loanDepot, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. loanDepot is a technology-enabled U.S. residential mortgage originator and servicer; it completed its IPO in February 2021.
Business context
The company originates and sells residential mortgages through Retail and Partner channels, services loans, and provides ancillary title, escrow, settlement, real estate referral and insurance services. Its mello platform supports digital loan origination and servicing. FY2021 originations were $137.0 billion, up 36.0% year over year; 79% came through Retail and 21% through Partner. Purchase loans were 29% of originations and refinances 71%.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total net revenue | $3.725 billion | $4.312 billion | Down 13.6% |
| Net income | $623.1 million | $2.013 billion | Down 69.0% |
| Net income attributable to loanDepot, Inc. | $113.5 million | — | Public-company earnings attributable to the registrant began after the IPO and reorganization |
| Adjusted net income (non-GAAP) | $555.6 million | $1.486 billion | Down 62.6% |
| Adjusted EBITDA (non-GAAP) | $869.4 million | $2.085 billion | Down 58.3% |
| Gain-on-sale margin | 2.61% | 4.13% | Down 1.52 percentage points |
| Cash and cash equivalents at year-end | $419.6 million | $284.2 million | Up 47.6% |
| Total assets / total equity at year-end | $11.812 billion / $1.629 billion | $10.893 billion / $1.657 billion | Assets up 8.4%; equity down 1.6% |
Net income was approximately 16.7% of revenue, compared with 46.7% in 2020. The filing attributes the earnings decline mainly to lower gain-on-sale revenue and higher expenses. FY2021 operating cash flow was negative $1.466 billion, investing cash flow was positive $296.8 million, and financing cash flow was positive $1.301 billion. Mortgage originations and sales create substantial working-capital movements, so operating cash flow should be considered alongside that business model.
At December 31, 2021, warehouse and other lines of credit were $7.457 billion and debt obligations, net, were $1.628 billion, for approximately $9.1 billion of total borrowings. Warehouse capacity was $11.8 billion, with $4.3 billion available; $3.9 billion of capacity was committed. Secured debt obligations were $542.9 million and unsecured Senior Notes were $1.1 billion. The company reported compliance with its warehouse and other debt covenants and applicable selling and servicing capital requirements.
The servicing portfolio grew to $162.1 billion UPB from $102.9 billion. Servicing fee income increased 111.8% to $393.7 million, while the net fair-value change in servicing rights was a loss of $445.9 million. Loans 60 or more days delinquent were 0.93% of the portfolio, down from 2.10%.
Material changes versus FY2020
- Originations rose 36.0% to $137.0 billion, but gain-on-sale margin fell to 2.61% from 4.13%; management cited margin compression and rising rates.
- Gain on origination and sale of loans declined 17.7% to $3.213 billion. Higher servicing-rights additions and servicing fees partly offset lower loan-sale premiums and adverse changes in the fair value of rate locks and loans held for sale.
- Total expenses increased 33.1% to $3.058 billion. Personnel expense rose 26.0%, marketing and advertising 76.9%, and direct origination expense 54.9%, reflecting higher production, staffing and brand-building costs.
- Servicing rights at fair value increased to $2.007 billion from $1.128 billion, reflecting retained servicing on new loan sales, partly offset by portfolio runoff and servicing-rights sales. The company sold servicing rights on $30.0 billion UPB during 2021.
- Debt obligations increased by $915.7 million, including issuance of $600 million of 6.125% Senior Notes due 2028. The company also paid $463.3 million in dividends and shareholder distributions.
Outlook, risks and contingencies
- Outlook: Management cited an MBA forecast that U.S. one-to-four-family mortgage originations would decline 34% to $2.6 trillion in 2022, principally because of lower refinancing volume; purchase volume was forecast to increase. Management expected rising rates to pressure refinancing and margins, while emphasizing purchase, cash-out refinance and ancillary products. These are expectations, not company-specific earnings guidance.
- Servicing transition: The company began moving servicing in-house in 2021 and expected to complete the transition by mid-2022. Cenlar subserviced approximately 58% of the portfolio at year-end, down from 100% a year earlier. The filing flags execution, compliance, cost and operational risks, as well as Cenlar’s regulatory consent order.
- Interest-rate and valuation exposure: Rate changes affect refinancing volumes, loan and rate-lock values, hedges and mortgage servicing rights. Servicing rights are Level 3 fair-value assets dependent on assumptions such as prepayment speeds, discount rates and servicing costs; their valuation was the auditor’s critical audit matter.
- Funding and liquidity: The business relies on warehouse facilities and secondary-market loan sales. Facilities generally require renewal and are subject to collateral haircuts, margin calls, covenants and counterparty risk. The company also faces servicing-advance obligations; 0.6% of servicing UPB, or $1.0 billion, was in active forbearance at year-end.
- Other risks and contingencies: Risks include mortgage-market competition, regulatory change, repurchase and indemnification claims, cybersecurity, and loan-sale concentration (three investors represented 87% of 2021 loan sales). The loan repurchase reserve was $29.9 million. A former senior operations executive’s employment and origination-related claims were in litigation; management disputed the allegations. Management said it did not expect pending matters to have a material adverse effect, while acknowledging outcomes were uncertain.
- IPO, governance and distributions: The multi-class structure concentrated approximately 97.4% of voting power with the Parthenon Stockholders and Continuing LLC Members, according to the filing. The company accrued a $32.9 million tax receivable agreement liability; the agreement generally entitles specified holders to 85% of realized or deemed tax savings. The board may change or discontinue dividends.
- Controls and audit: Management concluded disclosure controls and internal control over financial reporting were effective at year-end. The auditor issued an unqualified opinion on the financial statements but did not attest to internal-control effectiveness under the newly public company transition relief.
Important facts for investors to verify
- Whether 2022 originations, gain-on-sale margins and expenses track management’s outlook as refinancing demand and interest rates change.
- Actual progress, costs and servicing performance in the transition to in-house operations, including the remaining role of Cenlar.
- Warehouse-line renewal terms, committed liquidity, debt maturities, covenant headroom and potential margin-call needs.
- Servicing-rights valuation assumptions, realized portfolio runoff, hedge effectiveness and sensitivity to interest rates and prepayments.
- Repurchase-reserve adequacy, investor concentration, legal-case developments and servicing advances related to delinquency or forbearance.
- Dividend sustainability, tax receivable agreement payments, and the effect of the controlled-company and multi-class share structure on public shareholders.