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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, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  ______________  to ______________
Commission File Number: 001-39964
Home Point Capital Inc.
(Exact name of registrant as specified in its charter)
Delaware90-1116426
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
2211 Old Earhart Road, Suite 250
Ann Arbor, Michigan
48105
(Address of Principal Executive Offices)(Zip Code)
(888) 616-6866
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which
registered
Common Stock, par value
$0.0000000072 per share
HMPT
The Nasdaq Stock Market LLC
(The Nasdaq Global Select Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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 11, 2021, the registrant had 139,054,287 shares of common stock, par value $0.0000000072 per share, outstanding.


Table of Contents
TABLE OF CONTENTS
Page
PART I—FINANCIAL INFORMATION
PART II—OTHER INFORMATION

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Cautionary Note on Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”) contains certain “forward-looking statements,” as that term is defined in the U.S. federal securities laws. These forward-looking statements include, but are not limited to, statements other than statements of historical facts contained in this Report, including among others, 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. These forward-looking statements are not guarantees of future performance 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, 2020, which was filed on March 12, 2021 (our “2020 Annual Report”). Factors, risks, and uncertainties that could cause actual outcomes and results to be materially different from those contemplated include, among others:
the spread of the COVID-19 outbreak and severe disruptions in the U.S. and global economy and financial markets it has caused;
our reliance on our financing arrangements to fund mortgage loans and otherwise operate our business;
the dependence of our loan origination and servicing revenues on macroeconomic and U.S. residential real estate market conditions;
the requirement to repurchase mortgage loans or indemnify investors if we breach representations and warranties;
counterparty risk;
the requirement to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances;
competition for mortgage assets that may limit the availability of desirable originations, acquisitions and result in reduced risk-adjusted returns;
our ability to continue to grow our loan origination business or effectively manage significant increases in our loan production volume;
competition in the industry in which we operate;
our success and growth of our production and servicing activities and the dependence upon our ability to adapt to and implement technological changes;
the effectiveness of our risk management efforts;
our ability to detect misconduct and fraud;
any failure to attract and retain a highly skilled workforce, including our senior executives;
our ability to obtain, maintain, protect and enforce our intellectual property;
any cybersecurity risks, cyber incidents and technology failures;
material changes to the laws, regulations or practices applicable to reverse mortgage programs operated by the Federal Housing Administration (“FHA”) and the U.S. Department of Housing and Urban Development;
our vendor relationships;
our failure to deal appropriately with various issues that may give rise to reputational risk, including legal and regulatory requirements;
any employment litigation and related unfavorable publicity;
exposure to new risks and increased costs as a result of initiating new business activities or strategies or significantly expanding existing business activities or strategies;
any failure to comply with the significant amount of regulation applicable to our new investment management subsidiary;
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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;
our exposure to volatility in the London Inter-Bank Offered Rate;
our ability to raise the debt or equity capital required to finance our assets and grow our business;
risks associated with higher risk loans that we service;
risks associated with derivative financial instruments;
our ability to foreclose on our mortgage assets in a timely manner or at all;
our ability to obtain and/or maintain licenses and other approvals in those jurisdictions where required to conduct our business;
the impact of revised rules and regulations and enforcement of existing rules and regulations by the Consumer Financial Protection Bureau (the “CFPB”);
legislative and regulatory changes that impact the mortgage loan industry or housing market;
changes in regulations or the occurrence of other events that impact the business, operations or prospects of government agencies such as the Government National Mortgage Association, the Federal Housing Administration or the U.S. Department of Veterans Affairs, the U.S. Department of Agriculture, or Government-Sponsored Enterprises 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;
the Dodd-Frank Wall Street Reform and Consumer Protection Act and its implementing regulations and regulatory agencies, and any other legislative and regulatory changes that impact the business, operations or governance of mortgage lenders;
the CFPB, and its issued and future rules and the enforcement thereof;
changes in government support of homeownership;
changes in government or government sponsored home affordability programs;
changes in governmental regulations, accounting treatment, tax rates and similar matters;
risks associated with our acquisition of mortgage servicing rights;
the impact of our counterparties terminating our servicing rights under which we conduct servicing activities; and
our failure to deal appropriately with issues that may give rise to reputational risk.
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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 2020 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
(in thousands, except share and per share amounts)
March 31, 2021 (unaudited)December 31, 2020
Assets:
Cash and cash equivalents$219,285 $165,230 
Restricted cash41,863 31,663 
Cash and cash equivalents and Restricted cash261,148 196,893 
Mortgage loans held for sale (at fair value)5,191,261 3,301,694 
Mortgage servicing rights (at fair value)1,156,357 748,457 
Property and equipment, net23,027 21,710 
Accounts receivable, net290,555 152,845 
Derivative assets186,909 334,323 
Goodwill and intangibles10,789 10,789 
GNMA loans eligible for repurchase1,446,495 2,524,240 
Other assets103,850 87,622 
Total assets$8,670,391 $7,378,573 
Liabilities and Shareholders’ Equity:
Liabilities:
Warehouse lines of credit$4,847,431 $3,005,415 
Term debt and other borrowings, net888,437 454,022 
Accounts payable and accrued expenses196,542 167,532 
GNMA loans eligible for repurchase1,446,495 2,524,240 
Other liabilities509,189 299,890 
Total liabilities7,888,094 6,451,099 
Commitments and Contingencies (Note 9)
Shareholders’ Equity:
Preferred stock (Authorized shares: 250,000,000; none issued and outstanding, par value $0.0000000072 per share)
  
Common stock (Authorized shares: 1,000,000,000; 138,860,103 shares issued and outstanding, par value $0.0000000072 per share)
  
Additional paid-in capital520,261 519,510 
Retained earnings262,036 407,964 
Total shareholders' equity782,297 927,474 
Total liabilities and shareholders' equity$8,670,391 $7,378,573 





See accompanying notes to the unaudited condensed consolidated financial statements.
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HOME POINT CAPITAL INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
Three months ended March 31,
20212020
Revenue:
Gain on loans, net$301,228 $102,563 
Loan fee income44,115 12,031 
Interest income25,577 15,849 
Interest expense(32,935)(15,913)
Interest expense, net(7,358)(64)
Loan servicing fees70,338 43,246 
Change in fair value of mortgage servicing rights, net12,848 (91,527)
Other income801 1,380 
Total revenue, net421,972 67,629 
Expenses:
Compensation and benefits153,642 52,950 
Loan expense22,418 6,800 
Loan servicing expense8,093 7,953 
Occupancy and equipment8,555 5,320 
General and administrative22,244 7,222 
Depreciation and amortization2,761 1,499 
Other expenses9,336 2,238 
Total expenses227,049 83,982 
Income (loss) before income tax194,923 (16,353)
Income tax expense (benefit)50,117 (3,489)
Income from equity method investments4,163 2,316 
Total net income (loss)$148,969 $(10,548)
Earnings (loss) per share:
Basic$1.07 $(0.08)
Diluted$1.07 $(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
(in thousands, except share amounts)
(unaudited)
Common StockAdditional
Paid in Capital
Retained
Earnings
(Accumulated
Deficit)
Total
Shareholders’
Equity
SharesAmount
Beginning balance, December 31, 2019138,860,111  $454,861 $(44,549)$410,312 
Contributed capital— — 63,773 — 63,773 
Stock based compensation— — 146 — 146 
Net loss— — — (10,548)(10,548)
Ending balance, March 31, 2020138,860,111  $518,780 $(55,097)$463,683 
Common StockAdditional
Paid in Capital
Retained
Earnings
(Accumulated
Deficit)
Total
Shareholders’
Equity
SharesAmount
Beginning balance, December 31, 2020138,860,111  $519,510 $407,964 $927,474 
Contributed capital— — — 192 192 
Distribution to parent— — — (295,089)(295,089)
EE stock purchase (option exercise)— — (1,028)— (1,028)
Stock based compensation— — 1,779 — 1,779 
Net income— — — 148,969 148,969 
Ending balance, March 31, 2021138,860,111  $520,261 $262,036 $782,297 
















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
(in thousands)
(unaudited)
Three Months Ended March 31,
20212020
Operating activities:
Net income (loss)$148,969 $(10,548)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation2,761 1,024 
Amortization of intangible assets 475 
Amortization of debt issuance costs802 153 
Gain on loans, net(301,228)(102,563)
Provision for representation and warranty reserve5,730 1,567 
Stock based compensation expense1,779 146 
Deferred income tax43,783 (3,493)
Gain on equity investment(4,163)(2,316)
Origination of mortgage loans held for sale(31,055,708)(8,344,755)
Proceeds on sale and payments from mortgage loans held for sale29,001,344 8,311,842 
Purchases of mortgage servicing rights(4,817) 
Change in fair value of mortgage servicing rights, net (12,848)91,527 
Change in fair value of mortgage loans held for sale75,790 (35,040)
Non-cash lease expense (117)
Change in fair value of derivative assets147,414 (240,693)
Changes in operating assets and liabilities:
Increase in accounts receivable, net(137,710)(1,759)
Increase in other assets(12,065)(254)
(Decrease) increase in accounts payable and accrued expenses(20,371)37,281 
Increase in other liabilities209,166 95,310 
Net cash used in operating activities(1,911,372)(202,213)
Investing activities:
Purchases of property and equipment, net of disposals(4,078)(2,395)
Net cash used in investing activities(4,078)(2,395)
Financing activities:
Proceeds from warehouse borrowings31,135,000 8,285,605 
Payments on warehouse borrowings(29,292,983)(8,142,553)
Proceeds from term debt borrowings820,000 22,600 
Payments on term debt borrowings(335,000)(40,000)
Proceeds from other borrowings65,000 64,500 
Payments on other borrowings(105,000)(43,000)
Payments of debt issuance costs(11,387) 
Employee stock purchases (option expense)(1,028) 
Capital contributions from parent192 63,773 
Distribution to parent(295,089) 
Net cash provided by financing activities1,979,705 210,925 
Net increase in cash, cash equivalents and restricted cash64,255 6,317 
Cash, cash equivalents and restricted cash at beginning of period196,893 81,731 
Cash, cash equivalents and restricted cash at end of period$261,148 $88,048 
Supplemental disclosure:
Cash paid for interest$22,788 $16,325 
Cash (refunded) paid for taxes$(260)$4 
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. The Company manages the customer experience through its in-house servicing operation and proprietary Home Ownership Platform. The Company’s business operations are organized into the following two segments: (1) Origination and (2) Servicing. Home Point Financial Corporation, a New Jersey corporation (“HPF”), a wholly owned subsidiary of the Company, originates, sells, and services residential real estate mortgage loans throughout the United States. Home Point Asset Management LLC, a Delaware limited liability company (“HPAM”), is a wholly owned subsidiary of the Company and manages certain servicing assets. HPAM’s wholly owned subsidiary, Home Point Mortgage Acceptance Corporation, an Alabama Corporation (“HPMAC”), services residential real estate mortgage loans.
HPF and HPMAC are each 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 are each an approved issuer by the Government National Mortgage Association (“GNMA” or “Ginnie Mae”) (collectively, the “Agencies”), and as such, HPF and HPMAC must meet certain Agency eligibility requirements.
Note 2 – Basis of Presentation and Significant Accounting Policies
Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The condensed consolidated financial statements include the financial statements of HPC and all its wholly owned subsidiaries, including HPF and HPMAC. The accompanying unaudited 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, 2020 and related notes were derived from the audited consolidated financial statements but do not include all disclosures required by U.S. GAAP. Certain information and footnote disclosures normally included in 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 unaudited 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, 2021 and its results of operations and its cash flows for the three months ended March 31, 2021 and 2020. The unaudited condensed consolidated financial information should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2020.
All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates: The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires HPC to make estimates and assumptions about future events that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable.
Examples of reported amounts that rely on significant estimates include mortgage loans held for sale, mortgage servicing rights (“MSRs”), servicing advances reserve, derivative assets, derivative liabilities, assets acquired and liabilities assumed in business combinations, 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, goodwill, and intangible assets.
Stock Split: On January 21, 2021, the Company effected a stock split of its outstanding common stock pursuant to which the 100 outstanding shares were split into 1,380,601.11 shares each, for a total of 138,860,103 shares of outstanding common stock. As a result, all amounts relating to share and per share amounts have been retroactively adjusted to reflect this stock split.
Initial Public Offering: On February 2, 2021, the Company completed its initial public offering (“IPO”) in which the Company’s stockholders sold 7,250,000 shares of its common stock at a public offering price of $13 per share. In conjunction with the IPO, the Company’s board of directors also approved a reorganization of the Company through merging Home Point Capital LP (“HPLP”) with and into the Company, with the Company as the surviving entity. As a secondary offering, there were no proceeds from the sale of the shares being sold by the selling stockholders and all related expenses for the IPO were recorded in General and administrative expenses. Following the completion of the IPO, investment entities directly or indirectly managed by Stone
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Point Capital LLC, which are referred to as the Trident Stockholders, beneficially owned approximately 92% of the voting power of the Company’s common stock.
COVID-19 Pandemic Update: While the financial markets have demonstrated volatility due to the economic impacts of COVID-19, the impact to the Company has been comprised of increased demand, resulting in record levels of Origination volume. Another area of impact is the result of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020, in response to the pandemic. The CARES Act allows borrowers with federally backed loans to request a temporary mortgage forbearance. In addition, in February 2021, the federal government announced an additional extension of the eligible forbearance period of three to six months depending on loan type. The CARES Act imposes several new compliance obligations on mortgage servicing activities, including, but not limited to mandatory forbearance offerings, altered credit reporting obligations, and moratoriums on foreclosure actions and late fee assessments. As of March 31, 2021, approximately 10,000 loans, or 2.4% of the loans in our MSR Servicing Portfolio had elected the forbearance option. Of the 2.4% of the loans in our MSR Servicing Portfolio that had elected the forbearance option as of March 31, 2021, approximately 10% remained current on their March 31, 2021 payments. As a result of the CARES Act forbearance requirements, there has been increases in delinquencies in the MSR Servicing Portfolio and the Company is monitoring delinquencies through the expiration of the applicable CARES Act programs. While the Company has not experienced a material adverse effect on its results of operations, financial position, or liquidity due to COVID-19, it is difficult to predict what the ongoing impact of the pandemic will be on the economy, the Company’s customers or its business. If the pandemic continues, it may have an adverse effect on the Company’s results of future operations, financial position, and liquidity during the remainder of fiscal year 2021.
Summary of Significant Accounting Policies
Mortgage loans held for sale are accounted for using the fair value option. Therefore, mortgage loans originated and intended for sale in the secondary market are reflected at fair value. Changes in the fair value are recognized in current period earnings in Gain on loans, net, within the unaudited condensed consolidated statements of operations. Refer to Note 3 – Mortgage Loans Held for Sale.
Mortgage servicing rights are recognized as assets on the condensed consolidated balance sheets when loans are sold and the associated servicing rights are retained. The Company maintains one class of MSR asset and has elected the fair value option. The Company determines the fair value of mortgage servicing rights by estimating the fair value of the future cash flows associated with the mortgage loans being serviced. Key economic assumptions used in measuring the fair value of mortgage servicing rights include, but are not limited to, prepayment speeds, discount rates, delinquencies, and cost to service. The assumptions used in the valuation model are validated on a periodic basis. The Company obtains valuations from an independent third party on a quarterly basis and records an adjustment based on this third-party valuation.
Changes in the fair value are recognized in Change in fair value of mortgage servicing rights, net on the Company's unaudited condensed consolidated statements of operations. Purchased mortgage servicing rights are recorded at the purchase price at the date of purchase. Refer to Note 4 – Mortgage Servicing Rights.
Derivative financial instruments, including economic hedging activities, are recorded at fair value as either Derivative assets or in Other liabilities on the condensed consolidated balance sheets on a gross basis. The Company has accounted for its derivative instruments as non-designated hedge instruments and uses the derivative instruments to manage risk. The Company’s derivative instruments include, but are not limited to, forward mortgage-backed securities sales commitments, interest rate lock commitments, and other derivative instruments entered into to hedge fluctuations in MSRs’ fair value. The impact of the Company’s Derivative assets is reported in Change in fair value of derivative assets on the unaudited condensed consolidated statements of cash flows and the impact of the Company’s derivative liabilities is reported in Increase in other liabilities on the unaudited condensed consolidated statements of cash flows. The Company records derivative assets and liabilities and related cash margin on a gross basis, even when a legally enforceable master netting arrangement exists between the Company and the derivative counterparty. Refer to Note 5 – Derivative Financial Instruments.
Forward mortgage-backed securities (“MBS”) sale commitments that have not settled are considered derivative financial instruments and are recognized at fair value. These forward commitments will be fulfilled with loans not yet sold or securitized, new originations, and purchases. The forward commitments allow the Company to reduce the risk related to market price volatility. These derivatives are not designated as hedging instruments. Gain or loss on derivatives is recorded in Gain on loans, net in the unaudited condensed consolidated statements of operations.
Interest rate lock commitments (“IRLCs”) represent an agreement to extend credit to a mortgage loan applicant, or an agreement to purchase a loan from a third-party originator, whereby the interest rate on the loan is set prior to funding. The loan commitment binds the Company (subject to the loan approval process) to fund the loan at the specified rate, regardless of whether interest rates have changed between the commitment date and the loan funding date. As such, outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of the commitment through the loan funding date or expiration date. The loan commitments generally range between 30 and 90 days; however, the borrower is not obligated to obtain the loan. The Company is subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLCs. Forward MBS sale commitments or whole loans and options on forward contracts are used to manage the interest rate and price risk. These derivatives are not designated as hedging instruments. Historical
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commitment-to-closing ratios are considered to estimate the quantity of mortgage loans that will fund within the terms of the IRLCs. Change in fair value of IRLC derivatives is recorded in Gain on loans, net in the unaudited condensed consolidated statements of operations.
Mortgage servicing rights hedges are accounted for at fair value. MSRs are subject to substantial interest rate risk as the mortgage notes underlying the servicing rights permit the borrowers to prepay the loans. Therefore, the value of MSRs generally tend to diminish in periods of declining interest rates as prepayments increase and increase in periods of rising interest rates as prepayments decrease. Although the level of interest rates is a key driver of prepayment activity, there are other factors that influence prepayments, including home prices, underwriting standards, and product characteristics.
The Company manages the impact that the volatility associated with changes in fair value of its MSRs has on its earnings with a variety of derivative instruments. The amount and composition of derivatives used to economically hedge the value of MSRs will depend on the Company's exposure to loss of value on the MSRs, the expected cost of the derivatives, expected liquidity needs, and the expected increase to earnings generated by the origination of new loans resulting from the decline in interest rates. This serves as a business hedge of the MSRs, providing a benefit when increased borrower refinancing activity results in higher loan origination volumes, which would partially offset declines in the value of the MSRs thereby reducing the need to use derivatives. The benefit of this business hedge depends on the decline in interest rates required to create an incentive for borrowers to refinance their mortgage loans and lower their interest rates; however, this benefit may not be realized under certain circumstances regardless of the change in interest rates. The change in fair value of MSR hedges is recorded in Change in fair value of mortgage servicing rights, net in the unaudited condensed consolidated statements of operations.
Earnings per share (“EPS”) is calculated and presented in the unaudited condensed consolidated financial statements for both basic and diluted earnings per share. Basic EPS excludes all dilutive common stock equivalents and is based on the weighted average number of common shares outstanding during the period. There were 138.9 million and 127.4 million weighted average shares outstanding for the three months ended March 31, 2021 and 2020, respectively. 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. For the three months ended March 31, 2021, 139.7 million shares would be outstanding on a fully-diluted basis. For the three months ended March 31, 2020, 103,229 shares were excluded from the computation of diluted (loss) per share due to their anti-dilutive effect.
Recently Adopted Accounting Standards
Accounting Standards Update (“ASU”) 2019-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2019-13), provides final guidance that eliminates, adds, and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. This amendment is effective for annual periods beginning after December 15, 2019. The Company adopted this guidance as of January 1, 2020, and there was no impact to the unaudited condensed consolidated financial statements.
Accounting Standards Issued but Not Yet Adopted
ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, eliminates particular exceptions related to the method for intra period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects on the accounting for income taxes. This amendment is effective for annual periods beginning after December 15, 2021. This will be effective for the Company beginning January 1, 2022. The Company is currently assessing the potential impact the adoption of this standard will have on its condensed consolidated financial statements.
ASU 2021-01, Reference Rate Reform (Topic 848) Scope, clarifies some of the guidance of the Financial Accounting Standards Board (“FASB” or “the Board”) as part of the Board’s monitoring of global reference rate reform activities. The ASU permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities under way in global financial markets. The Company is in the process of reviewing its derivative and hedging instruments that utilize LIBOR (as defined below) as the reference rate and is currently evaluating the potential impact that the adoption of this ASU will have on its consolidated financial statements.
ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. Subject to meeting certain criteria, the new guidance provides optional expedients and exceptions to applying contract modification accounting under existing U.S. GAAP, to address the expected phase out of the London Inter-bank Offered Rate (“LIBOR”) by the end of 2021. This guidance is effective upon issuance and allows application to contract changes as early as January 1, 2020. The Company is in the process of reviewing its funding facilities and financing facilities that utilize LIBOR as the reference rate and is currently evaluating the potential impact that the adoption of this ASU will have on its condensed consolidated financial statements.
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Note 3 – Mortgage Loans Held for Sale
The Company sells its originated mortgage loans into the secondary market. The Company may retain the right to service some of these loans upon sale through ownership of servicing rights. The following presents mortgage loans held for sale at fair value, by type, as of March 31, 2021 (in thousands):
March 31, 2021
Unpaid
Principal
Fair Value
Adjustment
Total
Fair Value
Conventional(1)
$3,756,193 $38,519 $3,794,712 
Government(2)
1,367,552 28,805 1,396,357 
Reverse(3)
275 (83)192 
Total$5,124,020 $67,241 $5,191,261 
(1)Conventional includes FNMA and FHLMC mortgage loans.
(2)Government includes GNMA mortgage loans (including Federal Housing Administration, Department of Veterans Affairs, and United States Department of Agriculture).
(3)Reverse loan presented in Mortgage loans held for sale on the condensed consolidated balance sheets as a result of a repurchase
The Company had $58.0 million of unpaid principal balances, which had a fair value of $57.1 million, of mortgage loans held for sale on nonaccrual status at March 31, 2021.
The following presents mortgage loans held for sale at fair value, by type, as of December 31, 2020 (in thousands):
December 31, 2020
Unpaid
Principal
Fair Value
Adjustment
Total
Fair Value
Conventional(1)
$2,183,480 $91,939 $2,275,419 
Government(2)
974,908 51,175 1,026,083 
Reverse(3)
275 (83)192 
Total$3,158,663 $143,031 $3,301,694 
(1)Conventional includes FNMA and FHLMC mortgage loans.
(2)Government includes GNMA mortgage loans (including Federal Housing Administration, Department of Veterans Affairs and United States Department of Agriculture).
(3)Reverse loan presented in Mortgage loans held for sale on the condensed consolidated balance sheets as a result of a repurchase
The Company had $26.3 million of unpaid principal balances, which had a fair value of $23.5 million, of mortgage loans held for sale on nonaccrual status at December 31, 2020.
The following presents a reconciliation of the changes in mortgage loans held for sale to the amounts presented on the unaudited condensed consolidated statements of cash flows as of March 31, 2021 and 2020 (in thousands):
Three Months Ended March 31,
20212020
Fair value at beginning of period$3,301,694 $1,554,230 
Mortgage loans originated and purchased31,055,708 8,344,755 
Proceeds on sales and payments received(29,001,344)(8,311,842)
Change in fair value(75,790)35,040 
(Loss) gain on loans(1)
(89,007)110,201 
Fair value at end of period$5,191,261 $1,732,384 
(1)This line as presented on the condensed consolidated statements of cash flows excludes OMSR 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.
The 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, 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.
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The following presents an analysis of the changes in capitalized mortgage servicing rights as of March 31, 2021 and 2020 (in thousands):
Three Months Ended March 31,
20212020
Balance at beginning of period$748,457 $575,035 
MSRs originated294,357 94,972 
MSRs purchased4,817  
Changes in valuation model inputs197,896 (157,984)
Change due to cash payoffs and principal amortization(89,170)(36,152)
Balance at end of period$1,156,357 $475,871 
The following presents the Company’s total capitalized mortgage servicing portfolio (based on the unpaid principal balance (“UPB”) of the underlying mortgage loans) as of March 31, 2021 and December 31, 2020 (in thousands):
March 31,
2021
December 31,
2020
Ginnie Mae$25,287,243$26,206,612
Fannie Mae45,670,88436,395,373
Freddie Mac34,815,55725,621,697
Other47,68853,567
Total mortgage servicing portfolio$105,821,372$88,277,249
MSR balance$1,156,357 $748,457 
MSR balance as % of unpaid mortgage principal balance1.09 %0.85 %
The following presents the key weighted average assumptions used in determining the fair value of the Company’s MSRs as of March 31, 2021 and December 31, 2020:
March 31,
2021
December 31,
2020
Discount rate9.37 %9.47 %
Prepayment speeds10.23 %14.43 %
The key assumptions used to estimate the fair value of the MSRs are discount rate and the Conditional Prepayment Rate (“CPR”). Increases in prepayment speeds generally have 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. Decreases in prepayment speeds generally have 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.
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The following table illustrates the hypothetical effect on the fair value of the Company’s MSR portfolio when applying unfavorable discount rate and prepayment speeds at two different data points as of March 31, 2021 and December 31, 2020 (in thousands):
Discount Rate
Prepayment Speeds
100 BPS
Adverse Change
200 BPS
Adverse Change
10% Adverse
Change
20% Adverse
Change
March 31, 2021
HPF Portfolio
$(47,935)$(91,953)$(46,751)$(90,842)
HPMAC Portfolio
(295)(566)(235)(454)
December 31, 2020
HPF Portfolio
$(26,327)$(50,702)$(44,961)$(85,383)
HPMAC Portfolio
(27)(52)(53)(101)
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. Refer to Note 12 – Fair Value Measurements, for further discussions on the key assumptions used to estimate the fair value of the MSRs.
The following presents information related to loans serviced for which the Company has continuing involvement through servicing agreements as of March 31, 2021 and December 31, 2020 (in thousands):
March 31,
2021
December 31,
2020
Total unpaid principal balance$110,064,444 $91,590,114 
Loans 30-89 days delinquent899,244 1,353,029 
Loans delinquent 90 or more days or in foreclosure(1)
2,722,036 3,641,183 
(1)Of the $2.7 billion and $3.6 billion of loans delinquent 90 days or more, approximately $1.7 billion and $2.5 billion are in forbearance primarily related to COVID-19 forbearance provided under the CARES Act as of March 31, 2021 and December 31, 2020, respectively.
The following presents components of Loan servicing fees as reported in the Company’s unaudited condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 (in thousands):
Three Months Ended March 31,
20212020
Contractual servicing fees$67,483 $42,905 
Late fees1,142 2,065 
Other1,713 (1,724)
Loan servicing fees$70,338 $43,246 
The Company held $25.6 million and $20.6 million of escrow funds within Other liabilities in the condensed consolidated balance sheets for its customers for which it services mortgage loans as of March 31, 2021 and December 31, 2020, respectively.
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Note 5 – Derivative Financial Instruments
The Company’s derivative instruments include but are not limited to forward mortgage-backed securities sales commitments, interest rate lock commitments, and other derivative instruments entered into to hedge MSRs’ fluctuations in fair value. The Company records derivative assets and liabilities and related cash margin on a gross basis, even when a legally enforceable master netting arrangement exists between the Company and the derivative counterparty.
The following presents the outstanding notional balances for derivative instruments not designated as hedging instruments for the three months ended March 31, 2021 and 2020 (in thousands):
Three Months Ended March 31, 2021
Notional
Value
Derivative
Asset
Derivative
Liability
Recorded
Gain/(Loss)
Mortgage-backed securities forward trades$13,274,522 $123,084 $2,334 $180,554 
Interest rate lock commitments14,423,428 20,193  (239,588)
Hedging mortgage servicing rights5,409,000 137 39,763 (92,042)
Margin43,495 222,243 
Total$186,909 $264,340 
Cash placed with counterparties, net$178,748 
Three Months Ended March 31, 2020
Notional
Value
Derivative
Asset
Derivative
Liability
Recorded
Gain/(Loss)
Mortgage-backed securities forward trades$4,498,053 $843 $95,965 $(90,934)
Interest rate lock commitments6,719,412 131,962  106,774 
Hedging mortgage servicing rights5,595,000 28,929  94,661 
Margin119,503 537 
Total$281,237 $96,502 
Cash held with counterparties, net$118,966 
The following presents a summary of derivative assets and liabilities and related netting amounts as of March 31, 2021 (in thousands):
March 31, 2021
Gross Amount of
Recognized Assets
(liabilities)
Gross OffsetNet Assets
(Liabilities)
Balance at March 31, 2021
Derivatives subject to master netting agreements:
Assets:
Mortgage-backed securities forward trades$123,084 $(91,333)$31,751 
Hedging mortgage servicing rights137 (137) 
Margin (cash placed with counterparties)43,495 (22,659)20,836 
Liabilities:
Mortgage-backed securities forward trades(2,334)2,334  
Hedging mortgage servicing rights(39,763)22,796 (16,967)
Margin (cash placed with counterparties)(222,243)88,999 (133,244)
Derivatives not subject to master netting agreements:
Assets:
Interest rate lock commitments20,193 — 20,193 
Hedging mortgage servicing rights —  
Total derivatives
Assets$186,909 $(114,129)$72,780 
Liabilities$(264,340)$114,129 $(150,211)
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The following presents a summary of derivative assets and liabilities and related netting amounts as of December 31, 2020 (in thousands):
December 31, 2020
Gross Amount of
Recognized Assets
(liabilities)
Gross Offset
Net Assets
(Liabilities)
Balance at December 31, 2020
Derivatives subject to master netting agreements:
Assets:
Mortgage-backed securities forward trades$1,320 $ $1,320 
Hedging mortgage servicing rights4,419  4,419 
Margin (cash placed with counterparties)58,290 (45,427)12,863 
Liabilities:
Mortgage-backed securities forward trades(61,124)45,595 (15,529)
Hedging mortgage servicing rights   
Margin (cash held with counterparties) (168)(168)
Derivatives not subject to master netting agreements:
Assets:
Interest rate lock commitments257,785 — 257,785 
Hedging mortgage servicing rights12,509 — 12,509 
Total derivatives
Assets$334,323 $(45,427)$288,896 
Liabilities$(61,124)$45,427 $(15,697)
For information on the determination of fair value, refer to Note 12 – Fair Value Measurements.
Note 6 – Accounts Receivable, net
The following presents principal categories of Accounts receivable, net as of March 31, 2021 and December 31, 2020 (in thousands):
As of March 31,
2021
As of December 31,
2020
Servicing advance receivable
$79,849 $97,893 
Servicing advance reserves
(8,749)(8,380)
Servicing receivable-general
4,033 2,660 
Income tax receivable
47,877 54,347 
Interest on servicing deposits
188 165 
Pair off receivable158,938  
Other
8,419 6,160 
Accounts receivable, net
$290,555 $152,845 
Servicing advances are an important component of the business and are amounts that the Company, as servicer, is required to advance to, or on behalf of, the Company’s servicing clients, if such amounts are not received from borrowers. These amounts include principal and interest payments, property taxes and insurance premiums, and amounts to maintain, repair, and market real estate properties on behalf of the Company’s servicing clients. In general, servicing advances have the highest reimbursement priority such that the Company is entitled to repayment of the advances from the loan or property liquidation proceeds before most other claims on these proceeds. However, not all advances are collectable and an allowance for servicing advance reserves is recognized. This allowance represents management’s estimate of current expected losses and is maintained at a level that management considers adequate based upon continuing assessments of collectability, current trends, and historical loss experience.
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The following presents changes to the servicing advance reserve for the three months ended March 31, 2021 and 2020 (in thousands):
Three Months Ended March 31,
20212020
Servicing advance reserve, at beginning of period$(8,380)$(4,308)
Additions(1,343)(1,976)
Charge-offs974 911 
Servicing advance reserve, at end of period$(8,749)$(5,373)
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 twelve separate financial institutions with a total maximum borrowing capacity of $6.4 billion at March 31, 2021 and $4.2 billion at December 31, 2020. As of March 31, 2021, the Company had $1.5 billion of unused capacity under its warehouse lines of credit.
The following presents the amounts outstanding as of March 31, 2021 and December 31, 2020 and maturity dates under the Company’s various mortgage funding arrangements:
Maturity Date
Balance at March 31, 2021Balance at December 31, 2020
$1,000M Warehouse FacilityMay 2021$914.4 million$466.0 million
$600M Warehouse FacilityAugust 2021543.7 million421.9 million
$300M Warehouse FacilitySeptember 2021250.3 million223.9 million
$500M Warehouse FacilitySeptember 2021441.4 million401.2 million
$500M Warehouse FacilitySeptember 2021473.4 million437.8 million
$500M Warehouse FacilityJanuary 2022445.4 million232.1 million
$500M Warehouse FacilityJanuary 2022437.9 million million
$1,200M Warehouse FacilityFebruary 2022675.8 million459.9 million
$500M Warehouse FacilityMarch 202314.2 million million
$550M Warehouse FacilityEvergreen465.1 million171.0 million
$88.5M Warehouse FacilityEvergreen39.3 million40.6 million
GestationEvergreen146.7 million151.0 million
Total warehouse lines of credit$4,847.4 million$3,005.4 million
The Company’s warehouse facilities’ variable interest rates are calculated using a base rate generally tied to 1-month LIBOR plus applicable interest rate margins, with varying interest rate floors. The weighted average interest rate for the Company’s warehouse facilities was 2.46% as of March 31, 2021 and 2.75% as of December 31, 2020. The Company’s borrowings are 100% secured by the fair value of the mortgage loans held for sale at fair value.
The Company’s warehouse facilities generally require the maintenance of certain financial covenants relating to net worth, profitability, liquidity, and ratio of indebtedness to net worth, among others. As of March 31, 2021, the Company was in compliance with all warehouse facility covenants.
The Company continually evaluates its warehouse capacity in relation to expected financing needs.
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Note 8 – Term Debt and Other Borrowings, net
The Company maintains term debt and other borrowings as follows:
Maturity DateCollateralBalance at March 31, 2021Balance at December 31, 2020
$500M MSR Facility
January 2023Mortgage Servicing Rights$346.6 million$411.6 million
$550M Senior Notes
February 2026550.0 million million
$85M Servicing Advance Facility
May 2021Servicing Advances1.0 million43.2 million
$10M Operating Line of Credit
May 2021Mortgage Loans3.3 million1.0 million
Total900.9 million455.8 million
Debt issuance costs(12.4)million(1.8)million
Term debt and other borrowings, net$888.4 million$454.0 million
The Company maintains a $500 million MSR financing facility (the “MSR Facility”), which is comprised of $450 million of committed capacity and $50 million of uncommitted capacity and is collateralized by the Company’s FNMA, FHLMC, and GNMA mortgage servicing rights. Interest on the MSR Facility is based on 3-Month LIBOR plus the applicable margin with advance rates generally ranging from 62.5% to 72.5% of the value of the underlying mortgage servicing rights. The MSR Facility has a three-year revolving period ending on January 31, 2022 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 January 31, 2023. The MSR Facility requires the maintenance of certain financial covenants relating to net worth, liquidity, and indebtedness of the Company. As of March 31, 2021, the Company was in compliance with all covenants.
On January 19, 2021, the Company issued $550 million aggregate principal amount of its 5.00% Senior Notes due 2026 (the “Senior Notes”) in a private placement transaction. The Senior Notes are guaranteed on a senior unsecured basis by each of the Company’s wholly owned subsidiaries existing on the date of issuance, other than Home Point Asset Management LLC and Home Point Mortgage Acceptance Corporation. The Senior Notes bear interest at a rate of 5.00% per annum, payable semi-annually in arrears. The Senior Notes will mature on February 1, 2026. $269.7 million of the gross proceeds from the issuance of the Senior Notes was used to repay outstanding amounts under the Company’s $500 million MSR Facility, $269.3 million of the gross proceeds from the issuance was used to fund a distribution to the shareholders of the Company’s parent entity at the time, HPLP, and the remaining gross proceeds were used to pay costs related to the transaction.
The Indenture governing the Senior Notes contains covenants and restrictions that, among other things and subject to certain exceptions, limit the ability of the Company and its restricted subsidiaries to (i) incur additional debt or issue certain preferred shares; (ii) incur liens; (iii) make certain distributions, investments, and other restricted payments; (iv) engage in certain transactions with affiliates; and (v) merge or consolidate or sell, transfer, lease, or otherwise dispose of all or substantially all of their assets.
The Company has an $85 million servicing advance facility which is collateralized by all of the Company’s servicing advances. The facility carries an interest rate of LIBOR plus a margin and advance rate ranging from 85-95%. The servicing advance facility requires the maintenance of certain financial covenants relating to net worth, liquidity, and indebtedness of the Company. As of March 31, 2021, the Company was in compliance with all covenants.
The Company also has a $10 million operating line with an interest rate based on the Wall Street Journal prime rate.
As of March 31, 2021, the Company had total unused capacity for its servicing advance facility and operating line of credit of $61.3 million and $9.0 million, respectively.
The servicing advance facility and the operating line of credit each has a maturity date of May 27, 2021. As of the date of these unaudited condensed consolidated financial statements were issued, the Company is in discussions with the lender to renew both facilities and the Company expects to execute a renewal prior to the maturity date.
Note 9 – Commitments and Contingencies
Commitments to Extend Credit
The Company’s IRLCs expose the Company to market risk if interest rates change and the applicable loan is not economically hedged or committed to an investor. The Company is also exposed to credit loss if the applicable 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 $14.4 billion as of March 31, 2021 and $16.0 billion as of December 31, 2020.
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Litigation
The Company is subject to various legal proceedings arising out of the ordinary course of business. There is a putative class action lawsuit alleging a single cause of action under the Real Estate Settlement Procedures Act (“RESPA”) for which the Company had accrued $2.0 million as of March 31, 2021. There were no current or pending claims against the Company which are expected to have a material impact on the Company's condensed consolidated balance sheets, statements of operations, or cash flows.
Regulatory Contingencies
The Company is subject to periodic audits and examinations, both formal and informal in nature, from various federal and state agencies, including those conducted as part of regulatory oversight of our mortgage origination, servicing, and financing activities. Such audits and examinations could result in additional actions, penalties, or fines by state or federal governmental bodies, regulators, or the courts with respect to our mortgage origination, servicing, and financing activities, which may be applicable generally to the mortgage industry or to the Company in particular. The Company did not pay any material penalties or fines during the three months ended March 31, 2021 or 2020 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 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 of $2,500 plus 25 basis points of outstanding UPB for total loans serviced.
Adjusted/Tangible Net Worth consists of total equity less goodwill, intangible assets, affiliate receivables, deferred tax assets and certain pledged assets.
The minimum net worth requirement for Ginnie Mae is defined as follows:
Base of $2,500 plus 35 basis points of the issuer’s total single-family effective outstanding obligations.
Adjusted/Tangible Net Worth consists of total equity less goodwill, intangible assets, affiliate receivables, deferred tax assets and certain pledged assets.
Minimum Capital Ratio
For Fannie Mae, Freddie Mac, and Ginnie Mae, the Company is also required to hold a ratio of Adjusted/Tangible Net Worth to Total Assets greater than 6%.
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, measured as 90 plus day delinquencies, servicing in excess of 6% of the total Agency servicing UPB.
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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 Entities (“GSE”), 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 $1,000 or 10 basis points of our outstanding single-family MBS.
The most restrictive of the minimum net worth and capital requirements require the Company to maintain a minimum adjusted net worth balance of $276.3 million as of March 31, 2021. As of March 31, 2021, the Company was in compliance with this requirement.
The Company met all minimum net worth requirements to which it was subject as of March 31, 2021.
The following presents the Company’s required and actual net worth amounts as of March 31, 2021 (in thousands):
Home Point Financial Corporation
Adjusted Net WorthNet Worth Required
HUD$1,243,055 $2,500 
Ginnie Mae$1,243,055 $102,149 
Fannie Mae$1,243,055 $276,254 
Freddie Mac$1,243,055 $276,254 
Various States$1,243,055 
$0 - 1,000
Home Point Mortgage Acceptance Corporation
Adjusted Net WorthNet Worth Required
HUD$18,954 $2,500 
Ginnie Mae$18,954 $2,816 
Fannie Mae$18,954 $3,907 
Freddie Mac$18,954 $3,907 
Various States$18,954 
$0 - 1,000
Note 11 – Representation and Warranty Reserve
Certain whole 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. Additionally, the Company 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. 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 reserves for the three months ended March 31, 2021 and 2020 (in thousands):
Three Months Ended March 31,
20212020
Repurchase reserve, at beginning of period
$18,080 $3,964 
Additions
6,593 1,458 
(Charge-offs)/recoveries
(863)109 
Repurchase reserves, at end of period
$23,810 $5,531 
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, and mortgage loans held for sale. The Company has elected fair value accounting for loans held for sale and
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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 groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level Input:Input Definition:
Level 1Unadjusted, quoted prices in active markets for identical assets or liabilities.
Level 2Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Company. These may include quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk and others.
Level 3Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity), unobservable inputs may be used. Unobservable inputs reflect the Company's own assumptions about the factors that market participants would use in pricing the asset or liability and are based on the best information available in the circumstances.
An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
While the Company believes its valuation methods are appropriate and consistent with those used by other market participants, the use of different methods or assumptions to estimate the fair value of certain financial statement items could result in a different estimate of fair value at the reporting date. Those estimated values may differ significantly from the values that would have been used had a readily available market for such items existed, or had such items been liquidated, and