 2020-VF1 Notes are 63 -------------------------------------------------------------------------------- secured byloanDepot.com , LLC's rights to reimbursement for advances made pursuant to Fannie Mae and Freddie Mac requirements and mature inSeptember 2022 (unless earlier redeemed in accordance with their terms). The Securities Financing is secured by the trading securities which represent our retained interest in the credit risk of the assets collateralizing certain securitization transactions. The Term Notes are secured by certain participation certificates relating toGinnie Mae mortgage servicing rights pursuant to the terms of a base indenture and mature inOctober 2023 . Our secured debt obligations require us to satisfy certain financial covenants and we were in compliance with all such covenants as ofDecember 31, 2021 andDecember 31, 2020 . Unsecured debt obligations as ofDecember 31, 2021 totaled$1.1 billion net of$14.7 million of deferred financing costs, as compared to$491.3 million net of$8.7 million of deferred financing costs as ofDecember 31, 2020 . Unsecured debt obligations as ofDecember 31, 2021 consisted of our Senior Notes. The increase in unsecured debt obligations was due to the issuance of the 2028 Senior Notes.
Dividends and Distributions
During the year ended
OnApril 21, 2021 , we declared a special cash dividend on our Class A common stock and Class D common stock.LD Holdings ,, a subsidiary of the Company declared a simultaneous special cash dividend on its units. The aggregate amount of the special dividend paid by the Company andLD Holdings is$200.0 million , or$0.612 per share or$0.615 per unit, as applicable (the "Special Dividend"). The Special Dividend was paid onMay 18, 2021 to the Company's stockholders andLD Holdings' members of record as of the close of business onMay 3, 2021 . OnMay 13, 2021 , we declared a regular cash dividend of$0.08 per share on our Class A common stock and Class D common stock. The board of directors ofLD Holdings authorized a simultaneous cash dividend on its units. The dividend was paid onJuly 16, 2021 to the Company's stockholders of record as of the close of business onJuly 1, 2021 . OnSeptember 23, 2021 , we declared a regular cash dividend of$0.08 per share on our Class A common stock and Class D common stock. The board of directors ofLD Holdings authorized a simultaneous cash dividend on its units. The dividend was paid onOctober 18, 2021 to the Company's stockholders of record as of the close of business onOctober 4, 2021 . OnDecember 13, 2021 , we declared a regular cash dividend of$0.08 per share on our Class A common stock and Class D common stock. The board of directors ofLD Holdings authorized a simultaneous cash dividend on its units. The dividend was paid onJanuary 18, 2022 to the Company's stockholders of record as of the close of business onJanuary 3, 2022 . Cash dividends are subject to the discretion of our board of directors and our compliance with applicable law, and depend on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, including the satisfaction of our obligations under the TRA, restrictions in our debt agreements, business prospects and other factors that our board of directors may deem relevant. Our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their jurisdiction of organization or agreements of our subsidiaries, including agreements governing our indebtedness. Future agreements may also limit our ability to pay dividends. 64 --------------------------------------------------------------------------------
Contractual Obligations and Commitments
Our estimated contractual obligations as ofDecember 31, 2021 are as follows: Payments Due by Period More than (Dollars in thousands) Total Less than 1 Year 1-3 years 3-5 Years 5 Years Warehouse lines$ 7,457,199 $ 4,046,832 $ 3,410,367 $ - $ - Debt obligations(1) Secured credit facilities 345,596 345,596 - - - Term Notes 200,000 - 200,000 - - Senior Notes 1,100,000 - - 500,000 600,000 Operating lease obligations(2) 82,758 28,713 34,473 13,228 6,344 Naming and promotional rights agreements 119,107 15,840 44,889 30,378 28,000 Total contractual obligations$ 9,304,660 $
4,436,981
(1) Amounts exclude$17.4 million in deferred financing costs atDecember 31, 2021 . (2) Represents lease obligations for office space under non-cancelable operation lease agreements. In addition to the above contractual obligations, we also have interest rate lock commitments and forward sale contracts. Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon and, therefore, those commitments have been excluded from the table above. Refer to Note 7- Derivative Financial Instruments and Hedging Activities of the Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for further discussion on derivatives.
Off-Balance Sheet Arrangements
As ofDecember 31, 2021 , we were party to mortgage loan participation purchase and sale agreements, pursuant to which we have access to uncommitted facilities that provide liquidity for recently sold MBS up to the MBS settlement date. These facilities, which we refer to as gestation facilities, are a component of our financing strategy and are off-balance sheet arrangements.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP, which requires us to make judgments, estimates and assumptions that affect: (i) the reported amounts of our assets and liabilities; (ii) the disclosure of our contingent assets and liabilities at the end of each reporting period; and (iii) the reported amounts of revenues and expenses during each reporting period. We continually evaluate these judgments, estimates and assumptions based on our own historical experience, knowledge and assessment of current business and other conditions and our expectations regarding the future based on available information which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application. Our accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data." AtDecember 31, 2021 , the most critical of these significant accounting policies were policies related to the fair value of loans held for sale, servicing rights, and derivative financial instruments. As of the date of this report, there have been no significant changes to the Company's critical accounting policies or estimates.
When reading our consolidated financial statements, you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions.
65
--------------------------------------------------------------------------------Recent Accounting Pronouncements
Refer to Note 2- Recent Accounting Pronouncements of the Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for a discussion of recently issued accounting guidance.
Non-GAAP Financial Measures
To provide investors with information in addition to our results as determined
by GAAP, we disclose Adjusted Total Revenue, Adjusted EBITDA, and Adjusted Net
Income as non-GAAP measures. We believe Adjusted Total Revenue, Adjusted EBITDA,
and Adjusted Net Income provide useful information to investors regarding our
results of operations because each measure assists both investors and management
in analyzing and benchmarking the performance and value of our business. They
facilitate company-to-company operating performance comparisons by backing out
potential differences caused by variations in hedging strategies, changes in
valuations, capital structures (affecting net interest expense), taxation, the
age and book depreciation of facilities (affecting relative depreciation
expense) and the amortization of intangibles, which may vary for different
companies for reasons unrelated to operating performance, as well as certain
historical cost (benefit) items which may vary for different companies for
reasons unrelated to operating performance. These measures are not financial
measures calculated in accordance with GAAP and should not be considered as a
substitute for revenue, net income, or any other operating performance measure
calculated in accordance with GAAP, and may not be comparable to a similarly
titled measure reported by other companies.
We define "Adjusted Total Revenue" as total revenues, net of the change in fair
value of mortgage servicing rights ("MSRs") and the related hedging gains and
losses. We define "Adjusted EBITDA" as earnings before interest expense and
amortization of debt issuance costs on non-funding debt, income taxes,
depreciation and amortization, change in fair value of MSRs, net of the related
hedging gains and losses, change in fair value of contingent consideration,
stock compensation expense and management fees, and IPO related expense. We
define "Adjusted Net Income" as tax-effected earnings before stock compensation
expense and management fees, IPO expense, and the change in fair value of MSRs,
net of the related hedging gains and losses, and the tax effects of those
adjustments. Adjustments for income taxes are made to reflect LD Holdings
historical results of operations on the basis that it was taxed as a corporation
under the Internal Revenue Code, and therefore subject to U.S. federal, state
and local income taxes. We exclude from each of these non-GAAP measures the
change in fair value of MSRs and related hedging gains and losses as this
represents a non-cash non-realized adjustment to our total revenues, reflecting
changes in assumptions including discount rates and prepayment speed
assumptions, mostly due to changes in market interest rates, which is not
indicative of our performance or results of operations. We also exclude stock
compensation expense, which is a non-cash expense, management fees and IPO
expenses as management does not consider these costs to be indicative of our
performance or results of operations. Adjusted EBITDA includes interest expense
on funding facilities, which are recorded as a component of "net interest income
(expense)", as these expenses are a direct operating expense driven by loan
origination volume. By contrast, interest and amortization expense on
non-funding debt is a function of our capital structure and is therefore
excluded from Adjusted EBITDA.
Adjusted Total Revenue, Adjusted EBITDA, and Adjusted Net Income have
limitations as analytical tools, and you should not consider them in isolation
or as a substitute for analysis of our results as reported under U.S. GAAP. Some
of these limitations are:
•they do not reflect every cash expenditure, future requirements for capital
expenditures or contractual commitments;
•Adjusted EBITDA does not reflect the significant interest expense or the cash
requirements necessary to service interest or principal payment on our debt;
•although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced or require improvements
in the future, and Adjusted Total Revenue, Adjusted Net Income, and Adjusted
EBITDA do not reflect any cash requirement for such replacements or
improvements; and
•they are not adjusted for all non-cash income or expense items that are
reflected in our statements of cash flows.
Because of these limitations, Adjusted Total Revenue, Adjusted EBITDA and
Adjusted Net Income are not intended as alternatives to total revenue, net
income (loss), or net income attributable to the Company or as an indicator of
our operating performance and should not be considered as measures of
discretionary cash available to us to invest in the growth of our business or as
measures of cash that will be available to us to meet our obligations. We
compensate for these limitations by using Adjusted Total Revenue, Adjusted Net
Income, and Adjusted EBITDA along with other comparative tools, together with
66
--------------------------------------------------------------------------------Reconciliation of Total Revenue to Adjusted Total Revenue Year Ended December 31, (Dollars in thousands) (Unaudited): 2021 2020 2019 Total net revenue$ 3,724,704 $ 4,312,174 $ 1,337,131 Change in fair value of servicing rights net, of hedging gains and losses(1) 14,478 (58,898) 8,493 Adjusted total revenue$ 3,739,182 $ 4,253,276 $ 1,345,624
(1)Represents the change in the fair value of servicing rights attributable to changes in assumptions, net of hedging gains and losses.
Reconciliation of Net Income to Adjusted Net Income Year Ended December 31, (Dollars in thousands) (Unaudited): 2021 2020 2019 Net income attributable to loanDepot, Inc.$ 113,524
$ - $ - Net income from the pro forma conversion of Class C common shares to Class A common shares(1)
509,622 2,013,110 34,420
Net income 623,146 2,013,110 34,420
Adjustments to the provision for income taxes (2) (132,502) (516,485) (8,860)
Tax-effected net income 490,644 1,496,625 25,560
Change in fair value of servicing rights, net of
hedging gains and
losses (3) 14,478 (58,898) 8,493
Change in fair value of contingent consideration (77) 32,650 2,374
Stock compensation expense and management fees 67,304 9,565 1,219
IPO expenses 6,041 2,560 -
Tax effect of adjustments (4) (22,814) 3,635 (3,111)
Adjusted net income $ 555,576 $ 1,486,137 $ 34,535
(1)Reflects net income to Class A common stock and Class D common stock from the
pro forma exchange of Class C common stock.
(2)loanDepot, Inc. is subject to federal, state and local income taxes.
Adjustments to the provision or benefit from income tax reflect the effective
income tax rates below:
Year Ended December 31,
2021 2020 2019
Statutory U.S. federal income tax rate 21.00 % 21.00 % 21.00 %
State and local income taxes (net of
federal benefit) 5.00 4.74 4.74
Effective income tax rate 26.00 % 25.74 % 25.74 %
(3)Represents the change in the fair value of servicing rights attributable to
changes in assumptions, net of hedging gains and losses.
(4)Amounts represent the income tax effect of (a) change in fair value of
servicing rights, net of hedging gains and losses, (b) change in fair value of
contingent consideration (c) stock-based compensation expense and management
fees, and (d) IPO expense at the aforementioned effective income tax rates.
67
--------------------------------------------------------------------------------Reconciliation of Adjusted Diluted Weighted Average Shares Outstanding to Diluted Weighted Average Shares Outstanding (1)
Year Ended
(Dollars in thousands except per share)
(Unaudited) December 31, 2021
Net income attributable to loanDepot, Inc. $ 113,524
Adjusted net income 555,576
Share Data: Diluted weighted average shares of Class A and Class D common stock outstanding
129,998,894
Assumed pro forma conversion of Class C shares to Class A common stock (2)
192,465,222
Adjusted diluted weighted average shares outstanding 322,464,116
Diluted EPS $ 0.87
Adjusted Diluted EPS 1.72
(1)This non-GAAP measures was not applicable for the years ended December 31,
2020 or 2019 as the IPO and reorganization transaction had not yet occurred.
(2)Reflects the assumed pro forma conversion of all outstanding shares of Class
C common stock to Class A common stock.
Reconciliation of Net Income to Adjusted EBITDA Year Ended December 31,
(Dollars in thousands)
(Unaudited): 2021 2020 2019
Net income $ 623,146 $ 2,013,110 $ 34,420
Interest expense - non-funding debt (1) 79,564 48,001 41,294
Income tax expense (benefit) 43,371 2,248 (1,749)
Depreciation and amortization 35,541 35,669 37,400
Change in fair value of servicing rights, net of
hedging gains and
losses (2) 14,478 (58,898) 8,493
Change in fair value - contingent consideration (77) 32,650 2,374
Stock compensation expense and management fees 67,304 9,565 1,219
IPO expenses 6,041 2,560 -
Adjusted EBITDA $ 869,368 $ 2,084,905 $ 123,451 (1)Represents other interest expense, which include amortization of debt issuance costs, in the Company's consolidated statement of operations. (2)Represents the change in the fair value of servicing rights attributable to changes in assumptions, net of hedging gains and losses.
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