SEC Filing | Home Point Capital

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hmpt-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2023


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

For the transition period from ______________ to ______________

Commission File Number: 001-39964

Home Point Capital Inc.

(Exact name of registrant as specified in its charter)

Delaware

90-1116426

(State or other jurisdiction of
incorporation or organization)

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

2211 Old Earhart Road, Suite 250

Ann Arbor, Michigan

48105

(Address of Principal Executive Offices)

(Zip Code)

(888) 616-6866

Registrant's telephone number, including area code

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

Title of each class

Trading Symbol

Name of each exchange on which
registered

Common Stock, par value

$0.0000000072 per share

HMPT

The Nasdaq Stock Market LLC

(The Nasdaq Global Select Market)

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

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

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


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

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

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

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

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

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Cautionary Note on Forward-Looking Statements

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

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

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

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

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

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

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

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

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

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

•counterparty risk;

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

•risks related to any subservicer;

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

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

•competition in the industry in which we operate;

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

•our ability to adapt to and implement technological changes;

•the effectiveness of our risk management efforts;

•our ability to detect misconduct and fraud;

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

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

•any cybersecurity risks, cyber incidents and technology failures;

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

•our vendor relationships;

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

•any employment litigation and related unfavorable publicity;

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

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

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

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

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

•the impact of other changes in tax laws;

•the impact of interest rate fluctuations;

•risks associated with hedging against interest rate exposure;

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

•risks associated with financing our assets with borrowings;

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

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

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

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

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

•risks associated with derivative financial instruments;

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

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

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

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

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

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

iii

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•the impact of private legal proceedings;

•risks associated with our acquisition of mortgage servicing rights;

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

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

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

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

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

Website and Social Media Disclosure

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

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

HOME POINT CAPITAL INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share amounts)


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

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

See accompanying notes to the unaudited condensed consolidated financial statements.

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HOME POINT CAPITAL INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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


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

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

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

See accompanying notes to the unaudited condensed consolidated financial statements.

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HOME POINT CAPITAL INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited - dollars in thousands)



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


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

See accompanying notes to the unaudited condensed consolidated financial statements.

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HOME POINT CAPITAL INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited - dollars in thousands)


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

See accompanying notes to the unaudited condensed consolidated financial statements.

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HOME POINT CAPITAL INC. & SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Shares and Per Share Amounts)

(unaudited)

Note 1 - Organization and Operations

Nature of Business

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

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

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

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

Note 2 - Basis of Presentation and New Accounting Pronouncements

Basis of Presentation

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

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

Assets and Liabilities Held for Sale

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

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

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

Use of Estimates

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

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

Accounting Standards Recently Adopted or Recently Issued but Not Yet Adopted

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

Note 3 - Mortgage Loans Held for Sale

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


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


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

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

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

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

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

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


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

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

Note 4 - Mortgage Servicing Rights

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

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

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


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

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


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

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

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


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

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

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


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

The following presents information related to loans serviced:


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

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


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

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

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

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

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

Note 5 - Derivative Financial Instruments

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


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


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

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


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

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

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


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


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

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

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

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Note 6 - Accounts Receivable, net

The following presents principal categories of Accounts receivable, net:


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

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

The following presents changes to the servicing advance reserve:


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

Note 7 - Warehouse Lines of Credit

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

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


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

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

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

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

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


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

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

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

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

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

Note 8 - Term Debt and Other Borrowings, net

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


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

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

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

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

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

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

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

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

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

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

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

Note 9 - Commitments and Contingencies

Commitments to Extend Credit

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

Litigation

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

Regulatory Contingencies

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

Note 10 - Regulatory Net Worth Requirements

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

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

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

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

Minimum Net Worth

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

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

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

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

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

Minimum Capital Ratio

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

Minimum Liquidity

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

•3.5 basis points of total Agency servicing.

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

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

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

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

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

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

Note 11 - Representation and Warranty Reserve

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

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

The following presents the activity of the outstanding repurchase reserve: