Exhibit 99.2

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Caliber Home Loans, Inc. and Subsidiaries

As of June 30, 2021 and December 31, 2020, and for the Three and Six Months Ended June 30, 2021 and 2020











Caliber Home Loans, Inc. and Subsidiaries

Consolidated Financial Statements (Unaudited)

As of June 30, 2021 and December 31, 2020, and for the

Three and Six Months Ended June 30, 2021 and 2020



Contents

Consolidated Financial Statements
 
   
Consolidated Balance Sheets (Unaudited)
3
Consolidated Statements of Operations (Unaudited)
4
Consolidated Statements of Changes in Stockholder‘s Equity (Unaudited)
5
Consolidated Statements of Cash Flows (Unaudited)
6
Notes to Consolidated Financial Statements (Unaudited)
8

2

CALIBER HOME LOANS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

   
June 30, 2021
   
December 31, 2020
 
   
(unaudited)
       
ASSETS
           
Cash and cash equivalents
 
$
261,685
   
$
504,378
 
Restricted cash
   
65,982
     
29,293
 
Servicing advances, net
   
139,061
     
160,606
 
Mortgage loans held for sale, at fair value
   
9,999,759
     
8,007,730
 
Mortgage servicing rights, at fair value
   
1,467,466
     
1,156,831
 
Property and equipment, net
   
81,935
     
77,055
 
Loans eligible for repurchase from GNMA
   
2,241,800
     
2,273,601
 
Derivative assets
   
140,639
     
315,488
 
Prepaid expenses and other assets
   
679,493
     
430,257
 
Total assets
 
$
15,077,820
   
$
12,955,239
 
                 
LIABILITIES AND STOCKHOLDER’S EQUITY
               
Liabilities:
               
Accounts payable and accrued expenses
 
$
369,485
   
$
417,148
 
Servicer advance facilities, net
   
100,167
     
109,965
 
Warehouse credit facilities, net
   
9,503,455
     
7,369,193
 
MSR financing facilities, net
   
757,796
     
899,898
 
Liability for loans eligible for repurchase from GNMA
   
2,204,769
     
2,273,601
 
Derivative liabilities
   
21,331
     
95,285
 
Other liabilities
   
458,196
     
386,371
 
Total liabilities
   
13,415,199
     
11,551,461
 
                 
Stockholder’s Equity:
               
Preferred stock – 15,000,000 shares authorized, no shares issued and outstanding, $0.0001 par value
   
     
 
Common stock – 485,000,000 shares authorized, 119,172,000 issued and outstanding, $0.0001 par value
   
12
     
12
 
Additional paid-in capital
   
659,438
     
659,644
 
Retained earnings
   
1,003,171
     
744,122
 
Total stockholder’s equity
   
1,662,621
     
1,403,778
 
Total liabilities and stockholder’s equity
 
$
15,077,820
   
$
12,955,239
 
                 

See accompanying Notes to the Consolidated Financial Statements (Unaudited).
3


CALIBER HOME LOANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Revenues:
                       
Gain on sale, net
 
$
482,281
   
$
716,882
   
$
1,135,675
   
$
1,094,064
 
Fee income
   
57,893
     
55,089
     
121,607
     
98,344
 
Servicing fees, net
   
111,531
     
127,047
     
227,908
     
255,511
 
Change in fair value of mortgage servicing rights
   
(158,622
)
   
(267,716
)
   
(135,415
)
   
(320,108
)
Other income
   
7,070
     
3,724
     
12,605
     
6,807
 
Total revenues
   
500,153
     
635,026
     
1,362,380
     
1,134,618
 
                                 
Operating expenses:
                               
Compensation and benefits
   
356,519
     
346,657
     
760,604
     
586,846
 
Occupancy and equipment
   
11,750
     
11,796
     
22,949
     
23,609
 
General and administrative
   
117,615
     
81,256
     
223,558
     
156,601
 
Depreciation and amortization
   
8,841
     
7,531
     
16,821
     
15,200
 
Total operating expenses
   
494,725
     
447,240
     
1,023,932
     
782,256
 
                                 
Income  from operations
   
5,428
     
187,786
     
338,448
     
352,362
 
                                 
Other income (expense):
                               
Interest income
   
59,753
     
45,731
     
101,980
     
101,233
 
Interest expense
   
(52,448
)
   
(36,650
)
   
(96,309
)
   
(87,932
)
Other income, net
   
7,305
     
9,081
     
5,671
     
13,301
 
Net income before taxes
   
12,733
     
196,867
     
344,119
     
365,663
 
Income tax expense
   
(2,224
)
   
(48,210
)
   
(85,070
)
   
(90,366
)
Net income
 
$
10,509
   
$
148,657
   
$
259,049
   
$
275,297
 
                                 
Earnings per share
                               
Basic
 
$
0.09
   
$
1.25
   
$
2.17
   
$
2.31
 
                                 

See accompanying Notes to the Consolidated Financial Statements (Unaudited).
4


CALIBER HOME LOANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY (UNAUDITED)
(In thousands)

   
Common Stock Shares
   
Common Stock
   
Additional Paid in Capital
   
Retained Earnings
   
Total Stockholder’s Equity
 
Balance, March 31, 2020
   
119,172
   
$
12
   
$
659,190
   
$
555,563
   
$
1,214,765
 
Capital contributed
   
     
     
305
     
     
305
 
Net income
   
     
     
     
148,657
     
148,657
 
Balance, June 30, 2020
   
119,172
   
$
12
   
$
659,495
   
$
704,220
   
$
1,363,727
 
                                         
Balance, March 31, 2021
   
119,172
   
$
12
   
$
659,428
   
$
992,662
   
$
1,652,102
 
Capital contributed
   
     
     
10
     
     
10
 
Net income
   
     
     
     
10,509
     
10,509
 
Balance, June 30, 2021
   
119,172
   
$
12
   
$
659,438
   
$
1,003,171
   
$
1,662,621
 
                                         

   
Common Stock Shares
   
Common Stock
   
Additional Paid in Capital
   
Retained Earnings
   
Total Stockholder’s Equity
 
Balance, December 31, 2019
   
119,172
   
$
12
   
$
656,341
   
$
428,923
   
$
1,085,276
 
Capital contributed
   
     
     
3,154
     
     
3,154
 
Net loss
   
     
     
     
275,297
     
275,297
 
Balance, June 30, 2020
   
119,172
   
$
12
   
$
659,495
   
$
704,220
   
$
1,363,727
 
                                         
Balance, December 31, 2020
   
119,172
   
$
12
   
$
659,644
   
$
744,122
   
$
1,403,778
 
Capital contributed
   
     
     
(206
)
   
     
(206
)
Net income
   
     
     
     
259,049
     
259,049
 
Balance, June 30, 2021
   
119,172
   
$
12
   
$
659,438
   
$
1,003,171
   
$
1,662,621
 
                                         

See accompanying Notes to the Consolidated Financial Statements (Unaudited).
5


CALIBER HOME LOANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)

   
Six Months Ended June 30,
 
   
2021
   
2020
 
Operating activities
           
Net income
 
$
259,049
   
$
275,297
 
Adjustments to reconcile net income to net cash used in operating activities:
               
Depreciation and amortization expense
   
16,821
     
15,200
 
Amortization of debt issuance costs
   
7,065
     
3,779
 
Provision for servicing advance losses
   
5,394
     
5,059
 
Provision for repurchases and indemnifications
   
(10,161
)
   
33,764
 
Origination of mortgage servicing rights
   
(336,208
)
   
(455,446
)
Fair value change in servicing rights
   
23,075
     
747,576
 
Reimbursement of MSR purchase premiums for loans that meet early payoff and early delinquency triggers
   
1,338
     
6,253
 
Mortgage loans originated or purchased, net of fees
   
(45,369,298
)
   
(37,016,728
)
Proceeds on sale of and payments of mortgage loans held for sale
   
44,213,122
     
38,205,003
 
Gain on origination and sale of loans
   
(888,437
)
   
(429,177
)
Change in fair value of loans held for sale
   
56,325
     
(50,064
)
Change in fair value of loans eligible for repurchase from GNMA
   
(37,031
)
   
 
Change in fair value of derivative instruments
   
101,761
     
(246,238
)
Changes in operating assets and liabilities:
               
Servicing advances, net
   
15,994
     
20,718
 
Prepaid expenses and other assets
   
(259,907
)
   
(16,281
)
Accounts payable and accrued expenses
   
(46,844
)
   
76,514
 
Other liabilities
   
79,094
     
80,240
 
Net cash (used in) provided by operating activities
   
(2,168,848
)
   
1,255,469
 
                 
Investing activities
               
Purchases of property and equipment, net of disposals
   
(16,403
)
   
(15,398
)
Sale of mortgage servicing rights and advances
   
3,700
     
103,586
 
Net cash (used in) provided by investing activities
   
(12,703
)
   
88,188
 
                 
Financing activities
               
Proceeds from borrowings
   
44,046,692
     
36,690,300
 
Repayments of borrowings
   
(42,065,411
)
   
(37,759,385
)
Debt issuance cost
   
(5,734
)
   
(2,469
)
Payment of contingent consideration
   
     
(1,755
)
Net cash provided by (used in) financing activities
   
1,975,547
     
(1,073,309
)
                 
Net change in cash, cash equivalents, and restricted cash
   
(206,004
)
   
270,348
 
Cash, cash equivalents, and restricted cash at beginning of period
   
533,671
     
139,939
 
Cash, cash equivalents, and restricted cash at end of period
 
$
327,667
   
$
410,287
 
                 

See accompanying Notes to the Consolidated Financial Statements (Unaudited).
6


CALIBER HOME LOANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED)
(In thousands)

   
Six Months Ended June 30,
 
   
2021
   
2020
 
Supplemental disclosure
           
Cash paid for interest
 
$
78,909
   
$
89,031
 
Cash paid for income taxes
 
$
27,904
   
$
10
 
Non-cash contribution of MSRs from affiliate, net of tax
   
(206
)
   
3,121
 

The following table provides a reconciliation of cash, cash equivalents and restricted cash to amount reported within the consolidated balance sheets:

   
June 30,
 
   
2021
   
2020
 
Cash and cash equivalents
 
$
261,685
   
$
382,643
 
Restricted cash
   
65,982
     
27,644
 
Total cash, cash equivalents, and restricted cash
 
$
327,667
   
$
410,287
 
                 

7


CALIBER HOME LOANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2021

1. Organization and Description of Business

Prior to October 19, 2020, Caliber Home Loans, Inc. (Caliber, or the Company) was a wholly owned subsidiary of LSF6 Service Operations LLC (LSF6) which was a wholly owned subsidiary of LSF6 Mid-Servicer Holdings LLC (Mid-Servicer). Mid- Servicer was a wholly-owned subsidiary of LSF Pickens Holdings, LLC (“Pickens”), an indirect subsidiary of Lone Star Funds. On October 19, 2020, Caliber, LSF6, Mid-Servicer and Pickens entered into a restructuring transaction, whereby LSF6 distributed its equity in Caliber to Mid-Servicer and elected to be disregarded as an entity separate from Mid-Servicer for tax purposes.  Mid-Servicer transferred its equity in LSF6 to Pickens, who transferred all the equity interests of LSF6 Service Operations to an affiliate Lone Star entity.  LSF6 Service Operations was removed from the Caliber structure and does not hold any assets related to Caliber’s business.  Immediately after this reorganization, Mid-Servicer was merged into Caliber and Caliber became a direct subsidiary of Pickens.  Caliber accounted for this transaction in a manner similar to a pooling of interest whereby all the assets and liabilities and revenues and expenses of Mid-Servicer were consolidated with Caliber. As a part of this reorganization, Caliber’s existing common shares were cancelled and 485,000,000 new shares with a par value of $0.0001 per share were authorized of which 119,172,000 shares are issued and outstanding. Pickens owns 100% of the outstanding common shares. Caliber’s existing  preferred shares were also cancelled and 15,000,000 new shares with a par value of $.0001 were authorized; no preferred shares were issued and outstanding as part of the reorganization.

The consolidated financial statements represent the results of operations, financial position, cash flows and changes in equity of Caliber and Mid-Servicer consolidated, as if the transaction described above took place prior to January 1, 2020.

Caliber, with its wholly owned subsidiaries, Summit Trustee Services, LLC; Fort Settlement Services, LLC (FSS); and Fort Escrow, Inc. (FEI); originates, purchases, sells, and services mortgage loans secured by residential real estate. Caliber primarily originates prime credit mortgage assets, including prime conventional conforming mortgages, and Federal Housing Administration/Veterans Affairs (FHA/VA) mortgages, which it sells servicing retained or servicing released to the Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) (collectively, the GSEs) and other investors, or transfers the loans into pools of Government National Mortgage Association (GNMA) mortgage backed securities (MBS). In addition, Caliber may also originate non-agency mortgage loans primarily for sale to an affiliate. Caliber sells mortgage servicing rights (MSRs) to market participants and performs servicing activities on behalf of investors, including the GSEs, GNMA, and private-label securitizations (non-agency). The Company also provides servicing for mortgage servicing rights acquired from third parties or contributed by affiliates. In addition, FSS and FEI provide escrow and title services for mortgage loans secured by residential real estate, the revenue from which is included in other income.

On April 14, 2021, Pickens and Caliber entered into a Stock Purchase Agreement (the “SPA”) with New Residential Investment Corp. (“NRZ”) whereby NRZ will purchase all the issued and outstanding equity interest of Caliber from Pickens for a purchase price of $1.675 billion., subject to certain downward adjustments for among other things, any Leakage Amount (as defined in the SPA to include certain cash dividends and other payments out of Caliber and its subsidiaries) since December 31, 2020. The Transaction is targeted to close in the third quarter of 2021, subject to various approvals and customary closing conditions.

2. Significant Accounting Policies

Method of Accounting

The accounting records of the Company are maintained on the accrual basis of accounting. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP).

Certain prior year amounts have been reclassified to conform to current year presentation.

Basis of Presentation

The consolidated financial statements include the accounts of the Company, its subsidiaries, and those variable interest entities (VIEs) where Caliber is the primary beneficiary. All significant intercompany transactions and accounts have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates due to factors such as adverse changes in the economy, changes in interest rates, changes in prepayment assumptions, declines in home prices, discrete events adversely affecting specific borrowers, uncertainties in the economy caused by the COVID-19 pandemic, or other factors. The COVID-19 pandemic poses unique challenges to our business and the effects of the pandemic could adversely impact our ability to originate mortgages, our servicing operations, our liquidity and our employees. Estimates that are particularly significant relate to the Company’s fair value measurement of mortgage loans held for sale, mortgage servicing rights, and derivative assets and liabilities, as well as its estimates for the reserve for mortgage repurchases and indemnifications, and the calculation of recoverability of servicing related advances.
8


Restricted Cash

Restricted cash is comprised of deposits held to comply with various regulatory and lease obligations, cash collected from borrowers for payment to third parties, certain funds pledged to lenders, and cash associated with the settlement of servicing sales and acquisitions.

Servicing Advances, Net

When borrowers are delinquent in making monthly payments on mortgage loans, the Company, in accordance with various servicing agreements, is required to advance principal and interest payments to certain investors and to pay insurance premiums, property taxes, and property protection costs. The Company also advances funds to process foreclosures and to maintain, repair, and market foreclosed real estate properties on behalf of investors. Advances are generally recovered from borrowers for performing loans, from the investors, or from loan proceeds for non-performing loans.

A reserve for servicing advances is established to absorb potential losses on advances. Changes to the  reserve are recorded in general and administrative expenses in the consolidated statements of operations. The adequacy of the reserve is evaluated based on loan status, delinquency status, lien position, collateral value, and historical losses. Management will assess the collectability of the advances, from the borrower, liquidation proceeds or the investor, and will charge off any advances deemed unrecoverable. The Company’s ability to recover advances from investors will vary depending upon the rights conveyed in the various servicing agreements.

Mortgage Loans Held for Sale

The Company originates mortgage loans primarily to transfer the loans into pools of GNMA mortgage backed securities or to sell to the GSEs or other third party investors in the secondary market. In addition, the Company originates and sells certain mortgage loans to an affiliate (see Note 13 Related Party Transactions).  Generally, all newly originated mortgage loans are delivered to third party purchasers within one month after origination. Mortgage loans held for sale can also include certain loans that have been repurchased for various origination and servicing reasons.  These loans are held at fair value until they can be resold.  Mortgage loans held for sale consist of single-family residential property mortgages originated by the Company having maturities of up to 30 years.

The Company elected the fair value reporting option for mortgage loans held for sale as permitted under ASC 825, Financial Instruments. Accordingly, mortgage loans held for sale are carried at estimated fair value with changes in fair value recognized in gain on sale, net on the consolidated statements of operations. Under fair value reporting, the Company is not permitted to defer the loan origination fees, net of direct loan origination costs associated with newly originated loans; thus, they are recognized as incurred.

Mortgage loans held for sale are considered de-recognized, or sold, when the Company surrenders control over the financial assets. Control is considered to have been surrendered when the transferred assets have been legally isolated from the Company, beyond the reach of the Company and its creditors; the purchaser obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets; and the Company does not maintain effective control over the transferred assets through an agreement that entitles or obligates the Company to repurchase or redeem the transferred assets before their maturity or the ability to unilaterally cause the holder to return specific assets.

Gains and losses from the sale of mortgages are recognized based on the difference between the sales proceeds and carrying value of the related loans and are recorded in gain on sale, net in the consolidated statements of operations. The sales proceeds reflect the cash received and the initial fair value of the separately recognized mortgage servicing rights.

Loans Eligible for Repurchase from GNMA

For certain loans that the Company transferred into GNMA securitization pools, the Company, as the issuer, has the unilateral right to repurchase without GNMA’s prior authorization any individual loan in a GNMA securitization pool if that loan meets certain criteria, including being unpaid for three consecutive months. Once the Company has the unilateral right to repurchase a delinquent loan, the Company has effectively regained control over the loan and, under GAAP, must re-recognize the loan on its consolidated balance sheets and establish a corresponding repurchase liability regardless of the Company’s intention to repurchase the loan. The Company records the right to repurchase these mortgage loans at fair value which is generally the unpaid principal balance. Asset values may be adjusted to reflect the market value of commitments to sell certain eligible loans to a market participant.

Mortgage Servicing Rights (MSRs)

The Company recognizes MSRs related to certain originated mortgage loans sold or transferred to third parties when servicing rights are retained.  In 2019, the Company also recognized MSRs related to certain originated non-agency loans sold to an affiliate for which the servicing rights were retained. The Company recognizes the right to service these mortgage loans as an asset on its consolidated balance sheets. The Company applies fair value accounting to these MSRs with changes in fair value recorded as charges or credits to the change in fair value of mortgage servicing rights on the consolidated statements of operations in accordance with ASC 860-50, Transfers and Servicing. The fair value of these MSRs is estimated using a stochastic discounted cash flow model that includes assumptions for prepayment speeds, discount rates, delinquency and foreclosure projections, servicing costs, and other assumptions. Management believes these assumptions are comparable to market-based assumptions for similar loan types used by other market participants in valuing MSRs. In addition, the Company obtains valuations from independent third parties to assess the reasonableness of the fair value calculated by the internal discounted cash flow model.
9


In addition, the Company receives certain servicing rights on nonperforming loans associated with securitizations structured by affiliates as non-cash capital contributions.  These servicing rights are short term in nature and are recorded at fair value.  The amount recorded represents the present value of the estimated future net cash flows related to servicing certain loans and property assets. The fair value of these servicing rights was estimated using a discounted cash flow model based on internal assumptions including higher cost assumptions associated with the short term nature of the servicing that, in management’s judgment, are what a market participant would have utilized, as compared to the Company’s contractual servicing fee arrangements.

Variable Interest Entities

In the normal course of business, Caliber enters into transactions with special purpose entities (SPEs), which primarily consist of trusts established for a limited purpose. The SPEs have been formed for the purpose of transactions in which the Company transfers assets into an SPE in return for various forms of debt obligations supported by those assets. In these transactions, the Company typically receives cash and/or other interests in the SPE as proceeds for the transferred assets. The Company retains the right to service the transferred receivables.

The Company evaluates its interests in each SPE for classification as a Variable Interest Entity (VIE). A VIE is an entity having either a total equity investment at risk that is insufficient to finance its activities without additional subordinated financial support, whose equity investors at risk lack the ability to control the entity’s activities, or when equity investors lack the ability to control the entity’s activities in a manner consistent with their obligation to absorb losses and/or receive benefits of the entity. When an SPE meets the definition of a VIE and the Company determines that Caliber is the primary beneficiary, the Company includes the SPE in its consolidated financial statements.

The Company has aggregated certain of these transactions as financings of advances on loans serviced for others accounted for as secured borrowings.  The Company transfers advances on loans serviced for others to SPEs in exchange for cash. Caliber consolidates these SPEs because Caliber is the primary beneficiary of the VIE. Caliber made these transfers under the terms of its servicer advance facility agreements. Caliber classifies the transferred advances on its consolidated balance sheets as servicing advances, net and the related liabilities as servicer advance facilities, net. The SPEs use collections of the pledged advances to repay principal and interest and to pay the expenses of the entity. Caliber remains the servicer of the underlying mortgage loans and has the power to direct the SPE’s activities. Caliber retains the risks and benefits associated with the assets transferred to the SPEs. Holders of the debt issued by these entities can look only to the assets of the entities themselves for satisfaction of the debt and have no recourse against Caliber.

Caliber Mortgage Participant I, LLC (the Initial Participant) was formed to acquire, receive, participate, hold, release, and dispose of participation interests in certain of Caliber’s mortgage loans held for sale (MLFHS PC). The Initial Participant transfers the MLHFS PC in exchange for cash. Caliber is the primary beneficiary of the VIE and therefore, consolidates the SPE within the results of the Company. Caliber classifies the transferred MLHFS PC on its consolidated balance sheets as mortgage loans held for sale, at fair value and the related liabilities as warehouse credit facilities, net. Caliber retains the risks and benefits associated with the assets transferred to the SPEs.

CHL GMSR Issuer Trust (the Trust), an SPE created for the purpose of transferring a participation certificate (MSR PC) representing a beneficial interest in Caliber’s GNMA MSRs in exchange for a variable funding note (MSR financing VFN) and a trust certificate with Caliber, as well for the issuance of  term notes in exchange for cash. Caliber consolidates this SPE because Caliber is the primary beneficiary of the VIE. Caliber consolidates the MSR PC within mortgage servicing rights, at fair value and the MSR financing VFN and term notes are classified as MSR financing facilities, net on its consolidated balance sheets. The SPE uses collections from a specified portion of GNMA MSR net service fees collected to repay principal and interest and to pay the expenses of the entity.

Additionally, the Company has also transferred a participation certificate representing a beneficial interest certain of Caliber’s GNMA servicer advances (servicer advance PC) to the Trust in exchange for a VFN (servicer advance VFN). Caliber classifies the transferred servicer advance PC on its consolidated balance sheets as servicing advances, net and the related liabilities as servicer advance facilities, net. The Trust use collections of the pledged advances to repay principal and interest and to pay the expenses of the servicer advance VFN.

Caliber remains the servicer of the underlying mortgage loans and has the power to direct its activities. Caliber retains the risks and benefits associated with the assets transferred to the SPEs. Holders of the term notes issued by the Trust can look only to the assets of the Trust for satisfaction of the debt and have no recourse against Caliber.

Refer to Note 11 Debt for further information regarding the carrying amounts of the assets and liabilities of the VIEs.

Interest Income

Interest income on mortgage loans is calculated based on the loan’s outstanding principal balance and the contractual interest rate. Interest income is recognized during the period between funding and sale of the loan in the secondary market. The Company does not accrue interest on mortgage loans held for sale that are delinquent 90 or more days (three or more payments past due). Interest income also includes placement fees earned on custodial cash deposits associated with mortgage loans serviced.

Interest Expense

Interest expense is recorded on an accrual basis based on the Company’s various financing agreements.  Interest expense also includes amortization of capitalized debt cost and commitment fees paid on certain debt agreements.
10


Derivative Instruments

In accordance with ASC 815, Derivatives and Hedging, the Company records its derivative instruments at fair value as either assets or liabilities on the 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 interest rate risk. The Company’s derivative instruments include interest rate lock commitments (IRLCs), loan purchase commitments (LPCs), correspondent mandatory commitments, forward commitments, Treasury futures, options on Treasury futures, Eurodollar futures, and options on Eurodollar futures.

In connection with futures and forward commitments, the Company has margin agreements with its counterparties whereby both parties are required to post cash margin in the event the fair values of the derivative financial instruments meet or exceed established thresholds and minimum transfer amounts. This process substantially mitigates counterparty credit risk. The right to receive cash margin placed by the Company with its counterparties is included in prepaid expenses and other assets on the consolidated balance sheets, and the obligation to return cash margin received by the Company from its counterparties is included in other liabilities on the consolidated balance sheets. 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.

3.  New Accounting Standards

Recent Accounting Guidance Adopted

On January 1, 2021, the Company adopted Accounting Standards Update 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions and improving the application of existing guidance in Topic 740. The adoption of this accounting pronouncement did not have a material impact on the Company’s consolidated financial statements.

4. Servicing Advances, Net

Servicing advances, net consist of the following (in thousands):

   
June 30, 2021
   
December 31, 2020
 
             
Principal and interest
 
$
1,845
   
$
2,392
 
Taxes and insurance
   
115,331
     
137,826
 
Default and other
   
36,500
     
34,485
 
Servicing advances
   
153,676
     
174,703
 
Less reserve for servicing advances
   
(14,615
)
   
(14,097
)
Total servicing advances, net
 
$
139,061
   
$
160,606
 

The provision for servicing advance losses was $3.3 million and $1.8 million for the three months ended June 30, 2021 and 2020, respectively, and $5.4 million and $5.1 million  for the six months ended June 30, 2021 and 2020, respectively.

5. Mortgage Loans Held for Sale, at Fair Value

Mortgage loans held for sale, at fair value, represents mortgage loans originated and held until sold to secondary market investors, such as GSEs or other third parties, or transferred into GNMA securitization pools. A summary of the unpaid principal balance of mortgage loans held for sale by type and the related aggregate fair value adjustments are presented below (in thousands):

   
June 30, 2021
   
December 31, 2020
 
             
Government(1)
 
$
2,412,348
   
$
2,564,936
 
Conventional(2)
   
6,587,673
     
4,882,651
 
Jumbo and other
   
707,920
     
215,741
 
Fair value adjustment
   
291,818
     
344,402
 
Total mortgage loans held for sale, at fair value
 
$
9,999,759
   
$
8,007,730
 

(1)          Includes loans insured by FHA, VA, and the United States Department of Agriculture (USDA) eligible to transfer into GNMA securitization pools.

(2)          Includes loans eligible for sale to FNMA and FHLMC.
11


The following table summarizes the activity in the balance of mortgage loans held for sale (in thousands):

   
Six Months Ended June 30,
 
   
2021
   
2020
 
             
Fair value beginning of year
 
$
8,007,730
   
$
6,639,122
 
Mortgage loans originated and purchased
   
45,369,298
   
$
37,016,728
 
Proceeds on sales and payments received
   
(43,324,685
)
 
$
(37,775,826
)
Change in fair value (1)
   
(52,584
)
 
$
44,831
 
Fair value end of period
 
$
9,999,759
   
$
5,924,855
 

(1)          Includes a $(3.7) million and $(5.2) million change in fair value adjustment for the six months ended June 30, 2021 and 2020, respectively, recorded against certain balance sheet accounts, primarily reserves for repurchases, which are represented in other liabilities on the consolidated balance sheets.

The total UPB and fair value of mortgage loans held for sale on non-accrual status are summarized below (in thousands):

   
June 30, 2021
   
December 31, 2020
 
Non-accrual UPB
 
$
31,117
   
$
39,863
 
Non-accrual fair value
   
27,469
     
34,670
 

For certain loans transferred into GNMA securitization pools, Caliber, as the issuer and servicer, has the right to repurchase any individual loan in a GNMA securitization pool if that loan meets certain criteria, including being unpaid for three consecutive months. GNMA repurchased loans are repurchased to sell to third party investors or modified to transfer back to GNMA securitization pools. For the six months ended June 30, 2021 and 2020, Caliber repurchased $1,090.5 million and $783.1 million of mortgage loans, respectively, out of GNMA securitization pools.

Gain on sale, net is comprised of the following (in thousands):

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2021
   
2020
   
2021
   
2020
 
                         
Gain on sale
 
$
269,840
   
$
616,364
   
$
694,440
   
$
812,408
 
Origination of mortgage servicing rights
   
169,567
     
181,447
     
336,208
     
455,446
 
Realized gain (loss) from derivative financial instruments
   
(68,357
)
   
(204,863
)
   
193,997
     
(383,231
)
Change in fair value (1)
   
224,497
     
13,117
     
(19,294
)
   
50,064
 
Unrealized gain (loss) on derivative instruments
   
(120,327
)
   
140,086
     
(79,837
)
   
193,141
 
Provision for repurchases
   
7,061
     
(29,269
)
   
10,161
     
(33,764
)
Total gain on sale, net
 
$
482,281
   
$
716,882
   
$
1,135,675
   
$
1,094,064
 

(1)             Includes a $37.0 million change in fair value of loans eligible for repurchase from GNMA for the three and six months ended June 30, 2021, recorded to loans eligible for repurchase from GNMA on the consolidated balance sheets.

6. Mortgage Servicing Rights (MSRs)

The Company recognizes MSRs when it sells loans it originates on a servicing-retained basis to third parties or affiliates. In addition, certain MSRs are contributed to the Company by an affiliate. The MSRs give Caliber 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. The Company receives a base servicing fee from the investors ranging from 0.25% to 1.00% annually on the outstanding principal balances of the loans.

The activity related to MSRs is as follows (in thousands):

   
Six Months Ended June 30,
 
   
2021
   
2020
 
             
Fair value at beginning of year
 
$
1,156,831
   
$
1,743,570
 
MSRs retained upon sale
   
336,208
     
455,446
 
Contributions of servicing assets (liabilities) from affiliates
   
(274
)
   
4,141
 
Sale of mortgage servicing rights
   
(468
)
   
(103,679
)
Other adjustments
   
(1,290
)
   
(17,916
)
Changes in fair value (1):
   Changes in valuation inputs and assumptions
   
310,691
     
(449,951
)
  Other changes in fair value (2)
   
(334,232
)
   
(297,625
)
Fair value at end of period (3)
 
$
1,467,466
   
$
1,333,986
 

(1)             The change in fair value of MSR per the table above does not include $(112.3) million and $427.5 million MSR hedge gains/(losses) for the six months ended June 30, 2021 and 2020, respectively, and $0.5 million change in fair value of servicing liability for the three and six months ended June 30, 2021, which are included in the change in fair value of mortgage servicing rights on the consolidated statements of operations.

(2)          Represents the realization of expected cash flows over time, primarily due to borrower payments.

(3)          Balance includes $0.4 million and $2.5 million of fair value of MSRs on loans owned by an affiliate as of  June 30, 2021 and 2020, respectively.
12


For valuing third party MSRs, the Company uses a stochastic discount rate by utilizing an option adjusted spread. Use of an option adjusted spread captures the benefit of a dynamic discount rate versus a static discount rate. The key economic assumptions used to measure the MSRs are shown below with the hypothetical effect on the fair value of the MSRs using various unfavorable variations in the key assumptions (dollars in thousands):

   
June 30, 2021
   
December 31, 2020
 
       
MSR Asset - Servicing for Third Parties
 
$
1,467,060
   
$
1,156,360
 
Weighted average life
   
5.39
     
4.73
 
Prepayment speed
               
10% adverse change
 
$
(83,152
)
 
$
(68,212
)
20% adverse change
 
$
(159,533
)
 
$
(130,619
)
Option Adjusted Spread rate
               
10% adverse change
 
$
(39,983
)
 
$
(36,805
)
20% adverse change
 
$
(77,768
)
 
$
(71,106
)
Cost to service per loan
               
10% adverse change
 
$
(24,068
)
 
$
(20,339
)
20% adverse change
 
$
(48,136
)
 
$
(40,678
)

7. Prepaid Expenses and Other Assets

Prepaid expenses and other assets consist of the following (in thousands):

   
June 30, 2021
   
December 31, 2020
 
             
Credit facilities receivable
 
$
107,920
   
$
119,397
 
Margin deposits placed with counterparties
   
5,373
     
70,538
 
Goodwill and intangible assets
   
64,937
     
64,937
 
Operating lease right-of-use assets
   
60,857
     
55,946
 
Prepaid expenses
   
34,757
     
32,400
 
Loans in process and settlements in process
   
307,640
     
27,530
 
Receivable for foreclosed loans backed by government guarantee
   
6,101
     
7,103
 
Other assets
   
91,908
     
52,406
 
Total prepaid expenses and other assets
 
$
679,493
   
$
430,257
 

8. Other Liabilities

Other liabilities consist of the following (in thousands):

   
June 30, 2021
   
December 31, 2020
 
             
Deferred tax liability, net
 
$
317,073
   
$
232,543
 
Operating lease liabilities
   
80,524
     
69,580
 
Reserve for repurchases and indemnifications
   
27,956
     
38,986
 
Margin deposits received from counterparties
   
6,122
     
20
 
Current tax liability, net
   
     
15,117
 
Other
   
26,521
     
30,125
 
Total other liabilities
 
$
458,196
   
$
386,371
 

13


9. Reserve for Repurchases and Indemnifications

Certain loan sale agreements include provisions requiring the Company to repurchase a loan if a borrower fails to make certain initial loan payments or if the accompanying mortgage loan fails to meet customary representations and warranties. These representations and warranties are made to the loan purchasers about various characteristics of the loans, such as manner of origination, the nature and extent of underwriting standards applied, and the types of documentation being provided and typically are in place for the life of the loan. In addition, an investor may request that the Company refund a portion of the premium paid on the sale of mortgage loans if a loan is prepaid within a certain amount of time from the date of sale.

The Company records a provision for estimated repurchases and premium recapture on loans sold, which is recorded as a component of gain on sale, net. The reserve for repurchases is included as a component of other liabilities. Reserve levels are a function of expected losses based on actual pending and expected claims, repurchase requests, historical experience, and loan volume. The Company evaluates the adequacy of the reserve based on the current regulatory environment and changes to the framework, and adjusts the reserve to reflect the best estimate of probable future losses.

The activity of the outstanding repurchase and indemnification reserves was as follows (in thousands):

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2021
   
2020
   
2021
   
2020
 
                         
Reserves, beginning of period
 
$
37,376
   
$
18,422
   
$
38,986
   
$
18,410
 
Provision for (reversal of provision) for repurchases
   
(7,061
)
   
29,269
     
(10,161
)
   
33,764
 
Payments, realized losses and other
   
(2,359
)
   
(6,597
)
   
(869
)
   
(11,080
)
Reserves, end of period
 
$
27,956
   
$
41,094
   
$
27,956
   
$
41,094
 

10. Derivative Financial Instruments

The following tables provide the outstanding notional balances and fair values of outstanding positions for the dates indicated, and unrealized gains (losses) during the periods indicated (in thousands):

   
June 30, 2021
   
Six Months Ended June 30, 2021
 
   
Outstanding Notional
   
FairValue
   
Unrealized Gain (Loss)
 
Assets:
                 
IRLCs
 
$
7,413,564
   
$
114,387
   
$
(150,477
)
LPCs
   
778,051
     
5,304
     
(2,707
)
Correspondent mandatory commitments
   
     
     
(261
)
Forward commitments
   
2,807,100
     
3,761
     
(34,138
)
Options on Treasury futures
   
2,950,000
     
10,078
     
4,759
 
Treasury futures
   
140,000
     
7,109
     
7,109
 
Liabilities:
                       
IRLCs
   
314,067
     
(1,139
)
   
(954
)
LPCs
   
657,077
     
(2,011
)
   
(853
)
Correspondent mandatory commitments
   
     
     
15
 
Forward commitments
   
13,074,646
     
(18,181
)
   
75,746
 
Deposits placed with counterparties
           
5,373
         
Deposits received from counterparties
           
6,122
         

   
June 30, 2020
   
Six Months Ended June 30, 2020
 
   
Outstanding Notional
   
Fair
Value
   
Unrealized Gain (Loss)
 
Assets:
                 
IRLCs
 
$
11,080,400
   
$
303,316
   
$
228,744
 
LPCs
   
384,863
     
6,754
     
(1,277
)
Correspondent mandatory commitments
   
3,046
     
85
     
49
 
Forward commitments
   
8,520,000
     
64,686
     
52,560
 
Options on Treasury futures
   
4,350,000
     
8,161
     
(256
)
Treasury futures
   
450,000
     
2,073
     
1,909
 
Options on Eurodollar futures
   
     
     
(258
)
Liabilities:
                       
IRLCs
   
29,899
     
(185
)
   
384
 
LPCs
   
40,192
     
(84
)
   
1,750
 
Forward commitments
   
13,222,994
     
(57,571
)
   
(39,163
)
Treasury futures
   
     
     
1,796
 
Deposits placed with counterparties
           
18,087
         
Deposits received from counterparties
           
6,940
         

14


Interest rate lock commitments (IRLCs) represent an agreement to extend credit to a mortgage applicant whereby the interest rate is set prior to funding. Loan purchase commitments represent an agreement to purchase loans from a third party originator also whereby the interest rate is set prior to funding. These loan commitments bind 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 and LPCs 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 borrower is not obligated to obtain the loan; thus, the Company is subject to fallout risk (“pull-through”) related to IRLCs and LPCs, which is realized if approved borrowers choose not to close on the loans within the terms of the commitments.

Correspondent Mandatory Commitments represent a loan sales agreement in which a correspondent seller commits to deliver a certain principal amount of mortgage loans to the Company at a specified price on or before a specified date. The Company is obligated to maintain its agreed-upon price regardless of changes in the marketplace. The correspondent seller is obligated to deliver the agreed-upon amount of mortgage loans. If the correspondent seller fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a “pair-off” fee, based on then-current market prices, to the Company to compensate for any delivery shortfall.

Mortgage loans held for sale, which the Company carries at fair value, are subject to interest rate and price risk from the loan funding date until the date the loan is sold into the secondary market. Generally, the fair value of a loan will decline in value in the secondary market when interest rates increase and will rise in value when interest rates decrease. The Company is also exposed to risk relative to the fair value of its MSRs. The Company is exposed to loss in fair value of its MSRs when interest rates decrease. To mitigate interest rate and price risk on the IRLCs, mortgage loans held for sale, and MSRs, the Company enters into futures, options, and forward commitments to provide an economic hedge.

The initial and subsequent changes in the value of IRLCs, LPCs, and correspondent mandatory commitments are recorded as a component of gain on sale, net in the consolidated statements of operations. Changes in fair value of the derivative financial instruments used to hedge IRLCs, LPCs, and mortgage loans held for sale are included in gain on sale, net on the consolidated statements of operations, and changes in fair value of the derivative financial instruments used to hedge MSRs are included in change in fair value of mortgage servicing rights on the consolidated statements of operations.
15


11. Debt

A summary of the balances of debt for the dates indicated is presented below (in thousands):

           
June 30, 2021
   
December 31, 2020
 

Maturity
 
Capacity
   
Principal Outstanding
   
Collateral Pledged (1)
   
Principal Outstanding
   
Collateral Pledged (1)
 
                                 
Servicer advance facility (2)
12/22/2021
 
$
25,909
   
$
25,909
   
$
33,092
   
$
27,571
   
$
35,031
 
Caliber Advance Receivables Trust 2020-ADV1
8/1/2022
   
250,000
     
34,596
     
46,073
     
45,573
     
60,040
 
GMSR servicing advance VFN repo (3)
3/28/2023
   
42,000
     
42,000
     
48,681
     
40,000
     
46,288
 
Servicer advance facilities principal amount
             
102,505
     
127,846
     
113,144
     
141,359
 
Debt issuance costs
             
(2,338
)
   
     
(3,179
)
   
 
Servicer advance facilities, net
           
$
100,167
   
$
127,846
   
$
109,965
   
$
141,359
 
Servicer advance wt. average interest rate
             
3.94
%
           
3.87
%
       
                                           
Warehouse A
2/23/2022
 
$
1,000,000
   
$
933,160
   
$
973,757
   
$
651,863
   
$
661,229
 
Warehouse B (3)
3/28/2023
   
3,423,000
     
2,847,364
     
2,976,260
     
2,399,484
     
2,494,074
 
Warehouse C
3/31/2022
   
1,250,000
     
1,188,614
     
1,213,160
     
945,160
     
964,654
 
Warehouse D
6/28/2022
   
400,000
     
398,600
     
420,197
     
356,053
     
366,669
 
Warehouse E (4)
2/10/2022
   
750,000
     
723,181
     
751,479
     
435,703
     
453,113
 
Warehouse F
4/22/2022
   
250,000
     
235,313
     
235,432
     
243,010
     
245,823
 
Warehouse G
6/3/2022
   
750,000
     
748,585
     
769,644
     
69,162
     
78,252
 
Warehouse H
9/24/2021
   
1,500,000
     
895,181
     
943,326
     
898,861
     
920,178
 
Warehouse I
8/27/2021
   
750,000
     
705,091
     
732,749
     
303,740
     
316,207
 
Warehouse J (2)
12/22/2021
   
474,091
     
285,889
     
285,909
     
471,758
     
471,921
 
Warehouse K
10/14/2022
   
650,000
     
548,885
     
567,976
     
600,150
     
617,990
 
Warehouse facilities principal amount
             
9,509,863
     
9,869,889
     
7,374,944
   
$
7,590,110
 
Debt issuance costs
             
(6,408
)
   
     
(5,751
)
   
 
Warehouse credit facilities, net
           
$
9,503,455
   
$
9,869,889
   
$
7,369,193
   
$
7,590,110
 
Warehouse wt. average interest rate
             
2.06
%
           
2.14
%
       
                                           
MSR facility A
7/10/2024
 
$
250,000
   
$
126,000
   
$
278,641
   
$
177,000
   
$
246,024
 
MSR facility B
7/8/2024
   
550,000
     
276,000
     
783,626
     
368,000
     
562,833
 
MSR variable funding note repo (3)
3/28/2023
   
35,000
     
35,000
     
54,874
     
35,000
     
50,269
 
GMSR series term notes
5/25/2023
   
325,000
     
325,000
     
427,877
     
325,000
     
391,971
 
MSR facilities principal amount
           
$
762,000
   
$
1,545,018
     
905,000
   
$
1,251,097
 
Debt issuance costs
             
(4,204
)
   
     
(5,102
)
 
$
 
MSR financing facilities, net
           
$
757,796
   
$
1,545,018
   
$
899,898
   
$
1,251,097
 
MSR facilities wt. average interest rate
             
3.25
%
           
3.32
%
       

(1)
Collateral must be maintained at or above levels specified in the various debt agreements. Outstanding borrowings are monitored and the Company is required to deliver additional collateral if the fair value of the underlying collateral falls below the various specified amounts.

(2)
Advance facility is with the lending institution with whom the Company also holds the Warehouse J line of credit. The maximum borrowing sublimit for the servicer advance facility is $45.0 million , and the maximum borrowing limit for the lender is $500.0 million.

(3)
Credit Suisse Group AG is the lending institution with whom the Company holds the GMSR servicing advance VFN repo, the Warehouse B line of credit, and the MSR variable funding note repo. The combined maximum borrowing sublimit for the two VFN repos is $250.0 million, and the maximum temporary aggregate base borrowing limit for the lender is $3.50 billion through December 27, 2021, and thereafter, $2.50 billion. As of June 30, 2021, the Company’s total risk under repurchase agreements with Credit Suisse Group AG was $175.7 million.

(4)
This facility has a temporary facility size increase of $250.0 million, which expires on October 26, 2021.
16


Accrued interest payable, which is presented in accounts payable and accrued expenses on the consolidated balance sheets, was $17.1 million and $11.4 million as of June 30, 2021 and December 31, 2020, respectively for the above facilities. The Company is charged variable interest rates on amounts borrowed under all facilities. Some of the facilities carry additional fees in the form of annual facility fees charged on the total line amount, commitment fees charged on the committed portion of the line, and non-usage fees charged when monthly usage falls below a certain utilization percentage.

Servicer Advance Facilities

Servicer advance facilities are used to finance certain reimbursable servicing advances.

Caliber Advance Receivables Trust (CART) was formed in July 2020 for the purpose of financing certain reimbursable FNMA and FHLMC servicer advances.

In October 2020, Caliber created the servicer advance PC which represents a beneficial interest in certain GNMA reimbursable servicer advances. The servicer advance PC was contributed to the GMSR Trust in exchange for the servicer advance VFN. Caliber simultaneously entered a master repurchase agreement to borrow against the value of the servicer advance VFN with the lending institution with whom the Company also holds the Warehouse B warehouse line of credit and the MSR variable funding note repo.

Warehouse Credit Facilities

In order to facilitate the origination and sale of mortgage loans held for sale, the Company enters into various agreements with warehouse lenders. Such agreements are in the form of repurchase agreements with banks and other financial institutions. Mortgage repurchase financing arrangements are collateralized by the underlying mortgage loans. These transfers do not meet the criteria for sale accounting and are therefore recorded as secured borrowings in which the assets remain on the balance sheet within mortgage loans held for sale, at fair value and the proceeds from the transaction are recognized as a liability in warehouse credit facilities, net.

In September 2020, the Company formed Caliber Mortgage Participant I, LLC for the purpose of warehousing loans held for sale held by Caliber. In October 2020, Caliber created a participation interest in the loans held for sale and issues that interest to the Initial Participant. The Initial Participant then entered into a repurchase agreement with Warehouse K, backed by a full guarantee by Caliber, to finance the participation interest.

MSR Financing Facilities

The MSR financing facilities are collateralized by the Company’s FNMA, FHLMC, and GNMA MSRs.

GMSR series term notes were issued in two classes, Class A Term Notes and Class B Term Notes. The initial note balance for the Class A Term Notes was $278.6 million, and for the Class B Term Notes, $46.4 million. The Term Notes have an optional extension period not to extend two years past the stated maturity date.

Variable Interest Entities

In the normal course of business, the Company enters into various types of transactions with SPEs determined to be VIEs, which primarily consist of securitization trusts established for a limited purpose. Generally, these SPEs are formed for the purpose of securitization transactions in which the Company transfers assets to an SPE, which then issues to investors various forms of debt obligations supported by those assets.

The Company has determined that the SPEs created in connection with certain advance facilities, Warehouse K, and certain MSR financing facilities should be consolidated as the Company is the primary beneficiary of each of these entities.

A summary of the assets and liabilities of VIEs included in the Company’s consolidated financial statements is presented below for the periods indicated (in thousands):

   
June 30, 2021
   
December 31, 2020
 
   
Servicer advance facilities
   
Warehouse facilities
   
MSR financing facilities
   
Servicer advance facilities
   
Warehouse facilities
   
MSR financing facilities
 
Assets
                                   
Cash and cash equivalents
 
$
   
$
7,977
   
$
   
$
   
$
1,065
   
$
 
Servicing advances, net
   
92,905
     
     
     
104,510
     
     
 
Mortgage loans held for sale, at fair value
   
     
567,976
     
     
     
617,990
     
 
Mortgage servicing rights, at fair value
   
     
     
344,888
     
     
     
310,454
 
Prepaid expenses and other assets
   
54,649
     
     
347,346
     
24,774
     
     
337,365
 
Total assets
 
$
147,554
   
$
575,953
   
$
692,234
   
$
129,284
   
$
619,055
   
$
647,819
 
                                                 
Liabilities
                                               
Accounts payable and accrued expenses
 
$
40,310
   
$
33,066
   
$
160
   
$
43,414
   
$
24,486
   
$
109
 
Servicer advance facilities
   
77,904
     
     
     
85,625
     
     
 
Warehouse credit facilities, net
   
     
545,867
     
     
     
595,976
     
 
MSR financing facilities, net
   
     
     
366,292
     
     
     
365,853
 
Total liabilities
 
$
118,214
   
$
578,933
   
$
366,452
   
$
129,039
   
$
620,462
   
$
365,962
 

17


Financial Covenants

As of June 30, 2021, the Company was in compliance with the covenants on its borrowing arrangements and credit facilities. These covenants generally relate to the Company’s profitability, tangible net worth, liquidity reserves, leverage requirements and limit dividends and distributions.

12. Income Taxes

The following table sets forth the computation of the effective tax rate (dollars in thousands):

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2021
   
2020
   
2021
   
2020
 
                         
Net income (loss) before taxes
 
$
12,733
   
$
196,867
   
$
344,119
   
$
365,663
 
Income tax benefit (expense)
 
$
(2,224
)
 
$
(48,210
)
 
$
(85,070
)
 
$
(90,366
)
Effective tax rate
   
17.47
%
   
24.49
%
   
24.72
%
   
24.71
%

The Company’s effective income tax rate from continuing operations was 17.47% and 24.49% for the three months ended June 30, 2021 and 2020, respectively, and 24.72% and 24.71% for the six months ended June 30, 2021 and 2020, respectively, compared to the statutory rate of 21.00%. Several factors influence the effective tax rate. Items increasing the rate include income taxes paid in various state jurisdictions and meals, entertainment, and qualified transportation expenses which are nondeductible for income tax purposes.

Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”)

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic which included temporary changes to income and non-income based tax laws including: (i) the elimination of the 80% of taxable income limitation by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 and 2020; (ii) allowing NOLs originating in 2018, 2019 and 2020 to be carried back five years; (iii) increasing the net interest expense deduction limit to 50% of adjusted taxable income from 30% for tax years beginning January 1, 2019 and 2020; and (iv) other related provisions.  The CARES Act did not have a material impact on the Company’s consolidated financial statements.

13. Concentrations of Risk

Risks and Uncertainties

In the ordinary course of business, the Company will encounter certain economic and regulatory risks. Economic risks include credit risk, interest rate risk and market risk. Credit risk is the risk of default, primarily in the loan portfolio that results from borrowers’ inability or unwillingness to make contractually required payments. Interest rate risk is the risk that the valuation of the Company’s interest sensitive assets and liabilities and its net interest income will change due to changes in interest rates. Market risk includes the inability of prospective borrowers to engage in home purchase transactions or mortgage refinances. Regulatory risks include administrative enforcement actions and/or civil or criminal liability resulting from any alleged failure to comply with the laws and regulations applicable to the Company’s business.

Concentrations

The Company originated or purchased loans in 50 states and the District of Columbia, with significant activity (approximately 5% or greater of total originations) in the following states:

   
Percentage of Originations
 
June 30, 2021
     
State:
     
California
   
15.64
%
Washington
   
15.21
 
Florida
   
10.10
 
Texas
   
5.56
 
         
December 31, 2020
       
State:
       
California
   
17.48
%
Washington
   
14.74
 
Florida
   
9.41
 
Texas
   
5.42
 

18


The total unpaid principal balance of the servicing portfolio, including mortgage loans held for sale, was approximately $161.2 billion and $152.7 billion as of June 30, 2021 and December 31, 2020, respectively.  Of this population, the unpaid principal balance of loans originated by the Company and sold servicing retained was $142.9 billion and $131.5 billion as of June 30, 2021 and December 31, 2020, respectively. The Company serviced loans in 50 states, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands with significant activity (approximately 5% or greater of total servicing) in the following states:

   
Percentage of Servicing Unpaid Principal Balance
 
June 30, 2021
     
State:
     
California
   
15.47
%
Washington
   
12.00
 
Florida
   
10.69
 
Texas
   
6.31
 
         
December 31, 2020
       
State:
       
California
   
16.53
%
Washington
   
10.90
 
Florida
   
10.29
 
Texas
   
6.32
 

Significant Customers

The following table presents newly originated loans that the Company sold to investors or transferred into GNMA securitization pools (in thousands):

   
Six Months Ended June 30,
 
   
2021
   
2020
 
                         
GNMA
 
$
12,848,726
     
30.6
%
 
$
13,941,145
     
37.9
%
FHLMC
   
16,583,066
     
39.4
     
12,602,359
     
34.3
 
FNMA
   
10,756,937
     
25.6
     
8,382,537
     
22.8
 
Other
   
1,843,757
     
4.4
     
1,840,858
     
5.0
 
   
$
42,032,486
     
100.0
%
 
$
36,766,899
     
100.0
%

The following table presents the percentage of unpaid principal balance of loans serviced by the Company that are owned by affiliates or other third parties:

   
June 30, 2021
   
December 31, 2020
 
             
GNMA
   
28.4
%
   
29.1
%
FHLMC
   
39.7
     
39.0
 
FNMA
   
24.0
     
23.1
 
Affiliate
   
1.3
     
4.1
 
Other
   
6.6
     
4.7
 
     
100.0
%
   
100.0
%

19


Servicing Portfolio Characteristics

The characteristics of the loan and property assets serviced by the Company are as follows:

   
June 30, 2021
   
December 31, 2020
 
             
Performing loans
   
96.8
%
   
93.4
%
Nonperforming loans
   
3.2
     
5.0
 
Real estate owned
   
     
1.6
 
     
100.0
%
   
100.0
%

Nonperforming loans are defined as being greater than 90 days contractually past due.

14. Related-Party Transactions

In performing the servicing functions on loans owned by affiliates, the Company earns servicing-related fees, and also settles transactions with its affiliates for servicing advances. The Company earned approximately $1.6 million and $8.3 million in servicing-related fees from affiliates during the three months ended June 30, 2021 and 2020, respectively, and $6.2 million and $17.7 million during the six months ended June 30, 2021 and 2020, respectively. At June 30, 2021 and December 31, 2020, the Company had outstanding advances of $0.6 million and $1.7 million, respectively, on loans serviced on behalf of affiliates.

During the six months ended June 30, 2021 and 2020, respectively, $(0.3) million and $4.1 million of fair value of servicing rights on nonperforming loans associated with securitizations structured by an affiliate were contributed to the Company. These servicing rights are short term in nature due to the fact that the securitization notes can be called at the end of the first year and re-performing loans are regularly purchased out of the securitization for resale on a servicing released basis by the affiliated entity. The affiliates also limit transferability of the servicing rights and add additional operational and reporting requirements. These contributions were recorded net of deferred taxes of $(0.1) million and $1.0 million, respectively, to additional paid-in capital.

During the six months ended June 30, 2020, Caliber sold originated non-agency mortgage loans with an unpaid principal balance of $431.4 million to an affiliate, resulting in a gain of  $10.4 million which is included in gain on sale, net on the consolidated statements of operations.

15. Fair Value Measurements

ASC 820, Fair Value Measurements, provides a definition of fair value, establishes a framework for measuring fair value, and requires expanded disclosures about fair value measurements. The standard applies when GAAP requires or allows assets or liabilities to be measured at fair value and, therefore, does not expand the use of fair value in any new circumstance.

ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tiered fair value hierarchy based on the level of observable inputs used in the measurement of fair value (i.e., Level 1 represents quoted prices for identical assets or liabilities in an active market; Level 2 represents values using observable inputs, other than quoted prices included within Level 1; and Level 3 represents estimated values based on significant unobservable inputs). In addition, ASC 820 requires an entity to consider all aspects of nonperformance risk, including its own credit standing, when measuring the fair value of a liability. Under ASC 820, related disclosures are segregated for assets and liabilities measured at fair value based on the level used within the hierarchy to determine their fair values.

The following describes the methods and assumptions used by the Company in estimating fair values:

Cash and Cash Equivalents, Restricted Cash

The carrying value of cash and cash equivalents and restricted cash reported in the consolidated balance sheets approximates fair value. Cash and cash equivalents and restricted cash are classified as Level 1.

Mortgage Loans Held for Sale

The Company measures mortgage loans held for sale at fair value. Mortgage loans held for sale are valued using a market approach by utilizing: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk; (ii) current commitments to purchase loans; or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market prices, the Company classifies these valuations as Level 2 in the fair value disclosures.

Mortgage Servicing Rights (MSR)

The Company primarily estimates the fair value of its mortgage servicing rights by using a stochastic discounted cash flow model which includes assumptions for prepayment speeds, discount rates, delinquency and foreclosure projections, servicing costs, and other assumptions. Management believes these assumptions are comparable to market-based assumptions used by other market participants in valuing MSRs. These assumptions require the use of judgment and can have a significant impact on the determination of the MSR’s fair value. Accordingly, the Company classifies these valuations as Level 3 in the fair value disclosures. Changes in fair value of these servicing rights are recorded to the change in fair value of mortgage servicing rights on the consolidated statements of operations.
20


Derivative Instruments

The Company enters into a variety of derivative financial instruments as part of its hedging strategy and carries these instruments at fair value on the consolidated balance sheets.

The Company enters into IRLCs and LPCs with prospective borrowers and other loan originators. These commitments are carried at fair value, which is computed based on quoted agency pricing and the Company’s estimate of the value pull-through rates. Pull-through rate is a significant unobservable input used in the fair value measurement of IRLCs and LPCs. A significant increase or decrease in the pull-through rate could result in a material increase or decrease in the fair value of IRLCs and LPCs, respectively. The Company classifies IRLCs and LPCs as Level 3 in the fair value disclosures.

The Company enters into correspondent mandatory commitments with correspondent sellers. These commitments are carried at fair value based on quoted agency pricing and the Company’s estimate of the value of the related MSR. Because the inputs used by the Company include significant unobservable inputs such as MSR values and this can have a significant impact on the calculated fair value, the Company classifies the correspondent mandatory commitments as Level 3 in the fair value disclosures.

Forward commitments, Treasury and Eurodollar futures, and options on Treasury and Eurodollar futures are used to mitigate the interest rate risk impact on IRLCs, mortgage loans held for sale, and MSRs. The estimated fair value of these derivative instruments are based on exchange prices or dealer market price and are therefore classified as Level 2 in the fair value disclosures.

Earnout

A contingent earnout liability has resulted from the Company’s acquisition of certain loan origination operations and certain assets from various third party entities. The deferred purchase price is contingent upon funded loan volume or future net income during the earnout period following the acquisition date, and is therefore classified as Level 3 in the fair value disclosures.

Loans Eligible for Repurchase From GNMA/Liability for Loans Eligible for Repurchase from GNMA

The Company has the unilateral right to repurchase these delinquent loans at their unpaid principal balances, which approximates fair value for the liability and generally approximates fair value for the assets. Asset values may be adjusted to reflect the market value of commitments to sell certain eligible loans to a market participant.These loans eligible for repurchase are classified as Level 2.

Servicer Advance Facilities, Warehouse Credit Facilities, and MSR Financing Facilities

Each of the Company’s debt facilities bears interest at a rate that is periodically adjusted based on a market index; therefore, the carrying amount on the consolidated balance sheets approximates fair value. These debt facilities are classified as Level 2.

The estimated carrying amount and fair value of the Company’s financial instruments and other assets and liabilities measured at fair value on a recurring basis are as follows for the dates indicated (in thousands):

               
Fair Value
       
   
Carrying Amount
   
Level 1
   
Level 2
   
Level 3
 
June 30, 2021
                       
Assets
                       
Mortgage loans held for sale
 
$
9,999,759
   
$
   
$
9,999,759
   
$
 
Mortgage servicing rights
   
1,467,466
     
     
     
1,467,466
 
Loans eligible for repurchase from GNMA
   
2,241,800
     
     
2,241,800
     
 
Derivative financial instruments:
                               
IRLCs
   
114,387
     
     
     
114,387
 
LPCs
   
5,304
     
     
     
5,304
 
Forward commitments
   
3,761
     
     
3,761
     
 
Options on Treasury futures
   
10,078
     
     
10,078
     
 
Treasury futures
   
7,109
     
     
7,109
     
 
                                 
Liabilities
                               
Liability for loans eligible for repurchase from GNMA
   
2,204,769
     
     
2,204,769
     
 
Derivative financial instruments:
                               
IRLCs
 
$
1,139
   
$
   
$
   
$
1,139
 
LPCs
   
2,011
     
     
     
2,011
 
Forward commitments
   
18,181
     
     
18,181
     
 

21


               
Fair Value
       
   
Carrying Amount
   
Level 1
   
Level 2
   
Level 3
 
December 31, 2020
                       
Assets
                       
Mortgage loans held for sale
 
$
8,007,730
   
$
   
$
8,007,730
   
$
 
Mortgage servicing rights
   
1,156,831
     
     
     
1,156,831
 
Loans eligible for repurchase from GNMA
   
2,273,601
     
     
2,273,601
     
 
Derivative financial instruments:
                               
IRLCs
   
264,864
     
     
     
264,864
 
LPCs
   
8,011
     
     
     
8,011
 
Correspondent mandatory commitments
   
261
     
     
     
261
 
Forward commitments
   
37,899
     
     
37,899
     
 
Options on Treasury futures
   
4,453
     
     
4,453
     
 
                                 
Liabilities
                               
Liability for loans eligible for repurchase from GNMA
   
2,273,601
     
     
2,273,601
     
 
Derivative financial instruments:
                               
IRLCs
 
$
185
   
$
   
$
   
$
185
 
LPCs
   
1,158
     
     
     
1,158
 
Correspondent mandatory commitments
   
15
     
     
     
15
 
Forward commitments
   
93,927
     
     
93,927
     
 

The table below presents a reconciliation of all of the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis (in thousands):

   
Six Months Ended June 30, 2021
 
   
MSRs
   
IRLC, net
   
LPC, net
   
Correspondent Mandatory Commitments, net
 
                         
Fair value - beginning of period
 
$
1,156,831
   
$
264,679
   
$
6,853
   
$
246
 
Total gains or losses included in earnings
   
     
(151,431
)
   
(3,560
)
   
(246
)
Change in fair value
   
(23,541
)
   
     
     
 
Issuances
   
336,208
     
     
     
 
Contributions
   
(274
)
   
     
     
 
Sales
   
(468
)
   
     
     
 
Other adjustments
   
(1,290
)
   
     
     
 
Settlements
   
     
     
     
 
Fair value - end of period
 
$
1,467,466
   
$
113,248
   
$
3,293
   
$
 

   
Six Months Ended June 30, 2020
 
   
MSRs
   
IRLC, net
   
LPC, net
   
Correspondent Mandatory Commitments, net
   
Contingent liability (Earnout)
 
                               
Fair value - beginning of period
 
$
1,743,570
   
$
74,003
   
$
6,197
   
$
36
   
$
1,833
 
Total gains or losses included in earnings
   
     
229,128
     
473
     
49
     
 
Change in fair value
   
(747,576
)
   
     
     
     
712
 
Issuances
   
455,446
     
     
     
     
 
Contributions
   
4,141
     
     
     
     
 
Sales
   
(103,679
)
   
     
     
     
 
Other adjustments
   
(17,916
)
   
     
     
     
 
Settlements
   
     
     
     
     
(1,755
)
Fair value - end of period
 
$
1,333,986
   
$
303,131
   
$
6,670
   
$
85
   
$
790
 

22


The table below presents a quantitative summary of significant unobservable inputs used in the fair valuation measurement of Level 3 assets and liabilities (in thousands, except cost to service per loan):

   
June 30, 2021
   
December 31, 2020
 
Unobservable input
 
Range
   
Weighted average
   
Range
   
Weighted average
 
IRLC:
                       
Pull-through rate
   
0% - 100
%
   
76.97
%
   
0% - 100
%
   
74.41
%
                                 
MSRs:
                               
Prepayment speed
   
14.30% - 15.70
%
   
14.80
%
   
16.30% - 20.90
%
   
17.20
%
Option Adjusted Spread rate
   
700 - 717
     
710
     
930 - 1,629
     
1,019
 
Cost to service per loan
 
$
82 - $156
   
$
104
   
$
79 - $148
   
$
100
 

16. Commitments and Contingencies

Litigation and Regulatory Matters

In the ordinary course of business, the Company and its subsidiaries are named as defendants in or parties to threatened litigation, including those related to regulation, litigation business transactions, employee-related matters and taxes, among others. In the Company’s opinion, the resolution of those proceedings will not have a material effect on its financial condition, results of operations, or cash flows.

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 mortgage origination, servicing and financing activities, which may be applicable generally to the mortgage industry or to Caliber in particular.

Certain of the Company’s secondary market investors require minimum net worth (“capital”) requirements, as specified in the respective selling and servicing agreements. In addition, these investors may require capital ratios in excess of the stated requirements to approve large servicing transfers. To the extent that these requirements are not met, the Company’s secondary market investors may utilize a range of remedies ranging from sanctions, suspension or ultimately termination of the Company’s selling and servicing agreements, which would prohibit the Company from further origination or securitizing these specific types of mortgage loans or being an approved servicer.

Among the company’s various capital requirements related to its outstanding selling and servicing agreements, the most restrictive of these requires Caliber to maintain a minimum net worth balance of approximately $403.7 million as of June 30, 2021. The Company has maintained compliance with selling and servicing capital requirements.

Commitments

As part of certain real estate operating lease agreements, the Company is required to maintain irrevocable letters of credit (LOCs) that can be drawn on by the applicable landlord in the case of default. The total amount of LOCs maintained was $1.1 million as of December 31, 2020, and the LOCs expired on March 31, 2021.  Additionally, in connection with these LOCs, the Company maintained cash collateral balances in the amount of $1.2 million as of December 31, 2020.  The cash collateral is presented as restricted cash in the consolidated balance sheets. Through the expiration date of the LOCs, no events of default occurred and therefore, no draws were made on the letters of credit.

17. Earnings per Share

Basic earnings per share of common stock is determined using net income attributable to the Company’s common stockholders divided by the weighted average number of shares of common stock outstanding during the period.

The following table summarizes the basic earnings per share calculations (in thousands, except per share amounts):

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2021
   
2020
   
2021
   
2020
 
                         
Net income (loss) before taxes
 
$
10,509
   
$
148,657
   
$
259,049
   
$
275,297
 
                                 
Weighted average basic shares of common stock outstanding
   
119,172
     
119,172
     
119,172
     
119,172
 
                                 
Basic EPS
 
$
0.09
   
$
1.25
   
$
2.17
   
$
2.31
 

18. Subsequent Events

The Company has evaluated subsequent events through  the date these consolidated financial statements were available to be issued.

On July 1, 2021, Caliber repurchased $1.7B of GNMA repurchase eligible mortgage loans and immediately sold the loans to a third party on a servicing retained basis. Caliber realized a premium in excess of the unpaid principal balance of $37.0 million.

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