hmpt-20230331

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 001-39964

Home Point Capital Inc.

(Exact name of registrant as specified in its charter)

Delaware

90-1116426

(State or other jurisdiction of
incorporation or organization)

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

2211 Old Earhart Road, Suite 250

Ann Arbor, Michigan

48105

(Address of Principal Executive Offices)

(Zip Code)

(888) 616-6866

Registrant's telephone number, including area code

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

Title of each class

Trading Symbol

Name of each exchange on which
registered

Common Stock, par value

$0.0000000072 per share

HMPT

The Nasdaq Stock Market LLC

(The Nasdaq Global Select Market)

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

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

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


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

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

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

As of May 9, 2023, the registrant had 138,470,843 shares of common stock, par value $0.0000000072 per share, outstanding.

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			Page
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements			1
Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022			1
Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 (Unaudited)			2
Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2023 and March 31, 2022 (Unaudited)			3
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (Unaudited)			4
Notes to Condensed Consolidated Financial Statements (Unaudited)			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures about Market Risk			41
Item 4. Controls and Procedures			41
PART II—OTHER INFORMATION
Item 1. Legal Proceedings			42
Item 1A. Risk Factors			42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 3. Defaults Upon Senior Securities			43
Item 4. Mine Safety Disclosures			43
Item 5. Other Information			43
Item 6. Exhibits			44
Signatures			45

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Cautionary Note on Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”) contains certain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements include, but are not limited to, statements relating to our future financial performance, our business prospects and strategy, anticipated financial position, liquidity and capital needs, the industry in which we operate and other similar matters. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “continue,” “potential,” “should” and the negative of these terms or other comparable terminology often identify forward-looking statements. Forward-looking statements are not guarantees of future performance, are based upon assumptions, and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements, including the risks discussed in Part I, Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed on March 9, 2023 (our “2022 Annual Report”). Factors, risks, and uncertainties that could cause actual outcomes and results to be materially different from those contemplated include, among others:

•uncertainties associated with the proposed Merger (as defined below), including the failure to complete the Merger in a timely manner or at all, restrictions on business conduct and lawsuits related to the proposed Merger;

•the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;

•the inability to complete the proposed Merger due to the failure to satisfy conditions precedent, including satisfaction of the minimum tender conditions;

•risks related to disruption of management’s attention from our ongoing business operations due to the proposed Merger;

•the effect of the announcement of the proposed Merger on our relationships with our customers, operating results and business generally;

•the costs of the proposed Merger if the proposed Merger is not consummated;

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

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

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

•counterparty risk;

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

•risks related to any subservicer;

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

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

•competition in the industry in which we operate;

•our ability to acquire loans and sell the resulting MBS in the secondary markets on favorable terms in our production activities;

•our ability to adapt to and implement technological changes;

•the effectiveness of our risk management efforts;

•our ability to detect misconduct and fraud;

•any failure to attract and retain a highly skilled workforce, including our senior executives, especially in light of the proposed Merger;

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

•any cybersecurity risks, cyber incidents and technology failures;

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

•our vendor relationships;

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

•any employment litigation and related unfavorable publicity;

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

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

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

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

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

•the impact of other changes in tax laws;

•the impact of interest rate fluctuations;

•risks associated with hedging against interest rate exposure;

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

•risks associated with financing our assets with borrowings;

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

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

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

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

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

•risks associated with derivative financial instruments;

•our ability to comply with continually changing federal, state and local laws and regulations;

•the impact of revised rules and regulations and enforcement of existing rules and regulations by the Consumer Financial Protection Bureau;

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

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

•changes in regulations or the occurrence of other events that impact the business, operations or prospects of government agencies such as Ginnie Mae, the FHA or the VA, the USDA, or GSEs such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, or such changes that increase the cost of doing business with such entities;

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

iii

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•the impact of private legal proceedings;

•risks associated with our acquisition of mortgage servicing rights;

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

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

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

Many of the important factors that will determine these results are beyond our ability to control or predict. You are cautioned not to put undue reliance on any forward-looking statements, which speak only as of the date of this Report. Except as otherwise required by law, we do not assume any obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events. You should refer to the risks and uncertainties listed under the heading “Risk Factors” in our 2022 Annual Report, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (“SEC”), for a discussion of other important factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements.

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

Website and Social Media Disclosure

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

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

HOME POINT CAPITAL INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share amounts)


	(Unaudited)
	March 31, 2023		December 31, 2022
Assets:
Cash and cash equivalents	$	99,959	$	97,248
Restricted cash	10,322		11,344
Cash and cash equivalents and Restricted cash	110,281		108,592
Mortgage loans held for sale (at fair value)	472,990		642,993
Mortgage servicing rights (at fair value)	1,251,600		1,402,542
Property and equipment, net	6,467		11,660
Accounts receivable, net	117,623		124,691
Derivative assets	30,727		25,611
Government National Mortgage Association loans eligible for repurchase	91,768		85,937
Assets held for sale	1,561		—
Other assets	30,133		36,166
Total assets	$	2,113,150	$	2,438,192
Liabilities and Shareholders’ Equity:
Liabilities:
Warehouse lines of credit	$	409,497	$	496,481
Term debt and other borrowings, net	892,875		942,083
Accounts payable and accrued expenses	50,262		64,349
Government National Mortgage Association loans eligible for repurchase	91,768		85,937
Deferred tax liabilities	140,218		183,860
Derivative liabilities	3,605		4,110
Liabilities held for sale	797		—
Other liabilities	53,575		57,836
Total liabilities	1,642,597		1,834,656
Note 9 - Commitments and Contingencies

Shareholders’ Equity:
Preferred stock (250,000,000 authorized shares, none issued and outstanding, $0.0000000072 par value per share)	—		—
Common stock (1,000,000,000 authorized shares, 138,430,573 and 138,398,707 shares issued and outstanding, $0.0000000072 par value per share)	—		—
Additional paid-in capital	514,483		513,710
(Accumulated deficit) retained earnings	(43,930)		89,826
Total shareholders' equity	470,553		603,536
Total liabilities and shareholders' equity	$	2,113,150	$	2,438,192

See accompanying notes to the unaudited condensed consolidated financial statements.

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HOME POINT CAPITAL INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited - dollars in thousands, except per share amounts)


	Three months ended March 31,
	2023		2022
Revenue:
(Loss) gain on loans, net	$	(1,490)	$	45,404
Loan fee income	1,655		19,904

Interest income	12,467		27,077
Interest expense	(20,500)		(33,095)
Interest expense, net	(8,033)		(6,018)
Loan servicing fees	58,827		81,064
Change in fair value of mortgage servicing rights	(159,247)		17,183
Other income	701		634
Total revenue, net	(107,587)		158,171
Expenses:
Compensation and benefits	30,186		89,432
Loan expense	1,333		9,015
Loan servicing expense	13,157		5,746
Production technology	4,569		4,865
General and administrative	11,840		19,671
Depreciation	4,260		2,687
Other expenses	4,466		5,296
Total expenses	69,811		136,712
(Loss) income before income tax	(177,398)		21,459
Income tax benefit (expense)	43,642		(4,323)
Loss from equity method investment	—		(5,272)
Net (loss) income	$	(133,756)	$	11,864

(Loss) earnings per share:
Basic	$	(0.97)	$	0.09
Diluted	$	(0.97)	$	0.08

See accompanying notes to the unaudited condensed consolidated financial statements.

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HOME POINT CAPITAL INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited - dollars in thousands)



	Common Stock			Additional Paid in Capital		Retained Earnings (Accumulated Deficit)		Total Shareholders’ Equity
	Shares	Amount
Balance as of January 1, 2023	138,398,707	$	—	$	513,710	$	89,826	$	603,536
Employee stock purchases (option exercise)	31,866	—		(44)		—		(44)
Equity-based compensation		—		817		—		817
Net loss		—				(133,756)		(133,756)
Balance as of March 31, 2023	138,430,573	$	—	$	514,483	$	(43,930)	$	470,553


	Common Stock			Additional Paid in Capital		Treasury Stock		Retained Earnings		Total Shareholders’ Equity
	Shares	Amount
Balance as of January 1, 2022	139,326,953	$	—	$	523,811	$	—	$	252,842	$	776,653
Stock repurchase	(461,690)	—		—		(1,513)		—		(1,513)
Dividends to shareholders	—	—		—		—		(5,575)		(5,575)
Employee stock purchases (option exercise)	97,223	—		122		—		—		122
Equity-based compensation	—	—		1,706		—		—		1,706
Net income	—	—		—		—		11,864		11,864
Balance as of March 31, 2022	138,962,486	$	—	$	525,639	$	(1,513)	$	259,131	$	783,257

See accompanying notes to the unaudited condensed consolidated financial statements.

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HOME POINT CAPITAL INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited - dollars in thousands)


	Three Months Ended March 31,
	2023		2022
Operating activities:
Net (loss) income	$	(133,756)	$	11,864
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Depreciation	4,260		2,687
Amortization of debt issuance costs	792		846
Loss (gain) on loans, net	1,490		(45,404)
(Credit) provision for representation and warranty reserve, net of charge offs	(1,416)		341
Equity-based compensation expense	817		1,706
Deferred income tax (benefit) expense	(43,642)		2,898
Loss from equity method investment	—		5,272
Originations and purchases of mortgage loans held for sale	(978,969)		(12,739,933)
Proceeds from sale and payments of mortgage loans held for sale	1,142,865		14,505,325
Loss on sale of mortgage servicing rights	277		53,492
Decrease (increase) in fair value of mortgage servicing rights	158,970		(70,675)
(Increase) decrease in fair value of mortgage loans held for sale	(3,440)		132,031
(Increase) decrease in fair value of derivative assets, net	(5,621)		93,554
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net	6,623		(42,890)
Decrease (increase) in other assets	5,912		(5,365)
Decrease in accounts payable and accrued expenses	(13,919)		(12,538)
Decrease (increase) in other liabilities	(2,048)		2,815
Net cash provided by operating activities	139,195		1,896,026
Investing activities:
Purchases of property and equipment	(478)		(2,170)
Purchase of mortgage servicing rights	—		(8,588)
Proceeds from sale of mortgage servicing rights	—		390,532
Net cash (used for) provided by investing activities	(478)		379,774
Financing activities:
Proceeds from warehouse borrowings	988,823		13,207,385
Payments on warehouse borrowings	(1,075,807)		(15,201,111)
Proceeds from term debt borrowings	—		135,000
Payments on term debt borrowings	(50,000)		(420,000)
Proceeds from other borrowings	—		45,000
Payments on other borrowings	—		(45,000)
Payments of debt issuance costs	—		(167)
Employee stock purchases (option expense)	(44)		122
Common stock repurchases			(1,513)
Dividends to shareholders	—		(5,575)
Net cash used for financing activities	(137,028)		(2,285,859)
Net increase (decrease) in cash, cash equivalents and restricted cash	1,689		(10,059)
Cash, cash equivalents and restricted cash at beginning of period	108,592		207,790
Cash, cash equivalents and restricted cash at end of period	$	110,281	$	197,731
Supplemental disclosure:
Cash paid for interest	$	26,788	$	42,409
Cash refunded for income taxes	$	(623)	$	(1,307)

See accompanying notes to the unaudited condensed consolidated financial statements.

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HOME POINT CAPITAL INC. & SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Shares and Per Share Amounts)

(unaudited)

Note 1 - Organization and Operations

Nature of Business

Home Point Capital Inc., a Delaware corporation (“HPC”, or the “Company”), through its subsidiaries, is a residential mortgage originator and servicer with a business model focused on growing originations by leveraging a network of partner relationships and its servicing operation. The Company’s business operations are organized into the following two segments: (1) Origination and (2) Servicing. Home Point Financial Corporation (“HPF”), a New Jersey corporation and a wholly owned subsidiary of the Company, originates, sells, and services residential real estate mortgage loans throughout the U.S. and owns certain servicing assets. Home Point Corporation Insurance Agency LLC (“HPCIA”), a Michigan limited liability company, is a wholly owned subsidiary of the Company that brokers home owner insurance policies.

In April 2023, the Company announced that it has entered into a definitive agreement to sell certain assets of the Company’s wholesale originations channel, which has historically been our primary business driver. For additional information refer to Note 20 – Sale of Certain Assets in Origination Segment, Sale of Correspondent Channel and Home Point Asset Management LLC.

On December 2, 2022, HPC completed the previously announced sale of its equity interests in Home Point Asset Management LLC (“HPAM”), and its wholly owned subsidiary, Home Point Mortgage Acceptance Corporation (“HPMAC”). Prior to the sale, HPAM was a wholly owned subsidiary of the Company and managed certain servicing assets. HPMAC, an Alabama Corporation, serviced residential real estate mortgage loans.

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

Note 2 - Basis of Presentation and New Accounting Pronouncements

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the financial statements of HPC and all its wholly owned subsidiaries, including HPF and HPCIA. The accompanying condensed consolidated financial statements have been prepared in conformity with Article 10 of Regulation S-X promulgated under the Securities Act of 1933, as amended (the “Securities Act”). The consolidated balance sheet as of December 31, 2022 and related notes were derived from the audited consolidated financial statements but do not include all disclosures required by U.S. GAAP for complete financial statements. Certain information and footnote disclosures normally included in complete financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These condensed consolidated financial statements reflect, in the opinion of management, all material adjustments (which include normal recurring adjustments) necessary to fairly state, in all material respects, the Company’s financial position as of March 31, 2023 and its results of operations and cash flows for the three months ended March 31, 2023 and 2022. The condensed consolidated financial information should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2022.

All intercompany balances and transactions have been eliminated in consolidation. As noted above, in December 2022, HPC completed the sale of HPAM and HPMAC. The results of operations for HPAM and HPMAC are included in the March 31, 2022 condensed consolidated financial statements.

Assets and Liabilities Held for Sale

Long-lived assets or disposal groups to be sold are classified as held for sale in the period in which all of the following criteria are met: management, having the authority to approve the action, commits to a plan to sell the asset or disposal group; the asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets or disposal groups; an active program to locate a buyer and other actions required to complete the plan to sell the asset or disposal group have been initiated; the sale of the asset or disposal group is probable, and transfer of the asset or disposal group is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our control extend the period of time required to sell the asset or disposal group beyond one year; the asset or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

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The Company initially measures a long-lived asset or disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held-for-sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset or disposal group until the date of sale. We assess the fair value of a long-lived asset or disposal group less any costs to sell each reporting period it remains classified as held for sale and report any subsequent changes as an adjustment to the carrying value of the asset or disposal group, as long as the new carrying value does not exceed the carrying value of the asset at the time it was initially classified as held for sale.

Upon determining that a long-lived asset or disposal group meets the criteria to be classified as held for sale, the Company ceases depreciation and reports long-lived assets and/or the assets and liabilities of the disposal group, if material, in the line items Assets held for sale and Liabilities held for sale, respectively, in our consolidated balance sheet. Refer to Note 20 – Sale of Certain Assets in Origination Segment, Sale of Correspondent Channel and Home Point Asset Management LLC.

Use of Estimates

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

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

Accounting Standards Recently Adopted or Recently Issued but Not Yet Adopted

As of March 31, 2023, there have been no new accounting pronouncements recently issued or adopted that have had or are reasonably likely to have a material impact on the Company’s condensed consolidated financial statements.

Note 3 - Mortgage Loans Held for Sale

The Company sells its originated mortgage loans into the secondary market. The Company may retain the right to service some of these loans upon sale through ownership of servicing rights. The following presents MLHS at fair value, by type:


	March 31, 2023
	Unpaid Principal		Fair Value Adjustment		Total Fair Value
	(dollars in thousands)
Conventional(a)	$	336,556	$	(33,051)	$	303,505
Government(b)	170,014		(722)		169,292
Reverse(c)	302		(109)		193
Total	$	506,872	$	(33,882)	$	472,990


	December 31, 2022
	Unpaid Principal		Fair Value Adjustment		Total Fair Value
	(dollars in thousands)
Conventional(a)	$	425,160	$	(31,639)	$	393,521
Government(b)	254,800		(5,664)		249,136
Reverse(c)	355		(19)		336
Total	$	680,315	$	(37,322)	$	642,993

(a) Conventional includes mortgage loans meeting the eligibility requirements to be sold to FNMA or FHLMC.

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

MLHS on nonaccrual status had $23.8 million and $21.8 million of unpaid principal balances and $18.3 million and $16.7 million estimated fair value, as of March 31, 2023 and December 31, 2022, respectively.

The Company had $0.5 billion in unpaid principal balance pledged to secure its mortgage warehouse line of credit as of March 31, 2023.

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The following presents a reconciliation of the changes in MLHS to the amounts presented on the condensed consolidated statements of cash flows:


	Three Months Ended March 31,
	2023		2022
	(dollars in thousands)
Fair value at beginning of period	$	642,993	$	5,107,161
Mortgage loans originated and purchased(a)	978,969		12,739,933
Proceeds on sales and payments received(a)	(1,142,865)		(14,505,325)
Change in fair value	3,440		(132,031)
Loss on sale(a)	(9,547)		(320,699)
Fair value at end of period	$	472,990	$	2,889,039

(a) This line as presented on the consolidated statements of cash flows excludes originated MSRs and MSR hedging.

Note 4 - Mortgage Servicing Rights

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

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

The following presents an analysis of the changes in capitalized MSRs:


	Three Months Ended March 31,
	2023		2022
	(dollars in thousands)
Balance at beginning of period	$	1,402,542	$	1,525,103
MSRs originated	18,984		208,741
MSRs purchased	—		8,588
MSRs sold	—		(480,244)
Changes in valuation model inputs	(150,574)		276,987
Change due to cash payoffs and principal amortization	(19,352)		(48,950)
Balance at end of period	$	1,251,600	$	1,490,225

The following presents the Company’s total capitalized mortgage servicing portfolio (based on the unpaid principal balance (“UPB”) of the underlying mortgage loans):


	March 31, 2023		December 31, 2022
	(dollars in thousands)
Ginnie Mae	$	4,672,997	$	4,357,853
Fannie Mae	46,887,734		47,198,689
Freddie Mac	36,796,627		37,082,471
Other	28,991		29,620
Total	$	88,386,349	$	88,668,633

MSR balance	$	1,251,600	$	1,402,542

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


	March 31, 2023		December 31, 2022
Discount rate	10.03	%	9.69	%
Weighted average prepayment speeds	5.66	%	5.44	%
Costs to service	$113		$77

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The key assumptions used to estimate the fair value of the MSRs are discount rate, the Conditional Prepayment Rate (“CPR” or “prepayment speeds”), and costs to service. An increase in prepayment speeds generally has an adverse effect on the value of MSRs as the underlying loans prepay faster. In a declining interest rate environment, the fair value of MSRs generally decreases as prepayments increase. A decrease in prepayment speeds generally has a positive effect on the value of the MSRs as the underlying loans prepay less frequently. In a rising interest rate environment, the fair value of MSRs generally increases as prepayments decrease. Increases in the discount rate result in a lower MSR value and decreases in the discount rate result in a higher MSR value. Increases in the costs to service generally have an adverse effect on the value of the MSRs as an increase in costs to service would reduce the Company’s future net cash inflows from servicing a loan. Conversely, decreases in the costs to service generally have a positive effect on the value of the MSRs. MSR uncertainties are hypothetical and do not always have a direct correlation with each assumption. Changes in one assumption may result in changes to another assumption, which might magnify or counteract the uncertainties. The Company reviews all its assumptions each quarter compared to other market participants and retrospectively reviews the prior quarter assumptions compared to subsequently available actual data and factors that into determining its current quarter’s assumptions. Certain key assumptions were reviewed and updated during the first quarter 2023 to more closely align with comparable market participants, supported by the Company’s quarterly retrospective review of actual cost to service incurred and custodial deposit ancillary income received.

The following presents the impact on the fair value of the Company’s MSR portfolio when applying the following hypothetical data points:


	Discount Rate				Prepayment Speeds				Costs to Service
	100 BPS Adverse Change		200 BPS Adverse Change		10% Adverse Change		20% Adverse Change		10% Adverse Change		20% Adverse Change
	(dollars in thousands)
March 31, 2023	$	(56,780)	$	(108,691)	$	(32,088)	$	(62,579)	$	(19,760)	$	(39,542)
December 31, 2022	$	(66,658)	$	(127,263)	$	(36,353)	$	(70,814)	$	(13,388)	$	(26,779)

The following presents information related to loans serviced:


	March 31, 2023		December 31, 2022
	(dollars in thousands)
Total unpaid principal balance	$	88,864,506	$	89,280,085
Loans 30-89 days delinquent	608,313		824,348
Loans delinquent 90 or more days or in foreclosure	529,099		555,293

The following presents components of Loan servicing fees as reported in the Company’s condensed consolidated statements of operations:


	Three Months Ended March 31,
	2023		2022
	(dollars in thousands)
Contractual servicing fees	$	59,522	$	80,763
Late fees	275		1,125
Other	(970)		(824)
Total	$	58,827	$	81,064

The Company held for its customers $4.1 million and $5.1 million of escrow funds recorded in Other liabilities in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.

The Company reported $277.0 thousand and $53.5 million loss on MSR sales in the Change in fair value of mortgage servicing rights in the condensed consolidated statement of operations for the three months ended March 31, 2023 and 2022, respectively.

The following presents the components of Change in fair value of MSRs:

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	Three Months Ended March 31,
	2023		2022
	(dollars in thousands)
Realization of cash flows	$	(19,352)	$	(48,950)
Valuation inputs and assumptions	(150,574)		276,987
Economic hedging results	10,927		(157,362)
Loss on MSR sales	(277)		(53,492)
Change in fair value of MSRs	$	(159,276)	$	17,183

Note 5 - Derivative Financial Instruments

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


	March 31, 2023
	Notional Value		Derivative Asset		Derivative Liability
	(dollars in thousands)
Forward sale contracts	$	322,900	$	350	$	2,547
Interest rate lock commitments	388,275		3,235		166
Forward purchase contracts	89,000		82		143
Treasury futures purchase contracts	1,291,500		—		—
Margin			27,060		749
Total			$	30,727	$	3,605


	December 31, 2022
	Notional Value		Derivative Asset		Derivative Liability
	(dollars in thousands)
Forward sale contracts	$	819,900	$	6,107	$	1,200
Interest rate lock commitments	598,970		2,231		2,504
Forward purchase contracts	61,300		—		400
Treasury futures purchase contracts	897,500		—		—
Margin			17,273		6
Total			$	25,611	$	4,110

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


	Three Months Ended March 31,
	2023		2022
	(dollars in thousands)
Forward sale contracts	$	(6,967)	$	(60,753)
Interest rate lock commitments	3,341		88,668
Forward purchase contracts	202		(3,872)
Interest rate swap and Treasury futures purchase contracts	$	10,826	$	(118,352)

Counterparty agreements for forward commitments contain master netting agreements. The master netting agreements contain a legal right to offset amounts due to and from the same counterparty. The Company incurred no credit losses due to nonperformance of any of its counterparties for the three months ended March 31, 2023 and 2022.

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The following presents a summary of derivative assets and liabilities and related netting amounts:


	March 31, 2023
			Gross Amounts Not Offset in the Statement of Financial Position(a)
	Gross Amount of Assets (Liabilities) Recognized		Financial Instruments		Cash Collateral		Net Amount
	(dollars in thousands)
Derivatives subject to master netting agreements:
Assets:
Forward sale contracts	$	350	$	(324)	$	—	$	26
Forward purchase contracts	82		(16)				66
Liabilities:
Forward sale contracts	(2,547)		340		621		(1,586)
Forward purchase contracts	(143)		—		—		(143)
Derivatives not subject to master netting agreements:
Assets:
Interest rate lock commitments	3,235		—		—		3,235
Liabilities:
Interest rate lock commitments	(166)		—		—		(166)
Total derivatives
Assets	$	3,667	$	(340)	$	—	$	3,327
Liabilities	$	(2,856)	$	340	$	621	$	(1,895)


	December 31, 2022
			Gross Amounts Not Offset in the Statement of Financial Position(a)
	Gross Amount of Assets (Liabilities) Recognized		Financial Instruments		Cash Collateral		Net Amount
	(dollars in thousands)
Derivatives subject to master netting agreements:
Assets:
Forward sale contracts	$	6,107	$	(1,062)	$	(3,790)	$	1,255
Liabilities:
Forward sale contracts	(1,200)		1,062		138		—
Forward purchase contracts	(400)		—		400		—
Derivatives not subject to master netting agreements:
Assets:
Interest rate lock commitments	2,231		—		—		2,231
Liabilities:
Interest rate lock commitments	(2,504)		—		—		(2,504)
Total derivatives
Assets	$	8,338	$	(1,062)	$	(3,790)	$	3,486
Liabilities	$	(4,104)	$	1,062	$	538	$	(2,504)

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

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

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Note 6 - Accounts Receivable, net

The following presents principal categories of Accounts receivable, net:


	March 31, 2023		December 31, 2022
	(dollars in thousands)
Servicing receivable-general	$	25,958	$	14,943
Pair off receivable	2,136		619
Servicing sale receivable	27,104		29,503
Servicing advance receivable	59,786		77,257
Servicing advance reserve	(2,417)		(3,355)
Agency receivable	280		595
Income tax receivable	2,308		1,902
Interest on servicing deposits	266		302
Other	2,202		2,925
Total	$	117,623	$	124,691

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

The following presents changes to the servicing advance reserve:


	Three Months Ended March 31,
	2023		2022
	(dollars in thousands)
Servicing advance reserve at beginning of period	$	(3,355)	$	(4,207)
Additions	(434)		(7,517)
Charge-offs	1,372		8,849
Servicing advance reserve at end of period	$	(2,417)	$	(2,875)

Note 7 - Warehouse Lines of Credit

The Company maintains mortgage warehouse lines of credit arrangements with various financial institutions, primarily to fund the origination of mortgage loans. The Company held mortgage funding arrangements with eight separate financial institutions with a total maximum borrowing capacity of $2.8 billion and $2.8 billion as of March 31, 2023 and December 31, 2022, respectively. These funding arrangements are primarily uncommitted. The Company had $2.4 billion and $2.3 billion of unused capacity under its warehouse lines of credit as of March 31, 2023 and December 31, 2022, respectively.

The following presents the amounts outstanding and maturity dates under the Company’s various mortgage funding arrangements:


	Maturity Date (a)		March 31, 2023
		(dollars in thousands)
$200 million Warehouse Facility(b)	April 2023		$	14,071
$35 million Warehouse Facility(c)	June 2023		25,566
$450 million Warehouse Facility	August 2023		58,530
$200 million Warehouse Facility(d)	September 2023		67,249
$200 million Warehouse Facility(b)	September 2023		21,388
$1,200 millions Warehouse Facility	May 2024		130,384
$88.5 million Warehouse Facility	Evergreen		3,929
$400 million Warehouse Facility(d)	Evergreen		88,380
Gestation Warehouse Facility(d)	Evergreen		—
Total			$	409,497

(a) The presented maturities are as of March 31, 2023. The Company is expected to terminate a majority of its warehouse lines of credit pursuant to the sale of certain agreements and assets used in or related to the Company’s wholesale originations channel. For additional information refer to Note 20 – Sale of Certain Assets in Origination Segment, Sale of Correspondent Channel and Home Point Asset Management LLC and Note 22 - Subsequent Events .

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(b) Subsequent to March 31, 2023, these Warehouse Facilities were closed in April 2023.

(c) Subsequent to March 31, 2023, the maturity of this Warehouse Facility has been extended from March 2023 to June 2023 and the capacity of this Warehouse Facility has been reduced from $50 million to $35 million.

(d) Subsequent to March 31, 2023, these Warehouse Facilities were closed in May 2023.


	Maturity Date(d)		December 31, 2022
		(dollars in thousands)
$50 million Warehouse Facility	March 2023		41,928
$200 million Warehouse Facility	March 2023		45,284
$450 million Warehouse Facility	August 2023		149,513
$200 million Warehouse Facility	September 2023		41,309
$200 million Warehouse Facility	September 2023		32,011
$1,200 million Warehouse Facility	May 2024		113,136
$88.5 million Warehouse Facility	Evergreen		8,050
$400 million Warehouse Facility	Evergreen		65,250
Gestation Warehouse Facility	Evergreen		—
Early Funding(e)			—
Total			$	496,481

(d) Maturity Dates in this table are as of December 31, 2022. These Warehouse Facilities have been renewed as reflected in the table above.

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

The Company’s warehouse facilities’ variable interest rates are calculated using an index rate generally tied to a Secured Overnight Financing Rate (“SOFR”); plus applicable interest rate margins, with varying interest rate floors. The weighted average interest rate for the Company’s warehouse facilities was 6.19% and 2.91% for the quarter ended March 31, 2023 and for the year ended December 31, 2022, respectively. The Company’s borrowings are secured by MLHS at fair value.

The Company’s warehouse facilities require the maintenance of certain financial covenants relating to net worth, profitability, liquidity, and ratio of indebtedness to net worth among others. The Company’s warehouse lines that contain profitability covenants were amended to allow for a net loss under such covenants for the three months ended March 31, 2023. The Company was in compliance with all warehouse facility covenants as of March 31, 2023.

Note 8 - Term Debt and Other Borrowings, net

The following presents the Company’s term debt and other borrowings, net:


	Maturity Date	Collateral	March 31, 2023		December 31, 2022
			(dollars in thousands)
$1.0 billion MSR Facility	May 2025	MSRs	$	400,000	$	450,000
$500 million Senior Notes(a)	February 2026	Unsecured	500,000		500,000
$85 million Servicing Advance Facility	May 2023	Servicing Advances	—		—
$35 million Operating Line of Credit(b)	May 2023	Mortgage loans	1,000		1,000
Gross			901,000		951,000
Debt issuance costs			(8,125)		(8,917)
Total			$	892,875	$	942,083

(a) The aggregate principal amount of the Senior Notes issued was $550.0 million. The Company repurchased and retired $50.0 million of outstanding Senior Notes during the second quarter of 2022.

(b) Subsequent to March 31, 2023, this line was terminated. Refer to Note 22 - Subsequent Events .

The Company maintains a $1.0 billion MSR financing facility (the “MSR Facility”). In April 2022, the Company entered into an amendment to the MSR facility that, among other things, reduced the committed capacity from $650.0 million to $500.0 million. The amendment also replaced the LIBOR based interest rate with SOFR, plus the applicable interest rate margin, with advance rates generally ranging from 62.5% to 72.5% of the fair value of the underlying MSRs. The MSR Facility is

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collateralized by the Company’s FNMA, FHLMC, and GNMA MSRs. The MSR Facility has a three-year revolving period ending on May 4, 2024 followed by a one-year period during which the balance drawn must be repaid and no further amounts may be drawn down, which ends on May 20, 2025. The MSR Facility requires the maintenance of certain financial covenants relating to net worth, liquidity, and indebtedness of the Company. The Company was in compliance with all covenants under the MSR Facility as of March 31, 2023.

In January 2021, the Company issued $550.0 million aggregate principal amount of its 5.0% Senior Notes due 2026 (the “Senior Notes”) in a private placement transaction. The Company repurchased and retired $50.0 million of outstanding Senior Notes in 2022. The Senior Notes are guaranteed on a senior unsecured basis by each of the Company’s wholly owned subsidiaries existing on the date of issuance, other than HPAM and HPMAC. The Senior Notes bear interest at a rate of 5.0% per annum, payable semi-annually in arrears. The Senior Notes will mature on February 1, 2026.

The Indenture governing the Senior Notes contains covenants and restrictions that, among other things and subject to certain exceptions, limit the ability of the Company and its restricted subsidiaries to (i) incur additional debt or issue certain preferred shares; (ii) incur liens; (iii) make certain distributions, investments, and other restricted payments; (iv) engage in certain transactions with affiliates; and (v) merge or consolidate or sell, transfer, lease, or otherwise dispose of all or substantially all of their assets.

The Senior Notes had a carrying value of $500.0 million and an estimated fair value of $377.0 million and $343.2 million as of March 31, 2023 and December 31, 2022, respectively. The valuation of the Senior Notes was determined based on observable trading information considered Level 2 inputs under the fair value hierarchy. For the Company’s other long-term secured borrowings not recorded at fair value, the carrying value approximated fair value due to the variable interest rate on the borrowings and the repricing of collateral.

The Company has a $85.0 million servicing advance facility which is collateralized by all of the Company’s servicing advances. The facility carries an interest rate of Term SOFR plus a margin and an advance rate ranging from 85.0-95.0%. The servicing advance facility requires the maintenance of certain financial covenants relating to net worth, liquidity, and indebtedness of the Company. The Company was in compliance with all covenants under the servicing advance facility as of March 31, 2023.

The Company also has a $35.0 million operating line, with an interest rate based on the Prime Rate. The operating line of credit was terminated on April 14, 2023.

The Company had total available capacity of $431.8 million and $52.6 million for its MSR Facility and servicing advance facility, respectively as of March 31, 2023. The Company has no available capacity for its operating line of credit as of March 31, 2023.

Note 9 - Commitments and Contingencies

Commitments to Extend Credit

The Company’s Interest rate lock commitments (“IRLCs”) expose the Company to market risk if interest rates change and the loan is not economically hedged or committed to an investor. The Company is also exposed to credit loss if the loan is originated and not sold to an investor and the customer does not perform. The collateral upon extension of credit typically consists of a first deed of trust in the mortgagor’s residential property. Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon. Total commitments to originate loans were $0.4 billion and $0.6 billion as of March 31, 2023 and December 31, 2022, respectively.

Litigation

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

Regulatory Contingencies

The Company is subject to periodic audits and examinations, both formal and informal in nature, from various federal and state agencies, including those made as part of regulatory oversight of the Company’s mortgage origination, servicing, and financing activities. Such audits and examinations could result in additional actions, penalties, or fines by state or federal governmental bodies, regulators, or the courts with respect to our mortgage origination, servicing, and financing activities, which may be applicable generally to the mortgage industry or to the Company in particular. The Company did not pay any material penalties or fines during the three months ended March 31, 2023 and 2022 and is not currently required to pay any such penalties or fines.

Note 10 - Regulatory Net Worth Requirements

The Company is subject to various regulatory capital requirements administered by the Department of Housing and Urban Development (“HUD”), which govern non-supervised, direct endorsement mortgagees. The Company is also subject to regulatory

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capital requirements administered by Ginnie Mae, Fannie Mae, and Freddie Mac, which govern issuers of Ginnie Mae, Fannie Mae, and Freddie Mac securities. Additionally, the Company is required to maintain minimum net worth requirements for many of the states in which it sells and services loans. Each state has its own minimum net worth requirement; these range from $0 to $1,000, depending on the state.

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

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

Minimum Net Worth

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

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

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

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

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

Minimum Capital Ratio

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

Minimum Liquidity

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

•3.5 basis points of total Agency servicing.

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

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

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

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

The most restrictive of the requirements require the Company to maintain a minimum adjusted net worth balance of $224.7 million and $225.7 million as of March 31, 2023 and December 31, 2022, respectively.

The Company is in compliance with all minimum requirements to which it was subject as of March 31, 2023.

Note 11 - Representation and Warranty Reserve

The majority of the Company’s loan sale contracts include provisions requiring the Company to repurchase a loan if a borrower fails to make certain initial loan payments due to the acquirer or if the accompanying mortgage loan fails to meet customary representations and warranties. Historically, the Company received relief of certain repurchase obligations on loans sold to FNMA or FHLMC by taking advantage of their repurchase alternative program. This program provided the Company with the ability, in certain instances, to pay a fee to FNMA or FHLMC, in lieu of being obligated to repurchase the loan. In 2022, FNMA and FHMC notified the Company that they will not provide repurchase obligation relief through the repurchase alternative program beginning in the fourth quarter of 2022 until further notice.

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The Company has included considerations that it may receive relief of certain representations and warranty obligations on loans sold to FNMA or FHLMC on or after January 1, 2013 if FNMA or FHLMC satisfactorily concludes a quality control loan file review or if the borrower meets certain acceptable payment history requirements within 12 or 36 months after the loan is sold to FNMA or FHLMC, respectively. The current UPB of loans sold by the Company represents the maximum potential exposure to repurchases related to representations and warranties. Reserve levels are a function of expected losses based on historical experience and loan volume. While the amount of repurchases is uncertain, the Company considers the liability to be appropriate.

The following presents the activity of the outstanding repurchase reserve:


	Three Months Ended March 31,
	2023		2022
	(dollars in thousands)
Repurchase reserve at beginning of period	$	26,605	$	24,577
Additions	10,049		5,566
Charge-offs	(11,465)		(5,225)
Repurchase reserve at end of period	$	25,189	$	24,918

Note 12 - Fair Value Measurements

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

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


Level Input:						Input Definition:

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

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

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

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

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

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Fair Value of Certain Assets and Liabilities

The following describes the methods used in estimating the fair values of certain assets and liabilities:

Mortgage loans held for sale. The majority of the Company's MLHS at fair value are saleable into the secondary mortgage markets and their fair values are estimated using observable quoted market or contracted prices or market price equivalents, which would be used by other market participants. These saleable loans are considered Level 2. A smaller portion of the Company's MLHS consist of loans repurchased from the GSEs that have subsequently been deemed to be non-saleable to GSEs and Ginnie Mae when certain representations and warranties are breached. These loans, however, are saleable to other entities and are classified on the consolidated balance sheets as Mortgage loans held for sale. These repurchased loans are considered Level 3 and are valued based on recent sales prices of similar loans.

Interest rate lock commitments. The Company estimates the fair value of IRLCs based on the value of the underlying mortgage loan, quoted MBS prices and estimates of the fair value of the MSRs and the probability that the mortgage loan will fund within the terms of the IRLC. The average pull-through rate for IRLCs was 65.2% and 77.5%as of March 31, 2023 and December 31, 2022, respectively. Given the significant and unobservable nature of the pull-through factor, IRLCs are classified as Level 3.

Forward sales and purchase commitments. The Company treats forward mortgage-backed securities purchase and sale commitments that have not settled as derivatives and recognizes them at fair value. These forward commitments will be fulfilled with loans not yet sold or securitized and new originations and purchases. The forward commitments allow the Company to reduce the risk related to market price volatility. The Company estimates the fair value of forward commitments based on quoted MBS prices. These derivatives are classified as Level 2.

Interest rate swap futures contracts. The Company uses options on swap contracts to offset changes in the fair value of MSRs. The Company estimates the fair value of these MSR-related derivatives using quoted prices for similar instruments. These derivatives are classified as Level 2.

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

The following presents the major categories of assets and liabilities measured at fair value on a recurring basis:


	March 31, 2023
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Assets:
Mortgage loans held for sale	$	—	$	466,853	$	6,137	$	472,990
Interest rate lock commitments	—		—		3,235		3,235
Forward sale contracts	—		350		—		350
Forward purchase contracts	—		82		—		$	82
Mortgage servicing rights	—		—		1,251,600		1,251,600
Total	$	—	$	467,285	$	1,260,972	$	1,728,257
Liabilities:
Interest rate lock commitments	$	—	$	—	$	166	$	166
Forward sale contracts	—		2,547		—		2,547
Forward purchase contracts	—		143		—		143
Total	$	—	$	2,690	$	166	$	2,856

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	December 31, 2022
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Assets:
Mortgage loans held for sale	$	—	$	629,108	$	13,885	$	642,993
Interest rate lock commitments	—		—		2,231		2,231
Forward sale contracts	—		6,107		—		6,107
Mortgage servicing rights	—		—		1,402,542		1,402,542
Total	$	—	$	635,215	$	1,418,658	$	2,053,873
Liabilities:
Interest rate lock commitments	$	—	$	—	$	2,504	$	2,504
Forward sale contracts	—		1,200		—		1,200
Forward purchase contracts	—		400		—		400
Total	$	—	$	1,600	$	2,504	$	4,104

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


	Three Months Ended March 31, 2023
	MSRs		IRLC-Asset		MLHS		IRLC-Liability
	(dollars in thousands)
Balance at beginning of period	$	1,402,542	$	2,231	$	13,885	$	2,504
Purchases, sales, issuances, contributions, and settlements	18,984		—		(4,237)		—
Change in fair value	(169,926)		1,004		(1,146)		(2,338)
Transfers out(a)	—		—		(2,365)		—
Balance at end of period	$	1,251,600	$	3,235	$	6,137	$	166


	Three Months Ended March 31, 2022
	MSRs		IRLC-Asset		MLHS		IRLC-Liability
	(dollars in thousands)
Balance at beginning of period	$	1,525,103	$	29,887	$	20,218	$	2,843
Purchases, sales, issuances, contributions, and settlements	(262,915)		—		(1,564)		42,615
Change in fair value	228,036		(17,746)		(52)		—
Transfers in(a)	—		—		(826)		—
Balance at end of period	$	1,490,224	$	12,141	$	17,776	$	45,458

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

The following presents the fair value and UPB of MLHS that have contractual principal amounts and for which the Company has elected the fair value option. The fair value option was elected for MLHS as the Company believes fair value best reflects its expected future economic performance:


	Fair Value		Principal Amount Due Upon Maturity		Difference(a)
	(dollars in thousands)
March 31, 2023	$	472,990	$	506,872	$	(33,882)
December 31, 2022	$	642,993	$	680,315	$	(37,322)

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

The Company had no other significant assets or liabilities measured at fair value on a nonrecurring basis as of March 31, 2023 and December 31, 2022, respectively.

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The following is a summary of the key unobservable inputs used in the valuation of the Level 3 assets:


	March 31, 2023
Assets:	Key Input	Range	Weighted Average
Mortgage servicing rights	Discount rate	9.8% - 14.0%	10.0%
	Prepayment speeds	5.4% - 9.0%	5.7%
	Cost to service	$109 - $229	$113
Interest rate lock commitments	Pull-through rate	15% - 100%	65.2%
Mortgage loans held for sale	Investor pricing	60.4% - 101.6%	74.4%


	December 31, 2022
Assets:	Key Input	Range	Weighted Average
Mortgage servicing rights	Discount rate	9.3% - 14.0%	9.7%
	Prepayment speeds	4.6% - 8.2%	5.4%
	Cost to service	$74 - $133	$77
Interest rate lock commitments	Pull-through rate	21.0% - 100.0%	77.5%
Mortgage loans held for sale	Investor pricing	65.0% - 103.6%	93.3%

Fair Value of Other Financial Instruments. All financial instruments were either recorded at fair value or the carrying value approximated fair value as of March 31, 2023 and December 31, 2022. For financial instruments that were not recorded at fair value, such as cash and cash equivalents, restricted cash, servicing advances, warehouse and operating lines of credit, and accounts payable, their carrying values approximated fair value due to the short-term nature of such instruments.

Note 13 - Goodwill

The Company performed an interim impairment test during the third quarter ended September 30, 2022, due to the impact of rising interest rates on the mortgage industry and the Company’s recent stock performance. The Company used the market-based valuation approach to determine fair value of its reporting units and compare against the carrying value of the reporting units, and the fair value was measured using inputs classified as Level 3 in the fair value hierarchy. Based upon the results of this evaluation, the Company recorded $10.8 million goodwill impairment charges in Corporate Impairment of goodwill, driven predominantly by a significant decline in our market capitalization. During the third quarter of 2022, the Company wrote off the $7.0 million and $3.8 million goodwill asset for the Origination and Servicing segments, respectively, and has no remaining goodwill balance as of March 31, 2023.

Note 14 - Equity-based Compensation

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

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

Restricted Stock Units

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

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


	Three Months Ended March 31, 2023
	Units	Weighted Average Grant Date Fair Value
Outstanding at beginning of period	392,448	$	6.12
Granted	—	—
Vested	(32,982)	$	3.79
Forfeited	(50,636)	$	5.76
Outstanding at end of period	308,830	$	6.42

The RSUs granted to the Company’s management team will vest in equal annual installments over a three-year period subject to the participants’ continued employment with the Company. The RSUs granted to the non-management members of the Company’s Board who are not affiliated with Stone Point Capital LLC vest at the next annual meeting of stockholders following the grant date. The Company recognized $0.2 million of compensation expense related to RSUs within Compensation and benefits expense on the consolidated statements of operations for both the three months ended March 31, 2023 and 2022.

Performance Stock Units

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

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


	Three Months Ended March 31, 2023
	Units	Weighted-Average Grant Date Fair Value
Outstanding at beginning of period	370,271	$	7.43
Granted	—	—
Forfeited	(59,464)	$	3.79
Outstanding at end of period	310,807	$	7.64

The Company did not recognize any compensation expense related to PSUs for the three months ended March 31, 2023 and 2022.

Stock Option Awards

The Company recognizes compensation expense associated with the stock option grants using the straight-line method over the requisite service period. The Company recognized $0.6 million and $1.7 million of compensation expense related to stock options within Compensation and benefits expense in the condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022, respectively. The unrecognized compensation expense related to outstanding and unvested stock options was $40.3 million as of March 31, 2023, which is expected to vest and get recognized over a weighted-average period of 5.06. The unrecognized compensation expense was $68.6 million for the three months ended March 31, 2022. The number of options vested and exercisable was 2,185,555 and the weighted-average exercise price of the options exercisable was $4.98 as of March 31, 2023.

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

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	Three Months Ended March 31, 2023
	Number of Shares	Weighted Average Exercise Price		Weighted Average Contractual Life (Years)	Weighted Average Grant Date Fair Value
Outstanding at beginning of period	10,933,893	$	4.64	4.70	$	8.27
Granted	291,200	1.80		0.25	9.86
Exercised	(50,958)	6.83		0.03	9.74
Forfeited	(167,028)	1.85		0.04	9.40
Expired	(272,325)	3.74		1.00	9.75
Outstanding at end of period	10,734,782	$	4.69	4.41	$	8.25

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


	Three Months Ended March 31, 2023
	Number of Shares	Weighted Average Grant Date Fair Value
Non-vested at beginning of period	8,566,613	$	8.12
Granted	291,200	9.86
Vested	181,725	8.95
Exercised	(50,958)	9.74
Forfeited	(167,028)	9.40
Expired	(272,325)	9.75
Non-vested at end of period	8,549,227	$	8.26

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


	Three Months Ended March 31,
	2023	2022
Expected life (in years)	8.21	8.26
Risk-free interest rate	0 - 3.0%	0.56% - 2.95%
Expected volatility	24.9%	24.9%
Dividend yield	—	—

The expected life of each stock option is estimated based on its vesting and contractual terms. The risk-free interest rate reflected the yield on zero-coupon Treasury securities with a term approximating the expected life of the stock options. The expected volatility was based on an analysis of the historical volatilities of peer companies, adjusted for certain characteristics specific to the Company. The Company applied an estimated forfeiture rate of 0%-10.4% and 0%-10.0% as of March 31, 2023 and December 31, 2022, respectively.

Note 15 - Earnings Per Share

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

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

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	Three Months Ended March 31,
	2023		2022
	(dollars in thousands, except share and per share amounts )
Net (loss) income	$	(133,756)	$	11,864

Numerator:
Net (loss) income attributable to common shareholders	$	(133,756)	$	11,864
Net (loss) income attributable to Home Point - diluted	$	(133,756)	$	11,864

Denominator (in thousands):
Weighted average shares of common stock outstanding - basic	138,422		139,171
Dilutive effect of common stock equivalents	—		1,408
Weighted average shares of common stock outstanding - diluted	138,422		140,579

(Loss) earnings per share of common stock outstanding - basic	$	(0.97)	$	0.09
(Loss) earnings per share of common stock outstanding - diluted	$	(0.97)	$	0.08

As a result of the net loss from continuing operations for the three months ended March 31, 2023, the effect of certain dilutive securities was excluded from the computation of weighted average diluted shares outstanding, as inclusion would have resulted in antidilution.

Note 16 - Shareholders’ Equity and Equity Method Investment

Common Stock Repurchases

On February 24, 2022, the Company’s board of directors approved the repurchase of shares of the Company’s common stock, par value $0.0000000072 per share (the “Common Stock”), in an aggregate amount not to exceed $8.0 million, from time to time through and including December 31, 2022 pursuant to one or more plans adopted under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Stock Repurchase Program”). The Company repurchased 461,690 shares of Common Stock at an aggregate price of $1.5 million, including commissions and fees, through market purchase transactions under the Stock Repurchase Program as of March 31, 2022. The Company values shares of common stock held in treasury at cost. Shares repurchased under the program have been subsequently retired.

Equity Method Investment

The Company held an equity method investment in Longbridge through a 49.6% voting ownership interest, which was the only equity method investment held by the Company. The Company entered into a definitive agreement in February of 2022 to sell its investment in Longbridge. During the third quarter of 2022, an impairment charge of $8.8 million was recognized for the held for sale balance of equity method investment in Loss from equity method investment in the consolidated statement of operations. In October 2022, the Company completed the previously announced sale for a purchase price of approximately $38.9 million in cash.

Note 17 - Income Taxes

The Company’s effective income tax rate was 24.6% and 20.1% for the three months ended March 31, 2023 and 2022, respectively, compared to the statutory rate of 21.0%. The Company calculated the provision for income taxes by applying the estimated annual effective tax rate to year-to-date pre-tax income and adjusted for discrete items that occurred during the period. Several factors influence the effective tax rate, including the impact of the equity investment, state taxes, uncertain tax positions, changes in valuation allowance, and permanent disallowed deductions for tax such as officer's compensation limitations applicable to a public entity. Total benefit for income taxes was $43.6 million and total provision for income taxes was $4.3 million for the three months ended March 31, 2023 and 2022, respectively.

Note 18 - Segments

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Management has organized the Company into two reportable segments based primarily on its services as follows: (1) Origination and (2) Servicing. Each reportable segment has discrete financial information evaluated regularly by the chief operating decision maker (“CODM”) in monitoring performance, allocating capital, and making strategic and operational decisions that align with the Company and its internal operations.

Origination

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

Servicing

In the Servicing segment, the Company generates revenue through contractual fees earned by performing daily administrative and management activities for mortgage loans. These activities include collecting loan payments, remitting payments to investors, sending monthly statements, managing escrow accounts, servicing delinquent loan work-outs, and managing and disposing of foreclosed properties. In February 2022, the Company entered into an agreement with ServiceMac, LLC (“ServiceMac”), a wholly owned subsidiary of First American Financial Corporation, pursuant to which ServiceMac subservices all mortgage loans underlying the Company’s MSRs. These services include maintaining borrower contact, facilitating borrower advances, generating borrower statements, collecting and processing payments of interest and principal, and facilitating loss-mitigation strategies in an attempt to keep defaulted borrowers in their homes. ServiceMac began subservicing loans for the Company in the second quarter of 2022.

Other Information About the Company’s Segments

The Company's CODM evaluates performance, makes operating decisions, and allocates resources based on the Company's contribution margin. Contribution margin is the Company’s measure of profitability for its two reportable segments. Contribution margin is defined as revenue from Gain on loans, net, Loan fee income, Loan servicing fees, Change in fair value of MSRs, Interest income, and Other income (which includes Income from equity method investment) adjusted for the change in fair value attributable to valuation assumptions of MSRs and less directly attributable expenses. Directly attributable expenses include salaries, commissions and associate benefits, general and administrative expenses, and other expenses, such as servicing and origination costs. Direct operating expenses driven by the activities of the segments are included in the respective segments.

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

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

The following presents the key operating data for the Company’s business segments:


	Three Months Ended March 31, 2023
	Origination		Servicing		Segments Total		All Other		Total		Reconciling Item		Total Consolidated
	(dollars in thousands)
Revenue:
Loss on loans, net	$	(1,490)	$	—	$	(1,490)	$	—	$	(1,490)	$	—	$	(1,490)
Loan fee income	1,655		—		1,655		—		1,655		—		1,655
Loan servicing fees	—		58,827		58,827		—		58,827		—		58,827
Change in fair value of mortgage servicing rights	—		(159,247)		(159,247)		—		(159,247)		—		(159,247)
Interest income (expense), net	810		6,895		7,705		(15,738)		(8,033)		—		(8,033)
Other income	1		—		1		700		701		—		701
Total	$	976	$	(93,525)	$	(92,549)	$	(15,038)	$	(107,587)	$	—	$	(107,587)
Contribution loss	$	(20,056)	$	(109,077)	$	(129,133)	$	(48,265)	$	(177,398)

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	Three Months Ended March 31, 2022
	Origination		Servicing		Segments Total		All Other		Total		Reconciling Item(a)		Total Consolidated
	(dollars in thousands)
Revenue:
Gain on loans, net	$	45,404	$	—	$	45,404	$	—	$	45,404	$	—	$	45,404
Loan fee income	19,904		—		19,904		—		19,904		—		19,904
Loan servicing fees	—		81,064		81,064		—		81,064		—		81,064
Change in fair value of mortgage servicing rights	—		17,183		17,183		—		17,183		—		17,183
Interest income (expense), net	7,456		706		8,162		(14,180)		(6,018)		—		(6,018)
Other (expense) income	—		—		—		(4,638)		(4,638)		5,272		634
Total	$	72,764	$	98,953	$	171,717	$	(18,818)	$	152,899	$	5,272	$	158,171
Contribution (loss) margin	$	(8,390)	$	83,234	$	74,844	$	(58,657)	$	16,187

(a) The Company includes the results from its equity method investments in the All Other. Therefore, the loss (income) is removed to reconcile to Total revenue, net on the condensed consolidated statements of operations.

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


	Three Months Ended March 31,
	2023		2022
	(dollars in thousands)
(Loss) income before income tax	$	(177,398)	$	21,459
Loss from equity method investment	—		(5,272)
Contribution (loss) margin	$	(177,398)	$	16,187

Note 19 - Related Parties

The Company entered into transactions and agreements to purchase various services and products from certain affiliates of our sponsor, Stone Point Capital LLC. The services include valuation of MSRs, insurance brokerage services, loan review and tax payment services for certain loan originations.

The following presents principal categories of the related party transactions recorded in the consolidated statements of operations.


	Three Months Ended March 31,
	2023		2022
	(dollars in thousands)
Loan expense	$	122	$	6,092
Loan servicing expense	4		489
General and administrative	840		3,199
Other expenses(a)	4,832		5,729
Other	—		206
Total	$	5,798	$	15,714

(a) Includes amounts paid to related party insurance brokers which are passthrough to third party carriers.

Note 20 – Sale of Certain Assets in Origination Segment, Sale of Correspondent Channel and Home Point Asset Management LLC

On April 6, 2023, HPF entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with The Loan Store, Inc. (“Buyer”), pursuant to which HPF has agreed to sell certain agreements and assets used in or related to HPF’s third-party mortgage loan origination business (the “Purchased Assets”), to Buyer, and Buyer has agreed to assume certain liabilities relating to the Purchased Assets (collectively, the “Asset Sale”). As consideration for the Purchased Assets, Buyer has agreed to issue to

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HPF a number of shares of the Class A Common Stock, par value $0.001 per share, of Buyer representing 9.99% of the issued and outstanding equity of Buyer, on a fully-diluted, as-converted basis measured as of closing.

The assets to be sold primarily consist of Property and equipment, net, Other assets, and Other liabilities. The Company classified these assets as Assets held for sale as of March 31, 2023. For additional information refer to Note 22 - Subsequent Events .

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

The purchase price for such assets was $2.5 million in cash, plus an earnout payment based on certain of Planet’s correspondent origination volume during the two-year period commencing on the Closing Date. The Company records the earnout payment when the consideration is determined to be realizable. The Company recorded earnout income of $0.5 million in Other income in the consolidated statements of operations for the three months ended March 31, 2023.

On December 2, 2022, HPC completed the previously announced sale of its equity interests in HPAM and its wholly owned subsidiary HPMAC. Prior to the sale, HPAM was a wholly owned subsidiary of the Company and managed certain servicing assets. HPMAC serviced residential real estate mortgage loans. The purchase price for this transaction was $3.2 million in cash.

Note 21 - Restructuring

The Board approved moving forward with a plan to sell certain origination assets and exit the Origination segment by the end of the second quarter 2023.

The Company has identified restructuring actions that will result in additional charges of approximately $29.9 million, expected during the second quarter 2023 when specified criteria are met, such as communication of benefit arrangements or when the costs have been incurred.

Note 22 - Subsequent Events

Merger with Mr. Cooper

On May 10, 2023, the Company announced the signing of a definitive agreement (the “Merger Agreement”) that provides for a wholly owned subsidiary of Mr. Cooper Group Inc. (“Mr. Cooper”) to commence a tender offer (the “Offer”) to acquire all outstanding shares of Home Point Capital for $324 million in cash (the “Merger”). As part of the transaction, Mr. Cooper will assume $500 million Home Point Capital 5% senior notes, which are due in February 2026. The transaction is expected to close in the third quarter of 2023, subject to customary closing conditions including receipt of regulatory approvals. Following the onboarding of Home Point Capital customers and the closing of the transaction, Mr. Cooper will wind down the remaining Home Point Capital operations. If the Merger is consummated, the Company’s common stock will be delisted from Nasdaq and the duty to file reports will be suspended under Section 13 and 15(d) of the Exchange Act.

Asset Sale to The Loan Store

On May 1, 2023, the Company completed the previously announced asset sale to The Loan Store, Inc. pursuant to the purchase agreement.

Warehouse Facility Amendments

On April 20, 2023, the Company terminated the Master Repurchase Agreement (the “UBS Master Repurchase Agreement”), dated as of October 28, 2015, by and between the Company, as seller and UBS AG, as buyer. The UBS Master Repurchase Agreement provided for a maximum aggregate purchase price of $200 million. The parties mutually agreed to terminate the UBS Master Repurchase Agreement prior to its scheduled maturity date of September 15, 2023. The Company did not incur any early termination penalties.

On April 20, 2023, the Master Repurchase Agreement and Securities Contract (the “BMO Master Repurchase Agreement”), dated as of January 8, 2021, by and among the Company, as seller, and Bank of Montreal, as buyer, terminated in accordance with its terms. The BMO Master Repurchase Agreement provided for a maximum aggregate purchase price of $200 million.

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On May 1, 2023, the Company terminated the Master Repurchase Agreement (the “Amherst Gestation Agreement”), dated as of October 1, 2020, by and between the Company, as seller and Santander US Capital Markets LLC (fka Amherst Pierpont Securities LLC), as buyer. The Amherst Gestation Agreement had no stated contractual limit on the maximum aggregate purchase price. The parties mutually agreed to terminate the Amherst Gestation Agreement. The Company did not incur any early termination penalties.

On May 5, 2023, the Company terminated the Master Repurchase Agreement and Securities Contract (the “Wells Master Repurchase Agreement”), dated as of November 23, 2015, by and between the Company, as seller and Wells Fargo Bank, N.A., as buyer. The Wells Master Repurchase Agreement provided for a maximum aggregate purchase price of $400 million. The parties mutually agreed to terminate the Wells Master Repurchase Agreement. The Company did not incur any early termination penalties.

On May 5, 2023, the Company terminated the Second Master Repurchase Agreement (the “TIAA Master Repurchase Agreement”), dated as of September 16, 2022, by and between the Company, as seller and TIAA, FSB, as buyer. The TIAA Master Repurchase Agreement provided for a maximum aggregate purchase price of $200 million. The parties mutually agreed to terminate the TIAA Master Repurchase Agreement prior to its scheduled maturity date of September 17, 2023. The Company did not incur any early termination penalties.

Sale of Mortgage Servicing Rights

On May 2, 2023, the Company completed the sale of servicing rights relating to certain single family mortgage loans serviced for the Government National Mortgage Association (“Ginnie Mae”) with an aggregate unpaid principal balance of approximately $1.5 billion to an approved Ginnie Mae issuer. The total purchase price for the servicing rights was approximately $21.3 million, which is subject to certain customary holdbacks and adjustments. The sale represents approximately 1.7% of the Company’s total mortgage servicing portfolio as of December 31, 2022. Ginnie Mae consented to the transfer of the servicing rights.

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

The following discussion and analysis supplements our management’s discussion and analysis for the year ended December 31, 2022 as contained in our 2022 Annual Report, and presumes that readers have read or have access to such discussion and analysis. The following discussion and analysis should also be read together with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Report. This discussion contains forward-looking statements that reflect our plans and strategy for our business, and involve risks and uncertainties. You should review the “Risk Factors” section of our 2022 Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read “Cautionary Note on Forward-Looking Statements” in this Report.

Data as of and for the three months ended March 31, 2023 and March 31, 2022, have been derived from our condensed consolidated financial statements included elsewhere in this Report.

Overview

Home Point provides mortgage servicing on single-family residences throughout the United States. We strategically manage our mortgage servicing rights asset to provide value to our shareholders.

In April 2023, the Company announced that it has entered into a definitive agreement to sell certain assets of the company’s wholesale originations channel, which has historically been our primary business driver. In June 2022, the Company completed the previously announced sale of the Correspondent channel, through which we purchased closed and funded mortgages from a trusted network of correspondent sellers (“Correspondent Partners”). For additional information refer to Note 20 – Sale of Certain Assets in Origination Segment, Sale of Correspondent Channel and Home Point Asset Management LLC. In our Direct channel, we originated residential mortgages primarily for existing servicing customers who were seeking new financing options. We subsequently redirected our Direct channel resources to wholesale.

We maintain ongoing connectivity with our approximately 316 thousand servicing customers. In February 2022, we announced an agreement with ServiceMac, pursuant to which ServiceMac subservices all mortgage loans underlying mortgage servicing rights (“MSRs”) we hold. ServiceMac began subservicing newly originated agency loans for us in the second quarter of 2022. The Company completed transitioning to ServiceMac the balance of the agency portfolio and all of the Government National Mortgage Association (“Ginnie Mae”) portfolio in the third quarter of 2022. ServiceMac performs subservicing functions on the Company’s behalf, but we continue to hold the MSRs. We believe that our relationship with ServiceMac allows us to maintain a leaner cost structure with a greater variable component and provides greater flexibility when strategically selling certain non-core MSRs. The number of our servicing portfolio customers was 316 thousand and 315 thousand, while the servicing portfolio unpaid principal balance (“UPB”) was $88.9 billion and $89.3 billion as of March 31, 2023 and December 31, 2022, respectively.

Recent Developments

On May 10, 2023, we announced the execution of the Merger Agreement with Mr. Cooper, the Parent, and Acquisition Sub, the Purchaser. Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, we will consummate the Merger. If the Merger is consummated, the Company’s common stock will be delisted from Nasdaq and the duty to file reports will be suspended under Section 13 and 15(d) of the Exchange Act. The proposed Merger is expected to close during the third quarter of 2023.

Three months ended March 31, 2023 Compared to Three Months Ended March 31, 2022 Summary

We had $(107.6) million of total revenue, net for the three months ended March 31, 2023 compared to $158.2 million of total revenue, net for the three months ended March 31, 2022. We had $133.8 million net loss for the three months ended March 31, 2023 compared to $11.9 million of net income for the three months ended March 31, 2022. We generated $32.3 million of Adjusted revenue for the three months ended March 31, 2023 compared to $86.8 million for the three months ended March 31, 2022. We had $28.3 million of Adjusted net income for the three months ended March 31, 2023 compared to $40.9 million Adjusted net loss for the three months ended March 31, 2022. Refer to “Non-GAAP Financial Measures” for further information regarding our use of Adjusted revenue and Adjusted net income, including limitations related to such non-GAAP measures and a reconciliation of such measures to net income, the nearest comparable financial measure calculated and presented in accordance with U.S. GAAP.

We originated $0.9 billion of mortgage loans for the three months ended March 31, 2023 compared to $12.6 billion for the three months ended March 31, 2022, representing a decrease of $11.7 billion or 92.9%. Our MSR Servicing Portfolio was $88.4 billion as of March 31, 2023 compared to $102.0 billion as of March 31, 2022. Our gain on sale margins decreased 46 basis points for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decreases were due to rising interest rates and increased competition in the industry. Additionally, according to the Mortgage Bankers Association Mortgage Finance Forecast, average 30-year mortgage rates increased by approximately 260 basis points from March 31, 2022 to

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March 31, 2023. An increase of this nature generally results in our Origination volume declining as refinance opportunities decrease, which also increases competition, resulting in lower gain on sale margins.

Segments

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

In our Origination segment, we source loans through the Wholesale production channel. The Wholesale channel consists of mortgages originated through a nationwide network of 9,351 Broker Partners. Prior to its sale, the Correspondent channel consisted of closed and funded mortgages that we purchase from a trusted network of Correspondent Partners. As noted above, we redirected our Direct channel resources to wholesale in 2022. Once a loan is locked, it becomes channel agnostic. Our Origination segment has contribution loss of $20.1 million and $8.4 million for the three months ended March 31, 2023 and 2022, respectively.

Our Servicing segment consists of servicing loans that were produced in our Originations segment where the Company retained the servicing rights. In February 2022, the Company entered into an agreement with ServiceMac, pursuant to which ServiceMac subservices all mortgage loans underlying the Company’s MSRs. We also strategically buy and sell MSRs. Our Servicing segment had contribution loss of $109.1 million and contribution margin of $83.2 million for the three months ended March 31, 2023 and 2022, respectively.

Key Factors Affecting Results of Operations for Periods Presented

Residential Real Estate Market Conditions

For the three months ended March 31, 2023, our Origination volume is impacted significantly by broader residential real estate market conditions and the general economy. Housing affordability, availability and general economic conditions influence the demand for our products. Housing affordability and availability are impacted by mortgage interest rates, availability of funds to finance purchases, availability of alternative investment products and the relative relationship of supply and demand. General economic conditions are impacted by unemployment rates, changes in real wages, inflation, consumer confidence, seasonality and the overall economic environment. Recent market conditions, such as rapidly rising interest rates, high inflation, and home price appreciation due to limited housing supply, have led to a decrease in the affordability index and negatively impacted Origination volume.

Changes in Interest Rates

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

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

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

To mitigate the interest rate risk impact, we employ economic hedging strategies through forward delivery commitments on mortgage-backed securities or whole loans and options on forward contracts.

Key Performance Indicators

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

Our origination metrics enable us to monitor our ability to generate revenue and expand our market share across different channels. In addition, they help us track origination quality and compare our performance against the nationwide originations market and our competitors. Other key performance indicators include the number of Broker Partners. Our servicing metrics

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enable us to monitor the size of our customer base, the characteristics and value of our MSR Servicing Portfolio, and help drive retention efforts.

Origination Segment KPIs

The following presents key performance indicators for our business:


	Three Months Ended March 31,
	2023			2022
	(dollars in thousands)
Origination Volume by Channel
Wholesale	$	890,398		$	9,317,701
Correspondent	—			2,733,301
Direct	758			504,071
Origination volume	$	891,156		$	12,555,073

Fallout Adjusted (“FOA”) Lock Volume by Channel
Wholesale	$	802,454		$	9,563,708
Correspondent	N/A			2,610,843
Direct	N/A			414,570
FOA Lock Volume	$	802,454		$	12,589,121

Gain on sale margin by Channel
Wholesale	$	7,800		$	62,586
Correspondent	N/A			3,450
Direct	N/A			10,697
Gain on sale margin attributable to channels	7,800			76,733
Other loss on sale(a)	(6,824)			(3,969)
Total gain on sale margin(b)	$	976		$	72,764

Gain on sale margin by Channel (bps)
Wholesale	97			65
Correspondent	N/A			13
Direct	N/A			258
Gain on sale margin attributable to channels	97			61
Other loss on sale(a)	(85)			(3)
Total gain on sale margin(b)	12			58

Market Share
Overall share of origination market(c)	1.3		%	2.0		%
Share of wholesale channel(d)	6.6		%	9.7		%

Origination Volume by Purpose
Purchase	85.0		%	44.4		%
Refinance	15.0		%	55.6		%

Third Party Partners
Number of Broker Partners(e)	9,351			8,376

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

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

(c) Overall share of origination market share data for March 31, 2023 is as of December 31, 2022 obtained from Inside Mortgage Finance, a third party provider of residential mortgage industry news and statistics. The data as of March 31, 2023 is not yet available from Inside Mortgage Finance as of the date of this filing.

(d) Share of wholesale channel for March 31, 2023 is as of December 31, 2022 obtained from Inside Mortgage Finance, a third party provider of residential mortgage industry news and statistics. The data as of March 31, 2023 is not yet available from Inside Mortgage Finance as of the date of this filing.

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

Servicing Segment KPIs

The following presents key performance indicators for our business:


	March 31,
	2023			2022
	(dollars in thousands)
Mortgage Servicing
MSR Servicing Portfolio - UPB(a)	$	88,386,349		$	101,984,767
MSR Servicing Portfolio - Units(b)	315,801			349,261

60 days or more delinquent(c)	0.8		%	0.8		%

MSR Portfolio
MSR multiple(d)	5.31			5.57
Weighted Average Note Rate (e)	3.38		%	3.00		%

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

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

(c) Total balances of outstanding loan principals for which installment payments are at least 60 days past due as a percentage of the outstanding loan principal as of a specified date.

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

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

Non-GAAP Financial Measures

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

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

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

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

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

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

Reconciliation of Total Revenue, Net to Adjusted Revenue


	Three Months Ended March 31,
	2023		2022
	(dollars in thousands)
Total revenue, net	$	(107,587)	$	158,171
Loss from equity method investment	—		(5,272)
Change in fair value of MSR (due to inputs and assumptions), net of hedge(a)	139,895		(66,133)
Adjusted revenue	$	32,308	$	86,766

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


	Three Months Ended March 31,
	2023		2022
	(dollars in thousands)
Net (loss) income	$	(133,756)	$	11,864
Change in fair value of MSR (due to inputs and assumptions), net of hedge(a)	139,895		(66,133)
Income tax effect of change in fair value of MSR (due to inputs and assumptions), net of hedge(b)	(34,416)		13,323
Adjusted net loss	$	(28,277)	$	(40,946)

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

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

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Results of Operations — Three Months Ended March 31, 2023 and 2022

Consolidated Results of Operations

The following presents certain consolidated financial data:


	Three Months Ended March 31,
	2023		2022		$ Change		% Change
	(dollars in thousands)
Revenue:
(Loss) gain on loans, net	$	(1,490)	$	45,404	$	(46,894)	(103.3	%)
Loan fee income	1,655		19,904		(18,249)		(91.7	%)

Interest income	12,467		27,077		(14,610)		(54.0	%)
Interest expense	(20,500)		(33,095)		12,595		(38.1	%)
Interest expense, net	(8,033)		(6,018)		(2,015)		33.5	%
Loan servicing fees	58,827		81,064		(22,237)		(27.4	%)
Change in fair value of mortgage servicing rights	(159,247)		17,183		(176,430)		(1026.8	%)
Other income	701		634		67		10.6	%
Total revenue, net	(107,587)		158,171		(265,758)		(168.0	%)
Expenses:
Compensation and benefits	30,186		89,432		(59,246)		(66.2	%)
Loan expense	1,333		9,015		(7,682)		(85.2	%)
Loan servicing expense	13,157		5,746		7,411		129.0	%
Production technology	4,569		4,865		(296)		(6.1	%)
General and administrative	11,840		19,671		(7,831)		(39.8	%)
Depreciation	4,260		2,687		1,573		58.5	%
Other expenses	4,466		5,296		(830)		(15.7	%)
Total expenses	69,811		136,712		(66,901)		(48.9	%)
(Loss) income before income tax	(177,398)		21,459		(198,857)		(926.7	%)
Income tax benefit (expense)	43,642		(4,323)		47,965		(1109.5	%)
Loss from equity method investment	—		(5,272)		5,272		(100.0	%)
Net (loss) income	$	(133,756)	$	11,864	$	(241,550)	(2036.0	%)

Consolidated results are further analyzed in our segment disclosure below.

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Origination Segment

The following presents certain financial data for the Origination segment:


	Three Months Ended March 31,
	2023		2022		$ Change		% Change
	(dollars in thousands)
Revenue:
(Loss) gain on loans, net	$	(1,490)	$	45,404	$	(46,894)	(103.3)	%
Loan fee income	1,655		19,904		(18,249)		(91.7)	%

Interest income	5,572		26,371		(20,799)		(78.9)	%
Interest expense	(4,762)		(18,915)		14,153		(74.8)	%
Interest income, net	810		7,456		(6,646)		(89.1)	%
Other Income	1		—		1		N/A
Total origination revenue, net	976		72,764		(71,788)		—
Expenses:
Compensation and benefits	13,203		58,395		(45,192)		(77.4)	%
Loan expense	1,333		9,015		(7,682)		(85.2)	%
Production technology	3,032		4,107		(1,075)		(26.2)	%
General and administrative	3,067		8,287		(5,220)		(63.0)	%
Other expenses	397		1,350		(953)		(70.6)	%
Total origination expenses	21,032		81,154		(60,122)		(74.1)	%
Origination net loss	$	(20,056)	$	(8,390)	$	(11,666)	139.0	%

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Origination Revenue, net

Gain on loans, net

The following presents components of Gain on loans, net:


	Three Months Ended March 31,
	2023		2022
	(dollars in thousands)
FOA Lock Volume by Channel
Wholesale	$	802,454	$	9,563,708
Correspondent	N/A		2,610,843
Direct	N/A		414,570
FOA Lock Volume	$	802,454	$	12,589,121

Gain on sale margin by Channel
Wholesale	$	7,800	$	62,586
Correspondent	N/A		3,450
Direct	N/A		10,697
Gain on sale margin attributable to channels	7,800		76,733
Other loss on sale(a)	(6,824)		(3,969)
Total gain on sale margin(b)	$	976	$	72,764

Gain on sale margin by Channel (bps)
Wholesale	97		65
Correspondent	N/A		13
Direct	N/A		258
Gain on sale margin attributable to channels	97		61
Other loss on sale(a)	(85)		(3)
Total gain on sale margin(b)	12		58

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

The following presents details of the characteristics of our mortgage loan production:


	Three Months Ended March 31,
	2023		2022
	(dollars in thousands)
Origination volume	$	891,156	$	12,555,073
Originated MSR UPB	1,071,165		14,062,765
Gain on sale margin (a)	0.12%		0.58%
Retained servicing (UPB)(b)	98.1%		96.7%

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

Gain on loans, net decreased by $46.9 million, or 103.3% for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily due to a reduction in origination volume, a decrease of $71.8 million or 98.7% in gain on sale margin, as well as $4.3 million increase in provision for representation and warranty reserve. We completed the sale of our Delegated Correspondent channel in June 2022 and subsequently redirected our Direct channel resources to wholesale.

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We experienced a decrease in FOA lock volume and Origination volume primarily due to rising interest rates. Additionally, we saw a significant decrease in gain on sale margins due to the competitive environment during the three months ended March 31, 2023 compared to the prior year. As mortgage interest rates rise, the origination market contracts, primarily due to a decline in refinance volume, which generally leads to increased competition and lower gain on sale margins. Our origination market share decreased from 2.0% to 1.3% and our share of the wholesale channel decreased from 9.7% to 6.6% for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Loan fee income

Loan fee income decreased by $18.2 million, or 91.7%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was consistent with the decrease in Origination volume.

Interest income, net

Interest income, net decreased by $6.6 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The change in interest income, net was driven by $20.8 million decrease in interest income and $14.2 million decrease in interest expense. Interest income decreased due to lower MLHS balance partially offset by the impact of the rising interest rates. Interest expense decreased as a result of a decrease in warehouse borrowing and related fees due to the decrease in Origination volume. The Company continues to strategically rightsize its warehouse lines of credit to minimize associated costs and more efficiently operate in the environment of rising interest rates and increased competition.

Expenses

Total expenses decreased by $60.1 million, or 74.1%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily driven by decreases in compensation and benefits expense, loan expense, production technology expense, and general and administrative expenses.

Compensation and benefits expense decreased by $45.2 million, or 77.4%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily driven by a decrease of $34.7 million in salary and benefits due to a decrease in employee headcount and a $10.5 million decrease in variable compensation resulting from the decrease in Origination volume. Compensation and benefits expense was 1.5% and 0.5% of Origination volume for the three months ended March 31, 2023 and 2022, respectively.

Loan expense decreased by $7.7 million, or 85.2%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was consistent with the decrease in Origination volume.

Production technology expense decreased by $1.1 million, or 26.2%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily driven by lower variable expenses associated with the Company’s origination systems as a result of the decline in Origination volume.

General and administrative expenses decreased $5.2 million, or 63.0%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily driven by decrease in outsourced loan review services due to the decline in Origination volume, as well as lower expenses as a result of cost-saving initiatives implemented in the second half of 2022 and continuing during the three months ended March 31, 2023.

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Servicing Segment

The following presents certain financial data for the Servicing segment:


	Three Months Ended March 31,
	2023		2022		$ Change		% Change
	(dollars in thousands)
Revenue:
Loan servicing fees	$	58,827	$	81,064	$	(22,237)	(27.4)	%
Change in fair value of mortgage servicing rights	(159,247)		17,183		(176,430)		(1026.8)	%
Interest income	6,895		706		6,189		876.6	%
Interest income, net	6,895		706		6,189		876.6	%
Total servicing revenue, net	(93,525)		98,953		(192,478)		(194.5)	%
Expenses:
Compensation and benefits	565		7,684		(7,119)		(92.6)	%
Loan servicing expense	13,157		5,746		7,411		129.0	%
Production technology	1,537		756		781		103.3	%
General and administrative	246		1,487		(1,241)		(83.5)	%
Other expenses	47		46		1		2.2	%
Total servicing expenses	15,552		15,719		(167)		(1.1)	%
Servicing net (loss) income	$	(109,077)	$	83,234	$	(192,311)	(231.0)	%

Servicing Revenue, Net

Loan servicing fees

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


	Three Months Ended March 31,
	2023			2022
	(dollars in thousands)
MSR Servicing Portfolio (UPB)	$	88,386,349		$	101,984,767
Average MSR Servicing Portfolio (UPB)	$	88,527,450		$	115,172,171
MSR Servicing Portfolio (Loan Count)	315,801			349,261
MSRs Fair Value Multiple (x)	5.31			5.57
Delinquency Rates (%)	1.1		%	1.2		%
Weighted average credit score	748			752
Weighted average servicing fee, net (bps)	26.7			26.2

Loan servicing fees decreased by $22.2 million, or 27.4%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily driven by a decrease in servicing fees of $21.2 million due to a larger average MSR Servicing Portfolio as of March 31, 2022 compared to March 31, 2023.

Change in fair value of MSRs


	Three Months Ended March 31,
	2023		2022
	(dollars in thousands)
Realization of cash flows	$	(19,352)	$	(48,950)
Valuation inputs and assumptions	(150,574)		276,987
Economic hedging results	10,927		(157,362)
Loss on MSR sales	(277)		(53,492)
Change in fair value of MSRs	$	(159,247)	$	17,183

Change in fair value of MSRs presented a loss for the three months ended March 31, 2023 and a gain for the three months ended March 31, 2022 as a result of both market driven changes and changes in valuation inputs and assumptions, net of hedge. Fair value loss increased by $176.4 million, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily driven by market changes as well as the changes in valuation inputs and assumptions

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net of hedge. This loss was partially offset by a decrease in loss from realization of cash flows resulting from a decrease in prepayments due to higher interest rates and higher scheduled payments collected on loans in our MSR portfolio, as well as the loss on MSR sales in 2022. The Company reviews all its assumptions each quarter compared to other market participants and retrospectively reviews the prior quarter assumptions compared to subsequently available actual data and factors that into determining its current quarter’s assumptions. Certain key assumptions were reviewed and updated during the first quarter 2023 to more closely align with comparable market participants, supported by the Company’s quarterly retrospective review of actual cost to service incurred and custodial deposit ancillary income received.

Expenses

Total expenses decreased by $0.2 million, or 1.1%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily driven by decreases in compensation and benefits expense and general and administrative expenses, partially offset by the increases in loan servicing expense.

Compensation and benefits expense decreased by $7.1 million, or 92.6%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily driven by the salary expense decreases due to employee headcount reductions and efficiencies gained from the transition of subservicing to ServiceMac.

Loan servicing expense increased by $7.4 million, or 129.0%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The increase was primarily due to $7.1 million increase in subservicing fee due to outsourcing of the servicing to ServiceMac.

General and administrative expenses decreased $1.2 million, or 83.5%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily driven by a decrease in professional services fees and loan review services due to the subservicing to ServiceMac and the Company’s cost savings initiatives.

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Corporate

The following presents certain corporate financial data:


	Three Months Ended March 31,
	2023		2022		$ Change		% Change
	(dollars in thousands)
Revenue:
Interest expense	$	(15,738)	$	(14,180)	$	(1,558)	11.0	%
Interest expense, net	(15,738)		(14,180)		(1,558)		11.0	%
Other income (expense)	700		(4,638)		5,338		(115.1)	%
Total corporate revenue, net	(15,038)		(18,818)		3,780		(20.1)	%
Expenses:
Compensation and benefits	16,418		23,353		(6,935)		(29.7)	%
Production technology	—		2		(2)		N/A
General and administrative	8,527		9,897		(1,370)		(13.8)	%
Depreciation	4,260		2,687		1,573		58.5	%
Other expenses	4,022		3,900		122		3.1	%
Total corporate expenses	33,227		39,839		(6,612)		(16.6)	%
Corporate net loss	$	(48,265)	$	(58,657)	$	10,392	(17.7)	%

Total Corporate Revenue

Interest expense, net

Interest expense, net increased by $1.6 million, or 11.0%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The increase in expense was driven by an increase in corporate debt interest due to higher interest rates for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. This increase was partially offset by the $50.0 million repurchase and retirement of outstanding Senior Notes in 2022.

Other income (expense)

Other income for the three months ended March 31, 2022 primarily consisted of loss from our equity method investment. In October 2022, the Company completed the sale for its equity method investment.

Expenses

Total expenses decreased by $6.6 million, or 16.6%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily driven by decreases in compensation and benefits and general and administrative expenses, partially offset by the increase in depreciation.

Compensation and benefits expense decreased by $6.9 million, or 29.7%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily driven by $6.2 million lower salary expense and a $1.7 million lower variable compensation, partially offset by $2.3 million increase in severance expense due to headcount reductions resulting from the decrease in Origination volume.

General and administrative expense decreased $1.4 million, or 13.8%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily driven by a decrease in professional services fees of $1.7 million as a result of the Company’s cost-saving initiatives.

Depreciation expense increased by $1.6 million or 58.5% due to the Company’s change in estimated useful lives of assets related to the Origination segment.

Income Tax Benefit (Expense)

Income tax benefit (expense) is recognized for the entire company rather than on a segment basis. Income tax benefit increased by $48.0 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The change is primarily due to $177.4 million loss before income tax for the three months ended March 31, 2023 compared to $21.5 million income before income tax for the three months ended March 31, 2022. Our overall effective tax rate of 24.6% and 20.1% for the three months ended March 31, 2023 and 2022, respectively, differed from the U.S. statutory rate of 21.0% primarily due to the impact of the equity investment, state taxes, uncertain tax positions, changes in valuation allowance, and permanent disallowed deductions for tax such as officer's compensation limitations applicable to a public entity.

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Liquidity and Capital Resources

Sources and Uses of Cash

Historically, our primary sources of liquidity have included:

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

•Cash flow from our operations, including:

•Sale of mortgage loans held for sale,

•Loan origination fees,

•Servicing fee income,

•Interest income on loans held for sale,

•Proceeds from sale of mortgage servicing rights, and

•Cash and marketable securities on hand.

Historically, our primary uses of funds have included:

•Origination of loans,

•Payment of interest expense,

•Repayment of debt,

•Payment of operating expenses, and

•Changes in margin requirements for derivative contracts.

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

Summary of Certain Indebtedness

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

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

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

We held mortgage warehouse lines of credit arrangements with eight separate financial institutions with a total maximum borrowing capacity of $2.8 billion and an unused borrowing capacity of $2.4 billion as of March 31, 2023, approximately $38.6 million of which is available and undrawn. Refer to Note 7 - Warehouse Lines of Credit of our condensed consolidated financial statements.

In light of the recent decline in the Origination volumes, the Company continues to strategically rightsize its warehouse lines of credit in order to minimize associated costs and more efficiently operate in the environment of rising interest rates and increased competition. The Company is expected to terminate a majority of its warehouse lines of credit pursuant to the sale of certain agreements and assets used in or related to the Company’s wholesale originations channel. For additional information refer to Note 20 – Sale of Certain Assets in Origination Segment, Sale of Correspondent Channel and Home Point Asset Management LLC and Note 22 - Subsequent Events .

We maintained a servicing advance financing facility, MSR financing facility and an operating line of credit with total combined unused borrowing capacity of $523.0 million as of March 31, 2023. Refer to Note 8 - Term Debt and Other Borrowings, net of our condensed consolidated financial statements.

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The amount owed and outstanding on our loan funding facilities fluctuates significantly based on our Origination volume and the amount of time it takes us to sell the loans we originate.

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

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

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

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

The Company was in compliance with all covenants under the indenture and our warehouse facilities and other lines of credit as of March 31, 2023.

The Company may, at any time and from time to time, seek to retire or purchase the Company’s outstanding Senior Notes through cash purchases in the form of open-market purchases, privately negotiated transactions, or otherwise. Such repurchases, if any, will be upon such terms and at such prices as the Company may determine, and will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material. The Company repurchased and retired $50.0 million of outstanding Senior Notes during the second quarter of 2022.

Summary of Mortgage Loan Participation Agreement

On January 31, 2023, HPF terminated the Mortgage Loan Participation Sale Agreement (the “Gestation Agreement”), dated as of November, 2021, between HPF, as seller and JPMorgan Chase Bank, National Association, as purchaser (“Purchaser”). The Gestation Agreement permitted the Purchaser to purchase from HPF from time to time during the term of the Gestation Agreement participation certificates evidencing a 100% undivided beneficial ownership interest in designated pools of fully amortizing first lien residential mortgage loans that were intended to ultimately be included in residential mortgage-backed securities (“MBS”, “Agency MBS”) issued or guaranteed, as applicable, by Federal National Mortgage Association (“Fannie Mae”, “FNMA”), Federal Home Loan Mortgage Corporation (“Freddie Mac”, “FHLMC”), and Ginnie Mae. The aggregate purchase price of participation certificates owned by Purchaser at any given time for which Purchaser had not been paid the purchase price for the related Agency MBS by the applicable takeout investor as specified in the applicable takeout commitment could not exceed $400 million. The parties mutually agreed to terminate the JPM Gestation Agreement prior to its scheduled maturity date of September 29, 2023. HPF did not incur any early termination penalties.

Repurchase Obligation Relief

Certain of the Company’s loan sale contracts include provisions requiring the Company to repurchase a loan if a borrower fails to make certain initial loan payments due to the acquirer or if the accompanying mortgage loan fails to meet customary representations and warranties. Historically, the Company received relief of certain repurchase obligations on loans sold to FNMA or FHLMC by taking advantage of their repurchase alternative program. This program provided the Company with the ability, in certain instances, to pay a fee to FNMA or FHLMC, in lieu of being obligated to repurchase the loan. During September and October 2022, FNMA and FHMC notified the Company that they will not provide repurchase obligation relief through the repurchase alternative program beginning in the fourth quarter of 2022 until further notice.

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Cash Flows

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


	Three Months Ended March 31,
	2023		2022
	(dollars in thousands)
Net cash provided by operating activities	$	139,195	$	1,896,026
Net cash (used for) provided by investing activities	(478)		379,774
Net cash used for financing activities	(137,028)		(2,285,859)
Net increase (decrease) in cash, cash equivalents and restricted cash	1,689		(10,059)
Cash, cash equivalents and restricted cash at end of period	$	110,281	$	197,731

Our Cash and cash equivalents and restricted cash decreased by $87.5 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Operating Activities

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


	Three Months Ended March 31,
	2023		2022
Cash flows from:	(dollars in thousands)
Mortgage loans held for sale	$	163,896	$	1,765,392
Loss (gain) on loans, net	1,490		(45,404)
(Increase) decrease in fair value of derivative assets, net	(5,621)		93,554
(Increase) decrease in fair value of mortgage loans held for sale	(3,440)		132,031
Other operating sources	(17,130)		(49,547)
Net cash provided by operating activities	$	139,195	$	1,896,026

Cash provided by operating activities decreased by $1,756.8 million for the three months ended March 31, 2023 compared to the cash provided by operating activities for the three months ended March 31, 2022. The decrease provided by operating activities is primarily driven by decrease in the level of inventory of loans held for sale as a result of a decrease in Origination volume for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Investing Activities

Cash provided by investing activities decreased by $380.3 million primarily due to decrease in proceeds from sale of MSRs for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Financing Activities

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


	Three Months Ended March 31,
	2023		2022
Cash flows from:	(dollars in thousands)
Warehouse borrowings, net	$	(86,984)	$	(1,993,726)
Other financing sources	(50,044)		(292,133)
Net cash used for financing activities	$	(137,028)	$	(2,285,859)

Cash used for financing activities decreased for the three months ended March 31, 2023 compared to the cash used for financing activities for the three months ended March 31, 2022. The decrease in use was primarily driven by increase in proceeds, net of payments, on warehouse borrowings due to a decrease in Origination volume. As noted above, the Company continues to strategically rightsize its warehouse lines of credit in order to minimize associated costs and more efficiently operate in the environment of rising interest rates and increased competition.

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Contractual Obligations and Other Commitments

For a discussion of our contractual obligations, refer to “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations and Other Commitments” in our 2022 Annual Report. There have not been any material changes to our contractual obligations since December 31, 2022.

Repurchase and Indemnification Obligations

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

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We have identified certain accounting estimates as being critical because they require us to make difficult, subjective or complex judgments about matters that are uncertain. We believe that the judgment, estimates, and assumptions used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, actual results could differ, and the use of other assumptions or estimates could result in material differences in our results of operations or financial condition. Refer to Item 7 in our 2022 Form 10-K for a description of our critical accounting estimates and Note 2 - Basis of Presentation and Significant Accounting Policies to our consolidated financial statements in Item 8 of our 2022 Form 10-K and Note 2 - Basis of Presentation and New Accounting Pronouncements to our condensed consolidated financial statements for our significant accounting policies. There were no changes to our critical accounting estimates in the three months ended March 31, 2023.

New Accounting Pronouncements Not Yet Effective

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide information for this item.

Item 4. Controls and Procedures

Management's Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”) Rules 13a-15(e) and 15d-15(e)) are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the appropriate time periods, and that such information is accumulated and communicated to the Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. We, under the supervision of and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective as of March 31, 2023.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control over Financial Reporting

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

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

We have disclosed the risk factors affecting our business, financial condition and operating results in the section entitled “Risk Factors” in our 2022 Annual Report. Except as set forth below, as of the date of this Report, there have been no material changes from the risk factors previously disclosed in our 2022 Annual Report.

Risks Related to the Proposed Merger

Uncertainties associated with the Merger with a wholly-owned affiliate of Mr. Cooper could adversely affect our business, results of operations, stock price and financial condition.

On May 10, 2023, we entered into the Merger Agreement with Mr. Cooper and Acquisition Sub. Pursuant to the Merger Agreement, we will merge with and into Acquisition Sub, with the Company continuing as the surviving corporation and a wholly-owned subsidiary of Parent. If the Merger is consummated, the Company’s common stock will be delisted from Nasdaq and the duty to file reports will be suspended under Section 13 and 15(d) of the Exchange Act. In connection with the Merger, Acquisition Sub will commence an offer to purchase any and all issued and outstanding shares of the Company’s common stock at a price of $2.33 per share in cash, without interest thereon (but subject to applicable withholding) upon the terms and subject to the conditions of the Merger Agreement.

Completion of the Merger is subject to various closing conditions, including, but not limited to, the Purchaser acquiring, pursuant to the Offer, 50% of the total number of shares of our common stock outstanding plus at least one additional share of our common stock ("Minimum Tender Condition”). There is no guarantee that all closing conditions will be satisfied (or waived, if permitted by the Merger Agreement and applicable law). Many of the conditions to completion of the Merger are not within our control, and we cannot predict when or if these conditions will be satisfied (or waived, if permitted by the Merger Agreement and applicable law). In addition, the Merger may fail to close for other reasons.

The announcement and pendency of the Merger, as well as any delays in the expected timeframe, could cause disruption and create uncertainties, which could have an adverse effect on our business, results of operations, stock price and financial condition, regardless of whether the Merger is completed, and could cause us not to realize some or all of the benefits that we expect to achieve if the Merger is successfully completed within its expected timeframe. These risks include, but are not limited to:

•an adverse effect on our relationship with vendors, customers, and employees, including if our vendors, customers or others attempt to negotiate changes in existing business relationships, consider entering into business relationships with parties other than us, delay or defer decisions concerning their business with us, or terminate their existing business relationships with us during the pendency of the Merger;

•a diversion of a significant amount of management time and resources towards the completion of the Merger;

•being subject to certain restrictions on the conduct of our business;

•impacts on the price of our common stock;

•the requirement that we pay a termination fee of $9,720,000 if the Merger Agreement is terminated under certain circumstances;

•developments beyond our control, including, but not limited to, changes in domestic or global economic conditions that may affect the timing or success of the Merger;

•stockholder litigation that could prevent or delay the Merger or otherwise negatively impact our business and operations;

•possibly foregoing certain business opportunities that we might otherwise pursue absent the pending Merger; and

•difficulties attracting and retaining key employees.

Failure to complete the Merger could adversely affect our business and the market price of our shares of common stock.

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The closing of the Merger may not occur on the expected timeline or at all. The Merger Agreement contains customary termination provisions for both the Company and Parent, and provides that, in connection with the termination of the Merger Agreement under specified circumstances, including termination by the Company to accept and enter into an agreement with respect to a Superior Proposal (as defined in the Merger Agreement), the Company will pay Parent a termination fee of $9,720,000. If Home Point is required to pay this termination fee, such fee, together with costs incurred to execute the Merger Agreement and pursue the Merger, could have a material adverse effect on Home Point’s financial condition and results of operations.

If the Merger Agreement is terminated and the Merger is not consummated, the price of our common stock may decline and you may not recover your investment or receive a price for your shares similar to what has been offered pursuant to the Merger. In addition, the price of our common stock has in the past and may continue to fluctuate substantially in the event that the Merger is not consummated in the future.

The Merger Agreement contains provisions that limit our ability to pursue alternatives to the Merger.

Under the Merger Agreement, we are restricted from soliciting, initiating, proposing or inducing the making, submission or announcement of, or knowingly encouraging, facilitating or assisting alternative acquisition proposals from third parties and/or providing non-public information to third parties in response to any inquiries regarding, or the submission of any proposal or offer that constitutes, or could reasonably be expected to lead to, any Competing Proposal (as defined in the Merger Agreement). These provisions could discourage a third party that may have an interest in acquiring all or a significant part of our business from considering or proposing that acquisition, even if such third party were prepared to pay consideration with a higher value than the value of the consideration in the Merger.

We are subject to certain restrictions on the conduct of our business under the terms of the Merger Agreement.

Under the terms of the Merger Agreement, we have agreed to certain restrictions on the operations of our business. We have agreed to limit the conduct of our business to those actions undertaken in the ordinary course of business and to refrain from, among other things, subject to certain specified exceptions (as set forth in the Merger Agreement): incurring debt; entering into, adopting, amending, modifying or terminating any employee plans; increasing the compensation of any director, officer, employee or independent contractor, or hiring or terminating certain employees (other than for “cause”); settling certain pending or threatened legal proceedings; changing our methods, procedures, principles or practices of financial accounting; and incurring certain capital expenditures. Because of these restrictions, we may be prevented from undertaking certain actions with respect to the conduct of our business that we might otherwise have taken if not for the Merger Agreement. Such restrictions could prevent us from pursuing certain business opportunities that arise prior to the effective time of the Merger and are outside the ordinary course of business, and could otherwise adversely affect our business and operations prior to completion of the Merger.

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

Recent Sales of Unregistered Equity Securities

None.

Issuer Repurchases of Equity Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item 6. Exhibits


Exhibit Number						Description
3.1						Amended and Restated Certificate of Incorporation of Home Point Capital Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K on February 3, 2021 and incorporated herein by reference).
3.2						Amended and Restated Bylaws of Home Point Capital Inc. (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K on February 3, 2021 and incorporated herein by reference).
10.1*+						Change in Terms Agreement, dated as of March 30, 2023, by and between Home Point Financial Corporation, as Seller, and Texas Capital Bank, formerly known as Texas Capital Bank, National Association
10.2+†						Waiver and Separation Agreement and General Release of All Claims dated January 18, 2023, by and between Home Point Capital Inc., Home Point Financial Corporation and Phillip M. Miller (filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K on March 9, 2023 and incorporated herein by reference).
10.3+†						Waiver and Separation Agreement and General Release of All Claims dated February 24, 2023, by and between Home Point Capital Inc., Home Point Financial Corporation and Mark E. Elbaum (filed as Exhibit 10.9 to the Company’s Annual Report on Form 10-K on March 9, 2023 and incorporated herein by reference).
10.4*+						Fourth Amendment to Second Amended and Restated Credit Agreement, dated as of March 31, 2023, by and among Home Point Financial Corporation, as borrower, Home Point Capital Inc., as guarantor, Goldman Sachs Bank USA, as administrative agent, and the lenders party thereto
31.1*						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.
31.2*						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.
32.1*						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.
101.INS*						Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH*						Inline XBRL Taxonomy Extension Schema Document.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith.

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

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

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	HOME POINT CAPITAL INC.


Dated: May 12, 2023	By:	/s/ William A. Newman
	Name:	William A. Newman
	Title:	President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer)