# loanDepot, Inc. (LDI) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from loanDepot, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1831631/000183163123000089/ldi-20221231.htm
Accession: 0001831631-23-000089
Filing date: 2023-03-16
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/LDI/
All MD&A years: /company/LDI/mda/
Previous year: /company/LDI/mda/fy2021/ (FY 2021)
Next year: /company/LDI/mda/fy2023/ (FY 2023)

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

We are a customer-centric, technology-empowered residential mortgage platform. Our goal is to be the lender of choice for consumers and the employer of choice by being a company that operates on sound principles of exceptional value, ethics, and transparency. Since our inception, we have significantly expanded our origination platform as well as developed an in-house servicing platform. Our primary sources of revenue are derived from the origination of conventional and government mortgage loans, servicing conventional and government mortgage loans, and providing ancillary services.

Key Factors Influencing Our Results of Operations

Market and Economic Environment

The consumer lending market and the associated loan origination volumes for mortgage loans are influenced by 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 affected by broader economic factors as well as the overall strength of the economy, housing prices, and interest rate fluctuations. Increases in interest rates may affect affordability and the ability for potential home buyers to qualify for a mortgage loan. 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.

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, IRLCs, servicing rights and mandatory trades, forward sales contracts, interest rate swap futures and put options. We refer to such mandatory trades, forward sales contracts, interest rate swap futures and put options collectively as “Hedging Instruments.” As interest rates increase, our LHFS and IRLCs generally decrease in value while our Hedging Instruments utilized to hedge against interest rate risk typically increase in value. Rising interest rates cause our expected mortgage loan servicing revenues to increase due to a decline in mortgage loan prepayments which extends the average life of our servicing portfolio and increases the value of our servicing rights. Conversely, as interest rates 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

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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.

As interest rates increase, rate and term refinancings become less attractive to consumers. However, rising interest rates during periods of inflationary pressures can make real assets, including real estate, an attractive investment. Demand for real estate may result in ongoing support for purchase mortgages and increasing home price appreciation creating borrower equity that may result in increasing opportunities for cash-out refinancings or home equity loans.

Current Market Conditions

In February 2023, the Federal Reserve raised the Federal Funds rate by another 0.25 percentage points for a total increase of 4.50 percentage points since the beginning of 2022. The resulting increase in mortgage interest rates have impacted mortgage transaction volumes which are expected to continue to decline through 2023. According to MBA’s Mortgage Finance Forecast published February 21, 2023, annual one-to-four family residential mortgage origination volumes are expected to decrease by $0.4 trillion, or 17% to $1.9 trillion by December 31, 2023. The primary driver of this decrease is refinance volume.

As a result of market conditions, we implemented our Vision 2025 Plan. The plan’s four primary elements include: 1) Increase focus on purchase transactions while serving increasingly diverse communities across the country; 2) Execute previously announced growth-generating initiatives; 3) Centralize management of loan originations and loan fulfillment to enhance quality and effectiveness; and 4) Aggressively rightsize our cost structure.

During the year 2022, we consolidated our retail and corporate locations which resulted in $16.1 million lease impairment, $12.6 million loss on disposal of fixed assets, and $2.9 million of lease closure costs. Additionally, we completed an evaluation of goodwill and other intangible assets during the second quarter of 2022 and recorded a non-cash impairment charge of $42.1 million. We also completed the exit of our wholesale business. In early 2023, we completed the transition of our servicing portfolio to our in-house platform lowering our servicing expense, and we launched our digital HELOC platform.

Key Performance Indicators

We manage and assess the performance of our business by evaluating a variety of metrics. Selected key performance metrics include loan originations and sales and servicing metrics.

Loan Origination and Sales

Loan originations and sales by volume and units are a measure of how successful we are at growing sales of mortgage loan products and a metric used by management in an attempt to isolate how effectively we are performing. We believe that originations and sales are an indicator of our market penetration in mortgage loans and that this provides useful information because it allows investors to better assess the strength of our core business. Loan originations and sales include brokered loan originations not funded by us. We enter into IRLCs to originate loans, at specified interest rates, with customers who have applied for a mortgage and meet certain credit and underwriting criteria. We believe the volume of our IRLCs is another measure of our overall market share.

Gain on sale margin represents the total of (i) gain on origination and sale of loans, net, and (ii) origination income, net, divided by loan origination volume during period.

Pull through weighted gain on sale margin represents the total of (i) gain on origination and sale of loans, net, and (ii) origination income, net, divided by the pull through weighted rate lock volume. Pull through weighted rate lock volume is the 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.

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[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

(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.

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Results of Operations

The following table sets forth our consolidated financial statement data for 2022 compared to 2021. A comparative discussion of results for 2021 compared to 2020 is provided in the "Results of Operations" section within the Company’s Annual Report of loanDepot, Inc. on Form 10-K for the year ended December 31, 2021.

[[GREPCENT_TABLE]]
[["","","","","Year Ended December 31,","","Change $","","Change %"],["(Dollars in thousands)","","","","","","2022","","2021"],["REVENUES:"],["Net interest income","","","","","","$","49,307","","","$","44,021","","","$","5,286","","","12.0","%"],["Gain on origination and sale of loans, net","","","","","","748,540","","","3,213,351","","","(2,464,811)","","","(76.7)"],["Origination income, net","","","","","","129,736","","","362,257","","","(232,521)","","","(64.2)"],["Servicing fee income","","","","","","449,150","","","393,680","","","55,470","","","14.1"],["Change in fair value of servicing rights, net","","","","","","(194,357)","","","(445,862)","","","251,505","","","56.4"],["Other income","","","","","","73,420","","","157,257","","","(83,837)","","","(53.3)"],["Total net revenues","","","","","","1,255,796","","","3,724,704","","","(2,468,908)","","","(66.3)"],["EXPENSES:"],["Personnel expense","","","","","","1,027,008","","","1,929,752","","","(902,744)","","","(46.8)"],["Marketing and advertising expense","","","","","","236,828","","","467,590","","","(230,762)","","","(49.4)"],["Direct origination expense","","","","","","120,854","","","193,264","","","(72,410)","","","(37.5)"],["General and administrative expense","","","","","","265,680","","","214,965","","","50,715","","","23.6"],["Occupancy expense","","","","","","35,306","","","38,443","","","(3,137)","","","(8.2)"],["Depreciation and amortization","","","","","","42,195","","","35,541","","","6,654","","","18.7"],["Servicing expense","","","","","","53,106","","","99,068","","","(45,962)","","","(46.4)"],["Other interest expense","","","","","","124,060","","","79,564","","","44,496","","","55.9"],["Goodwill impairment","","","","","","40,736","","","\u2014","","","40,736","","","100.0"],["Total expenses","","","","","","1,945,773","","","3,058,187","","","(1,112,414)","","","(36.4)"],["(Loss) income before income taxes","","","","","","(689,977)","","","666,517","","","(1,356,494)","","","(203.5)"],["Income tax (benefit) expense","","","","","","(79,592)","","","43,371","","","(122,963)","","","(283.5)"],["Net (loss) income","","","","","","(610,385)","","","623,146","","","(1,233,531)","","","(198.0)"],["Net (loss) income attributable to noncontrolling interests","","","","","","(337,365)","","","509,622","","","(846,987)","","","(166.2)"],["Net (loss) income attributable to loanDepot, Inc.","","","","","","$","(273,020)","","","$","113,524","","","$","(386,544)","","","(340.5)"]]
[[/GREPCENT_TABLE]]

Net loss of $610.4 million for 2022 reflects a decrease of $1.2 billion from net income of $623.1 million for 2021. The decrease reflects lower demand for mortgage loans from the rapid increase in interest rates. Total revenue decreased $2.5 billion from a 61.3% decrease in pull-through weighted lock volume that resulted in a $2.5 billion decrease in gain on origination and sale of loans.

The $1.1 billion decline in total expense reflects previously announced cost savings initiatives in personnel, marketing, and servicing expense as well as volume-related reductions from the decline in loan originations. Total originations were $53.8 billion for the year ended December 31, 2022, as compared to $137.0 billion for the year ended December 31, 2021, representing a decrease of $83.2 billion or 60.7%.

Revenues

Net Interest Income. 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 higher rates on LHFS.

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Gain on Origination and Sale of Loans, Net. Gain on origination and sale of loans, net was comprised of the following components:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","Change $","","Change %"],["(Dollars in thousands)","","2022","","2021"],["(Discount) premium from loan sales","","$","(933,545)","","","$","1,882,557","","","$","(2,816,102)","","","(149.6)","%"],["Servicing rights","","647,716","","","1,610,596","","","(962,880)","","","(59.8)"],["Fair value losses on IRLC and LHFS","","(342,141)","","","(571,137)","","","228,996","","","40.1"],["Fair value gains from Hedging Instruments","","1,237,522","","","505,236","","","732,286","","","144.9"],["Discount points, rebates and lender paid costs","","275,981","","","(206,716)","","","482,697","","","233.5"],["Provision for loan loss obligation for loans sold","","(136,993)","","","(7,185)","","","(129,808)","","","(1806.7)"],["Total gain on origination and sale of loans, net","","$","748,540","","","$","3,213,351","","","$","(2,464,811)","","","(76.7)"]]
[[/GREPCENT_TABLE]]

The decrease in gain on origination and sale of loans, net was primarily driven by a reduction in volume and margins due to higher interest rates and lower demand, partially offset by fair value gains from Hedging Instruments. The increase in our provision for loan loss obligations for loans sold reflects increased repurchases and severity for loans that were originated at interest rates lower than current market rates.

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 $232.5 million or 64.2%, decrease in origination income was the result of lower loan origination volume.

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 $55.5 million or 14.1% in servicing income between periods was the result of an increase of $14.9 billion in the average UPB of our servicing portfolio due to servicing-retained loan sales and an increase in the weighted average service fee.

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. The $251.5 million decrease in net loss was due to a decrease in fallout and decay of $191.2 million and a $54.2 million increase in fair value, 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 decrease of $83.8 million or 53.3% in other income between periods was primarily the result of a decrease of $86.3 million in escrow and title fee income due to decreased mortgage loan settlement services.

Expenses

Personnel Expense. Personnel expense includes salaries, commissions, incentive compensation, benefits, and other employee costs. The $902.7 million or 46.8% decrease in personnel expense included volume-related declines in commissions of $585.1 million. The remaining decrease of $317.6 million was attributable to lower salaries & benefits partially offset by higher severance from the 54.1% decrease in headcount. As of December 31, 2022, we had 5,194 employees, as compared to 11,307 employees as of December 31, 2021.

Marketing and Advertising Expense. The $230.8 million or 49.4% decrease in marketing expense reflects cost savings measures affecting national television campaigns, lead aggregators, and print ads. As interest rates increased we adjusted our marketing strategy to attract more purchase and cash-out refinance volume. We continue to utilize certain online lead aggregators, search engine optimization, pay-per-click, banner advertising and organic content to generate organic online leads.

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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 $72.4 million or 37.5% decrease in direct origination expense was the result of decreased loan originations during the period.

General and Administrative Expense. General and administrative expense includes professional fees, data processing expense, communications expense, and other operating expenses. The $50.7 million or 23.6% increase in general and administrative expense included $31.6 million of real estate exit costs, $22.8 million of software and subscription charges, and $6.8 million in professional and consulting services that included Vision 2025 related efforts.

Servicing Expense. In early 2023, we completed the transition of our servicing portfolio to our in-house platform. The decrease of $46.0 million or 46.4% in servicing expense reflects our shift to in-house servicing.

Other Interest Expense. The $44.5 million or 55.9% increase in other interest expense was the result of an $898.0 million increase in average balances and higher rates on secured credit facilities, partially offset by a $10.5 million gain on extinguishment of debt from the repurchase of $97.5 million of the 2028 Senior Notes during the first quarter of 2022.

Income Tax Expense (Benefit). Benefit for income taxes of $79.6 million for the year ended December 31, 2022, as compared to expense of $43.4 million for the year ended December 31, 2021 reflects net losses, partially offset by non-deductible impairment of goodwill and other intangible assets for the year ended December 31, 2022 compared to net income for the year ended December 31, 2021.

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Balance Sheet Highlights

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[[/GREPCENT_TABLE]]

Cash and Cash Equivalents. The $444.4 million or 105.9% increase in cash and cash equivalents included $703.8 million in proceeds from the bulk sale of MSRs and increased utilization of MSR facilities, partially offset by the repurchase of $97.5 million of 2028 Senior Notes, $119.3 million of dividends and distributions, funding additional loans with cash, and net losses for the year.

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 $5.8 billion or 70.8% decrease reflects $59.3 billion in loan sales, partially offset by $53.8 billion in loan originations.

Derivative Assets, at Fair Value. The $155.3 million or 79.8% decrease reflects a $155.0 million decrease in IRLCs from lower volume and a $0.2 million decrease in Hedging Instruments.

Servicing Rights, at Fair Value. The $30.7 million or 1.5% increase included $647.7 million in capitalized servicing rights from the sale of loans on a servicing-retained basis and a $363.1 million increase in estimated fair value due to a decrease in prepayment speed assumptions from increased interest rates, partially offset by a $754.6 million decrease in servicing rights from the sale of $43.3 billion in UPB of servicing rights and $230.4 million of principal amortization and prepayments.

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Trading Securities, at Fair Value. The $21.4 million or 29.3% increase represents the Mello Mortgage Capital Acceptance securitizations completed in 2022, partially offset by principal collections and fair value losses. We retained a five percent economic interest in the credit risk of the assets collateralizing the securitization pursuant to the U.S. credit risk retention rules.

Operating lease right-of-use assets. The $20.0 million or 35.9% decrease reflects amortization of $20.8 million and impairment of $16.1 million, partially offset by new additions of $16.9 million. Impairment charges of $16.1 million were related to branch and corporate office consolidation efforts associated with Vision 2025.

Goodwill and intangible assets, net. The impact of rising interest rates on the mortgage industry and the Company’s stock performance triggered an interim evaluation of goodwill and other intangible assets during the second quarter of 2022. Based upon the results of these evaluations, a non-cash impairment charge of $42.1 million was recognized to write-off the balance of goodwill and other intangible assets. The impairment charge was driven predominantly by stock market valuations and the price of our common stock, which adversely impacted the valuation of our goodwill and other intangible assets, net.

Warehouse and Other Lines of Credit. The decrease of $5.3 billion or 71.2% was the result of loan sales outpacing originations by $5.5 billion during the year ended December 31, 2022, partially offset by an increase in loans funded with cash.

Derivative Liabilities, at Fair Value. The increase of $29.7 million or 78.6% reflects a $27.7 million increase in Hedging Instrument liabilities and a $2.0 million increase in IRLCs due to increasing interest rates.

Debt Obligations, net. The increase of $661.1 million or 40.6% included an increase in secured credit facilities of $753.3 million, partially offset by the repurchase of $97.5 million of our 2028 Senior Notes.

Equity. Total equity was $921.5 million and $1.6 billion as of December 31, 2022 and December 31, 2021, respectively. The decrease was primarily attributed to a net loss of $610.4 million and dividends and distributions totaling $88.3 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 and other lines of credit, secured credit facilities, fund new originations and purchases, meet servicing advance 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 of December 31, 2022, unrestricted cash and cash equivalents were $864.0 million and committed and uncommitted available capacity under our warehouse and other lines of credit was $1.8 billion.

We fund substantially all of the mortgage loans we close through borrowings under our warehouse and other lines of credit. Our mortgage origination liquidity could 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.

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 of December 31, 2022, approximately 0.2%, or $257.0 million UPB, of our servicing portfolio was in active forbearance.

Sources and Uses of Cash

Our primary sources of liquidity have been as follows: (i) funds obtained from our warehouse and other lines of credit; (ii) proceeds from debt obligations; (iii) proceeds received from the sale and securitization of loans; (iv) proceeds from the sale of servicing rights; (v) loan fees from the origination of loans; (vi) servicing fees; (vii) title and escrow fees from settlement services; (viii) real estate referral fees; and (ix) interest income from LHFS.

60

Our primary uses of funds for liquidity have included the following: (i) funding mortgage loans; (ii) funding loan origination costs; (iii) payment of warehouse line haircuts required at loan origination; (iv) payment of interest expense on warehouse and other lines of credit; (v) payment of interest expense under debt obligations; (vi) payment of operating expenses; (vii) repayment of warehouse and other lines of credit; (viii) repayment of debt obligations; (ix) funding of servicing advances; (x) margin calls on warehouse and other lines of credit or Hedging Instruments; (xi) payment of tax distributions to holders of Holdco Units; (xii) payments of cash dividends or distributions subject to the discretion of our board of directors, (xiii) repurchases of loans under representation and warranty breaches; and (xiv) costs relating to servicing.

We rely on the secondary mortgage market as a source of long-term capital to support our mortgage lending operations. Approximately 77% of the mortgage loans that we originated during the year ended December 31, 2022 were sold in the secondary mortgage market to Fannie Mae or Freddie Mac or, in the case of MBS guaranteed by Ginnie Mae, are mortgage loans insured or guaranteed by the FHA or VA. We also sell loans to many private investors.

At this time, we currently believe that our cash on hand, as well as the sources of liquidity described above, will be sufficient to maintain our current operations and fund our loan operations and capital commitments for the next twelve months. However, we will continue to review our liquidity needs in light of current and anticipated mortgage market conditions and we have taken various steps to align our cost structure with current and expected mortgage origination volumes.

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.”

Our lenders require us to comply with various financial covenants including tangible net worth, liquidity, leverage ratios and profitability. As a result of net losses during 2022, we were required to amend certain of our warehouse lines or debt obligations or obtain waivers of profitability related to financial covenants in certain of our debt obligations. We expect that we will need to further amend or obtain waivers in order to maintain compliance with such financial covenants. Our lenders are not required to grant any such amendments or waivers and may determine not to do so. As of December 31, 2022, following certain amendments, we were in full compliance with all financial covenants. Although these financial covenants limit the amount of indebtedness that we may incur and affect our liquidity through minimum cash reserve requirements, we believe that these covenants currently provide us with sufficient flexibility to operate our business and obtain the financing necessary to achieve that purpose.

We finance most of our loan originations on a short-term basis using our warehouse and other lines of credit. Under these facilities, 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. During 2022, our loans remained on warehouse lines for an average of 18 days. Our warehouse facilities are generally short-term borrowings with original maturities between one and two years. Our securitization facilities are generally two or three year terms. 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 of December 31, 2022, we maintained revolving lines of credit with nine counterparties providing warehouse and securitization facilities with borrowing capacity totaling $4.1 billion of which $1.4 billion was committed. Our $4.1 billion of capacity as of December 31, 2022 was comprised of $3.6 billion with maturities staggered throughout 2023 and $0.5 billion maturing in 2024. As of December 31, 2022, we had $2.1 billion of borrowings outstanding and $1.8 billion of additional availability under our facilities.

When we draw on our warehouse and securitization facilities we must pledge eligible loan collateral. Our warehouse line providers require us to make a capital investment, or “haircut.” upon financing the loan, which is generally based on product types and the market value of the loans. The haircuts are normally recovered from sales proceeds. As of December 31, 2022, we had a total of $11.0 million in restricted cash posted as collateral with our warehouse and securitization facilities, of which $4.3 million was the minimum requirement.

61

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 of December 31, 2022 included secured credit facilities and Term Notes that totaled $1.3 billion net of $1.4 million of deferred financing costs. Secured credit facilities are secured by Ginnie Mae, Fannie Mae, or Freddie Mac MSRs, certain servicing advance receivables, or trading securities. Term Notes are secured by certain participation certificates relating to Ginnie Mae MSRs.

Unsecured debt obligations as of December 31, 2022 consisted of Senior Notes totaling $1.0 billion net of $10.7 million of deferred financing costs. During the first quarter of 2022, we repurchased $97.5 million of 2028 Senior Notes at an average purchase price of 87.9% of par which resulted in a $10.5 million gain on extinguishment of debt recorded in other interest expense on the consolidated statement of operations.

Dividends and Distributions

During the year ended December 31, 2022, we paid dividends and distributions of $119.3 million.

On December 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 of LD Holdings authorized a simultaneous cash distribution on its units. The dividend was paid on January 18, 2022 to the Company's stockholders of record as of the close of business on January 3, 2022.

On March 14, 2022, 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 of LD Holdings authorized a simultaneous cash distribution on its units. The dividend was paid on April 18, 2022 to the Company's stockholders of record as of the close of business on April 4, 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.

As part of our balance sheet and capital management strategies, we suspended our regular quarterly dividend effective March 31, 2022 and for the foreseeable future.

62

Contractual Obligations and Commitments

Our estimated contractual obligations as of December 31, 2022 are as follows:

[[GREPCENT_TABLE]]
[["","","Payments Due by Period"],["(Dollars in thousands)","","Total","","Less than 1 Year","","1-3 years","","3-5 Years","","More than 5 Years"],["Warehouse lines","","$","2,146,602","","","$","1,646,602","","","$","500,000","","","$","\u2014","","","$","\u2014"],["Debt obligations(1)"],["Secured credit facilities","","1,098,853","","","750,871","","","347,982","","","\u2014","","","\u2014"],["Term Notes","","200,000","","","200,000","","","\u2014","","","\u2014","","","\u2014"],["Senior Notes","","1,002,475","","","\u2014","","","500,000","","","\u2014","","","502,475"],["Operating lease obligations(2)","","69,146","","","23,576","","","29,895","","","13,433","","","2,242"],["Naming and promotional rights agreements","","88,319","","","14,193","","","44,126","","","12,000","","","18,000"],["Total contractual obligations","","$","4,605,395","","","$","2,635,242","","","$","1,422,003","","","$","25,433","","","$","522,717"]]
[[/GREPCENT_TABLE]]

(1)    Amounts exclude deferred financing costs

(2)    Represents lease obligations for office space under non-cancelable operating lease agreements.

In addition to the above contractual obligations, we also have interest rate lock commitments, forward sale contracts, loan loss obligation for sold loans and obligation for sold MSRs. Commitments to originate loans or repurchase loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon and, therefore, those commitments have been excluded from the table above. Refer to Note 5- Derivative Financial Instruments and Hedging Activities and Note 20 - Commitments & Contingencies of the Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” for further discussion on derivatives and other contractual commitments..

Off-Balance Sheet Arrangements

As of December 31, 2022, 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.” At December 31, 2022, the most critical of these significant accounting policies were policies related to the fair value of loans held for sale, servicing rights, and derivative financial instruments. As of the date of this report, there have been no significant changes to the Company's critical accounting policies or estimates.

When reading our consolidated financial statements, you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions.

63

Recent Accounting Pronouncements

Refer to Note 1- 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 certain non-GAAP measures to assist investors in evaluating our financial results. We believe these non-GAAP measures provide useful information to investors regarding our results of operations because each measure assists both investors and management in analyzing and benchmarking the performance and value of our business. They facilitate company-to-company operating performance comparisons by backing out potential differences caused by variations in hedging strategies, changes in valuations, capital structures (affecting interest expense on non-funding debt), taxation, the age and book depreciation of facilities (affecting relative depreciation expense), the amortization of intangibles, and other cost or benefit items which may vary for different companies for reasons unrelated to operating performance. These non-GAAP measures include our Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share, and Adjusted EBITDA (LBITDA). We exclude from each of these non-GAAP financial measures the change in fair value of MSRs and related hedging gains and losses as they add volatility and are not indicative of the Company’s operating performance or results of operation. We also exclude stock compensation expense, which is a non-cash expense, management fees, IPO expenses, gains or losses on extinguishment of debt and disposal of fixed assets, non-cash goodwill impairment, and other impairment charges to intangible assets and operating lease right-of-use assets as management does not consider these costs to be indicative of our performance or results of operations. Adjusted EBITDA (LBITDA) includes interest expense on funding facilities, which are recorded as a component of “net interest income (expense)”, as these expenses are a direct operating expense driven by loan origination volume. By contrast, interest expense on our non-funding debt is a function of our capital structure and is therefore excluded from Adjusted EBITDA (LBITDA). Adjustments for income taxes are made to reflect historical results of operations on the basis that it was taxed as a corporation under the Internal Revenue Code, and therefore subject to U.S. federal, state and local income taxes. These non-GAAP measures have limitations as analytical tools, and should not be considered in isolation or as a substitute for revenue, net income, or any other operating performance measure calculated in accordance with GAAP, and may not be comparable to a similarly titled measure reported by other companies. Some of these limitations are:

•they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments;

•Adjusted EBITDA (LBITDA) does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt;

•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and Adjusted Total Revenue, Adjusted Net Income (Loss), and Adjusted EBITDA (LBITDA) do not reflect any cash requirement for such replacements or improvements; and

•they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows.

Because of these limitations, Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share, and Adjusted EBITDA (LBITDA) are not intended as alternatives to total revenue, net income (loss), net income (loss) attributable to the Company, or Diluted Earnings (Loss) Per Share or as an indicator of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using Adjusted Total Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings (Loss) Per Share, and Adjusted EBITDA (LBITDA) along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. See below for a reconciliation of these non-GAAP measures to their most comparable U.S. GAAP measures.

64

[[GREPCENT_TABLE]]
[["Reconciliation of Total Revenue to Adjusted Total Revenue (Dollars in thousands)(Unaudited):","","Year Ended December 31,"],["","2022","","2021","","2020"],["Total net revenue","","$","1,255,796","","","$","3,724,704","","","$","4,312,174"],["Change in fair value of servicing rights, net of hedging gains and losses(1)","","(39,755)","","","14,478","","","(58,898)"],["Adjusted total revenue","","$","1,216,041","","","$","3,739,182","","","$","4,253,276"]]
[[/GREPCENT_TABLE]]

(1)Represents the change in the fair value of servicing rights attributable to changes in assumptions, net of hedging gains and losses.

[[GREPCENT_TABLE]]
[["Reconciliation of Net (Loss) Income to Adjusted Net (Loss) Income (Dollars in thousands)(Unaudited):","","Year Ended December 31,"],["","2022","","2021","","2020"],["Net (loss) income attributable to loanDepot, Inc.","","$","(273,020)","","","$","113,524","","","$","\u2014"],["Net (loss) income from the pro forma conversion of Class C common shares to Class A common shares(1)","","(337,365)","","","509,622","","","2,013,110"],["Net (loss) income","","(610,385)","","","623,146","","","2,013,110"],["Adjustments to the benefit (provision) for income taxes(2)","","92,337","","","(132,502)","","","(516,485)"],["Tax-effected net (loss) income","","(518,048)","","","490,644","","","1,496,625"],["Change in fair value of servicing rights, net of hedging gains and losses(3)","","(39,755)","","","14,478","","","(58,898)"],["Change in fair value - contingent consideration","","\u2014","","","(77)","","","32,650"],["Stock-based compensation expense and management fees","","20,583","","","67,304","","","9,565"],["IPO expenses","","\u2014","","","6,041","","","2,560"],["Gain on extinguishment of debt","","(10,528)","","","\u2014","","","\u2014"],["Loss on disposal of fixed assets","","12,594","","","\u2014","","","\u2014"],["Goodwill impairment","","40,736","","","\u2014","","","\u2014"],["Other impairment","","17,500","","","\u2014","","","\u2014"],["Tax effect of adjustments(4)","","1,068","","","(22,814)","","","3,635"],["Adjusted net (loss) income","","(475,850)","","","555,576","","","1,486,137"]]
[[/GREPCENT_TABLE]]

(1)Reflects net income (loss) to Class A common stock and Class D common stock from the pro forma exchange of Class C common stock.

(2)loanDepot, Inc. is subject to federal, state and local income taxes. Adjustments to income tax (benefit) reflect the effective income tax rates below, and the pro forma assumption that loanDepot, Inc. owns 100% of LD Holdings.

[[GREPCENT_TABLE]]
[["","","","Year Ended December 31,"],["","","2022","","2021","","2020"],["","Statutory U.S. federal income tax rate","","21.00","%","","21.00","%","","21.00","%"],["","State and local income taxes (net of federal benefit)","","6.37","","","5.00","","","4.74"],["","Effective income tax rate","","27.37","%","","26.00","%","","25.74","%"]]
[[/GREPCENT_TABLE]]

(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 using the aforementioned effective income tax rates, excluding certain discrete tax items.

65

[[GREPCENT_TABLE]]
[["Reconciliation of Adjusted Diluted Weighted Average Shares Outstanding to Diluted Weighted Average Shares Outstanding (1)(Dollars in thousands except per share)(Unaudited)","","","","Year Ended December 31,"],["","","","","","","","2022","","2021"],["Net (loss) income attributable to loanDepot, Inc.","","","","","","","","$","(273,020)","","","$","113,524"],["Adjusted net (loss) income","","","","","","","","(475,850)","","","555,576"],["Share Data:"],["Diluted weighted average shares of Class A and Class D common stock outstanding","","","","","","","","156,030,350","","","129,998,894"],["Assumed pro forma conversion of Class C shares to Class A common stock (1)","","","","","","","","163,541,101","","","192,465,222"],["Adjusted diluted weighted average shares outstanding","","","","","","","","319,571,451","","322,464,116"],["Diluted (loss) earnings per share","","","","","","","","$","(1.75)","","","$","0.87"],["Adjusted diluted (loss) earnings per share (2)","","","","","","","","N/A","","N/A"]]
[[/GREPCENT_TABLE]]

(1)Reflects the assumed pro forma conversion of all outstanding shares of Class C common stock to Class A common stock.

(2)Omitted adjusted diluted (loss) earnings per share measures that included the impact of the assumed exchange of shares to the extent the exchange was antidilutive.

[[GREPCENT_TABLE]]
[["Reconciliation of Net (Loss) Income to Adjusted (LBITDA) EBITDA(Dollars in thousands)(Unaudited):","","Year Ended December 31,"],["","2022","","2021","","2020"],["Net (loss) income","","$","(610,385)","","","$","623,146","","","$","2,013,110"],["Interest expense \u2014 non-funding debt (1)","","124,060","","","79,564","","","48,001"],["Income tax (benefit) expense","","(79,592)","","","43,371","","","2,248"],["Depreciation and amortization","","42,195","","","35,541","","","35,669"],["Change in fair value of servicing rights, net of hedging gains and losses (2)","","(39,755)","","","14,478","","","(58,898)"],["Change in fair value - contingent consideration","","\u2014","","","(77)","","","32,650"],["Stock compensation expense and management fees","","20,583","","","67,304","","","9,565"],["IPO expenses","","\u2014","","","6,041","","","2,560"],["Loss on disposal of fixed assets","","12,594","","","\u2014","","","\u2014"],["Goodwill impairment","","40,736","","","\u2014","","","\u2014"],["Other impairment","","17,500","","","\u2014","","","\u2014"],["Adjusted (LBITDA) EBITDA","","$","(472,064)","","","$","869,368","","","$","2,084,905"]]
[[/GREPCENT_TABLE]]

(1)Represents other interest expense, which includes gain on extinguishment of debt and amortization of debt issuance costs, in the Company’s consolidated statement of operations.

(2)Represents the change in the fair value of servicing rights attributable to changes in assumptions, net of hedging gains and losses.