UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2021

OR

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

For the transition period from                      to

Commission File Number: 001-35000

Walker & Dunlop, Inc.

(Exact name of registrant as specified in its charter)

Maryland	80-0629925
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

7501 Wisconsin Avenue, Suite 1200E

Bethesda, Maryland 20814

(301) 215-5500

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

Not Applicable

(Former name, former address, and former fiscal year if changed since last report)

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 Par Value Per Share	WD	New York Stock Exchange

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

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

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

Large Accelerated Filer ☒  ​ Smaller Reporting Company ☐ Accelerated Filer ☐ ​ Emerging Growth Company ☐ Non-accelerated Filer ☐

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

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

As of April 29, 2021, there were 31,794,823 total shares of common stock outstanding.

Walker & Dunlop, Inc.
Form 10-Q
INDEX

		Page
PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	45
PART II	OTHER INFORMATION	45
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	46
	Signatures	48

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

		March 31, 2021	December 31, 2020
Assets
Cash and cash equivalents	$	277,277	$	321,097
Restricted cash		14,805		19,432
Pledged securities, at fair value		139,570		137,236
Loans held for sale, at fair value		1,048,385		2,449,198
Loans held for investment, net		281,788		360,402
Mortgage servicing rights		909,884		862,813
Goodwill and other intangible assets		262,906		250,838
Derivative assets		58,130		49,786
Receivables, net		59,526		65,735
Other assets		151,694		134,438
Total assets	$	3,203,965	$	4,650,975
Liabilities
Warehouse notes payable	$	1,112,340	$	2,517,156
Note payable		291,045		291,593
Allowance for risk-sharing obligations		64,580		75,313
Guaranty obligation, net		51,836		52,306
Derivative liabilities		9,250		5,066
Other liabilities		429,782		513,319
Total liabilities	$	1,958,833	$	3,454,753
Stockholders' Equity
Preferred stock (authorized 50,000; none issued)	$	—	$	—
Common stock ($0.01 par value; authorized 200,000 shares; issued and outstanding 30,977 shares at March 31, 2021 and 30,678 shares at December 31, 2020)		310		307
Additional paid-in capital ("APIC")		248,069		241,004
Accumulated other comprehensive income ("AOCI")		1,810		1,968
Retained earnings		994,943		952,943
Total stockholders’ equity	$	1,245,132	$	1,196,222
Commitments and contingencies (NOTES 2 and 9)		—		—
Total liabilities and equity	$	3,203,965	$	4,650,975

See accompanying notes to condensed consolidated financial statements.

3

Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income

(In thousands, except per share data)

(Unaudited)

	For the three months ended
	March 31,
	2021		2020
Revenues
Loan origination and debt brokerage fees, net	$	75,879	$	76,373
Fair value of expected net cash flows from servicing, net		57,935		68,000
Servicing fees		65,978		55,434
Net warehouse interest income		4,555		5,495
Escrow earnings and other interest income		2,117		10,743
Property sales broker fees		9,042		9,612
Other revenues		8,782		8,500
Total revenues	$	224,288	$	234,157
Expenses
Personnel	$	96,215	$	89,525
Amortization and depreciation		46,871		39,762
Provision (benefit) for credit losses		(11,320)		23,643
Interest expense on corporate debt		1,765		2,860
Other operating expenses		17,587		18,090
Total expenses	$	151,118	$	173,880
Income from operations	$	73,170	$	60,277
Income tax expense		15,118		12,672
Net income before noncontrolling interests	$	58,052	$	47,605
Less: net loss from noncontrolling interests		—		(224)
Walker & Dunlop net income	$	58,052	$	47,829
Net change in unrealized gains (losses) on pledged available-for-sale securities, net of taxes		(158)		(1,917)
Walker & Dunlop comprehensive income	$	57,894	$	45,912
Basic earnings per share (NOTE 10)	$	1.82	$	1.53
Diluted earnings per share (NOTE 10)	$	1.79	$	1.49
Basic weighted-average shares outstanding		30,823		30,226
Diluted weighted-average shares outstanding		31,276		31,160

See accompanying notes to condensed consolidated financial statements.

4

Walker & Dunlop, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

(In thousands, except per share data)

(Unaudited)

	For the three months ended March 31, 2021
	Common Stock							Retained		Total Stockholders'
	Shares	Amount		APIC		AOCI		Earnings		Equity
Balance at December 31, 2020	30,678	$	307	$	241,004	$	1,968	$	952,943	$	1,196,222
Walker & Dunlop net income	—		—		—		—		58,052		58,052
Other comprehensive income (loss), net of tax	—		—		—		(158)		—		(158)
Stock-based compensation - equity classified	—		—		7,836		—		—		7,836
Issuance of common stock in connection with equity compensation plans	430		4		12,602		—		—		12,606
Repurchase and retirement of common stock	(131)		(1)		(13,373)		—		—		(13,374)
Cash dividends paid ($0.50 per common share)	—		—		—		—		(16,052)		(16,052)
Balance at March 31, 2021	30,977	$	310	$	248,069	$	1,810	$	994,943	$	1,245,132

	For the three months ended March 31, 2020
		Stockholders' Equity
	Common Stock							Retained		Noncontrolling		Total
	Shares	Amount		APIC		AOCI		Earnings		Interests		Equity
Balance at December 31, 2019	30,035	$	300	$	237,877	$	737	$	796,775	$	6,596	$	1,042,285
Cumulative-effect adjustment for adoption of ASU 2016-13, net of tax	—		—		—		—		(23,678)		—		(23,678)
Walker & Dunlop net income	—		—		—		—		47,829		—		47,829
Net income (loss) from noncontrolling interests	—		—		—		—		—		(224)		(224)
Contributions from noncontrolling interests											675		675
Other comprehensive income (loss), net of tax	—		—		—		(1,918)		—		—		(1,918)
Stock-based compensation - equity classified	—		—		5,061		—		—		—		5,061
Issuance of common stock in connection with equity compensation plans	675		7		11,362		—		—		—		11,369
Repurchase and retirement of common stock	(380)		(4)		(18,293)		—		(8,440)		—		(26,737)
Cash dividends paid ($0.36 per common share)	—		—		—		—		(11,347)		—		(11,347)
Balance at March 31, 2020	30,330	$	303	$	236,007	$	(1,181)	$	801,139	$	7,047	$	1,043,315

See accompanying notes to condensed consolidated financial statements.

5

Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	For the three months ended March 31,
	2021		2020
Cash flows from operating activities
Net income before noncontrolling interests	$	58,052	$	47,605
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Gains attributable to the fair value of future servicing rights, net of guaranty obligation		(57,935)		(68,000)
Change in the fair value of premiums and origination fees		21,562		(22,414)
Amortization and depreciation		46,871		39,762
Provision (benefit) for credit losses		(11,320)		23,643
Originations of loans held for sale		(3,577,153)		(3,168,168)
Proceeds from transfers of loans held for sale		4,917,187		2,846,631
Other operating activities, net		(81,572)		8,315
Net cash provided by (used in) operating activities	$	1,315,692	$	(292,626)
Cash flows from investing activities
Capital expenditures	$	(1,794)	$	(778)
Purchases of equity-method investments		(1,124)		(563)
Purchases of pledged available-for-sale ("AFS") securities		(2,000)		(5,000)
Proceeds from prepayment and sale of pledged AFS securities		20,884		3,711
Distributions from (investments in) joint ventures, net		(7,026)		(6,455)
Acquisitions, net of cash received		(7,506)		(43,784)
Originations of loans held for investment		(33,750)		—
Principal collected on loans held for investment		113,495		88,779
Net cash provided by (used in) investing activities	$	81,179	$	35,910
Cash flows from financing activities
Borrowings (repayments) of warehouse notes payable, net	$	(1,400,704)	$	419,763
Borrowings of interim warehouse notes payable		25,313		29,898
Repayments of interim warehouse notes payable		(29,534)		(49,850)
Repayments of note payable		(745)		(744)
Proceeds from issuance of common stock		12,606		6,369
Repurchase of common stock		(13,374)		(26,737)
Cash dividends paid		(16,052)		(11,347)
Payment of contingent consideration		—		(1,641)
Debt issuance costs		(769)		(964)
Net cash provided by (used in) financing activities	$	(1,423,259)	$	364,747
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents (NOTE 2)	$	(26,388)	$	108,031
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period		358,002		136,566
Total of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period	$	331,614	$	244,597
Supplemental Disclosure of Cash Flow Information:
Cash paid to third parties for interest	$	9,621	$	11,207
Cash paid for income taxes		—		121

See accompanying notes to condensed consolidated financial statements.

6

NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION

These financial statements represent the condensed consolidated financial position and results of operations of Walker & Dunlop, Inc. and its subsidiaries. Unless the context otherwise requires, references to “we,” “us,” “our,” “Walker & Dunlop” and the “Company” mean the Walker & Dunlop consolidated companies. The statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they may not include certain financial statement disclosures and other information required for annual financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”). In the opinion of management, all adjustments considered necessary for a fair presentation of the results for the Company in the interim periods presented have been included. Results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or thereafter.

Walker & Dunlop, Inc. is a holding company and conducts the majority of its operations through Walker & Dunlop, LLC, the operating company. Walker & Dunlop is one of the leading commercial real estate services and finance companies in the United States. The Company originates, sells, and services a range of commercial real estate debt and equity financing products, provides multifamily property sales brokerage and appraisal services, and engages in commercial real estate investment management activities. Through its mortgage bankers and property sales brokers, the Company offers its customers agency lending, debt brokerage, and principal lending and investing products and multifamily property sales services.

Through its agency lending products, the Company originates and sells loans pursuant to the programs of the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac” and, together with Fannie Mae, the “GSEs”), the Government National Mortgage Association (“Ginnie Mae”), and the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (together with Ginnie Mae, “HUD”). Through its debt brokerage products, the Company brokers, and in some cases services, loans for various life insurance companies, commercial banks, commercial mortgage-backed securities issuers, and other institutional investors, in which cases the Company does not fund the loan.

The Company also provides a variety of commercial real estate debt and equity solutions through its principal lending and investing products, including interim loans, and preferred equity on commercial real estate properties. Interim loans on multifamily properties are offered (i) through the Company and recorded on the Company’s balance sheet (the “Interim Loan Program”) and (ii) through a joint venture with an affiliate of Blackstone Mortgage Trust, Inc., in which the Company holds a 15% ownership interest (the “Interim Program JV”). Interim loans on all commercial real estate property types are also offered through separate accounts managed by the Company’s subsidiary, Walker & Dunlop Investment Partners (“WDIP”). Preferred equity on commercial real estate properties are offered through funds managed by WDIP.

The Company brokers the sale of multifamily properties through its wholly owned subsidiary, Walker & Dunlop Investment Sales (“WDIS”). In some cases, the Company also provides the debt financing for the property sale.

During the second quarter of 2019, the Company formed a joint venture, branded as “Apprise by Walker & Dunlop,” with an international technology services company to offer automated multifamily appraisal services (the “Appraisal JV”). The Appraisal JV leverages technology and data science to dramatically improve the consistency, transparency, and speed of multifamily appraisals in the U.S. through the licensing of the partner’s technology and leveraging of the Company’s expertise in the commercial real estate industry. The Company owns a 50% interest in the Appraisal JV and accounts for the interest as an equity-method investment. The operations of the Appraisal JV for the three months ended March 31, 2021 and 2020 and our investment in the Appraisal JV as of March 31, 2021 and December 31, 2020 were immaterial.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation—The condensed consolidated financial statements include the accounts of Walker & Dunlop, Inc., its wholly owned subsidiaries, and its majority owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation. The Company consolidates entities in which it has a controlling financial interest based on either the variable interest entity (“VIE”) or the voting interest model. The Company is required to first apply the VIE model to determine whether it holds a variable interest in an entity, and if so, whether the entity is a VIE. If the Company determines it does not hold a variable interest in a VIE, it then applies the voting interest model. Under the voting interest model, the Company consolidates an entity when it holds a majority voting interest in an entity. If the Company does not have a majority voting interest but has significant influence, it uses the equity method of accounting. In instances where the Company owns

7

less than 100% of the equity interests of an entity but owns a majority of the voting interests or has control over an entity, the Company accounts for the portion of equity not attributable to Walker & Dunlop, Inc. as Noncontrolling interests on the balance sheet and the portion of net income not attributable to Walker & Dunlop, Inc. as Net income (loss) from noncontrolling interests in the income statement.

Subsequent Events—The Company has evaluated the effects of all events that have occurred subsequent to March 31, 2021. The Company has made certain disclosures in the notes to the condensed consolidated financial statements of events that have occurred subsequent to March 31, 2021. There have been no material subsequent events that would require recognition in the condensed consolidated financial statements.

Use of Estimates—The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, including guaranty obligations, allowance for risk-sharing obligations, capitalized mortgage servicing rights, derivative instruments, and the disclosure of contingent assets and liabilities. Actual results may vary from these estimates.

Derivative Assets and Liabilities—Loan commitments that meet the definition of a derivative are recorded at fair value on the Condensed Consolidated Balance Sheets upon the executions of the commitments to originate a loan with a borrower and to sell the loan to an investor, with a corresponding amount recognized as revenue on the Condensed Consolidated Statements of Income. The estimated fair value of loan commitments includes (i) the fair value of loan origination fees and premiums on anticipated sale of the loan, net of co-broker fees (included in Derivative assets in the Condensed Consolidated Balance Sheets and as a component of Loan origination and debt brokerage fees, net in the Condensed Consolidated Statements of Income), (ii) the fair value of the expected net cash flows associated with the servicing of the loan, net of any estimated net future cash flows associated with the stand ready guarantee obligation (included in Derivative assets in the Condensed Consolidated Balance Sheets and in Fair value of expected net cash flows from servicing, net in the Condensed Consolidated Statements of Income), and (iii) the effects of interest rate movements between the trade date and balance sheet date. Loan commitments are generally derivative assets but can become derivative liabilities if the effects of the interest rate movement between the trade date and the balance sheet date are greater than the combination of (i) and (ii) above. Forward sale commitments that meet the definition of a derivative are recorded as either derivative assets or derivative liabilities depending on the effects of the interest rate movements between the trade date and the balance sheet date. Adjustments to the fair value are reflected as a component of income within Loan origination and debt brokerage fees, net in the Condensed Consolidated Statements of Income. The co-broker fees for the three months ended March 31, 2021 and 2020 were $5.3 million and $8.3 million, respectively.

Loans Held for Investment, net—Loans held for investment are multifamily loans originated by the Company through the Interim Loan Program for properties that currently do not qualify for permanent GSE or HUD (collectively, the “Agencies”) financing. These loans have terms of up to three years and are all adjustable-rate, interest-only, multifamily loans with similar risk characteristics and no geographic concentration. The loans are carried at their unpaid principal balances, adjusted for net unamortized loan fees and costs, and net of any allowance for loan losses.

As of March 31, 2021, Loans held for investment, net consisted of 14 loans with an aggregate $286.6 million of unpaid principal balance less $0.6 million of net unamortized deferred fees and costs and $4.2 million of allowance for loan losses. As of December 31, 2020, Loans held for investment, net consisted of 18 loans with an aggregate $366.3 million of unpaid principal balance less $1.1 million of net unamortized deferred fees and costs and $4.8 million of allowance for loan losses.

During the third quarter of 2018, the Company transferred a portfolio of participating interests in loans held for investment to a third party that is scheduled to mature in the third quarter of 2021. The Company accounted for the transfer as a secured borrowing. The aggregate unpaid principal balance of the loans of $81.5 million was presented as a component of Loans held for investment, net on the Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, and the secured borrowing of $73.3 million was included within Other liabilities on the Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020. The Company does not have credit risk related to the $73.3 million of loans that were transferred.

The Company assesses the credit quality of loans held for investment in the same manner as it does for the loans in the Fannie Mae at-risk portfolio and records an allowance for these loans as necessary. The allowance for loan losses is estimated collectively for loans with similar characteristics. The collective allowance is based on the same methodology that the Company uses to estimate its Current Expected Credit Losses (“CECL”) reserves for at-risk Fannie Mae DUS loans (with the exception of a reversion period) because the nature of the underlying collateral is the same, and the loans have similar characteristics, except they are significantly shorter in maturity. The reasonable and supportable forecast period used for the CECL allowance for loans held for investment is one year.

8

The loss rate for the forecast period was 20 basis points and 36 basis points as of March 31, 2021 and December 31, 2020, respectively. The loss rate for the remaining period until maturity was nine basis points as of both March 31, 2021 and December 31, 2020.

One loan held for investment with an unpaid principal balance of $14.7 million that was originated in 2017 was delinquent and on non-accrual status as of March 31, 2021 and December 31, 2020. The Company had a $3.7 million reserve for this loan based on its collateral fair value as of March 31, 2021 and December 31, 2020 and has not recorded any interest related to this loan since it went on non-accrual status in 2019. All other loans were current as of March 31, 2021 and December 31, 2020. The amortized cost basis of loans that were current as of March 31, 2021 and December 31, 2020 was $271.3 million and $350.5 million, respectively. As of March 31, 2021, $46.1 million, $144.3 million, and $81.5 million of the loans that were current were originated in 2020, 2019, and 2018, respectively. Prior to 2019, the Company had not experienced any delinquencies related to loans held for investment.

Provision (Benefit) for Credit Losses—The Company records the income statement impact of the changes in the allowance for loan losses and the allowance for risk-sharing obligations within Provision (benefit) for credit losses in the Condensed Consolidated Statements of Income. NOTE 4 contains additional discussion related to the allowance for risk-sharing obligations. Provision (benefit) for credit losses consisted of the following activity for the three months ended March 31, 2021 and 2020:

	For the three months ended
	March 31,
Components of Provision (Benefit) for Credit Losses (in thousands)	2021		2020
Provision (benefit) for loan losses	$	(587)	$	1,106
Provision (benefit) for risk-sharing obligations		(10,733)		22,537
Provision (benefit) for credit losses	$	(11,320)	$	23,643

Net Warehouse Interest Income—The Company presents warehouse interest income net of warehouse interest expense. Warehouse interest income is the interest earned from loans held for sale and loans held for investment. Generally, a substantial portion of the Company’s loans is financed with matched borrowings under one of its warehouse facilities. The remaining portion of loans not funded with matched borrowings is financed with the Company’s own cash. The Company also fully funds a small number of loans held for sale or loans held for investment with its own cash. Warehouse interest expense is incurred on borrowings used to fund loans solely while they are held for sale or for investment. Warehouse interest income and expense are earned or incurred on loans held for sale after a loan is closed and before a loan is sold. Warehouse interest income and expense are earned or incurred on loans held for investment after a loan is closed and before a loan is repaid. Included in Net warehouse interest income for the three months ended March 31, 2021 and 2020 are the following components:

	For the three months ended
	March 31,
Components of Net Warehouse Interest Income (in thousands)	2021		2020
Warehouse interest income - loans held for sale	$	9,118	$	7,402
Warehouse interest expense - loans held for sale		(6,659)		(5,910)
Net warehouse interest income - loans held for sale	$	2,459	$	1,492
Warehouse interest income - loans held for investment	$	3,228	$	6,306
Warehouse interest expense - loans held for investment		(1,132)		(2,303)
Warehouse interest income - secured borrowings		865		846
Warehouse interest expense - secured borrowings		(865)		(846)
Net warehouse interest income - loans held for investment	$	2,096	$	4,003
Total net warehouse interest income	$	4,555	$	5,495

        Statement of Cash Flows—For presentation in the Condensed Consolidated Statements of Cash Flows, the Company considers pledged cash and cash equivalents (as detailed in NOTE 9) to be restricted cash and restricted cash equivalents. The following table presents a reconciliation of the of total cash, cash equivalents, restricted cash, and restricted cash equivalents as presented in the Condensed Consolidated Statements of Cash Flows to the related captions in the Condensed Consolidated Balance Sheets as of March 31, 2021 and 2020 and December 31, 2020 and 2019.

9

	March 31,				December 31,
(in thousands)	2021		2020		2020		2019
Cash and cash equivalents	$	277,277	$	205,309	$	321,097	$	120,685
Restricted cash		14,805		30,745		19,432		8,677
Pledged cash and cash equivalents (NOTE 9)		39,532		8,543		17,473		7,204
Total cash, cash equivalents, restricted cash, and restricted cash equivalents	$	331,614	$	244,597	$	358,002	$	136,566

Income Taxes—The Company records the realizable excess tax benefits from stock compensation as a reduction to income tax expense. The realizable excess tax benefits were $4.1 million and $2.9 million for the three months ended March 31, 2021 and 2020, respectively.

Contracts with Customers—A majority all of the Company’s revenues are derived from the following sources, all of which are excluded from the accounting provisions applicable to contracts with customers: (i) financial instruments, (ii) transfers and servicing, (iii) derivative transactions, and (iv) investments in debt securities/equity-method investments. The remaining portion of revenues is derived from contracts with customers. The Company’s contracts with customers do not require significant judgment or material estimates that affect the determination of the transaction price (including the assessment of variable consideration), the allocation of the transaction price to performance obligations, and the determination of the timing of the satisfaction of performance obligations. Additionally, the earnings process for the Company’s contracts with customers is not complicated and is generally completed in a short period of time. The following table presents information about the Company’s contracts with customers for the three months ended March 31, 2021 and 2020:

	For the three months ended
	March 31,
Description (in thousands)	2021		2020		Statement of income line item
Certain loan origination fees	$	23,901	$	21,348	Loan origination and debt brokerage fees, net
Property sales broker fees, investment management fees, application fees, and other		15,292		15,064	Other revenues
Total revenues derived from contracts with customers	$	39,193	$	36,412

Litigation—In the ordinary course of business, the Company may be party to various claims and litigation, none of which the Company believes is material. The Company cannot predict the outcome of any pending litigation and may be subject to consequences that could include fines, penalties, and other costs, and the Company’s reputation and business may be impacted. The Company believes that any liability that could be imposed on the Company in connection with the disposition of any pending lawsuits would not have a material adverse effect on its business, results of operations, liquidity, or financial condition.

Recently Adopted and Recently Announced Accounting Pronouncements—There have been no material changes to the accounting policies discussed in NOTE 2 of the Company’s 2020 Form 10-K. There are no recently announced but not yet effective accounting pronouncements that are expected to have a material impact to the Company as of March 31, 2021.

Reclassifications—The Company has made certain immaterial reclassifications to prior-year balances to conform to current-year presentations.

NOTE 3—MORTGAGE SERVICING RIGHTS

The fair value of the mortgage servicing rights (“MSRs”) as of March 31, 2021 and December 31, 2020 was $1.2 billion and $1.1 billion, respectively. The Company uses a discounted static cash flow valuation approach, and the key economic assumption is the discount rate. For example, see the following sensitivities:

The impact of a 100-basis point increase in the discount rate at March 31, 2021 would be a decrease in the fair value of $36.0 million to the MSRs outstanding as of March 31, 2021.

The impact of a 200-basis point increase in the discount rate at March 31, 2021 would be a decrease in the fair value of $69.8 million to the MSRs outstanding as March 31, 2021.

10

These sensitivities are hypothetical and should be used with caution. These estimates do not include interplay among assumptions and are estimated as a portfolio rather than individual assets.

Activity related to capitalized MSRs (net of accumulated amortization) for the three months ended March 31, 2021 and 2020 follows:

	For the three months ended
	March 31,
Roll Forward of MSRs (in thousands)	2021		2020
Beginning balance	$	862,813	$	718,799
Additions, following the sale of loan		96,640		44,214
Amortization		(42,552)		(35,218)
Pre-payments and write-offs		(7,017)		(5,309)
Ending balance	$	909,884	$	722,486

The following table summarizes the gross value, accumulated amortization, and net carrying value of the Company’s MSRs as of March 31, 2021 and December 31, 2020:

Components of MSRs (in thousands)	March 31, 2021		December 31, 2020
Gross Value	$	1,469,405	$	1,394,901
Accumulated amortization		(559,521)		(532,088)
Net carrying value	$	909,884	$	862,813

The expected amortization of MSRs held in the Condensed Consolidated Balance Sheet as of March 31, 2021 is shown in the table below. Actual amortization may vary from these estimates.

	Expected
(in thousands)	Amortization
Nine Months Ending December 31,
2021	$	125,189
Year Ending December 31,
2022	$	155,380
2023		141,056
2024		120,153
2025		100,742
2026		81,909
Thereafter		185,455
Total	$	909,884

NOTE 4—GUARANTY OBLIGATION AND ALLOWANCE FOR RISK-SHARING OBLIGATIONS

When a loan is sold under the Fannie Mae DUS program, the Company typically agrees to guarantee a portion of the ultimate loss incurred on the loan should the borrower fail to perform. The compensation for this risk is a component of the servicing fee on the loan. The guaranty is in force while the loan is outstanding. The Company does not provide a guaranty for any other loan product it sells or brokers. Activity related to the guaranty obligation for the three months ended March 31, 2021 and 2020 is presented in the following table:

	For the three months ended
	March 31,
Roll Forward of Guaranty Obligation (in thousands)	2021		2020
Beginning balance	$	52,306	$	54,695
Additions, following the sale of loan		1,721		1,862
Amortization		(2,191)		(2,267)
Other		—		1,468
Ending balance	$	51,836	$	55,758

11

Substantially all loans sold under the Fannie Mae DUS program contain partial or full risk-sharing guaranties that are based on the performance of the loan serviced in the at-risk servicing portfolio. The Company records an estimate of the loss reserve for CECL for all loans in our Fannie Mae at-risk servicing portfolio and presents this loss reserve as Allowance for risk-sharing obligations on the Condensed Consolidated Balance Sheets. The Company utilizes the weighted-average remaining maturity (“WARM”) method to calculate the CECL reserve and one year for the reasonable and supportable forecast period (the “forecast period”) as the Company believes forecasts beyond one year are inherently less reliable. WARM uses an average annual charge-off rate that contains loss content over multiple vintages and loan terms and is used as a foundation for estimating the CECL reserve. The average annual charge-off rate is applied to the unpaid principal balance over the contractual term, further adjusted for estimated prepayments and amortization to arrive at the CECL reserve for the entire current portfolio. Activity related to the allowance for risk-sharing obligations for the three months ended March 31, 2021 and 2020 follows:

	For the three months ended
	March 31,
Roll Forward of Allowance for Risk-Sharing Obligations (in thousands)	2021		2020
Beginning balance	$	75,313	$	11,471
Adjustment related to adoption of CECL		—		31,570
Provision (benefit) for risk-sharing obligations		(10,733)		22,537
Write-offs		—		—
Other		—		(1,468)
Ending balance	$	64,580	$	64,110

As a result of the onset of the COVID-19 pandemic and the resulting forecasts for significant unemployment rates for the remainder of 2020, the Company’s loss rate for the forecast period was seven basis points as of March 31, 2020, resulting in the substantial provision for risk-sharing obligations for the three months ended March 31, 2020 and an increase in the allowance for risk-sharing obligations as of March 31, 2020 as seen above. During the first quarter of 2021, economic conditions began to improve significantly, with reported and forecast unemployment rates significantly improved compared to both December 31, 2020 and March 31, 2020. In response to improving unemployment statistics and the expected continued overall health of the multifamily market, the Company adjusted the loss rate for the forecast period downwards to four basis points as of March 31, 2021 from six basis points as of December 31, 2020, resulting in the benefit for risk-sharing obligations for the three months ended March 31, 2021 as seen above. For the remaining expected life of the portfolio, the Company reverted over a one-year period to a historical loss rate of two basis points for all periods shown in the roll forward above.

The calculated CECL reserve for the Company’s $45.4 billion at-risk Fannie Mae servicing portfolio as of March 31, 2021 was $57.0 million compared to $67.0 million as of December 31, 2020. The weighted-average remaining life of the at-risk Fannie Mae servicing portfolio as of March 31, 2021 was 7.6 years.

Two loans that defaulted in 2019 had aggregate collateral-based reserves of $7.6 million and $8.3 million as of March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021, the maximum quantifiable contingent liability associated with the Company’s guarantees for the at-risk loans serviced under the Fannie Mae DUS agreement was $9.3 billion. The maximum quantifiable contingent liability is not representative of the actual loss the Company would incur. The Company would be liable for this amount only if all of the loans it services for Fannie Mae, for which the Company retains some risk of loss, were to default and all of the collateral underlying these loans were determined to be without value at the time of settlement.

NOTE 5—SERVICING

The total unpaid principal balance of loans the Company was servicing for various institutional investors was $109.9 billion as of March 31, 2021 compared to $107.2 billion as of December 31, 2020.

As of March 31, 2021 and December 31, 2020 custodial escrow accounts relating to loans serviced by the Company totaled $2.5 billion and $3.1 billion, respectively. These amounts are not included in the Condensed Consolidated Balance Sheets as such amounts are not Company assets; however, the Company is entitled to earn interest income on these escrow balances, presented as Escrow earnings and other interest income in the Condensed Consolidated Statements of Income. Certain cash deposits at other financial institutions exceed the Federal Deposit Insurance Corporation insured limits. The Company places these deposits with financial institutions that meet the requirements of the Agencies and where it believes the risk of loss to be minimal.

12

NOTE 6—WAREHOUSE NOTES PAYABLE

As of March 31, 2021, to provide financing to borrowers under the Agencies’ programs, the Company has committed and uncommitted warehouse lines of credit in the amount of $3.9 billion with certain national banks and a $1.5 billion uncommitted facility with Fannie Mae (collectively, the “Agency Warehouse Facilities”). In support of these Agency Warehouse Facilities, the Company has pledged substantially all of its loans held for sale under the Company’s approved programs. The Company’s ability to originate mortgage loans for sale depends upon its ability to secure and maintain these types of short-term financings on acceptable terms.

Additionally, as of March 31, 2021, the Company has arranged for warehouse lines of credit in the amount of $0.4 billion with certain national banks to assist in funding loans held for investment under the Interim Loan Program (“Interim Warehouse Facilities”). The Company has pledged substantially all of its loans held for investment against these Interim Warehouse Facilities. The Company’s ability to originate loans held for investment depends upon its ability to secure and maintain these types of short-term financings on acceptable terms.  

The maximum amount and outstanding borrowings under Warehouse notes payable at March 31, 2021 are as follows:  

	March 31, 2021
(dollars in thousands)	Committed		Uncommitted		Total Facility		Outstanding
Facility(1)	Amount		Amount		Capacity		Balance		Interest rate(2)
Agency Warehouse Facility #1	$	425,000	$	—	$	425,000	$	132,460	30-day LIBOR plus 1.40%
Agency Warehouse Facility #2		700,000		300,000		1,000,000		76,391	30-day LIBOR plus 1.40%
Agency Warehouse Facility #3		600,000		265,000		865,000		88,618	30-day LIBOR plus 1.15%
Agency Warehouse Facility #4		350,000		—		350,000		147,055	30-day LIBOR plus 1.40%
Agency Warehouse Facility #5		—		1,000,000		1,000,000		276,915	30-day LIBOR plus 1.45%
Agency Warehouse Facility #6		150,000		100,000		250,000		88,500	30-day LIBOR plus 1.40%
Total National Bank Agency Warehouse Facilities	$	2,225,000	$	1,665,000	$	3,890,000	$	809,939
Fannie Mae repurchase agreement, uncommitted line and open maturity		—		1,500,000		1,500,000		173,215
Total Agency Warehouse Facilities	$	2,225,000	$	3,165,000	$	5,390,000	$	983,154
Interim Warehouse Facility #1	$	135,000	$	—	$	135,000	$	71,572	30-day LIBOR plus 1.90%
Interim Warehouse Facility #2		100,000		—		100,000		34,000	30-day LIBOR plus 1.65% to 2.00%</