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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 November 3, 2021, the registrant had 139,527,512 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

i

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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, including the Private Securities Litigation Reform Act of 1995. 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, which are based on currently available information, operating plans, and projections about future events and trends, 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 by forward-looking statements include, among others:
our reliance on our financing arrangements to fund mortgage loans and otherwise operate our business;
the dependence of our loan origination and servicing revenues on macroeconomic and U.S. residential real estate market conditions;
the requirement to repurchase mortgage loans or indemnify investors if we breach representations and warranties;
counterparty risk;
the requirement to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances;
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;
risks and uncertainties associated with litigation, including any employment, intellectual property, consumer protection, class action and other litigation matters, 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 investment management subsidiary;
ii

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the impact of changes in political or economic stability or in 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;
our failure to deal appropriately with issues that may give rise to reputational risk; and
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the spread of the COVID-19 outbreak and severe disruptions in the U.S. and global economy and financial markets it has caused.
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)
September 30, 2021 (unaudited)December 31, 2020
Assets:
Cash and cash equivalents$160,636 $165,230 
Restricted cash42,491 31,663 
Cash and cash equivalents and Restricted cash203,127 196,893 
Mortgage loans held for sale (at fair value)6,680,196 3,301,694 
Mortgage servicing rights (at fair value)1,402,140 748,457 
Property and equipment, net22,945 21,710 
Accounts receivable, net117,538 152,845 
Derivative assets164,602 334,323 
Goodwill and intangibles10,789 10,789 
GNMA loans eligible for repurchase265,132 2,524,240 
Other assets111,640 87,622 
Total assets$8,978,109 $7,378,573 
Liabilities and Shareholders’ Equity:
Liabilities:
Warehouse lines of credit$6,308,477 $3,005,415 
Term debt and other borrowings, net1,065,762 454,022 
Accounts payable and accrued expenses127,793 167,532 
GNMA loans eligible for repurchase265,132 2,524,240 
Deferred tax liabilities224,303 174,002 
Other liabilities225,440 125,888 
Total liabilities8,216,907 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; 139,527,024 shares issued and outstanding, par value $0.0000000072 per share)
  
Additional paid-in capital522,080 519,510 
Retained earnings239,122 407,964 
Total shareholders' equity761,202 927,474 
Total liabilities and shareholders' equity$8,978,109 $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 September 30,Nine Months Ended September 30,
2021202020212020
Revenue:
Gain on loans, net$145,471 $503,344 $521,727 $962,778 
Loan fee income34,484 28,205 118,099 60,630 
Interest income36,719 14,709 96,944 42,370 
Interest expense(45,532)(17,559)(122,603)(47,845)
Interest expense, net(8,813)(2,850)(25,659)(5,475)
Loan servicing fees91,831 48,350 247,753 133,904 
Change in fair value of mortgage servicing rights, net3,544 (66,749)(90,513)(230,524)
Other income8,084 498 9,537 2,138 
Total revenue, net274,601 510,798 780,944 923,451 
Expenses:
Compensation and benefits114,612 117,177 395,550 251,462 
Loan expense16,618 8,733 51,796 21,686 
Loan servicing expense6,681 6,481 22,282 22,742 
Production technology7,583 6,378 25,038 14,540 
General and administrative21,741 16,213 74,527 38,981 
Depreciation and amortization2,440 1,236 7,551 4,162 
Other expenses5,649 7,094 23,620 12,087 
Total expenses175,324 163,312 600,364 365,660 
Income before income tax99,277 347,486 180,580 557,791 
Income tax expense 27,341 93,294 50,250 149,306 
(Loss) income from equity method investments(713)9,870 16,649 14,050 
Total net income $71,223 $264,062 $146,979 $422,535 
Earnings per share:
Basic$0.51 $1.90 $1.06 $3.13 
Diluted$0.51 $1.90 $1.05 $3.12 


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, June 30, 2020138,860,103  $519,033 $113,924 $632,957 
Distributions to parent— — — (154,492)(154,492)
Stock based compensation— — 144 — 144 
Net income— — — 264,062 264,062 
Ending balance, September 30, 2020138,860,103  $519,177 $223,494 $742,671 
Common StockAdditional
Paid in Capital
Retained
Earnings
(Accumulated
Deficit)
Total
Shareholders’
Equity
SharesAmount
Beginning balance, June 30, 2021139,487,097  $520,505 $188,823 $709,328 
Contributed capital— — — — — 
Dividend to shareholders— — — (20,924)(20,924)
EE stock purchase (option exercise)39,927 — (105)— (105)
Stock based compensation— — 1,680 — 1,680 
Net income— — — 71,223 71,223 
Ending balance, September 30, 2021139,527,024  $522,080 $239,122 $761,202 
Common StockAdditional
Paid in Capital
Retained
Earnings
(Accumulated
Deficit)
Total
Shareholders’
Equity
SharesAmount
Beginning balance, December 31, 2019138,860,103  $454,861 $(44,549)$410,312 
Contributed capital— — 63,774 — 63,774 
Distributions to parent— — — (154,492)(154,492)
Stock based compensation— — 542 — 542 
Net income— — — 422,535 422,535 
Ending balance, September 30, 2020138,860,103  $519,177 $223,494 $742,671 
Common StockAdditional
Paid in Capital
Retained
Earnings
(Accumulated
Deficit)
Total
Shareholders’
Equity
SharesAmount
Beginning balance, December 31, 2020138,860,103  $519,510 $407,964 $927,474 
Contributed capital— — — 192 192 
Dividend to shareholders— — — (20,924)(20,924)
Distribution to parent— — — (295,089)(295,089)
EE stock purchase (option exercise)666,921 — (2,636)— (2,636)
Stock based compensation— — 5,206 — $5,206 
Net income— — — 146,979 146,979 
Ending balance, September 30, 2021139,527,024  $522,080 $239,122 $761,202 
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)
Nine Months Ended September 30,
20212020
Operating activities:
Net income $146,979 $422,535 
Adjustments to reconcile net income to cash used in operating activities:
Depreciation7,551 3,370 
Amortization of intangible assets 792 
Amortization of debt issuance costs2,444 531 
Gain on sale of mortgage servicing rights(7,426) 
Gain on loans, net(521,727)(962,778)
Provision for representation and warranty reserve9,358 10,025 
Stock based compensation expense5,206 542 
Deferred income tax50,301 133,645 
Income from equity method investment(16,649)(14,050)
Origination of mortgage loans held for sale(79,464,436)(38,534,747)
Proceeds on sale and payments from mortgage loans held for sale75,786,570 38,585,878 
Change in fair value of mortgage servicing rights, net 90,512 230,524 
Change in fair value of mortgage loans held for sale6,906 (54,709)
Non-cash lease expense 108 
Change in fair value of derivative assets169,721 (274,250)
Changes in operating assets and liabilities:
Accounts receivable, net35,360 (21,448)
Other assets(7,369)3,671 
Accounts payable and accrued expenses(40,959)74,787 
Other liabilities90,194 10,479 
Net cash used in operating activities(3,657,464)(385,095)

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)
Investing activities:
Purchases of property and equipment, net of disposals(8,786)(9,914)
     Purchases of mortgage servicing rights(33,027) 
Proceeds from sale of mortgage servicing rights111,609  
Net cash provided (used) in investing activities69,796 (9,914)
Financing activities:
Proceeds from warehouse borrowings81,365,921 38,381,219 
Payments on warehouse borrowings(78,062,859)(37,766,925)
Proceeds from term debt borrowings1,213,400 47,600 
Payments on term debt borrowings(550,000)(60,000)
Proceeds from other borrowings75,000 64,500 
Payments on other borrowings(115,000)(103,500)
Payments of debt issuance costs(14,103) 
Employee stock purchases (option expense)(2,636) 
Capital contributions from parent192 63,774 
Dividends to shareholders(20,924) 
Distribution to parent(295,089) 
Net cash provided by financing activities3,593,902 626,668 
Net increase in cash, cash equivalents and restricted cash6,234 231,659 
Cash, cash equivalents and restricted cash at beginning of period196,893 81,731 
Cash, cash equivalents and restricted cash at end of period$203,127 $313,390 
Supplemental disclosure:
Cash paid for interest$104,119 $46,715 
Cash (refunded) paid for taxes$(33,740)$22,034 

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. Home Point Corporation Insurance Agency LLC, a Michigan limited liability company (“HPCIA” and together with HPF, HPAM, and HPMAC, the “wholly owned subsidiaries”), is a wholly owned subsidiary of the Company that brokers home owner insurance policies.
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”) for interim financial information. The condensed consolidated financial statements include the financial statements of HPC and its wholly owned subsidiaries. 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 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 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 September 30, 2021 and its results of operations for the three and nine months ended September 30, 2021 and 2020 and its cash flows for the nine months ended September 30, 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.
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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 to the Company 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. Upon the completion of the IPO, investment entities directly or indirectly managed by Stone 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.
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 fair value which often is 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 economically 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 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.
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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.
Equity Method Investments are business entities, which the Company does not have control of, but has the ability to exercise significant influence over operating and financial policies and are accounted for using the equity method. The Company evaluates its equity method investments for impairment whenever an event or change in circumstances occurs that may have a significant adverse impact on the carrying value of the investment. If a loss in value has occurred that is deemed to be other-than-temporary, an impairment loss is recorded. The Company recognizes investments in equity method investments initially at cost and are adjusted for HPC’s share of earnings or losses, contributions or distributions. Equity method investments are reported on the consolidated balance sheets in Other assets. As of September 30, 2021, Longbridge Financial, LLC (“Longbridge”) was the Company’s only significant equity method investment, of which the Company owned 49.7 percent of the outstanding equity securities. The following presents condensed financial information of Longbridge (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Total revenue$20,134 $114,064 $210,752 $240,739 
Net (loss) income (1,435)15,962 33,499 28,901 
Net (loss) income attributable to the Company(713)7,933 16,649 14,364 

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 139.1 million and 138.8 million weighted average shares outstanding for the three months ended September 30, 2021 and 2020, respectively, and 139.2 million and 135.1 million weighted average shares outstanding for the nine months ended September 30, 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 September 30, 2021 and 2020, 140.0 million and 139.2 million weighted average shares were outstanding on a fully diluted basis. For the nine months ended September 30, 2021 and 2020, 139.7 million and 135.5 million shares were outstanding on a fully-diluted basis.
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 does not anticipate a material impact as a result of the adoption of this standard 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.
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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.
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 September 30, 2021 (in thousands):
September 30, 2021
Unpaid
Principal
Fair Value
Adjustment
Total
Fair Value
Conventional(1)
$5,646,674 $111,266 $5,757,940 
Government(2)
897,033 24,942 921,975 
Other(3)
364 (83)281 
Total$6,544,071 $136,125 $6,680,196 
(1)Conventional is comprised of FNMA and FHLMC mortgage loans.
(2)Government is comprised of GNMA mortgage loans (including Federal Housing Administration, Department of Veterans Affairs, and United States Department of Agriculture).
(3)Other is comprised of home equity lines of credit (“HELOCs”) and Reverse loans.
The Company had $26.8 million of unpaid principal balances, which had a fair value of $22.9 million, of mortgage loans held for sale on nonaccrual status at September 30, 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 
Other(3)
275 (83)192 
Total$3,158,663 $143,031 $3,301,694 
(1)Conventional is comprised of FNMA and FHLMC mortgage loans.
(2)Government is comprised of GNMA mortgage loans (including Federal Housing Administration, Department of Veterans Affairs and United States Department of Agriculture).
(3)Other is comprised of HELOCs and Reverse loans.
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 September 30, 2021 and 2020 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Fair value at beginning of period$5,412,452 $1,904,174 $3,301,694 $1,554,230 
Mortgage loans originated and purchased21,546,957 18,289,697 79,464,436 38,534,747 
Proceeds on sales and payments received(20,208,378)(17,565,561)(75,786,570)(37,869,214)
Change in fair value3,727 17,074 (6,906)54,709 
(Loss) gain on loans(1)
(74,562)(363,549)(292,458)7,363 
Fair value at end of period$6,680,196 $2,281,835 $6,680,196 $2,281,835 
(1)This line as presented on the condensed consolidated statements of cash flows excludes originated mortgage servicing rights and MSR hedging.
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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.
The following presents an analysis of the changes in capitalized mortgage servicing rights for the three and nine months ended September 30, 2021 and 2020 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Balance at beginning of period$1,267,253 $499,782 $748,457 $575,035 
MSRs originated212,368 155,623 776,174 352,118 
MSRs purchased14,326  33,027  
MSRs sold(103,017) (103,017) 
Changes in valuation model inputs85,150 (17,210)188,334 (211,668)
Change due to cash payoffs and principal amortization(73,940)(54,932)(240,835)(132,222)
Balance at end of period$1,402,140 $583,263 $1,402,140 $583,263 
The following presents the Company’s total capitalized mortgage servicing portfolio (based on the UPB of the underlying mortgage loans) as of September 30, 2021 and December 31, 2020 (in thousands):
September 30,
2021
December 31,
2020
Ginnie Mae$17,019,501 $26,206,612
Fannie Mae63,688,77436,395,373
Freddie Mac45,085,79325,621,697
Other38,21853,567
Total mortgage servicing portfolio$125,832,286$88,277,249
MSR balance$1,402,140$748,457
MSR balance as % of unpaid mortgage principal balance1.11 %0.85 %
The following presents the key weighted average assumptions used in determining the fair value of the Company’s MSRs as of September 30, 2021 and December 31, 2020:
September 30,
2021
December 31,
2020
Discount rate8.89 %9.47 %
Prepayment speeds9.54 %14.43 %
The key assumptions used to estimate the fair value of the MSRs are discount rate and the Conditional Prepayment Rate (“CPR”). Increases in prepayment speeds generally have an adverse effect on the value of MSRs as the underlying loans prepay faster. In a declining interest rate environment, the fair value of MSRs generally decreases as prepayments increase. Decreases in prepayment speeds generally have a positive effect on the value of the MSRs as the underlying loans prepay less frequently. In a rising interest rate environment, the fair value of MSRs generally increases as prepayments decrease. Increases in the discount rate result in a lower MSR value and decreases in the discount rate result in a higher MSR value.
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The following table illustrates the hypothetical effect on the fair value of the Company’s MSR portfolio when applying unfavorable discount rate and prepayment speeds at two different data points as of September 30, 2021 and December 31, 2020 (in thousands):
Discount Rate
Prepayment Speeds
100 BPS
Adverse Change
200 BPS
Adverse Change
10% Adverse
Change
20% Adverse
Change
September 30, 2021$(59,159)$(113,493)$(56,936)$(109,450)
December 31, 2020$(26,354)$(50,754)$(45,014)$(85,484)
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 as of September 30, 2021 and December 31, 2020 (in thousands):
September 30,
2021
December 31,
2020
Total unpaid principal balance$131,405,675 $91,590,114 
Loans 30-89 days delinquent816,670 1,353,029 
Loans delinquent 90 or more days or in foreclosure1,084,419 3,641,183 
The following presents components of Loan servicing fees as reported in the Company’s unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Contractual servicing fees$84,271 $49,387 $229,369 $135,813 
Late fees1,458 1,313 3,923 4,564 
Other6,102 (2,350)14,461 (6,473)
Loan servicing fees$91,831 $48,350 $247,753 $133,904 
The Company held $25.5 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 September 30, 2021 and December 31, 2020, respectively.
On September 2, 2021, HPF completed the sale of MSRs relating to certain single family mortgage loans serviced for Ginnie Mae with an aggregate unpaid principal balance of approximately $10.7 billion. The total net proceed for the sale of MSRs was approximately $121.6 million with certain customary holdbacks and adjustments and resulted in a gain of $7.4 million. The sale represented approximately 8.6% of HPF’s total mortgage servicing portfolio as of June 30, 2021 and approximately 40.6% percent of HPF’s total Ginnie Mae mortgage servicing portfolio as of June 30, 2021. Ginnie Mae consented to the transfer of the MSRs.
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Note 5 – Derivative Financial Instruments
The following presents the outstanding notional balances for derivative instruments not designated as hedging instruments as of September 30, 2021 and 2020 (in thousands):
September 30, 2021
Notional
Value
Derivative
Asset
Derivative
Liability
Recorded
Gain/(Loss)
Mortgage-backed securities forward trades$11,113,975 $54,504 $3,304 $51,725 
Interest rate lock commitments10,002,894 38,315 17,748 (36,404)
Hedging mortgage servicing rights7,497,000 254 42,145 (49,323)
Margin71,529 79,220 
Total$164,602 $142,417 
Cash placed with counterparties, net$7,691 
September 30, 2020
Notional
Value
Derivative
Asset
Derivative
Liability
Recorded
Gain/(Loss)
Mortgage-backed securities forward trades$9,637,702 $2,793 $23,586 $(8,444)
Interest rate lock commitments15,103,027 272,837  26,082 
Hedging mortgage servicing rights4,306,000 8,730  2,161 
Margin30,642 208 
Total$315,002 $23,794 
Cash held from counterparties, net$30,434 
The following presents a summary of derivative assets and liabilities and related netting amounts as of September 30, 2021 (in thousands):
September 30, 2021
Gross Amount of
Recognized Assets
(liabilities)
Gross OffsetNet Assets
(Liabilities)
Balance at September 30, 2021
Derivatives subject to master netting agreements:
Assets:
Mortgage-backed securities forward trades$54,504 $(53,680)$824 
Hedging mortgage servicing rights254  254 
Margin (cash placed with counterparties)71,529 (34,776)36,753 
Liabilities:
Mortgage-backed securities forward trades(3,304)3,665 361 
Hedging mortgage servicing rights(42,145)34,776 (7,369)
Margin (cash held from counterparties)(79,220)50,015 (29,205)
Derivatives not subject to master netting agreements:
Assets:
Interest rate lock commitments38,315 — 38,315 
Liabilities:
Interest rate lock commitments(17,748)— (17,748)
Total derivatives
Assets$164,602 $(88,456)$76,146 
Liabilities$(142,417)$88,456 $(53,961)
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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)
Margin (cash held from 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)$288,896 
Liabilities$(