As filed with the Securities and Exchange Commission on January 21, 2021

Registration No. 333-249240

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 3

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Caliber Home Loans, Inc.

(Exact name of registrant as specified in its charter)

1525 S Belt Line Rd.

Coppell, TX 75019

800-401-6587

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Gregg Smallwood

Executive Vice President, General Counsel

Caliber Home Loans, Inc.

1525 S Belt Line Rd.

Coppell, TX 75019

800-401-6587

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

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.

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 to Section 7(a)(2)(B) of the Securities Act.  ☐

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. The securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated January 21, 2021

             Shares

Caliber Home Loans, Inc.

Common Stock

This is an initial public offering of shares of common stock of Caliber Home Loans, Inc., a Delaware corporation.

The selling stockholder identified in this prospectus is offering all of the shares. We will not receive any of the proceeds from the sale of the shares being sold by the selling stockholder.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between              and              per share.

After completion of this offering, the selling stockholder will beneficially own approximately              of the outstanding shares of our common stock. As a result, we will be a “controlled company” under the corporate governance listing standards of the New York Stock Exchange, or the NYSE, following the completion of this offering. See “Management—Controlled Company Exemption.”

Our common stock has been approved for listing on the NYSE under the symbol “HOMS.”

Investing in our common stock involves risks. See “Risk Factors” beginning on page 20 of this prospectus.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The selling stockholder has granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to an additional              shares of our common stock at the initial public offering price, less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on or about                 , 2021.

Prospectus dated     , 2021.

A Letter from Sanjiv Das CEO of Caliber Home Loans I believe in the American Dream. I left my native country of India more than 30 years ago to embark upon a journey that brought me to the United States. I knew that this country afforded opportunities to those who hoped for a more prosperous life. I began my career in financial services, and I bought a house as soon as I could afford one. Owning a home gave me a strong sense of belonging, a foundation upon which to build my life, and a feeling of optimism about my future. Now as an American and as the CEO of Caliber Home Loans, I’m committed to helping others achieve their dreams of homeownership. This mission is personal to me. Owning a home is a transformational experience. Home is a sanctuary. It’s a place to raise children, where families gather and friendships develop. It’s a launching pad for building wealth and nurturing future generations. Increasingly, our homes are also our offices and workplaces. For most families buying a home is the largest, most important and complex financial decision they will make. As leaders in the purchase loans market, we know that first-time home buyers don’t just want to push buttons on an app on their phone, they want personal advice from trusted loan consultants within their community. Caliber offers them a high-touch local presence, supported by our world-class technology platform. Our relationships with our customers begin the moment they express interest in purchasing a home, but we also stay with them throughout their ownership journey. Our loan consultants live in the same communities as their customers. They serve together on Parent Teacher Association boards and in the armed forces. Our loan consultants help their customers get into the right home and stay there, offering advice and highly tailored refinancing solutions. We don’t just measure our success by how many home loans we provide, but also by the positive impact we have on our customers and communities.

We set out to build a different type of mortgage company, one that creates real and lasting value for our customers, shareholders, and stakeholders. We provide an outstanding customer experience, exercise disciplined financial management, and have delivered sustainable and significant returns while growing the Caliber franchise. We remain committed to generating substantial shareholder value by concentrating our efforts on maintaining our strength in purchase mortgages and focusing our efforts on improving efficiency and profitability. Our team is among the most experienced in the industry, successfully managing through various economic cycles while at some of the world’s top financial institutions. Our experience together has taught us how to manage risk and grow profitably in any environment. We have grown through a remarkable collaboration with our dedicated employees, valued customers, and wide range of partners. I would like to thank all of them for their trust, commitment, and loyalty. If you’re reading this letter, chances are that you’re doing so under your own roof. Like millions of Americans, perhaps you’re reevaluating your living and workspace. Maybe you’re thinking about enhancing your home office, buying a new place, or refinancing your existing mortgage. We’d be happy to help you with the process. I remember the exhilaration of holding the keys to my house for the first time. At Caliber Home Loans, we want to help our customers achieve that same feeling. To our new shareholders, welcome home. In Caliber, you have a partner who is deeply committed to our mission: helping customers achieve their dreams of homeownership by acting as a trusted partner along the way. Here is my commitment to you: We will serve our customers, work to generate value for our shareholders, improve the communities in which we live and operate, support and respect each other, and strive for excellence in all that we do. Thank you for being a part of our journey. Sanjiv Das

CALIBER HOME LOANS

We make the dream of homeownership a reality.

#2 39% Largest independent mortgage originator by purchase volume since 2016 Origination volume CAGR from 2013 through 2019 550k+ 74% Servicing customers Refinance retention rate for first six months of 2020 45% $275mm Return on equity for first six months of 2020 Net income for first six months of 2020

TABLE OF CONTENTS

We have not, and the underwriters and the selling stockholder have not, authorized any other person to provide you with information different from that contained in this prospectus and any free writing prospectus authorized by us. We, the selling stockholder and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are not, and the underwriters and the selling stockholder are not, making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

i

GENERAL INFORMATION

Basis of Presentation

Unless otherwise indicated or the context otherwise requires, references in this prospectus to (i) the “Issuer” refers to Caliber Home Loans, Inc., a Delaware corporation, (ii) the “Company,” “we,” “us,” “our” and “Caliber” refer to the Issuer and its consolidated subsidiaries, (iii) “LSF Pickens” and the “selling stockholder” refer to LSF Pickens Holdings, LLC, the sole stockholder of the Issuer prior to the consummation of our initial public offering and the principal stockholder of the Issuer after the consummation of our initial public offering, (iv) “Lone Star” or the “Sponsor” refers to Lone Star Fund V (U.S.), L.P., Lone Star Fund VI (U.S.), L.P., and certain of their affiliates and (v) “Hudson” refers to Hudson Advisors L.P., and certain of its affiliates.

Unless as otherwise indicated, all market and operational data and measures are presented as of September 30, 2020.

All financial information presented in this prospectus is derived from our combined financial statements included elsewhere in this prospectus. All financial information presented in this prospectus has been prepared in U.S. dollars in accordance with generally accepted accounting principles in the United States of America, or GAAP, except for the non-GAAP measures described further in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

Market and Industry Data

Certain market and industry data included in this prospectus have been obtained from third-party sources, including, among others, Inside Mortgage Finance, or IMF, Mortgage Bankers Association, or MBA, National Association of Realtors, or NAR, and J.D. Power and Associates, that we believe to be reliable. We have not compensated any third-party sources for the market and industry data included in this prospectus. Market estimates are calculated by using independent industry publications, government publications, reports by market research firms and third-party forecasts in conjunction with our assumptions about our markets. Some data are also based on our good faith estimates, which are derived from our review of internal surveys and from the independent sources listed above. We believe these estimates to be reasonable based on the information available to us as of the date of this prospectus. However, we have not independently verified such third-party information and cannot assure you of its accuracy or completeness. While we are not aware of any misstatements regarding any market, industry or similar data presented herein, such data involve risks and uncertainties and are subject to change based on various factors, including those discussed under the headings “Forward-Looking Statements” and “Risk Factors” in this prospectus. We do not make any representations as to the accuracy of such market and industry data.

Trademarks

We own or have the rights to use various trademarks, service marks and trade names that we use in connection with the operation of our business. This prospectus may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this prospectus is not intended to, and does not, imply a relationship with, or endorsement or sponsorship by, us. Solely for convenience, the trademarks, service marks and trade names presented in this prospectus may appear without the ^®, TM or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, service marks and trade names.

ii

PROSPECTUS SUMMARY

The following is a summary of material information discussed in this prospectus. The summary is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read this entire prospectus carefully, including the risks discussed in the section entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the audited and unaudited financial statements and the related notes thereto, each included elsewhere in this prospectus, before making an investment decision to purchase shares of our common stock. Some of the statements in this summary constitute forward-looking statements. See “Forward-Looking Statements.”

Business Overview

 

We are a proven leader in the U.S. mortgage market with a uniquely diversified, customer-centric, purchase-focused platform. We deliberately focus on the purchase market and are the second largest independent mortgage originator based on purchase volume since 2016, according to IMF. Guided by analytics and data, we have leveraged our robust platform to build impressive scale across our highly complementary channels. As a result, for the year ended December 31, 2019, we are the only player with a top 10 market position across all three channels tracked by IMF – retail, wholesale, and correspondent.   We were formed in 2013 when Lone Star combined separate origination and servicing investments to create a full-service mortgage platform, with an emphasis on the purchase market. Our high-touch Local Strategy has always been at the heart of what we do backed by our high-tech proprietary systems that help us efficiently meet the needs of our constituents. We believe this approach has earned us a reputation with realtors and brokers nationwide as a trusted partner that executes complex transactions and delivers certainty of closing quickly and reliably.   Leveraging our established Local Strategy and strength in the purchase market, we embarked on a journey four years ago to build out our Direct Strategy. Our Direct Strategy sits at the intersection of our strong position in purchase and our ongoing servicing relationships, driving new customer acquisitions and refinance opportunities. We choose to retain servicing on the vast majority of the mortgages we originate in order to meet the ongoing housing needs of our more than half a million customers and growing.

Our track-record of success in originating and servicing mortgages is supported by robust capabilities, spanning operations, technology, analytics, capital markets and risk management. These capabilities have enabled us to drive outsized growth and attractive financial results. Our origination volume has increased at a 39% compound annual growth rate, or CAGR, since 2013 to $61 billion for the year ended December 31, 2019, versus a 3% CAGR of the overall mortgage market. Our steady growth and market leadership has led to net income of $540 million and a return on equity of 56% for the nine months ended September 30, 2020.

1

Go to Market Strategies

In the $2.2 trillion annual mortgage origination market as of December 31, 2019, there are two primary types of mortgage transactions: home purchase loans and refinance loans. Purchase loans generally represent the majority of mortgages. Purchasing a home is one of the most significant financial investments that most Americans will make in their lives. In order to navigate the personal and emotional process of purchasing a home, customers expect a trusted relationship and guidance throughout the process as well as confidence and certainty that their loan will close on time. Throughout the course of their homeownership journey, many look to their current lender first when there is an opportunity to refinance their loan. Refinance loans can also be transactional and are more dependent on pricing, and for some customers can be effectively delivered directly through a centralized, digitally-enabled capability.

 

With this in mind, our go to market approach has two interconnected strategies: Local and Direct. Our Local Strategy, which includes our retail and wholesale channels, drives our purchase focus. Our Direct Strategy, which includes our direct-to-consumer, or DTC, and correspondent channels as well as our servicing platform, principally drives refinance activity and is an important component of our future growth. We execute our strategies and operate our channels in a fully-integrated manner allowing us to deftly deploy resources as opportunities evolve to deliver attractive and stable growth and risk-adjusted returns.   Our goal is to win in the purchase market every single day. Through our Local Strategy, we have become a preeminent purchase mortgage platform. Our strategic decision to focus on purchase loans stems from three critical aspects:   •  Purchase loans are a source of stable growth – home purchases are geared to the fundamentals of household formation and are less susceptible to economic cycles. Purchase mortgages generally represent a higher share of the mortgage market, comprising approximately 54% of overall mortgage market origination volume on average since 1990 according to MBA. Purchase mortgage originations have grown in each of the last eight years. This underlying predictability brings stability to our platform, making our business less dependent on rate-driven refinance cycles.
•  The scale of our local presence is difficult to replicate – we have a national footprint and we win at the local level, leveraging our brand and economies of scale. We believe the Caliber brand is stellar among our referral partners, including realtors and homebuilders, who have come to trust that we will deliver a predictable, timely and efficient mortgage process for the customers they introduce to us.   •  Purchase loans start lifetime relationships with our customers – when we provide our customers with a best-in-class home purchase experience and maintain connectivity through servicing, we build long-lasting and loyal relationships throughout their entire homeownership journey.

2

3

4

Transformative Technology and Investment in Platform

 

Technology is at the center of everything we do, driving superior customer service, efficiencies, and regulatory compliance seamlessly from loan origination through servicing. We believe that our technology is what enables our high-touch approach to be efficient. This understanding led us to build H2O, our bespoke loan origination system, inspired by the actual people who use it – customers, loan consultants, processors, underwriters and funding support staff. H2O is a web-based, workflow-oriented solution that handles the entire loan application process, from application to funding, with robust mobile functionality, giving our customers and employees a nimble and powerful system at their fingertips.   Our loan origination system is highly scalable and built on a modern technology stack, which can flexibly be deployed across the entire business and has supported our origination volume increasing approximately five-fold over the five years ended December 31, 2019. Our technology allows us to maintain the integrity of calculations, services and data, through a micro-service enabled API layer and a single unified database.   Our servicing system is integrated with H2O and provides a quick and seamless process for on-boarding our loans from origination to servicing. This connectivity also helps us provide a seamless process for retention. We have a highly efficient workflow-driven servicing ecosystem which directs tasks and work to the right person at the right time in the process. Through automation, including Robotics Process Automation, we have been able to achieve efficiencies in our servicing operations and better serve our customers.

We have made significant investments in our CRM platform to support loan originations through lead identification, prioritization, and marketing, as well as in our servicing system for superior customer retention.

Track Record of Successful Growth

Our retail presence was built through disciplined organic growth and a “buy and bolt-on” strategy which successfully expanded our footprint into new markets and gave us the critical mass in our large retail franchise. Our acquisition history includes Cobalt Mortgage in 2014, which significantly increased our presence in the Pacific Northwest. In 2016, we acquired First Priority Financial, a regional residential mortgage lender with locations and originators in California, Oregon, Washington, Idaho and Iowa to expand our base of operation in the Western states. We continued to build our presence in California and the Northwest when we acquired strategic locations from Banc Home Loans in 2017. We have a track record of seamlessly integrating these and other acquisitions, which collectively resulted in $8.3 billion in retail originations in 2019, representing 39% of our total originations in that channel.

Our growth strategy will continue to include a combination of organic investments, focused loan consultant recruiting and retention, and opportunistic M&A. Furthermore, we have incubated and scaled initiatives, such as our DTC channel where we dedicated incremental focus and resources starting in 2016 and have grown to more than $5.7 billion in originations for the nine months ended September 30, 2020.

5

As a result, our origination volume has grown at an 18% CAGR since 2017, ascending from a new entrant in 2013 to the only originator in the top 10 in all three channels tracked by IMF – retail, wholesale, and correspondent. We have been able to realize this origination growth while staying focused on profitability, achieving 23 straight quarters of positive operating contribution through the third quarter of 2020. During the period from December 31, 2017 to September 30, 2020, our total indebtedness increased from $3.6 billion to $6.6 billion. For additional discussion on risks regarding our outstanding indebtedness please refer to “Risk Factors—Risks Related to Our Business—Our substantial indebtedness may limit our financial and operating activities and our ability to incur additional debt to fund future needs.”

 

Our Brand and Market Position   We have built our reputation as a trusted partner among our referral network at the local level, and we believe our brand has become synonymous with consistently delivering certainty, speed and transparency in purchase transactions. While we are a nationwide player, we compete for purchase loans in local markets, where our reputation of closing on time with buyers, realtors, homebuilders and title agents is critical. As a result, our share of home purchases is significantly higher than some of the largest banks in many markets. Our origination stakeholders have come to appreciate and rely on our “high-touch, high-tech” approach to customer service, resulting in our Net Promoter Score of 96 for our retail loan consultants for the three months ended September 30, 2020. Our servicing staff is driven by the mission of home ownership. On average, our servicing staff leadership team has been with Caliber for more than 10 years and champions our gold standard customer service, which is a critical driver to retaining existing and attracting new customers.   Our Risk Management Framework   We built our robust risk management framework based on three types of controls: managing credit controls, operational and regulatory controls, and independent audit oversight. Our regulatory compliance function and full-time, in-house legal department serve as dedicated resources to strengthen our risk management framework. Our experienced management team sets the tone from the top. As a result, our emphasis on risk management is deeply embedded in every aspect of our organization and core to the fabric of our culture, spanning loan underwriting, capital markets execution, MSR hedging, compliance, financing and liquidity management.

Market Opportunity

The Residential Mortgage Market is Very Large and Growing

The U.S. residential mortgage market is one of the largest markets in the world with approximately $11.0 trillion of debt outstanding as of September 30, 2020 according to the MBA. During 2019, there were $2.2 trillion of mortgages originated in the United States. The purchase mortgage market generated $1.3 trillion of annual originations in 2019 and grew at a 5.5% CAGR from 2017 through the year ended December 31, 2019. Purchase originations are expected to maintain approximately $1.5 trillion through 2021 according to Fannie Mae’s Housing Forecast. The refinance market generated between $0.5 and $0.9 trillion in annual originations for the three year period ended December 31, 2019 and is expected to reach $2.4 trillion in 2020 according to Fannie Mae’s Housing Forecast.

6

7

8

9

model while delivering the highest possible risk-adjusted returns. Over the last few years, the Caliber executive management team has consistently executed on their vision to build what they see as a best-in-class mortgage company.

We Have a Culture of Risk Management

We built our robust risk management framework based on three levels of controls: managing credit controls, operational and regulatory controls, and independent audit oversight. Regulatory compliance functions and our full-time, in-house legal department serve as dedicated resources to strengthen our risk management framework.

Our experienced management team sets the tone from the top. Our emphasis on risk management is deeply embedded in every aspect of our organization and core to the fabric of our culture, spanning loan underwriting, capital markets execution, MSR hedging, compliance, financing and liquidity management. Our management of operational and credit risk results in high-quality production with lower delinquency. Even in the midst of the COVID-19 pandemic our 90+ day delinquency rate on our originated loan population was 3.6% as of September 30, 2020, which is below the industry average of 4.8% for the same period, according to the MBA. As of September 30, 2020, our loans in forbearance totaled 4.6%, which is below the industry average of 6.3% reported on October 4, 2020, according to the MBA. Our executive management team focuses intently on liquidity management and MSR hedging, allowing us to protect our franchise earnings comprehensively. We believe our superior capital markets and risk management practices differentiate us from most of our independent mortgage competitors in four fundamental ways: an all-in lower cost of capital, lower absolute leverage levels, longer-dated funding facilities and operational and financial hedging of our servicing assets.

 

Attractive Financial Model with High Risk-adjusted Returns   Our financial model is a proven generator of attractive gain on sale margins, returns and stable growth. Our strong gain on sale margins is paired with steady servicing cash flows. Our steady growth and market leadership has led to a cumulative net income since the beginning of 2016 through the third quarter of 2020 of $934 million and a net income of $540 million and a return on equity of 56% for the nine months ended September 30, 2020.   Growth Strategies   Direct Strategy Continues to Focus on Retaining Existing Servicing Customer Relationships   Our DTC channel has exhibited strong growth with a 102% originations CAGR over the four years ended September 30, 2020. We continue to focus on this strategy by pursuing refinance opportunities through our existing servicing relationships. Our current servicing portfolio of over half a million customers allows us to offer additional financing opportunities along our customer’s homeownership journey. We expect our technology investments in automation as well as our continued improvements in predictive modeling to drive incremental volume through our DTC channel. Our growth in DTC has contributed to our ability to efficiently retain our customers approximately 70% of the time when they choose to refinance.

10

11

12

13

14

15

16

17

18

19

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as other information contained in this prospectus, before deciding to invest in our common stock. The occurrence of any of the following risks could materially and adversely affect our business, prospects, financial condition, results of operations and cash flow, in which case, the trading price of our common stock could decline and you could lose all or part of your investment.

Risks Related to Our Business

The COVID-19 pandemic poses unique challenges to our business and the effects of the pandemic could materially and adversely impact our origination of mortgages, our servicing operations, our liquidity and our employees.

The COVID-19 pandemic has had, and continues to have, a significant impact on the national economy and the communities in which we operate. In response to the pandemic, federal, state and local governments enacted emergency measures to combat the spread of the virus. These measures, which include implementation of shelter-in-place orders, travel bans, self-imposed quarantine periods and social distancing, caused material disruption to many industries and businesses, resulting in an economic slowdown. While the pandemic’s effect on the macroeconomic environment has yet to be fully determined and could continue for months or years, we expect that the pandemic, and government responses thereto, will affect core aspects of our business, including the origination of mortgages, our servicing operations, our liquidity, and our employees. Such effects, if they continue for a prolonged period, may have a material adverse effect on our business and results of operation.

For example, increases in the national unemployment rate as a result of the COVID-19 pandemic and government responses thereto created financial hardship for many of our existing customers. As part of the federal response to the COVID-19 pandemic, the CARES Act was adopted, imposing several new compliance obligations on our mortgage servicing activities, including, but not limited to, mandatory forbearance offerings, altered credit reporting obligations, and moratoriums on foreclosure actions and late fee assessments. Specifically, the CARES Act allows borrowers with federally-backed mortgages to request a mortgage forbearance for up to 12 months in two-180 day forbearance periods without having to prove an inability to pay their loans as a result of financial hardship due to COVID-19. While the borrower is not required to make a payment during the CARES Act forbearance period, servicers of mortgage loans are generally contractually bound to advance monthly payments to investors, insurers and taxing authorities when the borrower fails to make a payment. While Fannie Mae and Freddie Mac recently issued guidance limiting the number of principal and interest payments a servicer must advance when a loan is in forbearance to four monthly payments, we may not be able to recover any advanced monthly payments at the end of the forbearance period on our Freddie Mac portfolio if the related loan is not or cannot be modified to bring any forborne payments current, or if the related borrower has experienced a loss of employment or a reduction of income and is unable to resume making their pre-pandemic mortgage payment at the end of the forbearance period. Even if we are ultimately able to recover the advanced payment, any delay in such recovery will require us to incur additional costs with respect to such advanced payments. We are also required to advance funds in respect of required payments of property taxes and insurance premiums for the related loans for the entirety of the forbearance period.

Additionally, we earn servicing fees under our servicing agreements only based on actual collections and thus do not earn servicing fees on loans in forbearance during the CARES Act forbearance period. We also are prohibited during the CARES Act forbearance period from collecting additional interest and certain servicing related fees, such as late fees from the borrower, and initiating foreclosure proceedings. We have so far successfully utilized prepayments and mortgage payoffs from other customers within our loan-servicing portfolios to fund principal and interest advances relating to forborne loans within such portfolios, and have only been required to make immaterial payments relating to the advancement of principal or interest associated with forbearances within a limited number of our loan-servicing portfolios. However, there is no assurance that we

20

will not be required to advance material payments in the coming months. For example, if interest rates rise from their current levels, the volume of prepayments and mortgage payoffs is likely to decline, reducing the cash available within a given loan-servicing portfolio to fund our advancement obligations. Moreover, we will have to replace such funds we have used in respect of such prepayments and mortgage payoffs if the forborne payments are not ultimately made. We also will not be able to use amounts in respect of prepayments and mortgage payoffs to advance funds in respect of required payments of property taxes and insurance premiums for the related loans. As a result, we may have to use our cash or borrowings under our debt agreements to make the payments required under our servicing operation, and we may not have sufficient cash or capacity under our facilities to cover those payments. Moreover, we may be unable to recover any payments so advanced.

Some states, such as California, New York, Massachusetts, and Oregon, have enacted laws giving borrowers statutory rights to forbearance on loans secured by residences in those states during the pendency of the COVID-19 pandemic, which apply at least to private residential mortgage loans that are not federally-backed loans. Other states have pending legislation or local ordinances that may impact our servicing business. The enacted legislation and any such pending or future proposed legislation that is passed could negatively impact the performance of our loan and servicing portfolios in the applicable states. In addition, if Congress implements changes to or a replacement for the CARES Act, any such changes or new legislation could also negatively impact our servicing business.

Although much of the regulatory actions stemming from COVID-19 are related to servicing, regulators are also adjusting compliance obligations that impact our mortgage origination activities. In connection with the implementation of shelter-in-place orders, many states have temporarily lifted restrictions on remote mortgage loan origination activities. While these temporary measures allow us to originate loans remotely, they impose notice, procedural, and other compliance obligations on our origination activity. In addition, the shelter-in-place orders have caused us to temporarily close local retail offices, requiring our employees to work from home, and have slowed our business operations that depend on third parties such as appraisers, closing agents and others for loan-related verifications. The COVID-19 pandemic initially caused a significant decrease in home sales. COVID-19-related supply chain interruptions also affected the availability of home construction materials, which in turn affected the housing supply and demand for mortgage originations. While we believe that the volume of real estate transactions has been returning to pre-pandemic levels, future growth is uncertain and we cannot predict the ongoing impact of the COVID-19 pandemic. If the COVID-19 pandemic leads to a prolonged economic downturn with sustained high unemployment rates, we anticipate that real estate transactions may begin to decrease again. Any such slowdown may materially decrease the number and volume of mortgages we originate and have a detrimental impact on our business.

In addition to our servicing business and mortgage origination activities, our liquidity may be also affected by the COVID-19 pandemic. As described above, the CARES Act mandates that all mortgagors with federally-backed mortgages be allowed mortgage forbearance for up to 12 months in two-180 day forbearance periods. Mortgage loan servicers are expected to advance such unpaid amounts, which may result in increased financial pressure on servicers as mortgage delinquency rates are expected to continue to increase. The suspension of collection of mortgage payments and moratoriums on foreclosure may require us to make more advances than would be typical, thus increasing our expenses, while collecting less in the way of payments on performing loans and foreclosures, thus decreasing our income. Future servicing advances will be driven by the number of borrower delinquencies, including those resulting from payment forbearance; the amount of time borrowers remain delinquent; and the level of successful resolution of delinquent payments, all of which will be impacted by the pace at which the economy recovers from the COVID-19 pandemic. As a result, it is possible that we will not have the available liquidity to make any required principal and interest advances and servicing advances. See the risk factors entitled, “We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances.” and “Our business relies on debt financing from our warehouse lines of credit, servicing advance facilities and MSR facilities to fund mortgage originations, make required servicing advances and otherwise operate our business. If one or more of such facilities expire or are terminated, we may be unable to find replacement financing on commercially favorable terms, or at all, which

21

could have a material adverse effect on our business, financial condition, liquidity and results of operations.” Any increase in debt that we take on has the potential to increase our exposure to insolvency.

We fund substantially all of the mortgage loans we close through borrowings under our loan funding facilities. Given the broad impact of COVID-19 on the financial markets, our future ability to borrow money to fund our current and future loan production is unknown. Our mortgage origination liquidity could also be affected as our lenders reassess their exposure to the mortgage origination industry and either curtail access to uncommitted mortgage warehouse financing capacity or impose higher costs to access such capacity. Our liquidity may be further constrained as there may be less demand by investors to acquire our mortgage loans in the secondary market. Even if such demand exists, we face a substantially higher repurchase risk as a result of the COVID-19 pandemic stemming from our customers’ inability to repay the underlying loans. In addition, the CARES Act permitted employers to defer the payment of certain payroll taxes. We are required to pay half of such deferred taxes by the end of 2021 and the balance by the end of 2022. While we are currently accruing for such deferral, there can be no assurance that we will be able to satisfy such payments when required.

We also expect that the COVID-19 pandemic is likely to affect the productivity of our team members. Prior to the COVID-19 pandemic, we had a distributed workforce and, accordingly, some of our employees leveraged a work-from-home model. However, in March, we transitioned to a remote working environment for 98% of our team members. Over time a remote working environment is likely to impede our ability to undertake new business projects, foster a creative environment, maintain a cohesive team dynamic among our employees, encourage productivity, hire and train new team members and retain existing team members. While we plan to offer a flexible model that blends both in-office and remote work when it is safe for our employees to return to the office, we expect that more of our team members will continue to work remotely going forward. We believe that such a flexible model will be required to retain employees and stay competitive in our hiring practices. Furthermore, although we have not reopened any of our offices to date, when we do reopen our offices, there can be no assurance that the safety measures and protocols we put in place to protect employees will prevent the risk of infection, which may give rise to litigation in the event such measures or protocols are not effectively implemented.

Impacts of the COVID-19 pandemic may also increase or accelerate the risks inherent in many or all of the risk factors described below, and could materially and adversely affect our business, financial condition and results of operations.

Our business is highly dependent on Ginnie Mae, Fannie Mae and Freddie Mac and certain federal and state government agencies, and any changes in these entities or their current roles could materially and adversely affect our business, liquidity, financial position and/or results of operations.

We originate loans eligible for securitization or sale to Fannie Mae and Freddie Mac, government insured or guaranteed loans such as FHA or VA Loans, and other loans eligible for Ginnie Mae securities issuance. We also service loans on behalf of Fannie Mae and Freddie Mac, including loans we sell to them, as well as loans that have been delivered into securitization programs sponsored by Fannie Mae, Freddie Mac or Ginnie Mae in connection with the issuance of Agency-guaranteed MBS. These entities establish the base servicing fee to compensate us for servicing loans as well as the assessment of fines and penalties that may be imposed upon us for failing to meet servicing standards.

In 2008, FHFA placed Fannie Mae and Freddie Mac into conservatorship and, as their conservator, FHFA controls and directs their operations. There is significant uncertainty regarding the future of the GSEs, including with respect to how long they will continue to be in existence, the extent of their roles in the market and what forms they will have, and whether they will be government agencies, government-sponsored agencies or private for-profit entities. Since they have been placed into conservatorship, many legislative and administrative plans for GSE reform have been put forth, but all have been met with resistance from various constituencies.

22

The Trump administration made reforming Fannie Mae and Freddie Mac, including their relationship with the federal government, a priority. In September 2019, the U.S. Department of the Treasury released a proposal for reform, and, in October 2019, FHFA released a strategic plan regarding the conservatorships, which included a scorecard under which preparing for exiting conservatorship is a key objective. Among other things, the Treasury recommendations include recapitalizing the GSEs, increasing private-sector competition with the GSEs, replacing GSE statutory affordable housing goals, changing mortgage underwriting requirements for GSE guarantees, revising the Consumer Financial Protection Bureau’s, or CFPB, qualified mortgage regulations, and continuing to support the market for 30-year fixed-rate mortgages. See the risk factor entitled, “The CFPB continues to be active in its monitoring of the loan origination and servicing sectors, and its recently issued rules increase our regulatory compliance burden and associated costs.” Some of Treasury’s recommendations would require administrative action whereas others would require legislative action. It is uncertain whether these recommendations will be enacted. If these recommendations are enacted, the future roles of Fannie Mae and Freddie Mac could be reduced (perhaps significantly) and the nature of their guarantee obligations could be considerably limited relative to historical measurements.

More recently, on December 17, 2020, FHFA published a final rule establishing a new regulatory capital framework. On July 14, 2020, the Financial Stability Oversight Council, or FSOC, announced that it was initiating an activities-based review of the secondary market, including the GSEs. Section 111 of the Dodd-Frank Act established the Council in order to identify risks to U.S. financial stability that could arise from the material financial distress or failure, or ongoing activities, of large, interconnected bank holding companies or nonbank financial companies; promote market discipline; and respond to emerging threats to the stability of the U.S. financial system. The Dodd-Frank Act designed the FSOC to facilitate a holistic, integrated approach among various federal agencies to manage the potential material risk of nonbank financial companies. In this regard, the voting members of the Council are the Secretary of the Treasury, who serves as Chairperson of the Council; the Chairman of the Board of Governors of the Federal Reserve System; the Comptroller of the Currency; the Director of the CFPB; the Chairman of the SEC; the Chairperson of the Federal Deposit Insurance Corporation; the Chairman of the Commodity Futures Trading Commission; the Director of the Federal Housing Finance Agency; the Chairman of the National Credit Union Board; and an independent member appointed by the President, with the advice and consent of the Senate, having insurance expertise. Following the FSOC disclosure, the Director of the FHFA, who also is a voting member of FSOC, applauded the activities-based review, noting that Fannie Mae and Freddie Mac must be well capitalized in order to support the mortgage market during a stressed environment.

In addition, various other proposals to generally reform the U.S. housing finance market have been offered by members of the U.S. Congress, and certain of these proposals seek to significantly reduce or eliminate over time the role of the GSEs in purchasing and guaranteeing mortgage loans. Any such proposals, if enacted, may have broad adverse implications for the MBS market and our business. It is possible that the adoption of any such proposals might lead to higher fees being charged by the GSEs or lower prices on our sales of mortgage loans to them.

The extent and timing of any regulatory reform regarding the GSEs and the U.S. housing finance market, as well as any effect on our business operations and financial results, are uncertain. It is not yet possible to determine whether such proposals will be enacted and, if so, when, what form any final legislation or policies might take or how proposals, legislation or policies may impact the MBS market and our business, operations and financial condition. Our inability to make the necessary changes to respond to these changing market conditions or loss of our approved seller/servicer status with the Agencies would have a material adverse effect on our mortgage lending operations and our financial condition, results of operations and cash flows. As of September 30, 2020, Fannie Mae and Freddie Mac accounted for 63% of our sold mortgage originations and 61% of our servicing portfolio, while Ginnie Mae accounted for 33% of our sold mortgage originations and 31% of our servicing portfolio. If those Agencies cease to exist, wind down, or otherwise significantly change their business operations or if we lost approvals with those Agencies or our relationships with those Agencies are otherwise adversely affected, our ability to profitably sell loans we originate and service would be affected and our profitability, business, financial condition and results of operations would be adversely affected.

23

Changes in applicable investor or insurer guidelines or Agency guarantees could adversely affect our business, financial condition and results of operations.

We are required to follow specific guidelines of purchasers of our loans, such as Fannie Mae, Freddie Mac and private investors, as well as the guidelines of private mortgage insurers, FHA, VA, and USDA, which in each case impacts the way we originate and service loans, including guidelines with respect to:

For example, the Federal Housing Finance Agency, or the FHFA, has directed Fannie Mae and Freddie Mac to align their guidelines for servicing delinquent mortgages that they own or that back securities which they guarantee, which can result in monetary incentives for servicers that perform well and penalties for those that do not. In addition, the FHFA has directed Fannie Mae and Freddie Mac to assess compensatory penalties against servicers in connection with the failure to meet specified timelines relating to delinquent loans and foreclosure proceedings, and other breaches of servicing obligations. Similarly, the FHA requires servicers to curtail or reduce the amount of interest they seek from mortgage insurance proceeds if they fail to meet specified timelines. A significant change in these guidelines could impair the volume of our loan production, require us to expend additional resources in providing mortgage services and increase our costs, which would adversely affect our business, financial condition and results of operations. We paid $59,000 in compensatory fees to Fannie Mae and Freddie Mac in each of 2018 and 2019.

The GSEs recently issued guidance providing that borrowers in, or recently out of, forbearance will be eligible to refinance their existing loan or purchase a new home. To be eligible, a borrower either must have reinstated their forborne loan or resolved a delinquency on that loan through a loss mitigation solution. If the borrower resolved any missed payments due to forbearance through a reinstatement, the borrower will be eligible for a refinancing, as long as proceeds from the refinancing are not used to reinstate the loan. If outstanding payments have been or will be resolved through loss mitigation, the borrower is eligible for a refinancing if the borrower, as of the new note date, has made at least three timely regularly scheduled payments based on the applicable loss mitigation option. FHA subsequently announced substantially similar guidance, but with differing time periods for the number of timely regularly scheduled timely payments that must be made under the applicable loss mitigation option and depending on the loan type. For example, the borrower must complete three consecutive monthly payments post-forbearance for purchase-money loans and no cash-out refinances and twelve consecutive post-forbearance payments for cash-out refinances.

Both HUD and the GSEs have issued guidance on the conditions under which they will insure or purchase loans going into forbearance pursuant to the CARES Act shortly after the loan is originated, but before the loan is insured by FHA or purchased by the GSEs. FHA announced that it would temporarily endorse mortgages with active forbearance plans submitted for FHA insurance through March 31, 2021 (unless extended), excluding refinancings of non FHA-to-FHA cash-out refinances. A condition to obtaining FHA insurance endorsement for such loans is the execution by the lender of a two-year “partial indemnification agreement” in connection with each of these loans providing for the indemnification of twenty percent of the initial loan amount. The mortgagee will responsible for paying this amount of losses incurred by HUD if the borrower fails to make two or more payments when due under the terms of the FHA-insured mortgage at any point within two years from the date of endorsement and the borrower remains in default until the filing of an FHA insurance claim. If the borrower enters into forbearance and subsequently brings the loan current, either pursuant to the terms of the mortgage or a permanent loss mitigation option, through the date that is two years from the date of endorsement of the mortgage, the indemnification agreement will terminate.

24

The GSEs announced that they would purchase loans that went into forbearance after closing but prior to sale to the GSEs, subject to several conditions including loan-level price adjustments of 500 basis points for first-time homebuyers and 700 basis points for all other eligible loans. Similar to FHA’s announcement, the GSEs made clear that cash-out refinance transactions in forbearance prior to sale are not eligible for purchase by the GSEs. Loans must be delivered to the GSEs by February 28, 2021, unless extended.

In addition, changes in the nature or extent of the guarantees provided by Fannie Mae and Freddie Mac or the insurance provided by the FHA could also have broad adverse market implications. The fees that we are required to pay to the Agencies for these guarantees have increased significantly over time. Any future increases in guarantee fees or changes to their structure or increases in the premiums we are required to pay the FHA for insurance would adversely affect our business, financial condition and results of operations.

A downgrade in our servicer ratings could have an adverse effect on our business, financial condition or results of operations.

Standard & Poor’s, Fitch Ratings and Moody’s rate us as a residential loan servicer. Our ratings may be downgraded in the future. Any such downgrade could materially adversely affect our business, financial condition or results of operations, as well as our ability to finance servicing advances and maintain our status as an approved servicer by the Agencies and the availability and cost of credit. Our failure to maintain favorable or specified ratings may cause our termination as servicer under private servicing agreements and further impair our ability to consummate future servicing transactions, which would have an adverse effect on our business, financial condition or results of operations.

Some of the loans we service are higher risk loans, which are more expensive to service than conventional mortgage loans and may lead to liquidity challenges.

Some of the mortgage loans we service are higher risk loans based on the underwriting criteria under which they were originated. This may mean that the loans are made to less credit worthy borrowers, are originated with a high loan to value ratio, or are secured by properties with declining values. These loans may have a higher risk of delinquency and as a result are more expensive to service because they require more frequent interaction with customers and greater monitoring and oversight. Additionally, in connection with the ongoing mortgage market reform and regulatory developments, servicers of higher risk loans are subject to increased scrutiny by state and federal regulators and will experience higher compliance and regulatory costs, which could result in a further increase in servicing costs. We may not be able to pass along to our servicing customers any of the additional expenses we incur in servicing higher risk loans. The greater cost of servicing higher risk loans—which may be further increased through regulatory reform, consent decrees or enforcement—could adversely affect our business, financial condition and results of operations.

Our business is subject to the risks of earthquakes, fires, floods, hurricanes and other natural catastrophic events and to interruption by acts of war or terrorism.

Our systems and operations are vulnerable to damage or interruption from earthquakes, fires, floods, hurricanes power losses, telecommunications failures, strikes, acts of war or terrorism, health pandemics and similar events. For example, a significant natural disaster in Dallas, such as a hurricane, tornado, fire or flood, could have a material adverse impact on our business, operating results and financial condition, and our insurance coverage may be insufficient to compensate us for losses that may occur. Disease outbreaks (including severe acute respiratory syndrome, or SARS, avian flu, H1N1/09 flu outbreaks and the current COVID-19 outbreak) and any prolonged occurrence of infectious disease or other adverse public health developments could have a material adverse effect on the macro economy and/or our business operations. See the risk factor entitled “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.” In addition, strikes and other geopolitical unrest could cause disruptions in our business and lead to interruptions,

25

delays or loss of critical data. We may not have sufficient protection or recovery plans in certain circumstances, such as natural disasters affecting the Oklahoma, Dallas and San Diego areas, and our business interruption insurance may be insufficient to compensate us for losses that may occur. In addition, as a result of certain catastrophic events including earthquakes, hurricanes, floods and fires and acts of war or terrorism there could be significant damage or destruction to a large number of homes in areas in which we originate or service loans and we may be responsible for repair of the home on government insured loans if the damage is not covered by the homeowner’s hazard insurance.

With respect to mortgage loans insured by FHA, such insurance provided by FHA requires properties to be conveyed in conveyance condition. Conveyance condition refers to a property undamaged by fire, flood, earthquake, hurricane, tornado or boiler explosion, other than damage due to mortgagor neglect and/or unfinished renovations, and for which interior and exterior debris has been removed, the interior is in broom-swept condition, the lawn is maintained, insurable damage has been remediated and the property has marketable title. If such property has been damaged and the damage is not insured or is underinsured, then in order to make a claim with FHA on any such foreclosed mortgage Caliber is liable for repairing the property into such condition before conveyance to FHA. As of September 30, 2020, we service loans insured by FHA with UPB of approximately $26.3 billion, which represents approximately 17.7% of our servicing portfolio.

Increases in delinquencies and defaults may adversely affect our business, financial condition and results of operations.

Falling home prices across the United States following the financial crisis of 2008 resulted in higher loan to value ratios, lower recoveries in foreclosure and an increase in loss severities above those that would have been realized had property values remained the same or continued to increase. Though housing values have recovered in many markets, there continue to be borrowers who do not have sufficient equity in their homes to permit them to refinance their existing loans, which may reduce the volume or growth of our loan production business. This may also provide borrowers with an incentive to default on their mortgage loans even if they have the ability to make principal and interest payments. While the long-term impact of the COVID-19 pandemic is currently unknown, the COVID-19 pandemic may have a similar impact on delinquencies and defaults. For further information regarding the impact of the COVID-19 pandemic, see the risk factor entitled “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.”

Interest rates have remained at historical lows for an extended period of time. Borrowers with adjustable rate mortgage loans must make larger monthly payments when the interest rates on those mortgage loans adjust upward from their initial fixed rates or low introductory rates to the rates computed in accordance with the applicable index and margin. Increases in monthly payments may increase the delinquencies, defaults and foreclosures on the adjustable rate mortgage loans that we service. As of September 30, 2020, 1.7% of the loans that we serviced were adjustable rate mortgage loans.

As a mortgage loan servicer, we maintain the primary contact with the borrower of a serviced mortgage loan throughout the life of the loan and become involved with any potential loss mitigation. It is important that we are proactive in dealing with our customers rather than simply allowing loans to go to foreclosure. During periods of increased delinquencies among borrowers, it is extremely important that we are properly staffed and trained to assist our customers to avoid foreclosure. If we do not properly staff and train our servicing personnel or enlist their assistance in loss mitigation efforts, then the number of mortgage loans going into foreclosure that we service may increase. In addition, managing a substantially higher volume of non-performing loans that we service could increase our operational costs. A rise in delinquencies and/or claims among non-performing loans could have a material adverse effect on our business, financial condition, liquidity and results of operations.

Increased mortgage delinquencies, defaults and foreclosures may result in lower revenues for loans that we service, because we only collect servicing fees for performing loans. Additionally, while increased delinquencies

26

generate higher ancillary fees, including late fees, these fees are not likely to be recoverable in the event that the related loan is liquidated. In addition, an increase in delinquencies lowers the interest income that we receive on cash held in collection and other accounts because there may be less cash from performing loan payments and payoffs in those accounts.

Increased mortgage delinquencies, defaults and foreclosures will also result in a higher cost to service those loans due to the increased time and effort required to collect payments from delinquent borrowers, to foreclose on the loan and to liquidate properties or otherwise resolve loan defaults if payment collection is unsuccessful, and only a portion of these increased costs are recoverable under our servicing agreements. Increased mortgage delinquencies, defaults and foreclosures may also result in an increase in our interest expense and affect our liquidity as a result of borrowing under our credit facilities to fund an increase in our advancing obligations.

An increase in delinquencies, defaults and foreclosures on mortgage loans serviced for FHA could materially and adversely affect our financial condition and results of operations. At the point of liquidation Caliber files claims with HUD for reimbursement of principal, interest, fees, and costs on the liquidated FHA loan. Not all interest, fees, and costs are recoverable through a claim filing with HUD, resulting in a loss to Caliber. Higher levels of default could lead to higher levels of unrecovered interest, fees and costs increasing losses to Caliber. Additionally, if an FHA loan goes into foreclosure and is not liquidated through the Claims without Conveyance of Title process, Caliber is required to bring the property into conveyance condition before the property can be conveyed to HUD. In some instances, Caliber may not be reimbursed for all costs incurred to bring the home into conveyance condition. These potential losses could be material if there is a significant increase in defaults and foreclosures on FHA loans in our servicing-owned portfolio. As of September 30, 2020, we serviced $26.3 billion in UPB of FHA loans inside Ginnie Mae securitizations, which represents approximately 17.7% of our servicing portfolio.

An increase in delinquencies, defaults and foreclosures on mortgage loans that we service that are partially guaranteed by Veterans Affairs, or the VA, could materially and adversely affect our financial condition and results of operations. Such loans are only partially guaranteed by the VA. All VA approved loans have a minimum of 25% of guarantee protection to the lender. In the case of VA guaranteed mortgages, if such mortgage loans go into foreclosure, we are required to purchase such loans out of the MBS prior to liquidation of such properties. In the event that the principal amount of such loan exceeds the fair market value of the property plus the VA guarantee percentage of such loans, Caliber would bear that loss. That loss could be material if there is a significant increase in defaults and foreclosures on VA loans and a reduction of property value which results in losses to us in our servicing-owned portfolio. As of September 30, 2020, we service approximately $20.7 billion UPB of VA partially guaranteed loans inside Ginnie Mae securitizations, which represents approximately 13.9% of our servicing portfolio.

In addition, an increase in delinquencies, defaults and foreclosures on mortgage loans that we service that are guaranteed by the USDA could materially and adversely affect our financial condition and results of operations. Such loans are only partially guaranteed by the USDA. All USDA approved loans have approximately 90% guarantee protection to the lender. In the case of USDA guaranteed mortgages, if such mortgage loans go into foreclosure, we are required to purchase such loans out of the MBS prior to liquidation of such properties. In the event that the principal amount of such loan exceeds the fair market value of the property plus the USDA guarantee percentage of such loans, Caliber would bear that loss. That loss could be material if there is a significant increase in defaults and foreclosures on USDA loans and a reduction of property value which results in losses to us in our servicing-owned portfolio. As of September 30, 2020, we service approximately $1.3 billion UPB of USDA partially guaranteed loans inside Ginnie Mae securitizations, which represents approximately 0.9% of our servicing portfolio.

In the event of a default under any mortgage loan we have not sold, we will bear the risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and of the mortgage loan. See the risk factor entitled, “We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances.”

27

We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances.

During any period in which a customer is not making payments, including as a result of forbearance under the CARES Act for federally-backed loans, we are required under most of our servicing agreements to advance our own funds to meet contractual principal and interest remittance requirements for investors, pay property taxes and insurance premiums, legal expenses and other protective advances. We also advance funds to maintain, repair and market real estate properties on behalf of investors. The length of time during which we are required to make advances as well as the amount of time it takes for the reimbursement of such advances varies by the type of advance and the practice and procedures of the relevant Agency, all of which is subject to change by each Agency, as well as the provisions of the servicing agreements for private loans. As a result there could be extended periods of time for which we are required to make advances as well as an extended time until we are reimbursed for such advances, if at all. Accordingly, an increase in advances as well as the delay in reimbursement or a failure to receive reimbursement of servicing advances could materially and adversely affect our liquidity. In the event we receive requests for advances in excess of amounts we are able to fund, we may not be able to fund these advance requests, which would materially and adversely affect our business. As home values change, we may have to reconsider certain of the assumptions underlying our decisions to make advances, and in certain situations our contractual obligations may require us to make certain advances for which we may not be reimbursed. In addition, in the event a mortgage loan serviced by us defaults or becomes delinquent, the repayment to us of the advance may be delayed until the mortgage loan is repaid or refinanced or liquidation occurs. The length of time it takes to legally foreclose on a mortgage varies state by state and can range from a few months to as long as several years. A delay in our ability to collect advances may adversely affect our liquidity, and our inability to be reimbursed for advances could adversely affect our business, financial condition and results of operations.

Market disruptions such as the COVID-19 pandemic and government responses thereto, including the temporary forbearance period being offered for customers unable to pay on certain mortgage loans as a result of the COVID-19 pandemic, may increase the number of defaults, delinquencies or forbearances related to the loans we service, increasing the advances we make for such loans. With specific regard to the COVID-19 pandemic, any regulatory or GSE-specific relief on servicing advance obligations provided to mortgage loan servicers has so far been limited to GSE-eligible mortgage loans, leaving out any non-GSE mortgage loan products such as jumbo mortgage loans. Ginnie Mae created a short term, liquidity facility of last resort through its Pass Through Assistance Program in response to the COVID-19 pandemic and the economic hardships faced by both borrowers and Ginnie Mae servicers. The FHFA also aligned Fannie Mae’s and Freddie Mac’s policies regarding servicer obligations to advance scheduled monthly principal and interest payments for single-family mortgage loans. Under the FHFA policies, once a servicer has advanced four months of missed payments on a loan, it will have no further obligation to advance scheduled payments, but it does not provide servicing advance facilities for its loans. However, to the extent further government assistance is not provided to mortgage loan servicers at both the federal and state level, an increase in defaults by servicers (including the Company) and additional market disruptions could occur. Approximately 4.6% of our serviced loans are in forbearance as of September 30, 2020.

With delinquent VA guaranteed loans, the VA guarantee may not make us whole on losses or advances we may have made on the loan. If the VA determines the amount of the guarantee payment will be less than the cost of acquiring the property, it may elect to pay the VA guarantee and leave the property securing the loan with us, or a VA no-bid. If we cannot sell the property for a sufficient amount to cover amounts outstanding on the loan we will suffer a loss which may, on an aggregate basis and if the percentage of VA no-bids increases, have a detrimental impact on our business and financial condition.

In addition, for certain loans sold to Ginnie Mae, we, as the servicer, have the unilateral right, but are not required, to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets defined criteria, including being delinquent greater than 90 days. To the extent we exercise our unilateral right to repurchase the delinquent loan, we have effectively regained control over the loan and must fund such repurchase through cash

28

on hand or through our existing facilities. Accordingly, upon repurchase we recognize the loan and, to the extent we utilize our existing facilities to purchase such loan, a corresponding financial liability on our balance sheet. Any significant increase in required servicing advances or delinquent loan repurchases, could have a significant adverse impact on our cash flows, even if they are reimbursable, and could also have a detrimental effect on our business and financial condition.

We depend on the accuracy and completeness of information about customers and counterparties and any misrepresented information or mortgage loan fraud could result in significant financial losses and harm to our reputation.

In deciding whether to approve loans or to enter into other transactions across our businesses with customers and counterparties, including brokers, correspondent lenders and non-delegated correspondent lenders, we may rely on information furnished to us by or on behalf of customers and such counterparties, including financial statements and other financial information. We also may rely on representations of customers and such counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. If any of this information is intentionally or negligently misrepresented and such misrepresentation is not detected prior to loan funding, the fair value of the loan may be significantly lower than expected. Whether a misrepresentation is made by the loan applicant, another third party or one of our employees, we generally bear the risk of loss associated with the misrepresentation. Our controls and processes may not have detected or may not detect all misrepresented information in our loan originations or acquisitions. Any such misrepresented information could have a material adverse effect on our business, financial condition, liquidity and results of operations.

We use automated underwriting engines from Fannie Mae and Freddie Mac to assist us in determining if a customer is creditworthy, as well as other proprietary tools and safeguards to detect and prevent fraud. In addition, our proprietary technology systems incorporate the guidelines of our investors. All loans are also run through CoreLogic’s fraud tool prior to closing, and all exceptions must be cleared prior to closing. We are unable, however, to prevent every instance of fraud that may be engaged in by any customer, seller, real estate broker, notary, settlement agent, appraiser, title agent or our employees by misrepresenting facts about a mortgage loan, including the information contained in the loan application, property appraisal, title information and employment and income stated on the loan application. If any of this information was intentionally or negligently misrepresented and such misrepresentation was not detected prior to the acquisition or funding of the loan, the value of the loan could be significantly lower than expected. A mortgage loan subject to a material misrepresentation is typically unsalable or subject to repurchase if it is sold before detection of the misrepresentation. In addition, the persons and entities making a misrepresentation are often difficult to locate and it is often difficult to collect from them any monetary losses we have suffered.

We expect the economic changes resulting from the COVID-19 pandemic coupled with the high refinance and purchase volumes that we are observing to increase the potential for customer fraud. During periods of high unemployment, we observe an increase in customers failing to disclose that their income and employment has been negatively impacted. We have also observed an increase in cyber fraud and SMS phishing schemes affecting our business due to COVID-10. Fraudulent emails and text messages have been sent on behalf of Caliber which introduce malware, including spyware, through malicious links in order to redirect funds to the fraudster’s account.

The technology and other controls and processes we have created to help us identify misrepresented information in our mortgage loan production operations were designed to obtain reasonable, not absolute, assurance that such information is identified and addressed appropriately. Accordingly, such controls may not have detected, and may fail in the future to detect, all misrepresented information in our mortgage loan production operations. In the future, we may experience financial losses and reputational damage as a result of mortgage loan fraud.

29

We are subject to significant legal and reputational risks and expenses relating to the privacy, use and security of customer information.

We receive, maintain and store the non-public personal information, or NPI, of our loan applicants and customers. The sharing, use, disclosure and protection of this information are governed by the privacy and data security policies maintained by us and our businesses. Moreover, there are federal and state laws regarding privacy and the storing, sharing, use, disclosure and protection of NPI, personally identifiable information and user data. Specifically, NPI and personally identifiable information are increasingly subject to legislation and regulations in numerous jurisdictions, the intent of which is to protect the privacy of personal information that is collected, processed and transmitted in or from the governing jurisdiction. For example, the California Consumer Privacy Act of 2018, or CCPA, which went into effect in January 2020, provides new data privacy rights for consumers and new operational requirements for us. The CCPA includes a statutory damages framework and private rights of action against businesses that fail to comply with certain CCPA terms or implement reasonable security procedures and practices to prevent data breaches. Several other states have enacted or are considering similar legislation. We could be adversely affected if legislation or regulations are expanded to require changes in business practices or privacy policies, or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, financial condition and results of operations.

Any penetration of network security or other misappropriation or misuse of NPI or personal consumer information could cause interruptions in the operations of our businesses and subject us to increased costs, litigation and other liabilities. Claims could also be made against us for other misuse of personal information, such as for unauthorized purposes or identity theft, which could result in litigation and financial liabilities, as well as administrative action from governmental authorities. Security breaches could also significantly damage our reputation with consumers and third parties with whom we do business. It is possible that advances in computer capabilities, new discoveries, undetected fraud, inadvertent violations of our policies or procedures or other developments could result in a compromise of information or a breach of the technology and security processes that are used to protect consumer transaction data. In addition, our current work-from-home policy may increase the risk for the misappropriation or misuse of NPI or personal consumer information. As a result, current security measures may not prevent all security breaches. We may be required to expend significant capital and other resources to protect against and remedy any potential or existing security breaches and their consequences. We also face risks associated with security breaches affecting third parties with which we are affiliated or otherwise conduct business online. In addition, we face risks resulting from unaffiliated third-parties who attempt to defraud, and obtain personal information directly from, our customers by imitating Caliber. Any publicized security problems affecting our businesses and/or those of third parties, whether actual or perceived, may discourage consumers from doing business with us, which could have an adverse effect on our business, financial condition and results of operations.

The technology and other controls and processes designed to secure our customer information and to prevent, detect and remedy any unauthorized access to that information were designed to obtain reasonable, not absolute, assurance that such information is secure and that any unauthorized access is identified and addressed appropriately. Accordingly, such controls may not have detected, and may in the future fail to prevent or detect, unauthorized access to our customer information. If this information is inappropriately accessed and used by a third party or an employee for illegal purposes, such as identity theft, we may be responsible to the affected applicant or customer for any losses he or she may have incurred as a result of misappropriation. In such an instance, we may also be liable to a governmental authority for fines or penalties associated with a lapse in the integrity and security of our customers’ information.

The success and growth of our business will depend upon our ability to adapt to and implement technological changes.

As a leading nationwide mortgage originator and servicer, we rely significantly on our technology platform. The financial services industry is undergoing rapid technological changes, with frequent introductions of new

30

technology-driven products and services. The effective use of technology increases efficiency and enables financial and lending institutions to better serve customers and reduce costs. Our systems and computer/telecommunication networks must accommodate a high volume of traffic and deliver frequently updated information, the accuracy and timeliness of which is critical to our business.

To operate our systems and provide our mortgage products and services, we use software packages from a variety of third parties which are customized and integrated with code that we have developed ourselves. For example, we rely on H2O, our propriety, web-based loan origination system, and a number of third-party software products and services related to underwriting functions, mortgage loan document production and mortgage loan servicing. If we are unable to integrate these software products or services in a fully functional manner, we may experience difficulties that could delay our ability to provide services to our customers. In addition, enhancements of our products and services must meet the requirements of our current and prospective customers as well as our regulators, and must achieve significant market acceptance. We could also incur substantial delays and costs if we need to modify our services, products or infrastructure to adapt to these changes.

In addition, technological advances and heightened e-commerce activities have increased consumers’ access to products and services. This has intensified competition among banks and non-banks in offering mortgage loans and servicing them. We need to anticipate, develop and introduce new products, services and applications on a timely and cost-effective basis that keeps pace with technological developments, our competitors and changing customer needs. In particular, the continuing revolution in communication with customers and others, particularly the increasing dominance of use of mobile phones and other peripheral devices to conduct business, requires numerous and rapid changes to business processes and methods. Our mortgage loan origination business is dependent upon technological advancement and our ability to effectively interface with our brokers, customers and other third parties and to efficiently process loan applications and closings. Any technologies we develop or invest in may not meet our expectations or maintain our needs for technological advancement. It is difficult to predict the problems we may encounter in improving our systems’ functionality with these alternative devices, and we may need to devote significant resources to the improvement, support and maintenance of our systems. Any failure to acquire or develop technologies or technological solutions when necessary could limit our ability to remain competitive in our industry and could also limit our ability to increase our operating efficiencies, which could have a material adverse effect on our business, financial condition, liquidity and results of operations.

Further, the development of such technologies and maintaining and improving new technologies will require significant capital expenditures with unpredictable returns. In addition, maintaining the technological proficiency of our personnel will require significant expense. We are currently making, and will continue to make, significant technology investments to support our service offering, implement improvements to our customer-facing technology and evolve our information processes, and computer systems to more efficiently run our business and remain competitive and relevant to our customers. These technology initiatives might not provide the anticipated benefits or may provide them on a delayed schedule or at a higher cost. We must monitor and choose the right investments and implement them at the right pace. Failing to make the best investments, or making an investment commitment significantly above or below our needs, could result in the loss of our competitive position and adversely impact our financial condition or results of operations.

We are dependent on third-party vendors for our technology and other services.

In addition to our proprietary software, we license third-party software, utilize third-party hardware and depend on services from various third-party vendors for our loan origination, servicing and general corporate activities. We are dependent on third-party vendors for a number of key services, including the proper maintenance and support of the technological systems used in our business, and our relationships with those vendors subject us to a variety of risks.

Several of the information technology systems we use in various aspects of our business are provided from a different single source. As a result of the integrated nature of our systems with these single-source systems, we

31

may not be able to obtain substitute systems at all or on a timely basis should any of these systems be interrupted or fail or the vendor does not adequately maintain and support the applicable system, and any transition to a new system would cause significant delays, all of which could materially harm our business. For example, our servicing platform operates on LoanServ^™, an information technology system that we license under long-term agreements with Sagent Lending Technologies, or Sagent. If Sagent fails or is unable to properly fulfill its contractual obligations to us, including through a failure to provide services at the required level to maintain and support our systems, or if Sagent fails to continue to develop and maintain its technology so as to provide us with an effective and competitive platform, our servicing business and operations would suffer.

Additional platforms upon which we rely include Aspect, a leading dialer platform that assists Caliber with the customer service calling requirements related to our servicing business, and Salesforce, a CRM system that we use for prioritization, insight, and telephony with our broker, correspondent and customer contact strategies. If any of these third-party platforms were to fail or if any of our vendors became unable to fulfill their contractual obligations to us, it would be difficult for us to transfer to another comparable platform on a timely basis. Any failure of, or loss of the right to use, any of our material software or services could result in a significant decrease to the functionality of our products until equivalent technology is either developed by us or, if available from another provider, is identified, obtained and integrated, which could adversely affect our business.

In addition, any errors or defects in or failures of the software or services we rely on, whether maintained by us or by a third-party vendor, could result in errors or defects in our products or cause our products to fail, which could adversely affect our business and be costly to correct. For example, Sagent and other vendors also supply us with other services in connection with our business activities such as escrow services, loss mitigation, foreclosure and bankruptcy services. In the event that a vendor’s activities do not comply with the applicable servicing criteria, we could be exposed to liability as the servicer and it could negatively impact our relationships with our servicing customers or regulators, among others. In addition, if our current vendors were to stop providing services to us on acceptable terms, including failure to upgrade their products relative to regulatory or other changes in our industry, we may be unable to procure alternatives from other vendors in a timely and efficient manner and on acceptable terms, or at all. Further, we may incur significant costs to resolve any such disruptions in service and this could adversely affect our business, financial condition and results of operations.

Certain of our material vendors have operations in India that could be adversely affected by changes in political or economic stability or by government policies.

Certain of our material vendors currently have operations located in India, which is subject to relatively higher political and social instability than the United States and may lack the infrastructure to withstand political unrest, natural disasters or global pandemics. The political or regulatory climate in the United States, or elsewhere, also could change so that it would not be lawful or practical for us to use vendors with international operations in the manner in which we currently use them. If we could no longer utilize vendors operating in India or if those vendors were required to transfer some or all of their operations to another geographic area, we would incur significant transition costs as well as higher future overhead costs that could materially and adversely affect our results of operations.

Our and our vendors’ dependence on information technology systems may result in problems if these systems fail or are interrupted, whether as a result of cyberattacks, natural disasters or otherwise, and any technology failures or cyberattacks against us or our vendors could damage our business operations and increase our costs.

We are dependent on the secure, efficient, and uninterrupted operation of our technology infrastructure, including computer systems, related software applications and data centers, as well as those of certain third–party vendors, to securely collect, process, transmit and store electronic information. In the ordinary course of our business, we and our vendors receive, process, retain and transmit proprietary information and sensitive or

32

confidential data, including the public and non-public personal information of our team members, customers and loan applicants. We may be harmed if such technology:

In addition, cyberattacks, security breaches, acts of vandalism, natural disasters, fire, power loss, telecommunication failures, team member misconduct, human error, computer hackers, computer viruses and disabling devices, malicious or destructive code, denial of service or information, health pandemics and other similar events and developments in computer intrusion capabilities could interrupt or delay our ability to provide services to our customers or result in a compromise or breach of the technology that we or our vendors use to collect, process, retain, transmit and protect the personal information and transaction data of our team members, customers and loan applicants. Our disaster recovery planning may not be sufficient for all situations. These risks have become more pronounced as we have shifted to having many of our team members work from their homes in response to the COVID-19 pandemic, which requires those team members to access our secure networks through their home networks and increases the risk of cyberattacks or security breaches. The implementation of technology changes and upgrades to maintain current and integrate new technology systems may also cause service interruptions. Any such disruption could interrupt or delay our ability to provide services to our customers and loan applicants, and could also impair the ability of third parties to provide critical services to us.

We invest in industry-standard security technology designed to protect our data and business processes against risk of a data security breach and cyberattack. Our data security management program includes identity, trust, vulnerability and threat management business processes as well as the adoption of standard data protection policies. We measure our data security effectiveness through industry-accepted methods and remediate significant findings. The technology and other controls and processes designed to secure our team member, customer and loan applicant information and to prevent, detect and remedy any unauthorized access to that information were designed to obtain reasonable, but not absolute, assurance that such information is secure and that any unauthorized access is identified and addressed appropriately. Such controls have not always detected, and may in the future fail to prevent or detect, unauthorized access to our team member, customer and loan applicant information. Additionally, the technology and other controls and processes we have created to help us identify misrepresented information in our loan origination operations were designed to obtain reasonable, not absolute, assurance that such information is identified and addressed appropriately. Accordingly, such controls may not have detected, and may fail in the future to detect, all misrepresented information in our loan origination operations. If our operations are disrupted or otherwise negatively affected by a technology disruption or failure, this could result in customer dissatisfaction and damage to our reputation and brand, and material adverse impacts on our business.

The techniques used to obtain unauthorized, improper or illegal access to our systems and those of our third-party vendors, our data, our team members’, customers’ and loan applicants’ data or to disable, degrade or sabotage service are constantly evolving, and have become increasingly complex and sophisticated. Furthermore, such techniques change frequently and are often not recognized or detected until after they have been launched, and therefore, we may be unable to anticipate these techniques and may not become aware in a timely manner of such a security breach, which could exacerbate any damage we experience. Security attacks can originate from a wide variety of sources, including third parties such as computer hackers, persons involved with organized crime or associated with external service providers, or foreign state or foreign state-supported actors. Those parties may also attempt to fraudulently induce team members, customers and loan applicants or other users of our systems to disclose sensitive information in order to gain access to our data or that of our team members, customers and loan applicants.

33

Cybersecurity risks for lenders have significantly increased in recent years, in part, because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of computer hackers, organized crime, terrorists, and other external parties, including foreign state actors. We, our customers and loan applicants, regulators, vendors and other third parties involved in our origination and servicing operations, including title companies, have been subject to, and are likely to continue to be the target of, cyberattacks. These cyberattacks could include computer viruses, malicious or destructive code, phishing attacks, denial of service or information, improper access by team members or third-party vendors or other security breaches that have or could in the future result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of ours, our team members, our customers and loan applicants or of third parties, or otherwise materially disrupt our or our customers’ and loan applicants’ or other third parties’ network access or business operations.

Additionally, cyberattacks on local and state government databases and offices, including the rising trend of ransomware attacks, expose us to the risk of losing access to critical data and the ability to provide services to our customers. These attacks can cause havoc and have at times led title insurance underwriters to prohibit us from issuing policies, and to suspend closings, on properties located in the affected counties or states.

While we have implemented policies, procedures and tools designed to help mitigate cybersecurity risks and cyber intrusions, there can be no assurance that any such cyber intrusions, whether external or internal, will not occur or, if they do occur, that they will be adequately addressed. A successful penetration or circumvention of the security of our or our vendors’ systems or a defect in the integrity of our or our vendors’ systems or cybersecurity could cause serious negative consequences for our business, including significant disruption of our operations, misappropriation of our confidential information or that of our customers, or damage to our computers or operating systems and to those of our customers and counterparties. Any of the foregoing events could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, significant litigation exposure and harm to our reputation, all of which could adversely affect our business, financial condition and results of operations. This risk is enhanced in certain jurisdictions with stringent data privacy laws. See the risk factor entitled, “We are subject to significant legal and reputational risks and expenses relating to the privacy, use and security of customer information.” Additionally, while we have obtained insurance to cover us against certain cybersecurity risks and information theft, there can be no guarantee that all losses will be covered or that the insurance limits will be sufficient to cover such losses.

In addition, increasing attention is being paid by the media, regulators and legislators to matters relating to cybersecurity, and regulators and legislators may enact laws or regulations regarding cybersecurity. For example, the New York Department of Financial Services has adopted regulations that are far-ranging in scope, including not only specific technical safeguards but also requirements regarding governance, incident planning, data management and system testing. New laws and regulations could result in significant compliance costs, which may adversely affect our cash flows and net income.

While we have obtained insurance to cover us against certain cybersecurity risks and information theft, there can be no guarantee that all losses will be covered or that the insurance limits will be sufficient to cover such losses.

We have obtained insurance coverage that protects us against losses from unauthorized penetration of company technology systems, employee theft of customer and/or company private information and company liability for third-party vendors who mishandle company information. This insurance includes coverage for third- party losses as well as costs incidental to a breach of company systems such as notification, credit monitoring and identity theft resolution services. However, there can be no guarantee that every potential loss due to cyberattack or theft of information has been insured against, nor that the limits of the insurance we have acquired will be sufficient to cover all such losses.

34

Negative public opinion could damage our reputation and adversely affect our business.

Reputational risk, or the risk to our business, earnings and capital from negative public opinion, is inherent in our business. Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending and debt collection practices, technology failures, corporate governance, and actions taken by government regulators and community organizations in response to those activities. Negative public opinion can also result from media coverage, whether accurate or not. Additionally, the proliferation of social media websites as well as the personal use of social media by our employees and others, including personal blogs and social network profiles, also may increase the risk that negative, inappropriate or unauthorized information may be posted or released publicly that could harm our reputation or have other negative consequences, including as a result of our employees interacting with our customers in an unauthorized manner in various social media outlets. Negative public opinion can adversely affect our ability to attract and retain customers, trading counterparties and employees and can expose us to litigation and regulatory action.

Our counterparties may terminate our servicing rights.

The majority of the mortgage loans we service are serviced on behalf of Fannie Mae, Freddie Mac and Ginnie Mae. These entities establish the base service fee to compensate us for servicing loans as well as the assessment of fines and penalties and other remedies that may be imposed upon us for failing to meet servicing and other agency standards. As is standard in our industry, under the terms of our servicing agreements with the Agencies, each of the Agencies has the right to terminate us as servicer of the loans we service on their behalf with cause, based on a default under the applicable agreements, without paying us any consideration in connection with such termination. In addition, Fannie Mae and Freddie Mac at any time also have the right to cause us to sell the MSR to a third party and, under certain circumstances, cause such a transfer to occur without cause and without payment to us of any consideration in connection with such termination. Some provisions of these agreements are open to subjective interpretation or depend upon the judgment or determination of the Agencies, so we may not be able to determine in advance whether these are grounds for terminating us as servicer or transferring MSR away from us. These agreements also require that we service in accordance with Agencies’ servicing guidelines and contain financial covenants. If we were to have our MSR terminated on a material portion of our servicing portfolio, this would materially adversely affect our business, financial condition and results of operations.

The geographic concentration of our loan origination volume and our servicing portfolio could adversely affect our business, financial condition and results of operations if the economies of the states in which we are concentrated are adversely impacted.

We have higher concentrations of loan originations and loans in our servicing-owned portfolio in California, Washington, Florida, Texas and New Jersey. As of September 30, 2020, approximately 17.3%, 10.3%, 9.9%, 6.3% and 4.5% of the loans we serviced as measured by unpaid principal balances, or UPBs, were concentrated in California, Washington, Florida, Texas and New Jersey, respectively. To the extent the states where we have a higher concentration of servicing or origination volume experience weaker economic conditions, more stringent regulations related to COVID-19, greater rates of decline in single-family residential real estate values, reduced demand within the residential mortgage sector relative to the United States generally or natural disasters (such as the hurricanes that affected Texas and Florida and the wildfires that affected California in recent years), the volume of our loan originations may materially decline and the concentration of loans we originate and service in those regions may increase the risks of delinquencies or defaults. In addition, any MSR concentrated in this area would experience a decrease in value. Moreover, we cannot predict whether the upcoming election will result in changes to federal and state oversight and regulations. For example, if states in which we have greater concentrations of mortgage loans were to change their licensing or other regulatory requirements to significantly increase our business costs, we may be required to stop doing business in those states or may be subject to higher costs of doing business in those states, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

35

Employment litigation and related unfavorable publicity could negatively affect our future business.

Team members and former team members may, from time to time, bring lawsuits against us regarding injury, creation of a hostile workplace, discrimination, wage and hour, employee benefits, sexual harassment and other employment issues. In recent years there has been an increase in the number employment-related actions in states with favorable employment laws, such as California, as well as an increase in the number of discrimination and harassment claims against employers generally. Coupled with the expansion of social media platforms and similar devices that allow individuals access to a broad audience, these claims have had a significant negative impact on some businesses. Companies that have faced employment or harassment related lawsuits have had to terminate management or other key personnel and have suffered reputational harm that has negatively impacted their businesses. If we experience significant incidents involving employment or harassment related claims, we could face substantial out-of-pocket losses, fines and negative publicity if claims are not covered by our liability insurance. In addition, such claims may give rise to litigation, which may be time consuming, distracting to our management team and costly.

Loss of our key management could result in a material adverse effect on us.

Our future success depends to a significant extent on the continued services of our senior management, specifically our Chief Executive Officer, Chief Financial Officer, and the executive management team overseeing our servicing and origination operations. The experience of our senior executives is a valuable asset to us. Our management team has significant experience in the residential mortgage origination and servicing industry. We do not maintain “key person” life insurance for any of our personnel. The loss of the services of any member of senior management could have an adverse effect on our business, financial condition, liquidity and results of operations.

We may not be able to hire and retain qualified personnel to support our growth and if we are unable to retain or hire such personnel in the future, our ability to implement our business objectives could be limited. Difficulties with hiring, employee training and other labor issues could disrupt our operations.

We operating in a highly competitive industry for recruiting qualified and experienced personnel. Our operations depend substantially on the contributions and abilities of key production leaders and their teams and other personnel with knowledge of our technology systems. We may not be able to retain such critical employees, successfully hire and train new employees or integrate new employees into our programs and policies. Any such difficulties would reduce our operating efficiency and increase our costs of operations and could harm our overall financial condition. If competition for qualified personnel intensifies or the pool of qualified candidates becomes more limited, we may not be able to attract and retain high-quality personnel in the future. In addition, we are often involved in litigation associated with restrictive covenants in our employment agreements when personnel leave or we hire new personnel subject to such agreements. The inability to attract or retain qualified personnel could have a material adverse effect on our business, financial condition, liquidity and results of operations.

We may be required to repurchase or substitute mortgage loans that we have sold, or indemnify purchasers of our mortgage loans, if these loans fail to meet certain criteria or characteristics or under other circumstances.

The agreements governing our securitized pools of loans and our contracts with purchasers of our whole loans contain provisions that require us to indemnify or repurchase the related loans under certain circumstances. While our contracts vary, they contain provisions that require us to repurchase loans if:

36

We are subject to repurchase and substitution claims and may continue to receive claims in the future. Fannie Mae and Freddie Mac require a transferee servicer to bear the repurchase and indemnification risk arising out of the prior breaches of representations, warranties and covenants by the seller of the loan to the GSE and prior servicers. If we are required to indemnify, repurchase or substitute loans that we originate, or have previously originated and sell or securitize, or service that in each case result in losses that exceed our reserve, this could adversely affect our business, financial condition and results of operations.

In certain cases involving mortgage lenders from whom loans were acquired through our correspondent production activities or from which we purchased MSRs, we may have contractual rights to either recover some or all of our indemnification losses or otherwise demand repurchase of the affected loans. Depending on the volume of repurchase and indemnification requests, some of these mortgage lenders may not be able to financially fulfill their obligation to indemnify us or repurchase the affected loans. If a material amount of recovery cannot be obtained from these mortgage lenders, our business, financial condition, liquidity and results of operations could be materially and adversely affected. We also may be required to indemnify FHA, VA or RDS and pay civil money penalties for defective loan origination and servicing.

We also may be subject to claims by investors for repayment of a portion of the premium received from investors on the sale of certain loans if such loans are repaid in their entirety within a specified time period after the sale of the loans. Any significant repurchases, substitutions, indemnifications or premium recapture could have a material adverse effect on our business, financial condition, liquidity and results of operations. In addition, with respect to delinquent Ginnie Mae mortgage loans that we service, we are required to repurchase such loans prior to foreclosing and liquidating the mortgaged property securing such loans. For the nine months ended September 30, 2020, Ginnie Mae accounted for 30.7% of our servicing portfolio based on outstanding principal balance.

As of September 30, 2020, we have recorded a reserve of $38.9 million for repurchase and indemnification obligations. Actual repurchase and indemnification obligations could materially exceed the reserves we have recorded in our financial statements. The allowance for loan repurchases and indemnifications is the estimate of probable losses based on the best information available and requires the application of significant judgment and the use of a number of assumptions. These assumptions include the estimated amount and timing of repurchase and indemnification requests, the expected success rate in defending against requests, and estimated losses on repurchases and indemnification. The allowance for loan repurchases and indemnification does not reflect losses from litigation or governmental and regulatory examinations, investigations or inquiries. Based on our belief that it uses the best information available in estimating the liability, actual experience can vary significantly from the assumptions as the estimation process is inherently uncertain. There can be no guarantee that future losses may not be in excess of the recorded liability.

We may not be successful in implementing certain strategic initiatives.

Certain strategic initiatives, which are designed to improve our results of operations and drive long-term stockholder value, include:

37

There is no assurance that we will be able to successfully implement these strategic initiatives, that we will be able to realize all of the projected benefits of our plans or that we will be able to compete successfully in new markets and our efforts may be more expensive and time consuming than we expect, which could adversely affect our business, financial condition and results of operations.

We rely on internal models to manage risk and to make business decisions. Our business could be adversely affected if those models fail to produce reliable and/or valid results.

We make significant use of business and financial models in connection with our proprietary technology to measure and monitor our risk exposures, evaluate risk profiles associated with loans, and to manage our business. For example, we use models to measure and monitor our exposures to interest rate, credit and other market risks and to forecast credit losses. The information provided by these models is used in making business decisions relating to strategies, initiatives, transactions, pricing and products. Models are inherently imperfect predictors of actual results because they are based on historical data available to us and our assumptions about factors such as future mortgage loan demand, default rates, severity rates, home price trends and other factors that may overstate or understate future experience. Our models could produce unreliable results for a number of reasons, including the limitations of historical data to predict results due to unprecedented events or circumstances, invalid or incorrect assumptions underlying the models, the need for manual adjustments in response to rapid changes in economic conditions, incorrect coding of the models, incorrect data being used by the models or inappropriate application of a model to products or events outside of the model’s intended use. In particular, models are less dependable when the economic environment is outside of historical experience and the models we utilize may fail to accurately assess the impact of, or predict outcomes related to, the COVID-19 pandemic.

In addition, we continually receive new economic and mortgage loan market data, such as housing starts and sales and home price changes. Our critical accounting estimates, such as the value of our mortgage loans held for sale and our MSR, are subject to change, often significantly, due to the nature and magnitude of changes in market conditions. However, there is generally a lag between the availability of this market information and the preparation of our combined financial statements. When market conditions change quickly and in unforeseen ways, there is a risk that the assumptions and inputs reflected in our models are not representative of current market conditions.

The dramatic changes in the housing, credit and capital markets have required frequent adjustments to our models and the application of greater management judgment in the interpretation and adjustment of the results produced by our models. This application of greater management judgment reflects the need to take into account updated information while continuing to maintain controlled processes for model updates, including model development, testing, independent validation and implementation. As a result of the time and resources, including technical and staffing resources, that are required to perform these processes effectively, it may not be possible to replace existing models quickly enough to ensure that they will always properly account for the impacts of recent information and actions.

38

The industry in which we operate is highly competitive and our inability to compete successfully could adversely affect our business, financial condition and results of operations.

We operate in a highly competitive industry that is likely to become even more competitive as a result of economic, legislative, regulatory or technological changes. Competition to service mortgage loans and for mortgage loan originations comes primarily from commercial banks and savings institutions and non-bank lenders and mortgage servicers. A number of our competitors are substantially larger and have considerably greater financial, technical and marketing resources, and typically have access to greater financial resources and lower funding costs. All of these factors place us at a competitive disadvantage. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of revenue generating options (e.g., originating types of loans that we choose not to originate) and establish more favorable relationships than we can.

We operate at a competitive disadvantage to United States federal banks and thrifts and their subsidiaries because they enjoy federal preemption and, as a result, conduct their business under relatively uniform United States federal rules and standards and are generally not subject to many of the laws of the states in which they do business (including state “predatory lending” laws). Unlike our federally-chartered competitors, we are generally subject to all state and local laws, in addition to federal laws, applicable to mortgage loan lenders in each jurisdiction in which we lend. Moreover, the rating agencies impose restrictions and requirements on non-federally-chartered entities arising from certain state or local lending-related laws or regulations that do not apply to federally-chartered-institutions. This disparity may have the effect of giving those federally-chartered entities legal and competitive advantages over us. The intense competition in the mortgage loan market has also led to rapid technological developments, evolving industry standards and frequent releases of new products and enhancements.

Our mortgage loan origination business consists of providing purchase money loans to homebuyers, refinancing existing loans and acquiring newly originated mortgage loans that have been underwritten to our standards from correspondent sellers. We originate and acquire through different channels such as third party originations through mortgage brokers, retail offices and loan correspondent purchases, each with its own competitive forces. For example, the mortgage brokers from which we obtain loans in process and loan correspondents from which we purchase loans are not contractually obligated to do business with us, and our competitors also have relationships with these lenders and brokers and actively compete with us. From time to time, such competition in any one origination channel may contribute to lower margins and loan volumes.

We focus on the market for Agency-eligible mortgage loan production and servicing, which has represented a majority of total origination volume in the industry over the past ten years. Competition for the origination of these loans is heightened because many of our competitors are able to offer Agency-eligible mortgage loans on terms that are similar to what we can offer. In the near term, we expect Agency-eligible products to generally remain the majority of total loan origination. However, to the extent liquidity in the mortgage market significantly increases, and alternative products such as second liens and lower credit-quality products become more widely accepted in the market, there may be less demand for Agency-eligible mortgage loans, and our mortgage production volume may be adversely impacted, which would reduce our revenues and profitability. To date, we have grown our loan origination volumes on the basis of our product offerings, technical knowledge, manufacturing quality, speed of execution, interest rates and fees, as well as the relationships we have established through our network of referral partners, mortgage lenders and brokers.

We have also grown a portion of our retail channel through acquisitions. We expect that future growth in our retail channel will come from a balance of recruiting new mortgage loan originators, as well as through the acquisition of smaller mortgage origination platforms, and we expect to face significant competition for both of these opportunities. In our retail channel, we are focused on minimizing attrition and retaining our current team of loan officers and production leaders, including managers, regional and divisional vice presidents, and there is competition for talent. The loss of a region or division could have a significant adverse impact on production.

39

We may experience significant growth in our loan origination volumes. If we do not effectively manage our growth and are unable to consistently maintain quality of execution, our reputation and existing relationships with referral partners, mortgage lenders and brokers could be damaged, we may not be able to develop new relationships with referral partners, mortgage lenders and brokers, our new mortgage products may not gain widespread acceptance and the quality of our correspondent production and other origination efforts could suffer, all of which could negatively affect our brand and operating results.

Competition in the mortgage loan industry can take many other forms, including interest rates and fees charged for a loan, convenience in obtaining a loan, customer service, amount and term of a loan and marketing and distribution channels. With the proliferation of smartphones and technological changes enabling improved payment systems and cheaper data storage, newer market participants, often called “disruptors,” are reinventing aspects of the financial industry and capturing profit pools previously enjoyed by existing market participants. As a result, the lending industry could become even more competitive if new market participants are successful in capturing market share from existing market participants such as ourselves. Competition to service residential loans may result in lower margins. Our servicing competitors may decide to modify their servicing model to compete more directly with our servicing model, or our servicing model may generate lower margins as a result of competition or as overall economic conditions improve. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition or results of operations.

We may not be able to retain loans from customers who refinance.

One of the focuses of our origination efforts is retention, which involves actively working with existing customers to refinance their mortgage loans with us instead of another residential mortgage originator of mortgage loans. Customers who refinance have no obligation to refinance their loans with us and may choose to refinance with a different originator. Additionally, we may elect not to refinance an existing customer’s mortgage loan due to a number of reasons, including the customer’s inability to meet our eligibility requirements. If customers refinance with a different originator, this decreases the profitability of our retained servicing portfolio because the original loan will be repaid, and we will not have an opportunity to earn further servicing fees after the original loan is repaid. Moreover, retention allows us to generate additional loan servicing more cost-effectively than MSR acquired on the open market. If we are not successful in retaining our existing loans that are refinanced, our servicing portfolio will become increasingly subject to run-off.

We may not realize all of the anticipated benefits of previous or potential acquisitions and dispositions.

Although we have previously acquired loan origination businesses and servicing assets, we can provide no assurances that we will be successful in identifying additional future opportunities that meet our acquisition criteria or that, once identified, we will be successful in completing an acquisition. Our ability to realize the anticipated benefits of previous or potential acquisitions will depend, in part, on our ability to scale-up to appropriately service such assets and integrate the businesses of any acquired companies with our business.

The risks associated with acquisitions include, among others:

Individually or collectively, these transactions could substantially increase the UPB, or alter the composition of our portfolio of mortgage loans that we service or have an otherwise significant impact on our business.

40

Additionally, we may make potentially significant acquisitions which could expose us to greater risks than we currently experience in servicing our current portfolio and adversely affect our business, financial condition and results of operations.

We can provide no assurances that we will enter into any such agreements or as to the timing of any potential transactions. The transaction process may disrupt our business including diverting management’s attention from ongoing business concerns. We also may not realize all of the anticipated benefits of potential future transactions, which could adversely affect our business, financial condition and results of operations. Furthermore, we may incur additional indebtedness to pay for acquisitions, thereby increasing our leverage and diminishing our liquidity.

We are vulnerable to the potential difficulties associated with rapid expansion.

We have grown rapidly over the last several years primarily through internal growth. We believe that our future success depends on our ability to manage the rapid growth that we have experienced and the demands from increased responsibility on our management personnel. The following factors could present difficulties to us:

If we do not manage these potential difficulties successfully, it could have a material adverse effect on our business, financial condition and results of operations.

In addition, we plan to continue both strategic and opportunistic growth, which can present substantial demands on management, personnel and other aspects of our operations, especially if our growth occurs rapidly. See the risk factor entitled, “We may not realize all of the anticipated benefits of previous or potential acquisitions and dispositions.” We may face difficulties in managing that growth effectively, which could damage our reputation, limit our growth and have a material adverse effect on our business, financial condition and results of operations.

We are, and intend to continue, developing new products and services, and our failure to accurately predict their demand or growth could have an adverse effect on our business.

We are, and intend in the future to continue, investing significant resources in developing new tools, features, services, products and other offerings. New initiatives are inherently risky, as each involves unproven business strategies and new products and services with which we have limited or no prior development or operating experience. Risks from our innovative initiatives include those associated with potential defects in the design and development of the technologies used to automate processes, misapplication of technologies, the reliance on data that may prove inadequate, and failure to meet customer expectations, among others. New products and services we develop may also be subject to stringent regulatory review, which could increase the length of time it takes to bring such products or services to market. As a result of these risks, we could experience increased claims, reputational damage or other adverse effects, which could be material. Additionally, we can provide no assurance that we will be able to develop, commercially market and achieve acceptance of our new products and services, and our investment of resources to develop new products and services may either be insufficient or result in expenses that are excessive in light of revenue actually originated from these new products and services.

41

The profile of potential customers using our new products and services may not be as attractive as the profile of the customers that we currently serve, which may lead to higher levels of delinquencies or defaults than we have historically experienced. Failure to accurately predict demand or growth with respect to our new products and services could have an adverse impact on our business, and there is always risk that these new products and services will be unprofitable, will increase our costs or will decrease our operating margins or take longer than anticipated to achieve target margins. Further, our development efforts with respect to these initiatives could distract management from current operations and could divert capital and other resources from our existing business. If we do not realize the expected benefits of our investments, our business may be harmed.

We may not be able to fully utilize our net operating loss, or NOL, and other tax carry forwards.

As of December 31, 2019, we had $693.3 million of NOL carryforwards, which will begin to expire in 2029. Our ability to utilize NOLs and other tax carry forwards to reduce taxable income in future years could be limited for various reasons, including as a result of one or more ownership changes under Section 382 of the Internal Revenue Code of 1986 (which subject NOLs to an annual limitation on usage and which currently applies to $35.9 million of our NOL carryforwards), if projected future taxable income is insufficient to recognize the full benefit of such NOL carry forwards prior to their expiration and/or the Internal Revenue Service, or the IRS, challenges that a transaction or transactions were concluded with the principal purpose of evasion or avoidance of Federal income tax. While we anticipate significant NOL usage reflected in our financial statements for the year ended December 31, 2020, there can be no assurance that we will have sufficient taxable income in later years to enable us to use the remaining NOLs before they expire, or that the IRS will not challenge the use of all or any portion of the NOLs.

The IRS could challenge the amount, timing and/or use of our NOL carry forwards.

The amount of our NOL carry forwards has not been audited or otherwise validated by the IRS. Among other things, the IRS could challenge the amount, the timing and/or our use of our NOLs. Any such challenge, if successful, could significantly limit our ability to utilize a portion or all of our NOL carry forwards. In addition, calculating whether an ownership change has occurred within the meaning of Section 382 is subject to inherent uncertainty, both because of the complexity of applying Section 382 and because of limitations on a publicly traded company’s knowledge as to the ownership of, and transactions in, its securities. Therefore, the calculation of the amount of our utilizable NOL carry forwards could be changed as a result of a successful challenge by the IRS or as a result of new information about the ownership of, and transactions in, our securities.

Possible changes in legislation could negatively affect our ability to use the tax benefits associated with our NOL carry forwards.

The rules relating to U.S. federal income taxation are periodically under review by persons involved in the legislative and administrative rulemaking processes, by the IRS and by the U.S. Department of the Treasury, resulting in revisions of regulations and revised interpretations of established concepts as well as statutory changes, including decreases in the tax rate. Future revisions in U.S. federal tax laws and interpretations thereof could adversely impact our ability to use some or all of the tax benefits associated with our NOL carry forwards.

Changes in tax laws may adversely affect us, and the IRS or a court may disagree with tax positions taken by us, which may result in adverse effects on our financial condition or the value of our common stock.

The Tax Cuts and Jobs Act, or the TCJA, enacted on December 22, 2017, significantly affected U.S. tax law, including by changing how the U.S. imposes tax on certain types of income of corporations and by reducing the U.S. federal corporate income tax rate to 21%. It also imposed new limitations on a number of tax benefits, including deductions for business interest, use of net operating loss carry forwards, taxation of foreign income, and the foreign tax credit, among others.

The CARES Act, enacted on March 27, 2020, in response to the COVID-19 pandemic, further amended the U.S. federal tax code, including in respect of certain changes that were made by the TCJA, generally on a

42

temporary basis. There can be no assurance that future tax law changes will not increase the rate of the corporate income tax significantly, impose new limitations on deductions, credits or other tax benefits, or make other changes that may adversely affect our business, cash flows or financial performance. In addition, the IRS has yet to issue guidance on a number of important issues regarding the changes made by the TCJA and the CARES Act. In the absence of such guidance, we will take positions with respect to a number of unsettled issues. There is no assurance that the IRS or a court will agree with the positions taken by us, in which case tax penalties and interest may be imposed that could adversely affect our business, cash flows or financial performance.

We could be adversely affected if we inadequately obtain, maintain, protect and enforce our intellectual property and proprietary rights, and we may encounter disputes from time to time relating to our use of the intellectual property of third parties.

Trademarks and other intellectual property and proprietary rights are important to our success and our competitive position. We rely on a combination of trademarks, service marks, copyrights, patents, trade secrets and domain names, as well as confidentiality procedures and contractual provisions to protect our intellectual property and proprietary rights. Despite these measures, third parties may attempt to disclose, obtain, copy or use intellectual property rights owned or licensed by us and these measures may not prevent misappropriation, infringement, reverse engineering or other violation of intellectual property or proprietary rights owned or licensed by us, particularly in foreign countries where laws or enforcement practices may not protect our proprietary rights as fully as in the United States. Furthermore, confidentiality procedures and contractual provisions can be difficult to enforce and, even if successfully enforced, may not be entirely effective. In addition, we cannot guarantee that we have entered into confidentiality agreements with all team members, partners, independent contractors or consultants that have or may have had access to our trade secrets and other proprietary information. Any issued or registered intellectual property rights owned by or licensed to us may be challenged, invalidated, held unenforceable or circumvented in litigation or other proceedings, including re-examination, inter partes review, post-grant review, interference and derivation proceedings and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings), and such intellectual property rights may be lost or no longer provide us meaningful competitive advantages. Third parties may also independently develop products, services and technology similar to or duplicative of our products and services.

In order to protect our intellectual property rights, we may be required to spend significant resources. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and could result in the diversion of time and attention of our management team and could result in the impairment or loss of portions of our intellectual property. Furthermore, attempts to enforce our intellectual property rights against third parties could also provoke these third parties to assert their own intellectual property or other rights against us, or result in a holding that invalidates or narrows the scope of our rights, in whole or in part. Our failure to secure, maintain, protect and enforce our intellectual property rights could adversely affect our brands and adversely impact our business.

Our success and ability to compete also depends in part on our ability to operate without infringing, misappropriating or otherwise violating the intellectual property or proprietary rights of third parties. We have encountered, and may in the future encounter, disputes from time to time concerning intellectual property rights of others, including our competitors, and we may not prevail in these disputes. Third parties may raise claims against us alleging an infringement, misappropriation or other violation of their intellectual property rights, including trademarks, copyrights, patents, trade secrets or other intellectual property or proprietary rights. Some third-party intellectual property rights may be extremely broad, and it may not be possible for us to conduct our operations in such a way as to avoid all alleged infringements, misappropriations or other violations of such intellectual property rights. In addition, former employers of our current, former or future team members may assert claims that such team members have improperly disclosed to us the confidential or proprietary information of these former employers. The resolution of any such disputes or litigations is difficult to predict. Future litigation may also involve non-practicing entities or other intellectual property owners who have no relevant product offerings or revenue and against whom our ownership of intellectual property may therefore provide

43

little or no deterrence or protection. An assertion of an intellectual property infringement, misappropriation or other violation claim against us may result in adverse judgments, settlement on unfavorable terms or cause us to spend significant amounts to defend the claim, even if we ultimately prevail and we may have to pay significant money damages, lose significant revenues, be prohibited from using the relevant systems, processes, technologies or other intellectual property (temporarily or permanently), cease offering certain products or services, or incur significant license, royalty or technology development expenses. Even in instances where we believe that claims and allegations of intellectual property infringement, misappropriation or other violation against us are without merit, defending against such claims could be costly, time consuming and could result in the diversion of time and attention of our management team. In addition, although in some cases a third party may have agreed to indemnify us for such infringement, misappropriation or other violation, such indemnifying party may refuse or be unable to uphold its contractual obligations. In other cases, our insurance may not cover potential claims of this type adequately or at all, and we may be required to pay monetary damages, which may be significant.

Risks Related to Our Indebtedness

Our business relies on debt financing from our warehouse lines of credit, servicing advance facilities and MSR facilities to fund mortgage originations, make required servicing advances and otherwise operate our business. If one or more of such facilities expire or are terminated, we may be unable to find replacement financing on commercially favorable terms, or at all, which could have a material adverse effect on our business, financial condition, liquidity and results of operations.

Our ability to fund mortgage originations and make required servicing advances depends upon our ability to secure and maintain short-term and medium-term financings on acceptable terms. Loan origination activities generally require short-term liquidity in excess of amounts generated by our operations. The loans we originate are financed through several warehouse lines. We typically hold the loans on a short-term basis and then sell or place the loans in government securitizations in order to repay the borrowings under the warehouse lines. At September 30, 2020, we had $2.1 billion of committed borrowing capacity and total borrowing capacity of $7.0 billion under our warehouse lines of credit, which includes $4.9 billion of uncommitted borrowing capacity.

Our servicing advance facilities provide available borrowings to satisfy our contractual obligations to advance principal and interest remittance requirements for investors, pay property taxes and insurance premiums, and pay legal expenses and other protective advances on the loans that we service. Our borrowings under these facilities are in turn generally repaid with the proceeds we receive from mortgage loan sales, borrower payments, investor and government insurer or guarantor reimbursements, and other sources. On July 31, 2020, we entered into a new two-year committed $250 million servicing advance facility for Fannie Mae and Freddie Mac servicing advance receivables. In addition, on October 22, 2020, we closed a restructure of our existing Ginnie Mae MSR debt facility to allow funding for servicing advances associated with our Ginnie Mae servicing portfolio. Total committed availability on the restructured Ginnie Mae MSR and servicing advance debt facilities is $250 million. As of September 30, 2020, we had an aggregate of $45.6 million in borrowings outstanding under our servicing advance facilities.

We also utilize MSR facilities, which are lines of credit collateralized by MSR that are used for financing purposes. These facilities allow for same or next day draws at our request and have a committed borrowing capacity of $1.3 billion. As of September 30, 2020, we had $505 million of unused committed borrowing capacity under such MSR facilities.

Our ability to fund current operations depends upon our ability to secure these types of short-term financings on acceptable terms and to renew or replace the financings as they expire. Consistent with industry practice, our servicing advance facilities and most of our existing warehouse lines of credit are 364-day facilities, with maturities staggered throughout the calendar year, and these facilities are therefore required to be renewed on an annual basis. Our MSR facilities have maturity dates that range from 1 to approximately 4 years.

44

In addition, each of our warehouse lines of credit, servicing advance facilities and MSR facilities are revolving facilities. If one or more of the lenders under these revolving facilities were to restrict our ability to access these facilities or if such facilities otherwise become unavailable, we may not have sufficient funds to meet our obligations. We typically require significantly more liquidity to meet our operational needs than our available cash on hand.

If any of our warehouse lines of credit, servicing advance facilities or MSR facilities are terminated, restricted or are not renewed, we may be unable to find replacement financing on commercially favorable terms, or at all. As a result, we might be required to sell loans we originate under adverse market conditions, and we may be unable to originate mortgage loans or acquire additional MSR, or meet servicing advance obligations on the loans that we service, any of which could have a material adverse effect on our business, financial condition, liquidity, and results of operations. For additional information regarding our servicing advance obligations, see the risk factor entitled “We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances.”

Our ability to refinance existing debt and borrow additional funds is affected by a variety of factors beyond our control, including:

If the refinancing or borrowing guidelines become more stringent and such changes result in increased costs to comply or decreased mortgage origination volume, such changes could be detrimental to our business.

Our warehouse lines of credit, servicing advance facilities and MSR facilities contain covenants, including requirements to maintain a certain minimum tangible net worth, minimum liquidity, maximum total indebtedness to tangible net worth ratio, loan-to-value or collateral coverage tests, net income requirements and other customary debt covenants. We have also previously incorporated and may in the future incorporate covenants requiring key performance indicators to be met in one or more of our warehouse lines of credit, servicing advance facilities and MSR facilities. A breach of a covenant or failure to meet an applicable key performance indicator can result in an event of default under these facilities and as such allow the lenders to pursue certain remedies. In addition, most of these facilities include cross-default or cross-acceleration provisions that could result in multiple facilities terminating if an event of default or acceleration of maturity occurs under any facility. If we are unable to meet or maintain the necessary covenant requirements or satisfy, or obtain waivers from, the continuing covenants, we may lose the ability to borrow under all of our financing facilities and this could have a material adverse effect on our business, financial condition, liability and results of operations.

An event of default, a negative ratings action by a rating agency, an adverse action by a regulatory authority, loss of a state license or Agency approval, or a general deterioration in the economy that constricts the availability of credit may increase our cost of funds and make it difficult for us to renew existing facilities or

45

obtain new financing facilities. We regularly analyze opportunities to acquire businesses that engage in mortgage loan originations. Our liquidity and capital resources may be diminished by any such transactions. Additionally, we believe that a significant acquisition may require us to raise additional capital to facilitate such a transaction, which may not be available on acceptable terms or at all.

Our inability to obtain sufficient capital on acceptable terms for any of the foregoing reasons could adversely affect our business, financial condition and results of operations. See the risk factor entitled, “We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances.”

Our substantial indebtedness may limit our financial and operating activities and our ability to incur additional debt to fund future needs.

As of September 30, 2020, the aggregate principal amount of our outstanding indebtedness was $6.6 billion. The agreements governing our indebtedness generally restrict us and our restricted subsidiaries from incurring additional indebtedness; however, these restrictions are subject to important exceptions and qualifications. If we incur additional debt, the related risks could be magnified and could limit our financial and operating activities.

Our current and any future indebtedness could:

In addition, our substantial level of indebtedness could limit our ability to access capital markets on favorable terms or at all, refinance our existing indebtedness, or obtain additional financing to fund working capital requirements, capital expenditures, acquisitions, debt service requirements, or general corporate and other purposes, which could have a material adverse effect on our business and financial condition. In addition, our indebtedness level could impair our ability to satisfy certain of the financial eligibility requirements of Fannie Mae, Freddie Mac and Ginnie Mae relating to net worth and liquidity. Our ability to maintain a sufficient level of liquidity to meet our financial obligations will be dependent upon our future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control.

If the value of the collateral underlying our loan funding facilities and MSR facilities decreases, we could be required to satisfy a margin call.

Substantially all of our loan funding facilities, as well as our MSR facilities, are subject to margin calls if collateral coverage tests are not satisfied based on the lender’s or counterparty’s, as applicable, opinion of the value of the collateral securing such facilities. A margin call would require us to repay a portion of the outstanding borrowings or add additional collateral to bring the collateral coverage test into compliance. As a result of the government responses to the COVID-19 pandemic, including the adoption of the CARES Act and the temporary forbearance period being offered for customers unable to pay on certain mortgage loans as a result of the COVID-19 pandemic, we experienced higher than normal margin calls and may continue to see a higher volume of margin calls in the future. In the event we face such higher volumes in the future, we not be able to satisfy those margin calls, which could have a negative impact on our liquidity. In addition, if interest rates

46

decrease, then the value of MSR securing the MSR facilities will also decrease, which could cause an unanticipated margin call on our MSR facilities and/or TBA lines. Such a margin call could have a material adverse effect on our liquidity.

Market Risks

Our loan origination and servicing revenues are highly dependent on macroeconomic and U.S. residential real estate market conditions.

Our success depends largely on the health of the U.S. residential real estate industry, which is seasonal, cyclical, and affected by changes in general economic conditions beyond our control. Economic factors such as increased interest rates, slow economic growth or recessionary conditions, the pace of home price appreciation or lack thereof, changes in household debt levels, and increased unemployment or stagnant or declining wages affect our customers’ income and thus their ability and willingness to make loan payments. National or global events including, but not limited to, the COVID-19 pandemic, affect all such macroeconomic conditions. Weak or a significant deterioration in economic conditions reduces the amount of disposable income consumers have, which in turn reduces consumer spending and the willingness of qualified potential borrowers to take out loans. As a result, such economic factors affect loan origination volume.

Additional macroeconomic factors including, but not limited to, rising government debt levels, the withdrawal or augmentation of government interventions into the financial markets, changing U.S. consumer spending patterns, changing expectations for inflation and deflation, and weak credit markets may create low consumer confidence in the U.S. economy or the U.S. residential real estate industry or result in increased volatility in the United States and worldwide financial markets and economy. Excessive home building or historically high foreclosure rates resulting in an oversupply of housing in a particular area may also increase the amount of losses incurred on defaulted mortgage loans, or may limit our ability to make additional loans in those affected areas. The economic impact of these events could also adversely affect the credit quality of some of our loans and investments and the properties underlying our interests.

Recently, financial markets have experienced significant volatility as a result of the effects of the COVID-19 pandemic. Many state and local jurisdictions have enacted measures requiring closure of businesses and other economically restrictive efforts to combat the COVID-19 pandemic. Unemployment levels have increased significantly and may remain at elevated levels or continue to rise. There may be a significant increase in the rate and number of mortgage payment delinquencies, and house sales, home prices, and multifamily fundamentals may be adversely affected, leading to an overall material adverse decrease on our mortgage origination activities. For more information, see the risk factor entitled, “The COVID-19 pandemic poses unique challenges to our business and the effects of the pandemic could materially and adversely impact our origination of mortgages, our servicing operations, our liquidity and our employees.”

Furthermore, several state and local governments in the United States are experiencing, and may continue to experience, budgetary strain, which will be exacerbated by the impact of COVID-19. One or more states or significant local governments could default on their debt or seek relief from their debt under the U.S. bankruptcy code or by agreement with their creditors. Any or all of the circumstances described above may lead to further volatility in or disruption of the credit markets at any time and adversely affect our financial condition.

Any uncertainty or deterioration in market conditions or prolonged economic slowdown or recession that leads to a decrease in loan originations will result in lower revenue on loans sold into the secondary market. Lower loan origination volumes generally place downward pressure on margins, thus compounding the effect of the deteriorating market conditions. Such events could be detrimental to our business. Moreover, any deterioration in market conditions that leads to an increase in loan delinquencies will result in lower revenue for loans we service for the government sponsored enterprises, or GSEs, and Ginnie Mae because we collect servicing fees from them only for performing loans. While increased delinquencies generate higher ancillary revenues, including late fees, these fees are likely unrecoverable when the related loan is liquidated.

47

Increased delinquencies may also increase the cost of servicing loans. The decreased cash flow from lower servicing fees could decrease the estimated value of our MSR, resulting in recognition of losses when we write down those values. In addition, an increase in delinquencies lowers the interest income we receive on cash held in collection and other accounts and increases our obligation to advance certain principal, interest, tax and insurance obligations owed by the delinquent mortgage loan borrower. An increase in delinquencies could therefore be detrimental to our business. See the risk factor entitled, “Increases in delinquencies and defaults may adversely affect our business, financial condition and results of operations.”

Additionally, origination of loans can be seasonal. Historically, our loan origination has increased activity in the second and third quarters and reduced activity in the first and fourth quarters as home buyers tend to purchase their homes during the spring and summer in order to move to a new home before the start of the school year. As a result, our loan origination revenues vary from quarter to quarter. However, this historical pattern may be disrupted for the foreseeable future as a result of the shelter-in-place and similar protective orders that have been issued in response to the pandemic.

Any of the circumstances described above, alone or in combination, may lead to volatility in or disruption of the credit markets at any time and have a detrimental effect on our business.

Our business is significantly impacted by interest rates. Changes in prevailing interest rates or U.S. monetary policies that affect interest rates may have a detrimental effect on our business.

Our financial performance is directly affected by changes in prevailing interest rates. Our financial performance may decrease or be subject to substantial volatility because of changes in prevailing interest rates. Due to the unprecedented events surrounding the COVID-19 pandemic along with the associated severe market dislocation, there is an increased degree of uncertainty and unpredictability concerning current interest rates, future interest rates and potential negative interest rates.

With regard to the portion of our origination business that is centered on refinancing existing mortgages, we generally note that the refinance market experiences more significant fluctuations in origination volume than the purchase market as a result of interest rate changes. Long-term residential mortgage interest rates have been at or near record lows for an extended period, but they may increase in the future. As interest rates rise, refinancing generally becomes a smaller portion of the market as fewer consumers are interested in refinancing their mortgages. With regard to the portion of our origination business that is focused on originating mortgages for the purchase of homes, higher interest rates may also reduce demand for purchase mortgages as home ownership becomes more expensive. This could adversely affect our revenues or require us to increase marketing expenditures in an attempt to increase or maintain our volume of mortgages. Decreases in interest rates can also adversely affect our financial condition, the value of our MSR portfolio, and the results of operations. With sustained low interest rates, as we have been experiencing, refinancing transactions decline over time, as many customers and potential customers have already taken advantage of the low interest rates. Interest rate risk also occurs in periods where changes in short-term interest rates result in mortgage loans being originated with terms that provide a smaller interest rate spread above the financing terms of our loan funding facilities, which can negatively impact its net interest income.

In addition, the market value of a closed loan held for sale generally declines as interest rates rise, and fixed-rate loans are more sensitive to changes in market interest rates than adjustable-rate loans. When we promise a customer an interest rate for a loan before an investor has promised to buy the loan from us at a stated price, a gain or loss on the sale of the loan may result from changes in interest rates during the period between the date the interest rate is fixed and the date we receive a commitment to buy the loan at an agreed-upon price. Any offset strategies we use to mitigate the interest rate risk that is inherent in our commitments to fund loans at then-prevailing rates and in our agreements to sell closed loans may not be successful. See the risk factor entitled, “Our hedging strategies may not be successful in mitigating risks associated with changes in interest rates.”

48

Changes in interest rates are also a key driver of the performance of our servicing business, particularly because our portfolio is composed primarily of MSR related to high-quality loans, the values of which are highly sensitive to changes in interest rates. Historically, the value of MSR has increased when interest rates rise as higher interest rates lead to decreased prepayment rates, and has decreased when interest rates decline as lower interest rates lead to increased prepayment rates. As a result, decreases in interest rates could have a detrimental effect on our servicing business.

Furthermore, borrowings under most of our warehouse lines of credit, servicing advance facilities and MSR facilities are at variable rates of interest, which also expose us to interest rate risk. If interest rates increase, our debt service obligations on certain of our variable-rate indebtedness will increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. Volatility in interest rates may also negatively impact our cost of funds and compliance with collateral coverage tests and make it difficult for us to renew existing facilities or obtain new financing facilities.

In addition, our business is materially affected by the monetary policies of the U.S. government and its agencies. We are particularly affected by the policies of the U.S. Federal Reserve, which influence interest rates and impact the size of the loan origination market. The U.S. Federal Reserve’s balance sheet consists of U.S. Treasuries and MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae. To shrink its balance sheet prior to the COVID-19 pandemic, the U.S. Federal Reserve had slowed the pace of MBS purchases to a point at which natural runoff exceeded new purchases, resulting in a net reduction. Recently, in response to the COVID-19 pandemic, state and federal authorities have taken several actions to provide relief to those negatively affected by COVID-19, such as the CARES Act and the U.S. Federal Reserve’s support of the financial markets. In particular, U.S. Federal Reserve announced programs to increase its purchase of certain MBS products in response to the COVID-19 pandemic’s effect on the U.S. economy, and the market for MBS in particular. This recent policy change by the U.S. Federal Reserve could affect the liquidity of MBS in the future or the effectiveness of our hedging strategies.

We depend on our ability to sell loans in the secondary market to investors and to Freddie Mac and Fannie Mae and to securitize our loans into MBS through these GSEs and Ginnie Mae. A disruption in the secondary home loan market could have a detrimental effect on our ability to originate mortgage loans.

Substantially all of our loan production is securitized or sold to buyers in the secondary market. We securitize eligible loans into MBS through Fannie Mae, Freddie Mac and Ginnie Mae, and non-GSE loans that we produce are sold to buyers in the secondary market. We are required to maintain specified financial eligibility requirements to remain a seller/servicer in good standing with HUD, Fannie Mae, Freddie Mac and Ginnie Mae and others who buy our mortgages in the secondary market. If we were to fail to meet these requirements, or the performance of our loans materially varies from industry averages in a negative way, our ability to enter into transactions with the Agencies might be impaired, which could have a material adverse effect on our business, financial position, results of operations and cash flows. Generally, if we do not satisfy the applicable required covenants, we would be unable to securitize or sell our loans in the secondary market to one or more of these investors. In addition, a reduction in the number of private investors that are willing to purchase loans that are not eligible for sale to the Agencies may impair our ability to originate those types of loans. See risk factor entitled, “Our counterparties may terminate our servicing rights.”

The gain recognized from sales in the secondary market represents a significant portion of our revenues and net earnings. Further, we are dependent on the cash generated from such sales to fund our future loan closings and repay borrowings under our loan funding facilities. A decrease in the prices paid to us upon sale of our loans could materially adversely affect our business, operations, financial condition and results of operations. The prices we receive for our loans vary from time to time and may be materially adversely affected by several factors, including, without limitation:

49

Further, to the extent we become subject to delays in our ability to sell future mortgage loans which we originate, we would need to reduce our origination volume to the amount that we can sell plus any excess capacity under our loan funding facilities. Delays in the sale of mortgage loans also increase our exposure to increases in interest rates, which could adversely affect our profitability on sales of loans.

The illiquidity of our assets, including MSR, may adversely affect our business, including our ability to value and sell our assets.

Our investments in MSR have limited liquidity and the liquidity of our mortgage loans could be impacted if there is significant disruption or periods of illiquidity in the general mortgage-backed securities, or MBS, market. Adverse market conditions could further significantly and negatively affect the liquidity of such assets. It may be difficult or impossible to obtain third-party pricing on such illiquid assets, and validating third-party pricing for illiquid assets may be more subjective than more liquid assets. Illiquid assets typically experience greater price volatility, as a ready market may not exist for such assets, and such assets can be more difficult to value.

Any illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises. Our ability to quickly sell certain assets, such as mortgage loans and MSR, may be limited by delays encountered while obtaining certain regulatory or investor approvals required for such dispositions and by delays due to the time period needed for negotiating transaction documents, conducting diligence and complying with regulatory requirements regarding the transfer of such assets before settlement may occur. Consequently, even if we identify a buyer for our mortgage loans and MSR, there is no assurance that we will be able to quickly sell such assets if the need or desire arises.

In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we previously recorded our assets. Assets that are illiquid are also more difficult to finance, and to the extent that we use leverage to finance assets that become illiquid we may lose that leverage or have it reduced. Assets tend to become less liquid during times of financial stress, which is often the time that liquidity is most needed. As a result, our ability to sell assets or vary our portfolio in response to changes in economic and other conditions may be limited by liquidity constraints, which could materially adversely affect our business, financial condition, liquidity and results of operations.

Our hedging strategies may not be successful in mitigating risks associated with changes in interest rates.

We employ offset strategies to mitigate the interest rate risk that is inherent in many of our assets, including our commitments to fund loans and our mortgage loans held for sale. Interest rate risk represents a component of market risk and represents the possibility that changes in interest rates will cause unfavorable changes in net income and in the value of our interest-rate-sensitive assets. Rising mortgage rates result in falling prices for those interest-rate-sensitive assets, which negatively affect their value. We also employ offset strategies to mitigate the risks inherent in changes in interest rates on MSR, loans held for sale and interest rate lock commitments, or IRLCs.

50

Our derivative instruments are accounted for as free-standing derivatives and are included on our combined balance sheet at fair market value as either assets or liabilities on a gross basis. Our operating results may suffer because the losses on the derivatives we enter into may not be offset by a change in the fair value of the related hedged transaction. We use derivative instruments to manage our interest rate risk exposure in order to offset changes in fair value resulting from changes in interest rate environments, as well as to manage our exposure to changes in interest rates on MSR, loans held for sale and IRLCs. Our derivative instruments used in our hedging strategies include forward commitments, Treasury futures, options on Treasury futures, Eurodollar futures, and options on Eurodollar futures. Utilization of mortgage forwards involves some degree of basis risk. Our offset strategies also rely on assumptions and projections regarding our assets and general market factors.

Our offset activities in the future may include entering into interest rate swaps, caps and floors, options to purchase these items, Eurodollar futures and/or purchasing or selling additional United States Treasury securities. Our offset decisions in the future will be determined in light of the facts and circumstances existing at the time and may differ from our current offset strategy. Moreover, our offset strategies may not be effective in mitigating the risks related to changes in interest rates and could affect our profitability and financial condition. Poorly designed strategies or improperly executed transactions could actually increase our risk or losses or result in margin calls that could materially affect our cash reserves, or our ability to fund additional mortgage loans or otherwise operate our businesses. Further, the significant and atypical volatility in the current interest rate marketplace can negatively impact our offsets effectiveness. Finally, derivatives may expose us to counterparty risk, which is defined as the possibility that a loss may occur from the failure of another party to perform in accordance with the terms of the contract, which exceeds the value of existing collateral, if any.

A substantial portion of our assets are measured at fair value. Fair value determinations require many assumptions and complex analyses, and we cannot control many of the underlying factors. If our estimates prove to be incorrect, we may be required to write down the value of such assets, which could adversely affect our earnings, financial condition and liquidity.

We measure the fair value of our mortgage loans held for sale, derivatives, IRLCs and MSR on a recurring basis. Fair value determinations require many assumptions and complex analyses, especially to the extent there are not active markets for identical assets. For example, mortgage loans held for sale are valued using a market approach by utilizing:

In addition, the fair value of IRLCs are computed based on quoted Agency pricing and our estimate of the customers’ ability and propensity to close their mortgage loans under the commitment. These components can have a significant impact on the calculated fair value.

Further, MSR do not trade in a market with readily observable prices that may be used to inform our own valuations. We determine the fair value of our MSRs using a stochastic discounted cash flow model that includes assumptions for prepayment speeds, discount rates, delinquency and foreclosure projections, servicing costs, and other assumptions that, in management’s judgment, are comparable to market-based assumptions for similar loan types used by other market participants in valuing MSRs. We also obtain valuations from independent third parties to assess the reasonableness of the fair value calculated by the internal stochastic discounted cash flow model. Changes in prepayment speeds, discount rates, delinquency and foreclosure projections, and/or servicing costs can have a material effect on the net carrying value of our MSR.

51

If our estimates of fair value, including the estimates provided by our third-party valuation agents, prove to be incorrect, we may be required to write down the value of such assets, which could adversely affect our earnings, financial condition and liquidity. Also, our valuation of our MSR may be higher than the valuations ascribed by the lenders under our MSR facilities, which may lead to a margin call under the applicable facility. 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 or discrete events adversely affecting specific customers.

Changes in the method of determining the London Inter-Bank Offered Rate, or LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest income or expense.

On July 27, 2017, the United Kingdom Financial Conduct Authority, which oversees LIBOR, formally announced that it could not assure the continued existence of LIBOR in its current form beyond the end of 2021, and that an orderly transition process to one or more alternative benchmarks should begin. In April 2018, the Federal Reserve Bank of New York, in conjunction with the AARC, a steering committee comprised of large U.S. financial institutions, announced replacement of U.S. LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S. Treasuries called the Secured Overnight Financing Rate. The first publication of SOFR was released in April 2018. Whether or not SOFR attains market acceptance as a LIBOR replacement remains in question, and the future of LIBOR at this time is uncertain. The selection of SOFR as the alternative reference rate currently presents certain market concerns, because a term structure for SOFR has not yet developed, and there is not yet a generally accepted methodology for adjusting SOFR, which represents an overnight, risk-free rate, so that it will be comparable to LIBOR, which has various tenors and reflects a risk component. In addition, our hedging strategies may be adversely impacted as no active market exists for derivative instruments tied to SOFR.

Certain of our debt agreements currently utilize a LIBOR benchmark. It is unclear whether, or in what form, LIBOR will continue to exist after 2021. If LIBOR ceases to exist or if the methods of calculating LIBOR change from current methods for any reason, interest rates on our floating rate loans, deposits, obligations, derivatives, and other financial instruments tied to LIBOR rates, as well as the revenue and expenses associated with those financial instruments, may be adversely affected as we transition to SOFR or another alternative reference rate.

Regulatory and Legal Risks Related to Our Business

We operate in a highly regulated industry, and our mortgage loan origination and servicing activities expose us to risks of noncompliance with an expanding and often inconsistent body of complex laws and regulations at the federal, state and local levels.

Due to the highly regulated nature of the mortgage industry, we are required to comply with a myriad of federal, state and local laws and regulations that govern the manner in which we conduct our loan production and servicing businesses. Because we originate and service mortgage loans nationwide, we must comply with the respective laws and regulations of each jurisdiction, as well as with judicial and administrative decisions applicable to us. These regulations and decisions directly impact our business and require ongoing compliance, monitoring and internal and external audits.

We are required to comply with numerous federal consumer protection and other laws, including, but not limited to:

52

53

Our failure to comply with applicable federal, state and local consumer protection laws could lead to:

Any of these outcomes would materially and adversely affect our business and our financial condition, liquidity and results of operations.

The volume of new and revised laws and regulations and judicial and administrative decisions, at both federal and state levels, that affect our business has increased in recent years. In addition, individual cities and counties have begun to enact such laws. The laws and regulations of each applicable jurisdiction are complex, different and, in many cases, inconsistent or in direct conflict with each other. Moreover, such laws and regulations change frequently. All of these laws and regulations are subject to interpretation and enforcement by federal, state and local law, regulatory and enforcement authorities. Given the consumer-oriented nature of our business, various regulatory authorities have in the past examined and monitored our industry and us, and are expected to continue do so. To resolve issues raised in examinations or other governmental actions, we may be required to take various corrective actions, including changing certain business practices, making refunds or taking other actions that would be financially or competitively detrimental to us. We expect to continue to incur costs to comply with governmental regulations. Finally, certain legislative actions and judicial decisions can give rise to the initiation of lawsuits against us for activities we conducted in the past.

The recent influx of new laws, regulations, and other directives adopted in response to the recent COVID-19 pandemic exemplifies the ever-changing and increasingly complex regulatory landscape we operate in. While some regulatory reactions to COVID-19 relaxed certain compliance obligations, the forbearance requirements imposed on mortgages servicers in the CARES Act added new regulatory responsibilities. The GSEs and the FHFA, Ginnie Mae, HUD, various investors and others have also issued guidance relating to COVID-19. In recent weeks, we received and expect to continue to receive inquiries from various federal and state lawmakers, attorneys general and regulators seeking information on our COVID-19 response and its impact on our business, team members, and customers. Future regulatory scrutiny and enforcement resulting from COVID-19 is unknown. For further information regarding the impact of the COVID-19 pandemic, see the risk factor entitled “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.”

54

As these federal, state and local laws evolve, it may become more challenging for us to remain abreast of these developments comprehensively, to interpret changes accurately and to train our personnel effectively with respect to these laws and regulations. These difficulties potentially increase our exposure to the risks of noncompliance with these laws and regulations, which could materially and adversely affect our business, financial condition and results of operations. In addition, our failure to comply with these laws, regulations and rules may result in reduced payments by borrowers, modification of the original terms of mortgage loans, permanent forgiveness of debt, delays in the foreclosure process, increased servicing advances, litigation, enforcement actions and repurchase and indemnification obligations. A failure to adequately supervise service providers, including outside foreclosure counsel, may also have these negative results.

The laws and regulations applicable to us are subject to administrative or judicial interpretation, but some may not yet have been interpreted or may be interpreted infrequently. Ambiguities in applicable laws and regulations may leave uncertainty with respect to permissible practices and may lead to regulatory investigations, governmental enforcement actions or private causes of action with respect to our compliance. Such ambiguities may be construed adversely to mortgage loan originators and servicers. Furthermore, provisions of our mortgage loan agreements could be construed as unenforceable by a court. We have been, and expect to continue to be, subject to regulatory enforcement actions and private causes of action from time to time with respect to our compliance with applicable laws and regulations. In the ordinary course of business, we are subject to periodic federal and state regulatory examinations, inquiries, subpoenas, requests for information and other actions that could result in regulatory action against us.

Also, there continue to be changes in laws, rulemaking and licensing requirements, which require technology changes and additional implementation costs for loan originators and servicers. We expect that legislative and regulatory changes will continue in the foreseeable future, which may increase our operating expenses. Although we have systems and procedures designed to comply with these legal and regulatory requirements, we cannot assure you that more restrictive laws and regulations will not be adopted in the future, that governmental bodies or courts will not interpret existing laws or regulations in a more restrictive manner or that we may be found to have not complied or may have difficulty continuing to comply in all respects with existing legal and regulatory requirements, which could render our current business practices non-compliant or which could make compliance more difficult or expensive.

Mortgaged properties securing the mortgage loans we service may be subject to homeowners or condominium associations, board, corporation or similar entities with authority to create a lien on the property as a result of the non-payment of dues, fees and/or assessments that are payable with respect to such property. In certain jurisdictions, the failure to pay such dues, fees or assessments can give rise to liens that may be senior to, or extinguish, the lien of the related mortgage on the property. Failure to pay these amounts could result in senior liens on the property that would lessen the amount received in any sale of the property (or in some states, in the case of the failure to pay such dues, fees or assessments, could extinguish the lien under the related mortgage). Also, if a super priority lien is used to extinguish a lien on a related mortgage loan, FHA insurance may not cover all interest and principal on the related mortgage loan.

Federal law provides that property purchased or improved with assets derived from criminal activity or otherwise tainted, or used in the commission of certain offenses, can be seized and ordered forfeited to the United States. The offenses that can trigger such a seizure and forfeiture include, among others, violations of the Racketeer Influenced and Corrupt Organizations Act, the BSA, the anti-money laundering laws and regulations, including the USA PATRIOT Act and the regulations issued pursuant to that Act, as well as the narcotic drug laws. In many instances, the United States may seize the property even before a conviction occurs. In the event of a forfeiture proceeding, a lender may be able to establish its interest in the property by proving that (1) its mortgage was executed and recorded before the commission of the illegal conduct from which the assets used to purchase or improve the property were derived or before the commission of any other crime upon which the forfeiture is based or (2) the lender, at the time of the execution of the mortgage, “did not know or was reasonably without cause to believe that the property was subject to forfeiture.” However, there is no assurance that such a defense will be successful.

55

The SCR Act and comparable state laws provide relief to mortgagors who enter active military service and to mortgagors in reserve status who are called to active duty after the origination of their mortgage loans. Certain state laws provide relief similar to that of the SCR Act and may permit the mortgagor to delay or forego certain interest and principal payments and avoid foreclosure. The response of the United States to the terrorist attacks on September 11, 2001 and to the current situation in the Middle East and elsewhere has involved military operations that have placed a substantial number of citizens on active-duty status, including persons in reserve status or in the National Guard who have been called or will be called to active-duty. It is possible that the number of reservists and members of the National Guard placed on active-duty status in the future may increase. The SCR Act provides generally that a mortgagor who is covered by the SCR Act may not be charged interest (which includes service charges, renewal charges, fees or any other charges except bona fide insurance) on a mortgage loan in excess of 6% per annum during the period of the mortgagor’s active duty and one year thereafter. These shortfalls are not required to be paid by the mortgagor at any future time. The SCR Act and comparable state laws also limit the ability of the servicer to foreclose on a mortgage during the mortgagor’s period of active duty and, in some cases, during an additional three month period thereafter. As a result, there may be delays in payment, increased expenses related to servicing, delays in foreclosures and increased losses on the mortgage loans.

Any of these, or other changes in laws or regulations could adversely affect our business, financial condition and results of operations. In addition, the current federal administration has indicated it may propose significant policy and regulatory changes; while it is not possible to predict when and whether significant policy or regulatory changes may occur, any such changes on the federal, state or local level could significantly impact, among other things, our operating expenses, the availability of mortgage financing, interest rates, consumer spending, the economy and the geopolitical landscape. To the extent that the current administration takes action by proposing and/or passing additional regulatory policies that could have a negative impact on our industry, such actions may have a material adverse effect on our business, financial condition and results of operations.

The CFPB continues to be active in its monitoring of the loan origination and servicing sectors, and its recently issued rules increase our regulatory compliance burden and associated costs.

We are subject to the regulatory, supervisory and examination authority of the CFPB, which has oversight of federal and state non-depository lending and servicing institutions, including residential mortgage originators and loan servicers. The CFPB has rulemaking authority with respect to many of the federal consumer protection laws applicable to mortgage lenders and servicers, including TILA and RESPA and the Fair Debt Collections Practices Act. The CFPB has issued a number of regulations under the Dodd-Frank Act relating to loan origination and servicing activities, including ability-to-repay and “Qualified Mortgage” standards and other origination standards and practices as well as servicing requirements that address, among other things, periodic billing statements, certain notices and acknowledgements, prompt crediting of borrowers’ accounts for payments received, additional notice, review and timing requirements with respect to delinquent borrowers, loss mitigation, prompt investigation of complaints by borrowers, and lender-placed insurance notices. The CFPB has also amended provisions of the Home Ownership and Equity Protection Act, or HOEPA, regarding the determination of high-cost mortgages, and of Regulation B, to implement additional requirements under the Equal Credit Opportunity Act with respect to valuations, including appraisals and automated valuation models. The CFPB has also issued guidance to loan servicers to address potential risks to borrowers that may arise in connection with transfers of servicing. Additionally, through bulletins 2012-03 and 2016-02, the CFPB has increased the focus on lender liability and vendor management across the mortgage and settlement services industries, which may vary depending on the services being performed.

For example, the CFPB iteratively adopted rules over the course of several years regarding mortgage servicing practices that required us to make modifications and enhancements to our mortgage servicing processes and systems. While the CFPB recently announced its flexible supervisory and enforcement approach during the COVID-19 pandemic on certain consumer communications required by the mortgage servicing rules, managing to the CFPB’s loss mitigation rules with mounting CARES Act forbearance requests is particularly challenging. The intersection of the CFPB’s

56

mortgage servicing rules and COVID-19 is evolving and will pose new challenges to the servicing industry. The CFPB’s recent publication of COVID-19-related FAQs did not resolve potential conflicts between the CARES Act with respect to reporting of consumer credit information mandated by the Fair Credit Reporting Act. There are conflicting interpretations of the CARES Act amendment of the Fair Credit Reporting Act with regards to delinquent loans entering a forbearance.

The mortgage lending sector is currently relying, for a significant portion of the mortgages originated, on a temporary CFPB regulation, commonly called the “QM Patch,” which permits mortgage lenders to comply with the CFPB’s ability to repay requirements by relying on the fact that the mortgage is eligible for sale to Fannie Mae or Freddie Mac. Reliance on the QM Patch has become widespread due to the operational complexity and practical inability for many mortgage lenders to rely on other ways to show compliance with the ability to repay regulations. See the risk factor entitled, “Our business is highly dependent on Ginnie Mae, Fannie Mae and Freddie Mac and certain federal and state government agencies, and any changes in these entities or their current roles could materially and adversely affect our business, liquidity, financial position and/or results of operations.” On October 20, 2020, the CFPB issued final proposed rules to revise its ability to repay requirements and to extend the QM Patch until those revisions are effective. We cannot predict what final actions the CFPB will take and how it might affect us and other mortgage originators.

The CFPB’s examinations have increased, and will likely continue to increase, our administrative and compliance costs. They could also greatly influence the availability and cost of residential mortgage credit and increase servicing costs and risks. These increased costs of compliance, the effect of these rules on the lending industry and loan servicing, and any failure in our ability to comply with the new rules by their effective dates, could be detrimental to our business. The CFPB also issued guidelines on sending examiners to banks and other institutions that service and/or originate mortgages to assess whether consumers’ interests are protected. The CFPB has conducted routine examinations of our business and will conduct future examinations.

The CFPB also has broad enforcement powers, and can order, among other things, rescission or reformation of contracts, the refund of moneys or the return of real property, restitution, disgorgement or compensation for unjust enrichment, the payment of damages or other monetary relief, public notifications regarding violations, limits on activities or functions, remediation of practices, external compliance monitoring and civil money penalties. The CFPB has been active in investigations and enforcement actions and, when necessary, has issued civil money penalties to parties the CFPB determines has violated the laws and regulations it enforces. Our failure to comply with the federal consumer protection laws, rules and regulations to which we are subject, whether actual or alleged, could expose us to enforcement actions or potential litigation liabilities.

In addition, the occurrence of one or more of the foregoing events or a determination by any court or regulatory agency that our policies and procedures do not comply with applicable law could impact our business operations. For example, if the violation is related to our servicing operations it could lead to downgrades by one or more rating agencies, a transfer of our servicing responsibilities or any combination of these events. Such a determination could also require us to modify our servicing standards. The expense of complying with new or modified servicing standards may be substantial. Any such changes or revisions may have a material impact on our servicing operations, which could be detrimental to our business.

The state regulatory agencies continue to be active in their supervision of the loan origination and servicing sectors and the results of these examinations may be detrimental to our business.

We are also supervised by regulatory agencies under state law. State attorneys general, state licensing regulators, and state and local consumer protection offices have authority to investigate consumer complaints and to commence investigations and other formal and informal proceedings regarding our operations and activities. In addition, the GSEs and the FHFA, Ginnie Mae, the U.S. Federal Trade Commission, or the FTC, HUD, various investors, non-agency securitization trustees and others subject us to periodic reviews and audits. A determination of our failure to comply with applicable law could lead to enforcement action, administrative fines and penalties, or other administrative action.

57

Our servicing practices may be subject to increased examination by our regulators, including as a result of the COVID-19 pandemic, and the results of these examinations may be detrimental to our business.

As a loan servicer, we are examined for compliance with very prescriptive U.S. federal, state and local laws, rules and guidelines by numerous regulatory agencies. It is possible that any of these regulators will inquire about our servicing practices, policies or procedures and require us to revise them in the future. The occurrence of one or more of the foregoing events or a determination by any court or regulatory agency that our servicing policies and procedures do not comply with applicable law could lead to downgrades by one or more rating agencies, a transfer of our servicing responsibilities, increased delinquencies on mortgage loans we service or any combination of these events. Such a determination could also require us to modify our servicing standards. State and federal regulators have been inquiring of servicers response to borrower requests for forbearance and loss mitigation due to the financial hardship caused by COVID-19, and we expect this to continue.

In addition, under Section 113 of the Dodd-Frank Act, FSOC is authorized to determine that a non-bank financial company’s material financial distress—or the nature, scope, size, scale, concentration, interconnectedness, or mix of its activities—could pose a threat to U.S. financial stability. Such companies will be subject to consolidated supervision by the Federal Reserve and enhanced prudential standards through designation as a “systemically important financial institution.” In its 2019 annual report, FSOC raised the issue of whether non-bank financial company’s lines may be at risk of cancellation in times of significant stress. It also questioned whether non-banks would be able to perform during a downturn in the housing or mortgage markets and absorb adverse economic shocks because of their relatively limited resources and capital and high debt burden. As a non-bank mortgage lender, we may be subject to targeted review by FSOC.

Legal proceedings, state or federal governmental examinations or enforcement actions and related costs could have a material adverse effect on our business liquidity, financial position and results of operations.

We are routinely and currently involved in a significant number of legal proceedings concerning matters that arise in the ordinary course of our business. There is no assurance that the number of legal proceedings will not increase in the future, including certified class or mass actions. These legal proceedings range from actions involving a single plaintiff to putative class action lawsuits with potentially tens of thousands of class members. These actions and proceedings are generally based on alleged violations of consumer protection, securities, employment, contract, tort, common law fraud and numerous other laws, including, but not limited to, the Equal Credit Opportunity Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Real Estate Settlement Procedures Act, National Housing Act, Homeowners Protection Act, Servicemember’s Civil Relief Act, Telephone Consumer Protection Act, Truth in Lending Act, Financial Institutions Reform, Recovery, and Enforcement Act of 1989, unfair, deceptive or abusive acts or practices in violation of the Dodd-Frank Act, the Securities Act of 1933, as amended, or the Securities Act, the Securities Exchange Act of 1934, or the Exchange Act, the Home Mortgage Disclosure Act, the Bankruptcy Code, False Claims Act and Making Home Affordable loan modification programs (while MHA programs have ended, claims may continue to arise). Additionally, along with others in our industry, we are subject to repurchase and indemnification claims and may continue to receive claims in the future, regarding alleged breaches of representations and warranties relating to the sale of mortgage loans, the placement of mortgage loans into securitization trusts or the servicing of mortgage loans securitizations.

Regulatory agencies and consumer advocacy groups are becoming more aggressive in asserting claims that the practices of lenders and loan servicers result in a disparate impact on protected classes. Antidiscrimination statutes, such as the Fair Housing Act and the Equal Credit Opportunity Act, prohibit creditors from discriminating against loan applicants and borrowers based on certain characteristics, such as race, religion and national origin. Various federal regulatory agencies and departments, including the U.S. Department of Justice, or the DOJ, and CFPB, take the position that these laws apply not only to intentional discrimination, but also to neutral practices that have a disparate impact on a group that shares a characteristic that a creditor may not consider in making credit decisions (i.e., creditor or servicing practices that have a disproportionate negative affect on a protected class of individuals).

58

These regulatory agencies, as well as consumer advocacy groups and plaintiffs’ attorneys, are focusing greater attention on “disparate impact” claims. The U.S. Supreme Court confirmed that the “disparate impact” theory applies to cases brought under the Fair Housing Act, while emphasizing that a causal relationship must be shown between a specific policy of the defendant and a discriminatory result that is not justified by a legitimate objective of the defendant. Although it is still unclear whether the theory applies under the Equal Credit Opportunity Act, regulatory agencies and private plaintiffs can be expected to continue to apply it to both the Fair Housing Act and the Equal Credit Opportunity Act in the context of home loan lending and servicing. To extent that the “disparate impact” theory continues to apply, we may be faced with significant administrative burdens in attempting to comply and potential liability for failures to comply.

Furthermore, many industry observers believe that the “ability to repay” rule issued by the CFPB, discussed above, will have the unintended consequence of having a disparate impact on protected classes. Specifically, it is possible that lenders that make only qualified mortgages may be exposed to discrimination claims under a disparate impact theory.

In addition to reputational harm, violations of the Equal Credit Opportunity Act and the Fair Housing Act can result in actual damages, punitive damages, injunctive or equitable relief, attorneys’ fees and civil money penalties.

In addition, we are subject to routine periodic regulatory examinations and legal proceedings concerning matters that arise in the ordinary course of our business. As a non-bank mortgage lender, we are subject to licensure, regulation and supervision by every state, district and territory in which we do business. States examine non-bank mortgage lenders and servicers periodically, depending on state law requirements and other factors such as the lender’s size and compliance history. These examinations may include a review of the non-bank lender’s compliance with all federal and state consumer protection laws, compliance management system and internal controls. In addition, every individual loan originator must be licensed and bonded in every state, district and territory in which he or she engages in mortgage loan origination activities.

Litigation and other proceedings may require that we pay settlement costs, legal fees, damages, including punitive damages, penalties or other charges, or be subject to injunctive relief affecting our business practices, any or all of which could adversely affect our financial results. In particular, ongoing and other legal proceedings brought under federal or state consumer protection statutes may result in a separate fine for each violation of the statute, which, particularly in the case of class action lawsuits, could result in damages substantially in excess of the amounts we earned from the underlying activities and that could have a material adverse effect on our liquidity, financial position and results of operations. The costs of responding to the investigations can be substantial.

Several large mortgage originators or servicers have been subject to investigations related to residential loan servicing and origination practices, bankruptcy and collections practices, financial reporting and other aspects of their businesses by the CFPB, the SEC, the Executive Office of the United States Trustees, the Office of the Special Inspector General for the Troubled Asset Relief Program, the Department of Justice, the U.S. Department of Housing and Urban Development, the multistate coalition of mortgage banking regulators, and various State Attorneys General, which have resulted in the payment of fines and penalties, changes to business practices and the entry of consent decrees or settlements. The trend of large settlements with governmental entities may adversely affect the outcomes for other financial institutions.

Moreover, regulatory changes resulting from the Dodd-Frank Act, other regulatory changes such as the CFPB having its own examination and enforcement authority and the “whistleblower” provisions of the Dodd-Frank Act and guidance on whistleblowing programs issued by the New York Department of Financial Services could further increase the number of legal and regulatory enforcement proceedings against us. In addition, while we take numerous steps to prevent and detect employee misconduct, such as fraud, employee misconduct cannot always be deterred or prevented and could subject us to additional liability.

We establish reserves for pending or threatened legal proceedings when it is probable that a liability has been incurred and the amount of such loss can be reasonably estimated. Legal proceedings are inherently uncertain, and

59

our estimates of loss are based on judgments and information available at that time. Our estimates may change from time to time for various reasons, including factual or legal developments in these matters. There cannot be any assurance that the ultimate resolution of our litigation and regulatory matters will not involve losses, which may be material, in excess of our recorded accruals or estimates of reasonably probable losses.

If we do not obtain and maintain the appropriate state licenses, we may not be allowed to originate or service.

Our mortgage origination and mortgage servicing activities are subject to regulation, supervision and licensing under various federal, state and local statutes and regulations. In all states in which we operate, a regulatory agency regulates and enforces laws relating to mortgage servicing companies and mortgage origination companies such as us. These rules and regulations generally provide for licensing as a mortgage lender, mortgage servicer, debt collection agency and/or third-party default specialist, as applicable, requirements as to the form and content of contracts and other documentation, licensing of our employees and employee hiring background checks, restrictions on fees, restrictions on collection practices, disclosure and recordkeeping requirements and enforcement of borrowers’ rights.

On September 29, 2020, the Conference of State Bank Supervisors (“CSBS”), an organization made up of state banking regulators, released proposed prudential standards for state oversight of nonbank mortgage servicers (the “Proposal”). Comments from interested parties were due by December 31, 2020. CSBS pointed to a “changed nonbank mortgage market” as the driver of the proposed standards, emphasizing that nonbank mortgage servicers now service roughly 40% of the total single-family residential mortgage market and expressing concern about the rapid growth of nonbank servicing and the financial stability and governance of nonbank servicers.

A key component of the Proposal is financial strength requirements relating to net worth, capital and liquidity. Relying in part on the financial strength requirements that FHFA has imposed on eligible seller/servicers, the Proposal employs a “higher of” test. For each of the three components, the test is the higher of the then current FHFA requirements and a prescriptive, baseline standard that presently is derived from and in part would exceed existing FHFA requirements. In addition to these financial strength requirements, the Proposal would apply enhanced standards to servicers that are deemed to be “Complex Servicers.” As proposed, Complex Servicers are servicers that own whole loans plus servicing rights with aggregate unpaid principal balances totaling the lesser of $100 billion or representing at least 2.5% of the total market share. If finalized as defined, Caliber would qualify as a “complex servicer.” These servicers would be required to meet enhanced capital and liquidity standards that require the servicer’s management and board of directors to develop a methodology to determine and monitor its capital and liquidity needs. Complex Servicers would also be required to engage in stress testing analysis and develop a “living will” that provides a roadmap to recovery should the servicer face significant hardship.

CSBS is not a regulatory body and simply can propose standards to be adopted by individual states, creating the risk of an inconsistent adoption, implementation or interpretation by different states. FHFA standards are not regulatory in nature and may be waived or modified by the GSEs and FHFA. If finalized and depending on how implemented and interpreted by individual states, these financial strength requirements would be enforceable by state regulators as written, even if the GSEs and FHFA elected to waive or modify their own financial strength requirements.

Among other provisions in the Proposal, nonbank mortgage servicers would be required to establish a risk management program under the oversight of the entity’s board of directors that manages risks in numerous areas including credit risk, liquidity risk, operational risk, market risk, compliance risk, and reputational risk. The Proposal also would require servicers to have controls related to the governance of information technology and perform risk assessments as well as testing and monitoring. Under the Proposal, nonbank mortgage servicers must establish a corporate governance framework that protects the interests of the servicer and the servicer’s stakeholders.

60

We may not be able to maintain all requisite licenses, and the failure to satisfy those and other regulatory requirements could restrict our ability to originate, broker, purchase or service residential mortgage loans. In addition, our failure to satisfy any such requirements relating to servicing of residential loans could result in a default under our servicing agreements and have a material adverse effect on our operations. Those states that currently do not provide extensive regulation of our business may later choose to do so, and if such states so act, we may not be able to obtain or maintain all requisite licenses. The failure to satisfy those and other regulatory requirements could limit our ability to broker, originate, purchase or service mortgage loans in a certain state, or could result in a default under our servicing agreements and have a material adverse effect on our operations. Furthermore, the adoption of additional, or the revision of existing, rules and regulations could adversely affect our business, financial condition or results of operations.

Failure to comply with underwriting guidelines of the Agencies or of non-Agency investors could adversely impact our business.

We must comply with the underwriting guidelines of the Agencies and of non-Agency investors in order to successfully originate Agency loans, an area in which we have a substantial business. If we fail to do so, we may not be able to collect on Agency insurance. In addition, we could be subject to allegations of violations of the False Claims Act asserting that we submitted claims for insurance on loans that had not been underwritten in accordance with applicable underwriting guidelines. Violations of the False Claims Act carry civil penalties and, in some cases, treble the amount of the government’s damages. If we are found to have violated Agency underwriting guidelines, we could face regulatory penalties and damages in litigation, suffer reputational damage and we could incur losses due to an inability to collect on such insurance, any of which could materially and adversely impact our business, financial condition and results of operations. If we fail to meet the underwriting guidelines of the Agencies or of non-Agency investors we could lose our ability to underwrite loans for such investors, which could have a material adverse effect on our business, financial condition and results of operations.

Violations of predatory lending and/or servicing laws could negatively affect our business.

Various federal, state and local laws have been enacted that are designed to discourage predatory lending and servicing practices. HOEPA prohibits inclusion of certain provisions in residential loans that have mortgage rates or origination costs in excess of prescribed levels and requires that borrowers be given certain additional disclosures prior to origination. The Dodd-Frank Act amended HOEPA by expanding the types of mortgage loans subject to HOEPA and revising and expanding the tests for HOEPA coverage. Some states have enacted, or may enact, similar laws or regulations, which in some cases impose restrictions and requirements greater than are those in HOEPA. In addition, under the anti-predatory lending laws of some states, the origination of certain residential loans, including loans that are not classified as “high cost” loans under HOEPA or other applicable laws, must satisfy a net tangible benefits test with respect to the related borrower. If we originate, service or acquire residential loans that are non-compliant with HOEPA or other predatory lending or servicing laws, this could subject us, as an originator, a servicer or as an assignee, in the case of acquired loans, to monetary penalties and/or we may be required to permit our customers to rescind the affected loans. Lawsuits have been brought in various states making claims against originators, servicers and assignees of high cost loans for violations of state law. Named defendants in these cases have included numerous participants within the secondary mortgage market. If we are found to have violated predatory or abusive lending laws, defaults could be declared under our debt or servicing agreements, we could suffer reputational damage and we could incur losses, any of which could materially and adversely impact our business, financial condition and results of operations.

If new laws and regulations lengthen foreclosure times or introduce new regulatory requirements regarding foreclosure procedures, our operating costs could increase and we could be subject to regulatory action.

When a mortgage loan we service is in foreclosure, we may be required to continue to advance delinquent principal and interest to the securitization trust and to make advances for delinquent taxes and insurance and

61

foreclosure costs and the upkeep of vacant property in foreclosure to the extent that we determine that such amounts are recoverable. See risk factor entitled “We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances.” Regulatory actions that lengthen the foreclosure process will increase the amount of servicing advances that we are required to make, lengthen the time it takes for us to be reimbursed for such advances and increase the costs incurred during the foreclosure process.

The CARES Act paused all foreclosures until May 17, 2020. Although the CARES Act has not been amended yet to extend this period, relevant federal agencies have announced extensions to the moratorium on foreclosures and related evictions for their respective loans through February 28, 2021. Additionally, many state governors issued orders, directives, guidance or recommendations halting foreclosure activity including evictions. This will increase our operating costs, extend the time we advance for delinquent taxes and insurance and could delay our ability to seek reimbursement from the investor to recoup some or all of the advances.

On September 1, 2020, the Centers for Disease Control and Prevention, or the CDC, filed a notice of an agency order in the Federal Register entitled Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19, or the Order. The Order prohibits landlords, residential property owners, or other persons or entities with the legal right to pursue an eviction from exercising such right with respect to any covered person for the period from publication through December 31, 2020.

The Order defines a “covered person” as any tenant, lessee, or resident of a residential property—including any property leased for residential purposes, such as a house, building, mobile home or land in a mobile home park, or similar dwelling leased for residential purposes, but excluding hotels, motels, and other temporary or seasonal guest housing—who provides a declaration, under penalty of perjury, to the person holding a legal right to pursue eviction indicating that:

A declaration must be prepared by each adult listed on the lease, rental agreement, or housing contract and does not require supporting documentation. The Order does not relieve any tenant or resident of any contractual obligations to pay rent or housing payments. Nor does the Order prohibit evictions for other reasons. The Order does not apply in states or localities with greater eviction protections or in American Samoa (where there have been no reported cases of COVID-19).

Violations of the Order may be enforced by federal authorities as well as state and local authorities cooperating pursuant to the CDC’s statutory authority to accept state and local cooperation. Violations carry potential criminal penalties for individuals of up to one year in jail and a fine of up to $100,000, which increases to up to $250,000 if a death occurs as a result of the violation. For organizations, violations can carry a penalty of up to $200,000, which increases to up to $500,000 if a death occurs as a result of the violation.

Increased regulatory scrutiny and new laws and procedures could cause us to adopt additional compliance measures and incur additional compliance costs in connection with our foreclosure processes. We may incur

62

legal and other costs responding to regulatory inquiries or any allegation that we improperly foreclosed on a customer. We could also suffer reputational damage and could be fined or otherwise penalized if we are found to have breached regulatory requirements.

Governmental actions may limit our ability to foreclose.

The federal government, state and local governments, consumer advocacy groups and others continue to urge servicers to be aggressive in modifying mortgage loans to avoid foreclosure and federal, state and local governmental authorities have proposed and enacted numerous laws, regulations and rules relating to mortgage loans generally, including the servicing of mortgage loans, and foreclosure actions particularly. In addition, the COVID-19 pandemic has resulted in the implementation of measures to temporarily suspend foreclosures and similar or more significant measures may be implemented in the near future.

Many of these laws, regulations and rules may provide new defenses to foreclosure or otherwise delay the foreclosure process, insulate servicers from liability for modification of loans (without regard to the terms of the applicable servicing agreement) or result in limitations on upward adjustment of mortgage interest rates, reduced payments by mortgagors, permanent forgiveness of debt, increased prepayments due to the availability of government-sponsored refinancing initiatives and/or increased reimbursable servicing expenses.

In addition, several courts and state and local governments and their elected or appointed officials also have taken unprecedented steps to slow the foreclosure process or prevent foreclosure altogether. The CFPB released final rules, which we refer to as the CFPB Servicing Rules, incorporate into Regulations X and Z many provisions of previous settlement agreements and implement provisions of the Dodd–Frank Act related to a number of fundamental servicing activities, including mortgagor communications, loss mitigation, information management and complaint and error resolution. The CFPB Servicing Rules became effective on January 10, 2014 and, among other things, target early intervention with borrowers following initial delinquency and impose detailed requirements applicable in each step of a servicer’s loss mitigation process. In particular, the CFPB Servicing Rules restrict “dual tracking,” in which a servicer simultaneously evaluates a mortgagor for a loan modification or other loss mitigation alternatives at the same time that it prepares to foreclose on the mortgaged property. Specifically, the CFPB Servicing Rules prohibit a servicer from making the first notice or filing required to commence the foreclosure process until the mortgagor is more than 120 days delinquent. Even if a mortgagor is more than 120 days delinquent, if the mortgagor submits a complete application for a loss mitigation option before a servicer has made the first notice or filing required for a foreclosure process, the servicer may not start the foreclosure process unless (i) the servicer informs the mortgagor that the mortgagor is not eligible for any loss mitigation option (and any appeal in respect thereof has been exhausted), (ii) the mortgagor rejects all loss mitigation offers, or (iii) the mortgagor fails to comply with the terms of a loss mitigation option such as a trial modification. If a mortgagor submits a complete application for a loss mitigation option after the foreclosure process has commenced but more than 37 days before a foreclosure sale, the servicer may not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until one of the same three conditions has been satisfied. In all of these situations, the servicer is responsible for promptly instructing foreclosure counsel retained by the servicer not to proceed with filing for foreclosure judgment or order of sale, or to conduct a foreclosure sale, as applicable.

In August 2016, the CFPB released final rules that revise and amend provisions regarding force-placed insurance notices, policies and procedures, early intervention, and loss mitigation requirements under Regulation X’s servicing provisions, prompt crediting and periodic statement requirements under Regulation Z’s servicing provisions and compliance regarding certain servicing requirements when a person is a potential or confirmed successor in interest, is a debtor in bankruptcy, or sends a cease communication request under the Fair Debt Collection Practices Act. On October 4, 2017, the CFPB released an interim final rule relating to the timing for mortgage servicers to provide modified written early intervention notices to a borrower who has sent a cease communication request under the Fair Debt Collection Practices Act. Portions of the August 2016 amendments to the CFPB Servicing Rules and the October interim final rule became effective on October 19, 2017, and the

63

remaining provisions of the August 2016 amendments became effective on April 19, 2018. On March 8, 2018, the CFPB issued a final rule to amend the August 2016 amendments to the CFPB Servicing Rules relating to the timing for servicers providing periodic statements and coupon books in connection with a borrower’s bankruptcy case which also became effective on April 19, 2018. On April 3, 2020, the CFPB issued guidance on how servicers can implement certain requirements under the CFPB Servicing Rules related to loss mitigation options entered into in connection with the COVID-19 pandemic. The CFPB Servicing Rules, including the recent amendments, could result in increased delays in foreclosure or the inability to foreclose, which could in turn result in delays in payments on, or losses in respect of, any mortgage loans that we service. Additionally, the CFPB has the authority under the Dodd–Frank Act to impose additional requirements on servicers to address any perceived issues.

The California Homeowner Bill of Rights, which became effective on January 1, 2013 and was amended effective January 1, 2018, requires servicers to halt the foreclosure process while any modification is being considered, requires servicers to provide a single point of contact, allows borrowers to seek injunctive relief for material violations of the California Homeowner Bill of Rights and provides penalties for recording and filing multiple unverified documents. On September 14, 2018, California permanently reinstated and amended certain more restrictive provisions of the California Homeowner Bill of Rights, which had expired on January 1, 2018. While the California Homeowner Bill of Rights has not materially extended foreclosure times in California since it was enacted, there can be no assurance that it will not do so in the future. These laws, regulations and rules, among others, are likely to result in delays in the foreclosure process and increased servicing costs.

The conduct of our correspondents and/or independent mortgage brokers with whom we produce or wholesale mortgage loans could subject us to fines or penalties.

The failure to comply with any applicable laws, regulations and rules by the mortgage lenders from whom loans were acquired through our correspondent production activities may result in adverse consequences to us. We have in place a due diligence program designed to assess areas of risk with respect to these acquired loans, including, without limitation, compliance with underwriting guidelines and applicable law. However, we may not detect every violation of law by these mortgage lenders. Further, to the extent any other third-party originators with whom we do business fail to comply with applicable law, and subsequently any of their mortgage loans become part of our assets, or prior servicers from whom we acquire MSR fail to comply with applicable law, it could subject us, as an assignee or purchaser of the related mortgage loans or MSR, respectively, to monetary penalties or other losses. In general, if any of our loans are found to have been originated, serviced or owned by us or a third party in violation of applicable law, we could be subject to lawsuits or governmental actions, or we could be fined or incur losses.

The independent third-party mortgage brokers through whom we produce wholesale mortgage loans have parallel and separate legal obligations to which they are subject. These independent mortgage brokers are not considered our employees and are treated as independent third parties. While the applicable laws may not explicitly hold the originating lenders responsible for the legal violations of mortgage brokers, federal and state agencies increasingly have sought to impose such liability. The DOJ, through its use of a disparate impact theory under the Fair Housing Act, is actively holding home loan lenders responsible for the pricing practices of brokers, alleging that the lender is directly responsible for the total fees and charges paid by the borrower even if the lender neither dictated what the broker could charge nor kept the money for its own account. In addition, under the TRID rule, we may be held responsible for improper disclosures made to customers by brokers. We may be subject to claims for fines or other penalties based upon the conduct of the independent home loan brokers with which we do business.

We are subject to laws and regulations regarding our use of telemarketing; a failure to comply with such laws, including the TCPA could increase our operating costs and adversely impact our business.

We engage in outbound telephone and text communications with consumers, and accordingly must comply with a number of laws and regulations that govern said communications and the use of automatic telephone

64

dialing systems, or ATDS, including the TCPA and Telemarketing Sales Rules. The FCC and the FTC have responsibility for regulating various aspects of these laws. Among other requirements, the TCPA requires us to obtain prior express written consent for certain telemarketing calls and to adhere to “do-not-call” registry requirements which, in part, mandate we maintain and regularly update lists of consumers who have chosen not to be called and restrict calls to consumers who are on the national do-not-call list. Many states have similar consumer protection laws regulating telemarketing. These laws limit our ability to communicate with consumers and reduce the effectiveness of our marketing programs. The TCPA does not distinguish between voice and data, and, as such, SMS/MMS messages are also “calls” for the purpose of TCPA obligations and restrictions.

For violations of the TCPA, the law provides for a private right of action under which a plaintiff may recover monetary damages of $500 for each call or text made in violation of the prohibitions on calls made using an “artificial or pre-recorded voice” or an ATDS. A court may treble the amount of damages upon a finding of a “willful or knowing” violation. There is no statutory cap on maximum aggregate exposure (although some courts have applied in TCPA class actions constitutional limits on excessive penalties). An action may be brought by the FCC, a state attorney general, an individual, or a class of individuals. Like other companies that rely on telephone and text communications, we are regularly subject to putative class action suits alleging violations of the TCPA. If in the future we are found to have violated the TCPA, the amount of damages and potential liability could be extensive and adversely impact our business. Accordingly, were such a class certified or if we are unable to successfully defend such a suit, as we have in the past, then TCPA damages could have a material adverse effect on our results of operations and financial condition.

We may incur increased costs and related losses if a customer challenges the validity of a foreclosure action, if a court overturns a foreclosure or if a foreclosure subjects us to environmental liabilities.

We may incur costs if we are required to, or if we elect to, execute or re-file documents or take other action in our capacity as a servicer in connection with pending or completed foreclosures. In addition, if certain documents required for a foreclosure action are missing or defective or if a court overturns a foreclosure because of errors or deficiencies in the foreclosure process, we may have liability to a title insurer or the purchaser of the property sold in foreclosure or could be obligated to cure the defect or repurchase the loan. We may also incur litigation costs, timeline delays and other protective advance expenses if the validity of a foreclosure action is challenged by a customer. These costs and liabilities may not be legally or otherwise reimbursable to us, particularly to the extent they relate to securitized mortgage loans. A significant increase in such costs and liabilities could adversely affect our liquidity and our inability to be reimbursed for advances could adversely affect our business, financial condition and results of operations.

In addition, in the course of our business, it may be necessary to foreclose and take title to real estate, which could subject us to environmental liabilities with respect to these properties. Hazardous substances or waste, contaminants, pollutants or sources thereof may be discovered on properties during our ownership or after a sale to a third party. We could be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination or may be required to investigate or clean up hazardous or toxic substances or chemical releases at such properties. The costs associated with investigation or remediation activities could be substantial and could substantially exceed the value of the real property. In addition, as the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. We may be unable to recover costs from any third party. These occurrences may materially reduce the value of the affected property, and we may find it difficult or impossible to use or sell the property prior to or following any environmental remediation. If we ever become subject to significant environmental liabilities, our business, financial condition and results of operations could be materially and adversely affected.

65

Government regulation of the internet and other aspects of our business is evolving, and we may experience unfavorable changes in or failure to comply with existing or future regulations and laws.

We are subject to a number of regulations and laws that apply generally to businesses, as well as regulations and laws specifically governing the internet and the marketing over the internet. Existing and future regulations and laws may impede the growth and availability of the internet and online services and may limit our ability to operate our business. These laws and regulations, which continue to evolve, cover privacy and data protection, data security, pricing, content, copyrights, distribution, mobile and other communications, advertising practices, electronic contracts, consumer protections, the provision of online payment services, unencumbered internet access to our services, the design and operation of our systems and the characteristics and quality of offerings online. We cannot guarantee that we have been or will be fully compliant in every jurisdiction, as it is not entirely clear how existing laws and regulations governing issues such as property ownership, consumer protection, libel and personal privacy apply or will be enforced with respect to the internet and e-commerce, as many of these laws were adopted prior to the advent of the internet and do not contemplate or address the unique issues they raise. Moreover, increasing regulation and enforcement efforts by federal and state agencies and the prospects for private litigation claims related to our data collection, privacy policies or other e-commerce practices become more likely. In addition, the adoption of any laws or regulations, or the imposition of other legal requirements, that adversely affect our digital marketing efforts could decrease our ability to offer, or customer demand for, our offerings, resulting in lower revenue. Future regulations, or changes in laws and regulations or their existing interpretations or applications, could also require us to change our business practices, raise compliance costs or other costs of doing business and materially adversely affect our business, financial condition and operating results.

Risks Related to Our Relationship With Lone Star

Lone Star may have conflicts of interest with other stockholders and its ownership may limit your ability to influence corporate matters.

Immediately after this offering, Lone Star will beneficially own approximately     % (or     % if the underwriters’ option to purchase additional shares is exercised in full) of our outstanding common stock. See the section entitled “Dilution” and “Principal and Selling Stockholder” for more information on the beneficial ownership of our common stock. As a result of this concentration of stock ownership, Lone Star acting on its own has sufficient voting power to effectively control all matters submitted to our stockholders for approval, including director elections and proposed amendments to our bylaws or certificate of incorporation. We currently expect that, as discussed in the section entitled “Management,” five of the nine members of our board of directors following this offering will be employees or affiliates of Lone Star.

In addition, this concentration of ownership may delay or prevent a merger, consolidation or other business combination or change in control of our company and make some transactions that might otherwise give you the opportunity to realize a premium over the then-prevailing market price of our common stock more difficult or impossible without the support of Lone Star. Because we have opted out of Section 203 of the Delaware General Corporation Law, or DGCL, which regulates certain business combinations with interested stockholders, Lone Star may transfer control of us to a third party, which may limit the price that investors are willing to pay in the future for shares of our common stock. After the lock-up period discussed in the section entitled “Underwriting” expires, Lone Star will be able to transfer control of us to a third-party by transferring its common stock, which would not require the approval of our board of directors or other stockholders. The interests of Lone Star may not always coincide with our interests as a company or the interests of other stockholders. Accordingly, Lone Star could cause us to enter into transactions or agreements of which you would not approve or make decisions with which you would disagree. This concentration of ownership may also adversely affect our share price.

Lone Star is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us, although it does not currently hold any such interests. Lone Star may also pursue acquisition opportunities that may be complementary to our business,

66

and as a result, those acquisition opportunities may not be available to us. In recognition that principals, members, directors, managers, partners, stockholders, officers, employees and other representatives of Lone Star and its related parties and investment funds may serve as our directors or officers, our amended and restated certificate of incorporation provides, among other things, that none of Lone Star or any principal, member, director, manager, partner, stockholder, officer, employee or other representative of Lone Star has any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business that we do. In the event that any of these persons or entities acquires knowledge of a potential transaction or matter which may be a corporate opportunity for itself and us, we will not have any expectancy in such corporate opportunity, and these persons and entities will not have any duty to communicate or offer such corporate opportunity to us and may pursue or acquire such corporate opportunity for themselves or direct such opportunity to another person. These potential conflicts of interest could have a material adverse effect on our business, financial condition and results of operations if, among other things, attractive corporate opportunities are allocated by Lone Star to themselves or their other affiliates. The terms of our amended and restated certificate of incorporation are described in full in the section entitled “Description of Capital Stock—Corporate Opportunities and Transactions with Lone Star.”

A significant portion of our non-agency loan servicing operations are conducted pursuant to servicing agreements with Lone Star, and any termination by Lone Star of these agreements, or a material change in the terms thereof that is adverse to us, would adversely affect our business, financial condition, liquidity and results of operations.

Lone Star owns a significant portion of the non-agency loans that we service, and we realize higher servicing fees and other servicing income on these loans than on servicing agency loans. Under certain circumstances, Lone Star may terminate these servicing rights with respect to these loans with or without cause, in some instances with little notice and little to no compensation. Upon any such termination, it would be difficult to replace such servicing arrangements on similar terms or at all. Accordingly, we may not generate as much revenue from servicing for other third parties. If Lone Star terminates such servicing arrangements, or if there is a change in the terms under which we perform servicing of non-agency loans for Lone Star that is material and adverse to us, this would have a material adverse effect on our business, financial condition, liquidity and results of operations.

We have previously been, and may in the future be, dependent upon sales to Lone Star of non-agency mortgage loans originated by us.

During 2019, we sold originated non-agency mortgage loans with a UPB of $1.5 billion to Lone Star, resulting in a gain of $31.0 million for the year ended December 31, 2019. While we do not currently sell originated non-agency mortgage loans to Lone Star, we may desire to do so in the future; however, Lone Star is under no obligation to purchase loans originated by us on terms similar to those previously agreed or at all. If we decide to sell originated non-agency mortgage loans in the future and there is not otherwise an available secondary market for such loans, any decision by Lone Star to not purchase loans originated by us could materially and adversely affect our business, liquidity, financial position and results of operations.

Because of Lone Star’s significant ownership and control of us, we could become liable for obligations of Lone Star or its affiliates, including other companies Lone Star owns or controls.

As a result of Lone Star’s current beneficial ownership of 100% of our common stock, a court, applying tests based on common control or otherwise, could determine that Lone Star and its related parties, including us and other companies Lone Star now or in the future may own or control, constitute a “partnership-in-fact,” a “controlled group” or other similar collective. Such a finding could be used to impose on us and other members of the group joint and several liability for the obligations of any Lone Star affiliate that is part of the group, including in respect of pension liabilities under the Employee Retirement Income Security Act of 1974, as amended, or ERISA, and related laws. These pension liabilities could include an obligation to make ongoing

67

contributions to fund a pension plan for another group member and for any unfunded liabilities that may exist at the time a group member terminates or withdraws from an underfunded single employer or multiemployer pension plan, as well as result in the creation of liens against our assets and the assets of other members of the group. Under this theory, we could incur significant liabilities for events beyond our control that are not related to or known by us. Additionally, to the extent a group member maintains an underfunded pension plan, ERISA imposes reporting obligations on group members regarding certain events, including if a member ceases to be a member of the controlled group or if it makes certain dividends, distributions or stock repurchases. These reporting obligations could cause us or Lone Star to seek to delay or reconsider pursuing one or more strategic actions with respect to our company or our common stock.

General Risk Factors

The offering price per share of our common stock offered under this prospectus may not accurately reflect the value of your investment.

The offering price per share of our common stock offered by this prospectus was negotiated among Lone Star, the underwriters and us. Factors considered in determining the initial price of our common stock include:

The offering price may not accurately reflect the value of our common stock and may not be realized upon any subsequent disposition of the shares.

Significant investments in our common stock may be restricted, which could impact demand for, and the trading price of, our common stock.

Third parties seeking to acquire us or make significant investments in us must do so in compliance with state regulatory requirements applicable to licensed mortgage lenders and servicers. Many states require prior approval of acquisitions of “control” as defined under each state’s laws and regulations, which may apply to an investment without regard to the intent of the investor. In some states the obligation to obtain approval is imposed on the licensee, and in other states the prospective investor bears the statutory obligation. For example, New York has a control presumption triggered at 10% ownership of the voting stock of the licensee or of any person that controls the licensee. Other states look to overall stock ownership without regard to the voting rights of the stock. A failure to make the relevant filings and receive the requisite approvals could result in administrative sanctions against the prospective investor or the licensee, including the potential suspension of the license in that state until the requisite approval is obtained. These regulatory requirements may discourage potential acquisition proposals or investments in our common stock that would result in a change of control of us, or may delay or prevent acquisitions of our shares that would result in a change in control of us, and as a result, the demand for, and the trading price of, our common stock may be adversely impacted.

68

There is currently no public market for shares of our common stock and an active trading market for our common stock may never develop following this offering.

Prior to this offering, there has been no market for shares of our common stock. Although our common stock has been approved for listing on the NYSE under the symbol “HOMS,” an active trading market for our common stock may never develop or, if one develops, it may not be sustained following this offering. Accordingly, no assurance can be given as to the following:

If an active market for our common stock with meaningful trading volume does not develop or is not maintained, the market price of our common stock may decline materially below the offering price and you may not be able to sell your shares.

The trading price of our common stock may be volatile and could decline substantially following this offering.

The market price of our common stock following this offering may be highly volatile and subject to wide fluctuations. Some of the factors that could negatively affect the market price of our common stock or result in significant fluctuations in price, regardless of our actual operating performance, include:

69

Furthermore, the stock market has recently experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry, and often occurs without regard to the operating performance of the affected companies. Therefore, factors that have little or nothing to do with us could cause the price of our common stock to fluctuate, and these fluctuations or any fluctuations related to our company could cause the market price of our common stock to decline materially below the public offering price.

Our internal controls over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.

As a public company, we will be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Beginning with our annual report on Form 10-K for the year ending December 31, 2021, our independent registered public accounting firm will also be required to formally attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404 and may issue a report that is adverse in the event that it is not satisfied with the level at which our controls are documented, designed or operating.

To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing additional internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal controls can divert our management’s attention from other matters that are important to the operation of our business. If we identify material weaknesses in our internal controls over financial reporting or are unable to comply with the requirements of Section 404 or assert that our internal controls over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the SEC or other regulatory authorities, which could require additional financial and management resources.

All internal control systems, no matter how well designed, have inherent limitations. Even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of changing conditions such as the integrations of acquisitions, the effectiveness of our internal controls may vary over time and we must continue to maintain and upgrade our internal controls. Significant costs are involved with maintaining our technology and internal control infrastructure. If we are unable to efficiently and effectively maintain and upgrade our system safeguards, we may incur unexpected costs and certain of our internal controls may become ineffective or vulnerable. Any failure in the effectiveness of our internal control over financial reporting could have a material effect on our financial reporting, which could negatively impair our ability to execute our business strategy and our ability to deliver accurate and timely financial information.

The coverage of our business or our common stock by securities or industry analysts or the absence thereof could adversely affect our stock price and trading volume.

The trading market for our common stock will be influenced in part by the research and other reports that industry or securities analysts may publish about us or our business or industry. We do not currently have, and may never obtain, research coverage by industry or financial analysts. If no or few analysts commence coverage

70

of us, the trading price and volume of our stock would likely be negatively impacted. If analysts do cover us and one or more of them downgrade our stock, or if they issue other unfavorable commentary about us or our industry or inaccurate research, our stock price would likely decline. Furthermore, if one or more of these analysts cease coverage or fail to regularly publish reports on us, we could lose visibility in the financial markets. Any of the foregoing would likely cause our stock price and trading volume to decline.

Following this offering, we will be a controlled company within the meaning of NYSE rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.

Upon completion of this offering, Lone Star will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a controlled company within the meaning of the corporate governance standards of the NYSE. Under NYSE rules, a company of which more than 50% of the voting power is held by a person or group is a controlled company and need not comply with certain requirements, including the requirement that a majority of the board of directors consist of independent directors and the requirements that the compensation and nominating and corporate governance committees be composed entirely of independent directors and such committees may not be subject to annual performance evaluations. Following this offering, we intend to utilize these exemptions. As a result, among other things, we may not have a majority of independent directors and our compensation and nominating and corporate governance committees may not consist entirely of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the NYSE’s corporate governance requirements. Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price.

Future sales of our common stock in the public market could cause our stock price to decline.

Following completion of this offering, Lone Star will beneficially own approximately             shares or     % of our outstanding shares of common stock (or             shares and     % if the underwriters exercise their option to purchase additional shares in full). See “Dilution” and “Principal and Selling Stockholder.” We, Lone Star and our officers and directors have signed lock-up agreements with the underwriters that will, subject to certain exceptions, restrict the sale of shares of our common stock held by them for 180 days following the date of this prospectus. The underwriters may, without notice except in certain limited circumstances, release all or any portion of the shares of common stock subject to lock-up agreements. See the section entitled “Underwriting” for a description of these lock-up agreements. The market price of our common stock may decline materially when these restrictions on resale by Lone Star and our officers and directors lapse or if they are waived.

Upon the expiration of the lock-up agreements, all shares held by Lone Star and our officers and directors will be eligible for resale in the public market, subject to applicable securities laws, including the Securities Act. Therefore, unless shares owned by Lone Star or any of our officers and directors are registered under the Securities Act, these shares may only be resold into the public markets in accordance with the requirements of an exemption from registration or safe harbor, including Rule 144 and the volume limitations, manner of sale requirements and notice requirements thereof. Lone Star will be considered an affiliate of ours after this offering based on their expected share ownership and representation of our board of directors. However, after completion of this offering, pursuant to the terms of a registration rights agreement between Lone Star and us, Lone Star will have the right to demand that we register its shares under the Securities Act as well as the right to include its shares in any registration statement that we file with the SEC subject to certain exceptions. Any registration of Lone Star’s shares would enable those shares to be sold in the public market, subject to certain restrictions in the registration rights agreement and the restrictions under the lock-up agreements referred to above. Any sale by Lone Star or our officers and directors or any perception in the public markets that such a transaction may occur could cause the market price of our common stock to decline materially.

Following this offering, we intend to file a registration statement on Form S-8 under the Securities Act registering shares under our stock incentive plan. Subject to the terms of the awards pursuant to which these shares may be granted and except for shares held by Lone Star or any of our officers and directors who will be

71

subject to the resale restrictions described above, the shares issuable pursuant to our stock incentive plan will be available for sale in the public market immediately after the registration statement is filed. See the section entitled “Shares Eligible for Future Sale.”

We have no present intention to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We have no present intention to pay dividends on our common stock, and the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price paid by investors in this offering. Any determination to pay dividends to holders of our common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial condition, results of operations, projections, liquidity, earnings, legal requirements, restrictions in our credit facilities and agreements governing any other indebtedness we may enter into and other factors that our board of directors deems relevant. In addition, Delaware law imposes additional requirements that may restrict our ability to pay dividends to holders of our common stock. See the section entitled “Dividend Policy.” Accordingly, you may need to sell your shares of our common stock to realize a return on your investment, and you may not be able to sell your shares at or above the price you paid for them.

If we raise funds in the future, either through debt or equity financings, your investment may be adversely affected.

In the future, we may need to raise funds through the issuance of new equity securities, debt or a combination of both. If we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.

Provisions of our amended and restated governing documents, Delaware law and other documents could prevent a third party from acquiring us (even if an acquisition would benefit our stockholders), may limit the ability of our stockholders to replace our management and limit the price that investors might be willing to pay for shares of our common stock.

Our amended and restated certificate of incorporation and amended and restated bylaws, each as currently in effect, contain provisions that could depress the market price of our common stock by acting to discourage, delay, or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions, among other things,

72

Additionally, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, unless the business combination is approved in a prescribed manner. An interested stockholder includes a person, individually or together with any other interested stockholder, who within the last three years has owned 15% of our voting stock. Although we have opted out of Section 203, our amended and restated certificate of incorporation includes a provision that restricts us from engaging in any business combination with an interested stockholder for three years following the date that person becomes an interested stockholder. Such restrictions, however, do not apply to any business combination between Lone Star, or any person that acquires (other than in connection with a registered public offering) our voting stock from Lone Star, or any of its affiliates or successors or any “group,” or any member of any such group, to which such persons are a party under Rule 13d-5 of the Exchange Act and who is designated in writing by Lone Star, as a “Lone Star Transferee,” on the one hand, and us, on the other.

For more information regarding these and other provisions, see “Description of Capital Stock.”

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum, to the fullest extent permitted by law, for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (3) any action asserting a claim against us or any director, officer or other employee arising pursuant to the DGCL, (4) any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or amended and restated bylaws, or (5) any other action asserting a claim that is governed by the internal affairs doctrine, shall be the Court of Chancery of the State of Delaware (or another state court or the federal court located within the State of Delaware if the Court of Chancery does not have or declines to accept jurisdiction), in all cases subject to the court’s having jurisdiction over indispensable parties named as defendants. In addition, our amended and restated certificate of incorporation provides that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act but that the forum selection provision will not apply to claims brought to enforce a duty or liability created by the Exchange Act. Although we believe these provisions benefit us by providing increased consistency in the application of Delaware law for the specified types of actions and proceedings, the provisions may have the effect of discouraging lawsuits against us or our directors and officers. Alternatively, if a court were to find the choice of

73

forum provision contained in our amended and restated certificate of incorporation and amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, financial condition, and operating results. For example, under the Securities Act, federal courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring any interest in our shares of capital stock shall be deemed to have notice of and consented to this exclusive forum provision, but will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.

We will incur significantly increased costs and devote substantial management time to reporting and other requirements as a result of operating as a public company.

As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company. For example, we will be subject to the reporting requirements of the Exchange Act and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC and the NYSE, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. Certain members of our management and other personnel have little experience managing a public company and preparing public filings. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. We will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Additional compensation costs and any future equity awards will increase our compensation expense, which would increase our general and administrative expense and could adversely affect our profitability. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance on reasonable terms. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors or our board committees or as executive officers. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

74

FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements.” All statements, other than statements of historical fact included in this prospectus, including, without limitation, statements regarding our financial position, business strategy and other plans and objectives for our future operations, are forward-looking statements. These statements include declarations regarding our management’s beliefs and current expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “intend,” “consider,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict” or “continue” or the negative of such terms or other comparable terminology. Such statements are not guarantees of future performance and involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially from expected results. As a result, you should not put undue reliance on any forward-looking statement.

These forward-looking statements are included throughout this prospectus, including in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and “Certain Relationships and Related Party Transactions.” Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to, the risk factors discussed in the “Risk Factors” section of this prospectus and the following:

75

76

The forward-looking statements contained in this prospectus are based on historical performance and management’s current plans, estimates and expectations in light of information currently available to us and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control, as well as the other factors described in the section entitled “Risk Factors.” Additional factors or events that could cause our actual results to differ may also emerge from time to time, and it is not possible for us to predict all of them. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us in this prospectus speaks only as of the date on which we make it. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.

77

USE OF PROCEEDS

The selling stockholder will receive all of the net proceeds from the sale of shares of our common stock offered pursuant to this prospectus. Accordingly, we will not receive any proceeds from the sale of the shares being sold in this offering, including the sale of any shares by the selling stockholder if the underwriters exercise in full their option to purchase additional shares. The selling stockholder will bear any underwriting discount attributable to its sale of our common stock, and we will bear the remaining expenses. See “Principal and Selling Stockholder.”

78

DIVIDEND POLICY

On September 30, 2020, we paid a dividend of $150 million in cash to LSF6 Service Operations. On October 20, 2020, we paid an additional dividend of $150 million in cash to LSF Pickens. We paid an additional dividend of $50 million in cash to LSF Pickens on December 21, 2020. We have not made any other distributions on our equity since our formation in 2013.

We have no present intention to pay cash dividends on our common stock. Any determination to pay dividends to holders of our common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial condition, results of operations, projections, liquidity, earnings, legal requirements, restrictions in the agreements governing our existing indebtedness and any other indebtedness we may enter into and other factors that our board of directors deems relevant. Under Delaware law, our board of directors may declare dividends, only to the extent of our surplus, which is defined as total assets at fair market value minus total liabilities, minus statutory capital, or, if there is no surplus, out of our net profits for the then current and immediately preceding year. If we elect to pay such dividends in the future, we may reduce or discontinue entirely the payment of such dividends at any time.

79

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2020;

All of the shares of common stock offered in this offering are being sold by the selling stockholder. We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholder in this offering, including from any exercise by the underwriters of their option to purchase additional shares from the selling stockholder.

You should read this table together with the information in this prospectus under “Use of Proceeds,” “Selected Historical Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Capital Stock” and with the combined financial statements and the related notes to those statements included elsewhere in this prospectus.

80

DILUTION

Dilution represents the difference between the amount per share paid by investors in this offering and the net tangible book value per share of our common stock immediately after this offering. The data in this section have been derived from our combined balance sheet as of September 30, 2020. Net tangible book value per share is equal to our total tangible assets less the amount of our total liabilities, divided by 119,172,000 shares of common stock outstanding. Our net tangible book value as of September 30, 2020 was $1.4 billion, or $11.86 per share of common stock. After giving effect to the $150.0 million dividend we paid to LSF Pickens on October 20, 2020 and the $50.0 million dividend we paid to LSF Pickens on December 21, 2020, our net tangible book value as of September 30, 2020 would have been $1.2 billion or $10.19 per share of common stock.

We will not receive any proceeds from the sale of our common stock offered by the selling stockholder in this offering. Consequently, this offering will not result in any change to our net tangible book value per share, prior to giving effect to the payment of estimated fees and expenses in connection with this offering. Purchasing shares of common stock in this offering will result in net tangible book value dilution to new investors of $     per share. The following table illustrates this per share dilution to new investors:

The following table sets forth as of September 30, 2020, on a pro forma basis after giving effect to the restructuring transaction described under “Prospectus Summary—Reorganization,” the total number of shares of our common stock purchased by the selling stockholder and the total consideration and average price per share of common stock paid by the selling stockholder. New investors in this offering will purchase shares of common stock at the initial public offering price of $     per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus).

Following completion of this offering, the selling stockholder and new investors purchasing shares of common stock in this offering will own the following number of shares of common stock:

The following tables set forth the total number of shares of common stock to be owned by the selling stockholder and by new investors purchasing shares of common stock in this offering as of September 30, 2020,

81

on a pro forma basis after giving effect to the restructuring transaction described under “Prospectus Summary—Reorganization” and the completion of this offering and after giving effect to the exercise by the underwriters in this offering of their option to purchase additional shares.

We have reserved 2,300,000 shares of our common stock for future issuance under our 2020 Stock Incentive Plan that we adopted in connection with this offering. To the extent that any shares are issued under this plan or future plans, or if we otherwise issue additional shares of common stock in the future, there may be dilution to investors participating in this offering. See “Shares Eligible for Future Sale.”

82

SELECTED HISTORICAL COMBINED FINANCIAL INFORMATION

The following table sets forth our selected historical combined financial data for the periods beginning on and after January 1, 2015. The selected historical combined financial data as of and for the years ended December 31, 2019 and 2018 and for each of the three fiscal years in the period ended December 31, 2019 have been derived from our audited combined financial statements included elsewhere in this prospectus. The selected historical combined financial data presented below as of and for the years ended December 31, 2016 and 2015 have been derived from our financial statements that are not included in this prospectus. The selected historical combined interim financial data presented below as of September 30, 2020 and for the nine months ended September 30, 2020 and 2019 have been derived from our unaudited condensed combined financial statements included elsewhere in this prospectus. Historical results are not necessarily indicative of the results to be expected for future periods, and the results for any interim period are not necessarily indicative of the results that may be expected for a full year.

You should read the following information in conjunction with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited combined financial statements and related notes thereto included elsewhere in this prospectus.