Edgar Filing: Walker & Dunlop, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2012

o	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, including zip code, and telephone number, including

area code, of registrant’s principal executive offices)

Not Applicable

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

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

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

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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

As of August 7, 2012 there were 22,847,041 total shares of common stock outstanding.

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Walker & Dunlop, Inc.
Form 10-Q
INDEX

				Page
PART I		FINANCIAL INFORMATION

Item 1.		Financial Statements		2

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

Item 3.		Quantitative and Qualitative Disclosures About Market Risk		33

Item 4.		Controls and Procedures		33

PART II		OTHER INFORMATION

Item 1.		Legal Proceedings		33

Item 1A.		Risk Factors		34

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		37

Item 3.		Defaults Upon Senior Securities		37

Item 4.		Mine Safety Disclosures		37

Item 5.		Other Information		37

Item 6.		Exhibits		37

			Signature

			Exhibit Index

EX-4.3
EX-31.1
EX-31.2
EX-32
	EX- 101.1
	EX- 101.2
	EX- 101.3
	EX- 101.4
	EX- 101.5
	EX- 101.6

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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

June 30, 2012 and December 31, 2011

(In thousands, except share and per share data)

	June 30,		December 31,
	2012		2011
	(unaudited)
Assets
Cash and cash equivalents	$	46,153	$	53,817
Restricted cash	4,583		7,164
Pledged securities, at fair value	21,144		18,959
Loans held for sale, at fair value	399,230		268,167
Loans held for investment	16,392		—
Servicing fees and other receivables, net	17,540		18,501
Derivative assets	9,501		10,638
Mortgage servicing rights	149,533		137,079
Other assets	12,120		8,271
Total assets	$	676,196	$	522,596

Liabilities and Stockholders’ Equity

Liabilities
Accounts payable and other accrued expenses	$	66,942	$	76,163
Performance deposits from borrowers	7,552		10,425
Derivative liabilities	1,899		5,223
Guaranty obligation, net of accumulated amortization	10,746		9,921
Allowance for risk-sharing obligations	13,629		14,917
Warehouse notes payable	372,995		218,426
Notes payable	22,069		23,869
Total liabilities	$	495,832	$	358,944

Stockholders’ Equity
Stockholders’ equity:
Preferred shares, Authorized 50,000,000, none issued.	$	—	$	—
Common stock, $0.01 par value. Authorized 200,000,000; issued and outstanding 21,795,379 shares in 2012 and 21,748,598 shares in 2011.	218		217
Additional paid-in capital	82,770		81,190
Retained earnings	97,376		82,245
Total stockholders’ equity	$	180,364	$	163,652
Commitments and contingencies
Total liabilities and stockholders’ equity	$	676,196	$	522,596

See accompanying notes to condensed consolidated financial statements.

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Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(In thousands, except share and per share data)

(Unaudited)

	For the three months ended June 30,				For the six months ended June 30,
	2012		2011		2012		2011
Revenues
Gains from mortgage banking activities	$	33,934	$	31,289	$	53,736	$	48,116
Servicing fees	9,827		8,047		19,206		15,760
Net warehouse interest income	1,074		1,059		2,011		1,776
Escrow earnings and other interest income	525		403		1,064		773
Other	1,360		1,608		5,105		4,978
Total revenues	$	46,720	$	42,406	$	81,122	$	71,403

Expenses
Personnel	$	17,363	$	12,863	$	29,004	$	22,070
Amortization and depreciation	6,743		5,084		14,002		9,991
Provision for risk-sharing obligations	750		1,764		1,974		2,510
Interest expense on corporate debt	163		214		331		466
Other operating expenses	6,592		4,263		11,208		7,283
Total expenses	$	31,611	$	24,188	$	56,519	$	42,320
Income from operations	$	15,109	$	18,218	$	24,603	$	29,083
Income tax expense	5,817		7,087		9,472		11,313
Net income	$	9,292	$	11,131	$	15,131	$	17,770

Basic earnings per share	$	0.43	$	0.51	$	0.70	$	0.82
Diluted earnings per share	$	0.42	$	0.51	$	0.69	$	0.82

Basic weighted average shares outstanding	21,779,379		21,629,463		21,764,976		21,606,233
Diluted weighted average shares outstanding	21,975,853		21,742,912		21,914,452		21,695,826

See accompanying notes to condensed consolidated financial statements.

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Walker & Dunlop, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2012			2011
Cash flows from operating activities:
Net income	$	15,131		$	17,770
Adjustments to reconcile net income to net cash used in operating activities:
Gain attributable to fair value of future servicing rights, net of guaranty obligation	(26,365		)	(25,423		)
Gain on sale of MSR, less prepayment of MSR	(9		)	166
Provision for risk-sharing obligations	1,974			2,510
Amortization and depreciation	14,002			9,991
Originations of loans held for sale	(1,519,801		)	(1,319,853		)
Sales of loans to third parties	1,389,382			1,163,773
Stock compensation	1,709			1,043
Tax benefit from vesting of equity awards	5			—
Cash paid to settle risk-sharing obligations	(2,030		)	—
Amortization of leasehold inducement	(25		)	—
Cash allowance received from landlord	1,301			—
Changes in:
Restricted cash and pledged securities	396			(303		)
Servicing fees and other receivables	(357		)	(7,409		)
Derivative fair value adjustments	(1,543		)	(5,182		)
Other assets	(1,849		)	(652		)
Accounts payable and other accruals	(9,226		)	881
Performance deposits from borrowers	(2,873		)	4,628
Net cash used in operating activities	$	(140,178	)	$	(158,060	)

Cash flows from investing activities:
Capital expenditures	$	(3,760	)	$	(640	)
Net increase in loans held for investment	(16,367		)	—
Net cash used in investing activities	$	(20,127	)	$	(640	)

Cash flows from financing activities:
Borrowings from warehouse notes payable, net	$	154,569		$	163,548
Repayments of notes payable, net	(1,800		)	(1,952		)
Proceeds from issuance of common stock	1			2,053
Repurchase of common stock	(124		)	—
Tax benefit from vesting of equity awards	(5		)	—
Net cash provided by financing activities	$	152,641		$	163,649
Net (decrease) increase in cash and cash equivalents	$	(7,664	)	$	4,949
Cash and cash equivalents at beginning of period	53,817			33,285
Cash and cash equivalents at end of period	$	46,153		$	38,234

Supplemental Disclosure of Cash Flow Information:
Cash paid to third parties for interest	$	2,619		$	1,725
Cash paid for taxes	$	7,345		$	4,776

See accompanying notes to condensed consolidated financial statements.

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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 accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Because the accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP, they 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, 2011. In the opinion of management, all adjustments (consisting only of normal recurring accruals except as otherwise noted herein) 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 and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012, or thereafter.

Walker & Dunlop is one of the leading commercial real estate finance companies in the United States, with a primary focus on multifamily lending. The Company originates, sells and services a range of multifamily and other commercial real estate financing products. The Company’s clients are owners and developers of commercial real estate across the country. The Company originates and sells loans pursuant to the programs of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac,” and together with Fannie Mae, the government-sponsored enterprises, or 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”), with which Walker & Dunlop has long-established relationships. The Company retains servicing rights and asset management responsibilities on nearly all loans that it sells to GSEs and HUD. Walker & Dunlop is approved as a Fannie Mae Delegated Underwriting and Servicing (“DUS”TM) lender nationally, a Freddie Mac Program Plus lender in seven states, the District of Columbia and the metropolitan New York area, a HUD Multifamily Accelerated Processing (“MAP”) lender nationally, and a Ginnie Mae issuer. The Company also originates and services loans for a number of life insurance companies and other institutional investors, in which cases it does not fund the loan but rather acts as a loan broker.

In July 2011, the Company launched its interim loan program offering floating-rate debt, for terms of up to two years, to experienced borrowers seeking to acquire or reposition multifamily properties that do not currently qualify for permanent financing. The Company closed its first loans under this program in 2012. The Company underwrites all loans originated through the program. During the time that they are outstanding, the Company assumes the full risk of loss on the loans. In addition, the Company services and asset-manages loans originated through the program, with the ultimate goal of providing permanent financing on the properties. These loans are classified as held for investment on the Company’s balance sheet during such time that they are outstanding.

W&D Balanced Real Estate Fund I GP, LLC, a wholly owned subsidiary, has a general partnership interest in a partnership that invests in commercial real estate. The Company can be removed as general partner at the sole discretion of one of the limited partners. Walker & Dunlop Real Estate Opportunity Fund I Manager, LLC, a wholly owned subsidiary, is the managing member of a limited liability company that invests in commercial real estate. The Company can be removed as the managing member at the sole discretion of one of the members. In their respective capacities as general partner and managing member, the wholly owned subsidiaries of the Company earn fees pursuant to corporate services agreements under which they provide consulting and overhead services to the partnership and limited liability company.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation—The condensed consolidated financial statements include the accounts of the Company as defined in Note 1. All material intercompany transactions have been eliminated. The Company has evaluated all subsequent events.

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

Comprehensive Income—For the three and six months ended June 30, 2012 and 2011, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying condensed consolidated financial statements.

Concentrations of Credit Risk—Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents, loans held for sale and derivative financial instruments.

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The Company places the cash and temporary investments with high-credit-quality financial institutions and believes no significant credit risk exists. The counterparties to the loans held for sale and funding commitments are owners of residential multifamily properties located throughout the United States. Mortgage loans are generally transferred or sold within 60 days from the date that a mortgage loan is funded.

There is no material counterparty risk with respect to the Company’s funding commitments in that each potential borrower must make a non-refundable good faith deposit when the funding commitment is executed. The counterparty to the forward sale is generally an investment bank. There is a risk that the purchase price agreed to by the investor will be reduced in the event of a late delivery. The risk for non-delivery of a loan primarily results from the risk that a borrower does not close on the funding commitment in a timely manner, which generally is a risk mitigated by the non-refundable good faith deposit.

Loans Held for Sale—Loans held for sale represent originated loans that are generally transferred or sold within 60 days from the date that a mortgage loan is funded. The Company initially measures all originated loans at fair value. Subsequent to initial measurement, the Company measures all mortgage loans at fair value, unless the Company documents at the time the loan is originated that it will measure the specific loan at the lower of cost or fair market value for the life of the loan. Electing to use fair value allows a better offset of the change in fair value of the loan and the change in fair value of the derivative instruments used as economic hedges. During the period prior to its sale, interest income on a loan held for sale is calculated in accordance with the terms of the individual loan. There were no loans held for sale that were valued at the lower of cost or market or on a non-accrual status at June 30, 2012 and December 31, 2011.

Gains from Mortgage Banking Activities— Mortgage banking activity income is recognized when the Company records a derivative asset upon the commitment to originate a loan with a borrower and sell the loan to an investor. This commitment asset is recognized at fair value, which reflects the fair value of the contractual loan origination related fees and sale premiums, net of co-broker fees, and the estimated fair value of the expected net future cash flows associated with the servicing of the loan net of the estimated net future cash flows associated with any risk-sharing obligations. Loans originated in a brokerage capacity tend to have lower origination fees because they often require less time to execute, there is more competition for brokerage assignments and because the borrower will also have to pay an origination fee to the ultimate institutional lender. Also included in gains from mortgage banking activities are changes to the fair value of loan commitments, forward sale commitments, and loans held for sale that occur during their respective holding periods. Upon sale of the loans, no gains or losses are recognized as such loans are recorded at fair value during their holding periods. Mortgage servicing rights and guaranty obligations are recognized as assets or liabilities, respectively, upon the sale of the loans.

The co-broker fees for the three and six months ended June 30, 2012 were $4.7 million and $8.2 million; and were $8.5 million and $13.8 million for the three and six months ended June 30, 2011, respectively.

Transfer of financial assets is reported as a sale when (a) the transferor surrenders control over those assets and (b) consideration other than beneficial interests in the transferred assets is received in exchange. The transferor is considered to have surrendered control over transferred assets if, and only if, certain conditions are met. The Company has determined that all loans sold have met these specific conditions and accounts for all transfers of mortgage loans and mortgage participations as completed sales.

When a mortgage loan is sold, the Company retains the right to service the loan and initially recognizes the mortgage servicing right (“MSR”) at fair value. Subsequent to the initial measurement date, mortgage servicing assets are amortized using the effective interest method.

Guaranty obligation and allowance for risk-sharing obligations—When a loan is sold under the Fannie Mae DUS program, the Company undertakes an obligation to partially guarantee the performance of the loan. At inception, a liability for the fair value of the obligation undertaken in issuing the guaranty is recognized. The fair value includes the Company’s obligation to stand ready to perform over the term of the guaranty (the non-contingent guaranty), and the Company’s obligation to make future payments should those triggering events or conditions occur (contingent guaranty).

Historically, the contingent guaranty recognized at inception has been de minimis. In determining the fair value of the guaranty obligation, we consider the risk profile of the collateral, historical loss experience, and various market indicators. Generally, the estimated fair value of the guaranty obligation is based on the present value of the future cash flows expected to be paid under the guaranty over the estimated life of the loan (historically three to five basis points per year) discounted using a 12-15 percent discount rate. The discount rate and estimated life used are consistent with those used for the calculation of the MSR for each loan.

Subsequent to the initial measurement date, the liability is amortized over the life of the guaranty period using the straight-line method. We evaluate the allowance for risk-sharing obligations by monitoring the performance of each loan for events or conditions which may signal a potential default. In instances where payment under the guaranty on a specific loan is determined to be probable and estimable, we record an additional liability for the estimated allowance for risk-sharing through a charge to the provision for risk-

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sharing obligations, along with a write-off of the associated loan-specific MSR (Note 5).

Loans Held for Investment—Loans held for investment are interim loans originated by the Company for properties that currently do not qualify for permanent GSE or HUD financing. These loans have a maximum term of two years. 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. Interest income is accrued based on the actual coupon rate and is recognized as revenue when earned and deemed collectible.

The Company uses the interest method to determine an effective yield to amortize the loan fees and costs on real estate loans held for investment. The Company uses the initial coupon interest rate of the loans (without regard to future changes in the underlying indices) and anticipated principal payments, if any, to determine periodic amortization.

The Company will reclassify loans held-for-investment as loans held-for-sale if it determines that the loans will be sold or transferred to third parties.

Share-Based Payment—The Company recognizes compensation costs for all share-based payment awards made to employees and directors, including restricted stock, employee stock options and other forms of equity compensation based on the grant date fair value.

Under the Walker & Dunlop, Inc. 2010 Equity Incentive Plan, the Company has granted restricted stock, unrestricted stock and stock option awards. Restricted stock awards have been granted without cost to the Company’s officers, employees and non-employee directors, for which the fair value of the award was calculated as the difference between the market value of the Company’s common stock on the date of grant and the purchase price to be paid by the grantee. The Company’s stock option and restricted stock awards for its officers and employees vest, predicated on continued employment, over periods of two to three years. Restricted stock awards for non-employee directors fully vest after one year.

Stock option awards have been granted to officers and certain other employees, with an exercise price equal to the closing price of the Company’s common stock on the date of the grant, and were granted for a ten-year term, vesting ratably over three years dependent solely on continued employment. To estimate the grant-date fair value of stock options, the Company uses the Black-Scholes pricing model. The Black-Scholes model estimates the per share fair value of an option on its date of grant based on the following inputs: the option’s exercise price, the price of the underlying stock on the date of the grant, the expected option term, the estimated dividend yield, a “risk-free” interest rate and the expected volatility. For the “risk-free” rate, the Company uses a U.S. Treasury strip due in a number of years equal to the option’s expected term. To determine the expected volatility, the Company has calculated the volatility of the common stock price of a group of peer companies, as the Company has insufficient historical data for its common stock at this time to develop an expectation of volatility over the expected term of the options granted solely based on the historical volatility of its own common stock.

Compensation expense is adjusted for estimated forfeitures and is recognized on a straight-line basis, for the entire award, over the requisite service period of the award. Forfeiture assumptions are evaluated on a quarterly basis and updated as necessary. Compensation is recognized within the income statement as “Personnel” expense, the same expense line as the cash compensation paid to the respective employees.

Income Taxes—The Company files income tax returns in the applicable U.S. federal, state and local jurisdictions and generally is subject to examination by the respective jurisdictions for three years from the filing of a tax return. The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted.

Deferred tax assets are recognized only to the extent that it is more likely than not that they will be realizable based on consideration of available evidence, including future reversals of existing taxable temporary differences, projected future taxable income and tax planning strategies. Net deferred tax liabilities are included in “Accounts payable and other accrued expenses” in the accompanying condensed consolidated balance sheets.

We had no accruals for tax uncertainties as of June 30, 2012 or December 31, 2011.

Net Warehouse Interest Income—The Company presents warehouse interest income net of warehouse interest expense. Warehouse interest income is the interest earned from loans that are held for sale. Substantially all loans that are held for sale are financed with matched borrowings under our warehouse facilities incurred to fund a specific loan held for sale. Warehouse interest expense is incurred on borrowings used to fund loans solely while they are held for sale. Warehouse interest income and expense are earned or incurred after a loan is closed and before a loan is sold. Included in net warehouse interest income for the three and six

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months ended June 30, 2012 and 2011 are the following components (in thousands):

	For the three months ended June 30,				For the six months ended June 30,
	2012		2011		2012		2011
Warehouse interest income	$	2,978	$	2,380	$	5,553	$	4,101
Warehouse interest expense	1,904		1,321		3,542		2,325
Net warehouse interest income	$	1,074	$	1,059	$	2,011	$	1,776

Recently Issued Accounting Pronouncements—In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. ASU No. 2011-04 was issued to achieve common fair value measurement and disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU No. 2011-04 amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. The adoption of ASU No. 2011-04 expanded our disclosures regarding fair value measurements but did not have a material impact on our financial statement disclosures.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. ASU No. 2011-05 allows an entity to have the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. ASU No. 2011-05 eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. The adoption of ASU No. 2011-05 did not have a material impact on our financial statements.

NOTE 3—ACQUISITION OF CWCAPITAL LLC

On June 7, 2012, the Company and its indirect wholly owned subsidiary, Walker & Dunlop, LLC (the “Purchaser”), entered into an agreement to acquire CWCapital LLC (“CWCapital”), a direct wholly owned subsidiary of CW Financial Services LLC (“CW Financial”), pursuant to a purchase agreement of the same date, by and among the Company, the Purchaser, CW Financial and CWCapital (the “Purchase Agreement”).

On the terms and subject to the conditions of the Purchase Agreement, the Purchaser will acquire all of CW Financial’s interests in CWCapital for approximately $220 million, net of certain expenses and adjustments (the “Acquisition”). Of the $220 million, $80 million will be paid in cash from the Purchaser, through a combination of existing capital and financing anticipated to be obtained. The remaining $140 million will be paid through the issuance of shares of the Company’s common stock (the “Stock Consideration”). Upon the closing of the Acquisition, it is anticipated that the Stock Consideration will total, and CW Financial will thereby own, approximately 11.6 million shares of the Company’s common stock, or approximately 34 percent of the Company on a fully diluted basis, subject to the adjustments described in the next sentence. Pursuant to the Purchase Agreement, the number of shares constituting the Stock Consideration is fixed at such 11.6 million shares (and the common stock price at $12.02) within a “collar” of a 30 percent upward or downward fluctuation in the volume weighted average price of the common stock within the 20 consecutive trading days immediately preceding the third trading day prior to the closing date, outside of which “collar” the number of shares constituting the Stock Consideration would be variable based on the price of the common stock. In accordance with the terms of the Purchase Agreement, CW Financial may not transfer the Stock Consideration for a period of 180 days after the closing of the Acquisition.

Pursuant to the rules of the New York Stock Exchange (which require the Company to obtain stockholder approval prior to issuing common stock, if the issuance would constitute more than 20 percent of the total number of shares of common stock outstanding before the issuance), the issuance of the Stock Consideration is subject to approval by the vote of a majority of the shares of the Company’s common stock entitled to vote at a meeting held for that purpose. As the Company previously reported, the date of the special stockholder meeting for approving of the Company’s issuance of the Stock Consideration is August 30, 2012. The completion of the Acquisition is subject to various other conditions, including obtaining certain regulatory approvals and the approval of certain governmental authorities. Subject to the satisfaction or waiver of the closing conditions of the Purchase Agreement, the Company expects the Acquisition to close by the end of the third quarter of 2012.

NOTE 4—GAINS FROM MORTGAGE BANKING ACTIVITIES

The gains from mortgage banking activities consist of the following activity for the three and six months ended June 30, 2012 and 2011 (in thousands):

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	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011
Contractual loan origination related fees, net	$	17,092		$	15,335		$	27,371		$	22,693
Fair value of expected future cash flows from servicing recognized at commitment	18,083			16,495			28,167			26,550
Fair value of expected guaranty obligation	(1,241		)	(541		)	(1,802		)	(1,127		)
Total gains from mortgage banking activities	$	33,934		$	31,289		$	53,736		$	48,116

NOTE 5—MORTGAGE SERVICING RIGHTS

Mortgage servicing rights (MSR) represent the fair value of the servicing rights retained by the Company for mortgage loans originated and sold. The capitalized amount is equal to the estimated fair value of the future expected net cash flows associated with the servicing rights. The following describes the key assumptions used in calculating each loan’s MSR:

Discount rate—Depending upon loan type, the discount rate used is management’s best estimate of market discount rates. The rates used for loans originated were 10% to 15% for each of the three month periods presented.

Estimated Life—The estimated life of the MSRs approximates the stated maturity date of the underlying loan and may be reduced by 6 to 12 months based upon the expiration of various types of prepayment penalty and/or lockout provisions prior to that stated maturity date.

Servicing Cost—The estimated future cost to service the loan for the estimated life of the MSR is subtracted from the estimated future cash flows.

The fair value of the MSRs was $176.2 million and $158.5 million at June 30, 2012 and December 31, 2011, 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 June 30, 2012, is a decrease in the fair value of $5.3 million.

The impact of a 200 basis point increase in the discount rate at June 30, 2012, is a decrease in the fair value of $10.2 million.

Activity related to capitalized MSRs for the three and six months ended June 30, 2012 and 2011 was as follows (in thousands):

	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011

Beginning balance	$	142,621		$	112,829		$	137,079		$	106,189
Additions, following the sale of loan	13,837			11,237			26,864			23,132
Amortization	(6,701		)	(5,200		)	(13,051		)	(10,169		)
Pre-payments and write-offs	(224		)	(269		)	(1,359		)	(555		)
Ending balance	$	149,533		$	118,597		$	149,533		$	118,597

The MSRs are being amortized in proportion to, and over the period, that net servicing income is expected to be received using the effective interest method. The Company reported write downs of MSRs related to loans that were repaid prior to the expected maturity or the servicing rights being sold. These write-offs are included with the amortization and depreciation expense in the accompanying condensed consolidated statements of income.

Management reviews the capitalized MSRs for impairment quarterly. MSRs are measured for impairment on an asset-by-asset basis, considering factors such as debt service coverage ratio, property location, loan-to-value ratio and property type. In addition, at each reporting period, we compare the aggregate carrying value of the MSR portfolio to the aggregate estimated fair value of the

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portfolio. No impairments other than write-offs discussed above have been recognized for the periods presented.

NOTE 6—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. No guaranty is provided for loans sold under the Freddie Mac or HUD loan programs.

A summary of our guaranty obligation for the three and six months ended June 30, 2012 and 2011 is as follows (in thousands):

	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011
Beginning balance	$	10,447		$	9,136		$	9,921		$	8,928
Guaranty obligation recognized, following the sale of loan	785			690			1,787			1,279
Amortization of guaranty obligation	(486		)	(428		)	(962		)	(809		)
Ending Balance	$	10,746		$	9,398		$	10,746		$	9,398

We evaluate the allowance for risk-sharing obligations by monitoring the performance of each loan for triggering events or conditions that may signal a potential default. In situations where payment under the guaranty is probable and estimable on a specific loan, we record an additional liability for the estimated allowance for risk-sharing through a charge to the provision for risk-sharing obligations in the income statement, along with a write-off of the loan-specific MSR. The amount of the provision reflects our assessment of the likelihood of payment by the borrower, the estimated disposition value of the underlying collateral and the level of risk-sharing. Historically, the loss recognition occurs at or before the loan becoming 60 days delinquent. A summary of our allowance for risk-sharing for the three and six months ended June 30, 2012 and 2011 is as follows (in thousands):

	For the three months ended June 30,					For the six months ended June 30,
	2012			2011		2012			2011
Beginning balance	$	14,522		$	11,619	$	14,917		$	10,873
Provision for risk sharing obligations	750			1,764		1,974			2,510
Write-offs	(1,643		)	—		(3,262		)	—
Ending Balance	$	13,629		$	13,383	$	13,629		$	13,383

As of June 30, 2012, the maximum quantifiable contingent liability associated with the Company’s guarantees under the Fannie Mae DUS agreement was $1.9 billion. The maximum quantifiable contingent liability is not representative of the actual loss we would incur. We would be liable for this amount only if all of the loans we service for Fannie Mae, for which we retain some risk of loss, were to default and all of the collateral underlying these loans was determined to be without value at the time of settlement.

NOTE 7—SERVICING

The total amount of loans the Company was servicing for various institutional investors was $17.6 billion as of June 30, 2012.

NOTE 8—NOTES PAYABLE

Warehouse notes payable—To provide financing to borrowers under GSE and HUD programs, and to assist in funding loans held for investment, the Company has arranged for committed warehouse lines of credit in the amount of $535 million with certain national banks and a $250 million uncommitted facility with Fannie Mae. In support of each of these credit facilities, the Company has pledged substantially all of its loans held for sale and all of its loans held for investment under the Company’s approved programs. At June 30, 2012, borrowings aggregated $373.0 million under the warehouse facilities. The borrowing rates under these warehouse facilities continue to be computed based on the average 30-day LIBOR plus 1.15% to 2.50%.

For the three months ended June 30, 2012 and 2011, the Company incurred interest expense on its warehouse facilities of $1.9 million and $1.3 million; and for the six months ended June 30, 2012 and 2011, the Company incurred interest expense on its warehouse facilities of $3.5 million and $2.3 million, respectively. Included in interest expense were loan fees of $0.4 million and $0.3 million for the three months ended June 30, 2012 and 2011; and fees of $0.7 million and $0.5 million for the six months ended June 30, 2012 and 2011, respectively. The notes payable are subject to various financial covenants and the Company was in compliance with all such covenants at June 30, 2012.

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On March 8, 2012, the Company amended its $150 million committed warehouse agreement that was scheduled to mature on June 29, 2012. The amendment extended the maturity date to February 28, 2013, increased the credit limit from $150 million to $350 million, and reduced the rate for borrowing from the average 30-day LIBOR plus 200 basis points to the average 30-day LIBOR plus 185 basis points.

The Company had an unlimited master purchase and sale agreement which expired on March 16, 2012. In anticipation of the expiration of the master purchase and sale agreement, the Company amended one of its committed warehouse lines as described above, and on March 16, 2012, the Company allowed the master purchase and sale agreement to expire.

NOTE 9—FAIR VALUE MEASUREMENTS

The Company uses valuation techniques that are consistent with the market approach, the income approach and/or the cost approach to measure assets and liabilities that are measured at fair value. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, accounting standards establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

· Level 1—Financial assets and liabilities whose values are based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

· Level 2—Financial assets and liabilities whose values are based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

· Level 3—Financial assets and liabilities whose values are based on inputs that are both unobservable and significant to the overall valuation.

The Company’s MSRs are measured at fair value on a nonrecurring basis. That is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The Company’s MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs do occur, precise terms and conditions vary with each transaction and are not readily available. Accordingly, the estimated fair value of MSRs was developed using discounted cash flow models that calculate the present value of estimated future net servicing income. The model considers contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors. The Company reassesses and periodically adjusts the underlying inputs and assumptions used in the model to reflect observable market conditions and assumptions that a market participant would consider in valuing an MSR asset. MSRs are carried at the lower of amortized cost or estimated fair value.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s assets and liabilities carried at fair value:

· Derivative Instruments—The derivative positions consist of interest rate lock commitments and forward sale agreements. These instruments are valued using a discounted cash flow model developed based on changes in the U.S. Treasury rate and other observable market data. The value was determined after considering the potential impact of collateralization, adjusted to reflect nonperformance risk of both the counterparty and the Company and are classified within Level 3 of the valuation hierarchy.

· Loans held for sale—The loans held for sale are reported at fair value. The Company determines the fair value of the loans held for sale using discounted cash flow models that incorporate quoted observable prices from market participants. Therefore, the Company classifies these loans held for sale as Level 2.

· Pledged Securities—The pledged securities are valued using quoted market prices from recent trades. Therefore, the Company classifies pledged securities as Level 1.

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The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2012, and December 31, 2011, segregated by the level of the valuation inputs within the fair value hierarchy used to measure fair value (in thousands):

	Quoted Prices in		Significant		Significant
	Active Markets		Other		Other
	For Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		Period End
June 30, 2012
Assets
Loans held for sale	$	—	$	399,230	$	—	$	399,230
Pledged securities	21,144		—		—		21,144
Derivative assets	—		—		9,501		9,501
Total	$	21,144	$	399,230	$	9,501	$	429,875

Liabilities
Derivative liabilities	$	—	$	—	$	1,899	$	1,899
Total	$	—	$	—	$	1,899	$	1,899

December 31, 2011
Assets
Loans held for sale	$	—	$	268,167	$	—	$	268,167
Pledged securities	18,959		—		—		18,959
Derivative assets	—		—		10,638		10,638
Total	$	18,959	$	268,167	$	10,638	$	297,764

Liabilities
Derivative liabilities	$	—	$	—	$	5,223	$	5,223
Total	$	—	$	—	$	5,223	$	5,223

There were no transfers into or out of assets that are considered Level 1 or Level 2 fair value measurements.

Derivative instruments (Level 3) are outstanding for short periods of time (generally less than 60 days) and are not outstanding for more than one period. A roll forward of derivative instruments which require valuations based upon significant unobservable inputs, is presented below for the six months ended June 30, 2012 and 2011 (in thousands):

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	Fair Value Measurements
	Using Significant
	Unobservable Inputs:
	Derivative Instruments
	June 30, 2012
Derivative assets and liabilities, net
Beginning balance, December 31, 2011	$	5,415
Transfers in (out) of Level 3	—
Purchases	—
Sales	—
Issuances	—
Settlements	(51,549		)
Realized gains (losses) recorded in earnings	46,134
Unrealized gains (losses) recorded in earnings	7,602
Ending balance, June 30, 2012	$	7,602

	Derivative Instruments
	June 30, 2011
Derivative assets and liabilities, net
Beginning balance, December 31, 2010	$	4,900
Transfers in (out) of Level 3	—
Purchases	—
Sales	—
Issuances	—
Settlements	(43,324		)
Realized gains (losses) recorded in earnings	38,424
Unrealized gains (losses) recorded in earnings	9,692
Ending balance, June 30, 2011	$	9,692

The following table presents information about significant unobservable inputs used in the measurement of the fair value of Company’s Level 3 assets and liabilities:

	Quantitative Information about Level 3 Measurements
	Fair Value		Valuation Technique	Unobservable Input (1)	Input Value (1)
Derivative assets	$	9,501	Discounted cash flow	Counterparty credit risk	—
Derivative liabilities	1,899		Discounted cash flow	Counterparty credit risk	—

(1) Significant increases (decreases) in this input may lead to significantly lower (higher) fair value measurements.

The carrying amounts and the fair values of the Company’s financial instruments as of June 30, 2012, and December 31, 2011, are presented below (in thousands):

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	June 30, 2012
	Carrying		Fair
	Amount		Value
Financial Assets:
Cash and cash equivalents	$	46,153	$	46,153
Restricted cash	4,583		4,583
Pledged securities	21,144		21,144
Loans held for sale	399,230		399,230
Loans held for investment	16,392		16,500
Derivative assets	9,501		9,501
Total	$	497,003	$	497,111

Financial Liabilities:
Derivative liabilities	$	1,899	$	1,899
Warehouse notes payable	372,995		372,995
Notes payable	22,069		22,069
Total	$	396,963	$	396,963

	December 31, 2011
	Carrying		Fair
	Amount		Value
Financial Assets:
Cash and cash equivalents	$	53,817	$	53,817
Restricted cash	7,164		7,164
Pledged securities	18,959		18,959
Loans held for sale	268,167		268,167
Derivative assets	10,638		10,638
Total	$	358,745	$	358,745

Financial Liabilities:
Derivative liabilities	$	5,223	$	5,223
Warehouse notes payable	218,426		218,426
Notes payable	23,869		23,869
Total	$	247,518	$	247,518

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents and Restricted Cash—The carrying amounts, at face value or cost plus accrued interest, approximate fair value because of the short maturity of these instruments.

Pledged Securities—Consist of highly liquid investments in commercial paper of AAA rated entities and investments in money market accounts invested in government securities. Investments typically have maturities of 90 days or less, and are valued using quoted market prices from recent trades.

Loans Held For Sale—Consist of originated loans that are generally transferred or sold within 60 days from the date that a mortgage loan is funded, and are valued using discounted cash flow models that incorporate observable prices from market participants.

Loans Held For Investment—Consist of originated interim loans which the Company expects to hold for investment for periods of up to two years, and are valued using discounted cash flow models that incorporate observable prices from market participants.

Derivative Instruments—Consist of interest rate lock commitments and forward sale agreements. These instruments are valued using discounted cash flow models developed based on changes in the U.S. Treasury rate and other observable market data. The value is determined after considering the potential impact of collateralization, adjusted to reflect nonperformance risk of both the counterparty and the Company.

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Warehouse Notes Payable—Consist of borrowings outstanding under warehouse line agreements. The borrowing rates on the warehouse lines are based upon average 30-day LIBOR plus a margin. The carrying amounts approximate fair value because of the short maturity of these instruments.

Notes Payable—Consist of borrowings outstanding under term note agreements. The borrowing rates on the notes payable are based upon average 30-day LIBOR plus a margin. We estimate the fair value by discounting the future cash flows of each instrument at market rates.

Fair Value of Derivative Instruments and Loans Held for Sale—In the normal course of business, the Company enters into contractual commitments to originate (purchase) and sell multifamily mortgage loans at fixed prices with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within time frames established by the Company. All mortgagors are evaluated for creditworthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the “lock-in” of rates by the borrower and the sale date of the loan to an investor.

To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, the Company’s policy is to enter into a sale commitment with the investor simultaneously with the rate lock commitment with the borrower. The sale contract with the investor locks in an interest rate and price for the sale of the loan. The terms of the contract with the investor and the rate lock with the borrower are matched in substantially all respects, with the objective of eliminating interest rate risk to the extent practical. Sale commitments with the investors have an expiration date that is longer than our related commitments to the borrower to allow, among other things, for the closing of the loan and processing of paperwork to deliver the loan into the sale commitment.

Both the rate lock commitments to borrowers and the forward sale contracts to buyers are undesignated derivatives and, accordingly, are marked to fair value through other income and expenses. The fair value of the Company’s rate lock commitments to borrowers and loans held for sale and the related input levels includes, as applicable:

· the assumed gain/loss of the expected resultant loan sale to the buyer;

· the expected net future cash flows associated with servicing the loan (Level 2);

· the effects of interest rate movements between the date of the rate lock and the balance sheet date (Level 2); and

· the nonperformance risk of both the counterparty and the Company (Level 3).

The fair value of the Company’s forward sales contracts to investors considers effects of interest rate movements between the trade date and the balance sheet date (Level 2). The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.

The assumed gain/loss considers the amount that the Company has discounted the price to the borrower from par for competitive reasons, if at all, and the expected net cash flows from servicing to be received upon securitization of the loan. The fair value of the expected net future cash flows associated with servicing the loan is calculated pursuant to the valuation techniques described previously for mortgage servicing rights.

To calculate the effects of interest rate movements, the Company uses applicable published U.S. Treasury prices, and multiplies the price movement between the rate lock date and the balance sheet date by the notional loan commitment amount.

The fair value of the Company’s forward sales contracts to investors considers the market price movement of the same type of security between the trade date and the balance sheet date (Level 2). The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.

The fair value of the Company’s interest rate lock commitments and forward sales contracts is adjusted to reflect the risk that the agreement will not be fulfilled. The Company’s exposure to nonperformance in rate lock and forward sale contracts is represented by the contractual amount of those instruments. Given the credit quality of our counterparties, the short duration of interest rate lock commitments and forward sale contracts, and the Company’s historical experience with the agreements, the risk of nonperformance by the Company’s counterparties is not significant.

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	Fair Value Adjustment Components										Balance Sheet Location
																Fair Value
	Notional or		Assumed		Interest Rate			Total			Derivative		Derivative			Adjustment
	Principal		Gain (Loss)		Movement			Fair Value			Contract		Contract			To Loans
(in thousands)	Amount		on Sale		Effect			Adjustment			Assets		Liabilities			Held for Sale
June 30, 2012
Rate lock commitments	$	212,076	$	8,418	$	(418	)	$	8,000		$	8,000	$	—		$	—
Forward sale contracts	598,843		—		(398		)	(398		)	1,501		(1,899		)	—
Loans held for sale	386,767		11,647		816			12,463			—		—			12,463
Total			$	20,065	$	—		$	20,065		$	9,501	$	(1,899	)	$	12,463

December 31, 2011
Rate lock commitments	$	226,455	$	7,781	$	2,785		$	10,566		$	10,566	$	—		$	—
Forward sale contracts	482,751		—		(5,151		)	(5,151		)	72		(5,223		)
Loans held for sale	256,296		9,505		2,366			11,871			—		—			11,871
Total			$	17,286	$	—		$	17,286		$	10,638	$	(5,223	)	$	11,871

NOTE 10—LITIGATION, COMMITMENTS AND CONTINGENCIES

Fannie Mae DUS Related Commitments—Commitments for the origination and subsequent sale and delivery of loans to Fannie Mae represent those mortgage loan transactions where the borrower has locked an interest rate and scheduled closing and the Company has entered into a mandatory delivery commitment to sell the loan to Fannie Mae. As discussed in Note 9, the Company accounts for these commitments as derivatives recorded at fair value.

The Company is generally required to share the risk of any losses associated with loans sold under the Fannie Mae DUS program (the DUS risk-sharing obligations). The Company is required to secure this obligation by assigning restricted cash balances and securities to Fannie Mae. The reserve for loans may be posted over the first 48 months. As of June 30, 2012, the Company had pledged cash and securities in excess of these requirements. In 2010, Fannie Mae increased its collateral requirements for Tier II loans by approximately 25 basis points effective April 1, 2011. In January 2012, Fannie Mae notified its Multifamily DUS lenders that collateral requirements on Fannie Mae Tier II, III and IV loans will remain unchanged for 2012. However, collateral requirements for existing and new Fannie Mae Tier I loans will increase from 50 basis points to 90 basis points and that Level 2 and Level 3 loss sharing requirements will increase. We currently have an insignificant number of loans in our portfolio which will be affected by the announced collateral changes and do not expect it will have a material impact on our future operations; however, future changes to collateral requirements may adversely impact us. Based on our aggregate Fannie Mae portfolio as of June 30, 2012, the total incremental collateral required for all existing loans over the life of the portfolio, in accordance with Fannie Mae requirements, is expected to be approximately $17.8 million. Under the provisions of the DUS agreement, the Company must also maintain a certain level of liquid assets referred to as the operational and unrestricted portions of the required reserves each year. These requirements were satisfied by the Company as of June 30, 2012 and June 30, 2011.

For most loans we service under the Fannie Mae DUS program, we are currently required to advance 100% of the principal and interest due to noteholders up to 5% of the unpaid principal balance if the borrower is delinquent in making loan payments. Under the HUD program, we are required to advance 100% of the principal and interest payments due to noteholders if the borrower is delinquent in making loan payments. Advances are included in loan origination related fees and other receivables to the extent such amounts are recoverable.

Fannie Mae has established benchmark standards for capital adequacy, and reserves the right to terminate the Company’s servicing authority for all or some of the portfolio, if at any time it determines that the Company’s financial condition is not adequate to support its obligation under the DUS agreement. The Company is required to maintain acceptable net worth as defined in the agreement, and the Company satisfied the requirements as of June 30, 2012. The net worth requirement is derived primarily from unpaid balances on Fannie Mae loans and the level of risk-sharing. At June 30, 2012, the net worth requirement was $52.4 million and the Company’s net worth was $203.6 million, as defined. As of June 30, 2012, we were required to maintain at least $9.6 million of liquid assets to meet our operational liquidity requirements, as defined in the agreements, for Fannie Mae, Freddie Mac, HUD and Ginnie Mae. As of June 30, 2012, we had operational liquidity of $45.6 million.

Litigation—Capital Funding litigation— On February 17, 2010, Capital Funding Group, Inc. (“Capital Funding”) filed a lawsuit in the state Circuit Court of Montgomery County, Maryland against Walker & Dunlop, LLC, our wholly owned subsidiary, for alleged breach of contract, unjust enrichment and unfair competition arising out of an alleged agreement that Capital Funding had with

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Column Guaranteed, LLC (“Column”) to refinance a large portfolio of senior healthcare facilities located throughout the United States (the “Golden Living Facilities”). Capital Funding alleges that a contract existed between it and Column (and its affiliates) whereby Capital Funding allegedly had the right to perform the HUD refinancing for the Golden Living Facilities and according to which Capital Funding provided certain alleged proprietary information to Column and its affiliates relating to the refinancing of the Golden Living Facilities on a confidential basis. Capital Funding further alleges that Walker & Dunlop, LLC, as the alleged successor by merger to Column, is bound by Column’s alleged agreement with Capital Funding, and breached the agreement by taking for itself the opportunity to perform the HUD refinancing for the Golden Living Facilities.

Capital Funding further claims that Column and its affiliates and Walker & Dunlop, LLC breached the contract, were unjustly enriched, and committed unfair competition by using Capital Funding’s alleged proprietary information for certain allegedly unauthorized purposes. Capital Funding also asserts a separate unfair competition claim against Walker & Dunlop, LLC in which it alleges that Walker & Dunlop, LLC is improperly “taking credit” on its website for certain work actually performed by Capital Funding. Capital Funding seeks damages in excess of $30 million on each of the three claims asserted against all defendants, and an unspecified amount of damages on the separate claim for unfair competition against Walker & Dunlop, LLC. Capital Funding also seeks injunctive relief in connection with its unjust enrichment and unfair competition claims.

Pursuant to an agreement, dated January 30, 2009 (the “Column Transaction Agreement”), among Column, Walker & Dunlop, LLC, W&D, Inc. and Green Park, Column generally agreed to indemnify Walker & Dunlop, LLC against liability arising from Column’s conduct prior to Column’s transfer of the assets to Walker & Dunlop, LLC. However, pursuant to the Column Transaction Agreement, Column’s indemnification obligation arises only after Column receives a claim notice following the resolution of the litigation that specifies the amount of Walker & Dunlop, LLC’s claim.

To provide for greater certainty regarding Column’s indemnification obligations before the resolution of this litigation and to cap our total loss exposure, we secured a further agreement from Column in November 2010 confirming that it will indemnify us for any liabilities that arise as a result of this litigation. As part of this further indemnification agreement, in the event Column is required to pay us for any liabilities under the Capital Funding litigation that it otherwise would not have been obligated to pay under the Column Transaction Agreement, we will indemnify Column for an amount up to $3.0 million. Also as part of this further indemnification agreement, William Walker, our Chairman, President and Chief Executive Officer, and Mallory Walker, former Chairman and current stockholder, in their individual capacities, agreed that if Column is required to indemnify us under this agreement and otherwise would not have been obligated to pay such amounts under the Column Transaction Agreement, Messrs. William Walker and Mallory Walker will pay any such amounts in excess of $3.0 million but equal to or less than $6.0 million. As a result of this agreement, we will have no liability or other obligation for any damage amounts in excess of $3.0 million arising out of this litigation. Although Column has assumed defense of the case for all defendants, and is paying applicable counsel fees, as a result of the indemnification claim procedures described above, we could be required to bear the significant costs of the litigation and any adverse judgment unless and until we are able to prevail on our indemnification claim. We believe that we will fully prevail on our indemnification claims against Column, and that we ultimately will incur no material loss as a result of this litigation, although there can be no assurance that this will be the case.

On July 19, 2011, the Circuit Court for Montgomery County, Maryland issued an order granting the defendants’ motion to dismiss the case; without prejudice. After the initial case was dismissed without prejudice, Capital Funding filed an amended complaint. In November 2011, the Circuit Court of Montgomery County rejected our motion to dismiss the amended complaint. The parties agreed to postpone the commencement of a trial that was scheduled to begin July 9, 2012, and are in settlement discussions.

As a result of the indemnification listed above, the Company’s loss exposure is limited to $3.0 million.

We cannot predict the outcome of any pending litigation and may be subject to consequences that could include fines, penalties and other costs, and our reputation and business may be impacted. Our management believes that any liability that could be imposed on us in connection with the disposition of any pending lawsuits would not have a material adverse effect on our business, results of operations, liquidity or financial condition.

In the normal course of business, the Company may be party to various claims and litigation.

NOTE 11—SHARE BASED PAYMENT

In 2010, the Company’s shareholders approved the adoption of the Walker & Dunlop, Inc. 2010 Equity Incentive Plan (the “2010 Equity Incentive Plan”). There are 2,140,000 shares of stock authorized and available for issuance under the 2010 Equity Incentive Plan to directors, officers and employees.

On June 29, 2012, the Company’s Board of Directors approved amendments to the 2010 Equity Incentive Plan that would: (i) increase the number of shares reserved for issuance under the 2010 Equity Incentive Plan by 3,370,000, (ii) increase individual limits

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of categories of awards under the 2010 Equity Incentive Plan, (iii) add additional performance measures applicable to the 2010 Equity Incentive Plan, (iv) extend the termination date of the 2010 Equity Incentive Plan, and (v) make certain other related technical amendments to the 2010 Equity Incentive Plan (collectively, the “2010 Equity Incentive Plan Amendments”). The Company’s stockholders are scheduled to vote on the 2010 Equity Incentive Plan Amendments and the re-approval of the material terms and conditions relating to performance-based compensation under the 2010 Equity Incentive Plan at the August 30, 2012 Special Meeting of Stockholders.

During 2012, the Company granted stock options, under the 2010 Equity Incentive Plan, to officers and certain employees, with an exercise price equal to the closing price of the Company’s common stock on the date of grant. The stock options have a 10 year term and vest ratably over periods of two to three years dependent solely on continued employment. In addition, the Company granted restricted shares, under the 2010 Equity Incentive Plan, to officers, employees and non-employee directors, without cost to the grantee. The restricted share awards granted to officers and employees vest ratably over three years dependent solely on continued employment. Restricted share awards to non-employee directors fully vest one year from the date of grant.

At June 30, 2012, an additional 496,309 shares remain available for grant under the 2010 Equity Incentive Plan.

The following table provides additional information regarding the Company’s 2010 Equity Incentive Plan for the six months ended June 30, 2012 (dollars in thousands, except per share amounts):

	Options / Shares		Weighted Average Exercise Price		Weighted Average Remaining Contract Life (Years)	Aggregate Intrinsic Value
Restricted Shares
Nonvested at beginning of period	449,236
Granted	574,709
Vested	(56,674	)
Forfeited	(36,360	)
Nonvested at end of period	930,911		$	—		$	11,962

Stock Options
Outstanding at beginning of period	214,987
Granted	297,981
Exercised	—
Forfeited	—
Expired	—
Outstanding at end of period	512,968		$	12.83	9.4	$	11
Exercisable at end of period	71,660		$	12.52	8.7	$	24

The fair value of stock option awards granted during 2012 was estimated on the grant date using the Black-Scholes option pricing model, based on the following inputs:

	2012
Estimated option life	6.00 years
Risk free interest rate	1.09		%
Expected volatility	45.76		%
Expected dividend rate	0.00		%
Weighted average grant date fair value per share of options granted	$	5.79

The fair values of the restricted stock that vested during the three and six months ended June 30, 2012 and 2011 (in thousands) were as follows:

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	For the three months ended June 30,				For the six months ended June 30,
	2012		2011		2012		2011
Restricted stock	$	254	$	—	$	700	$	—

For the three months ended June 30, 2012 and June 30, 2011 share based payment expense was $1.0 million and $0.6 million, respectively. For the six months ended June 30, 2012 and June 30, 2011 share based payment expense was $1.7 million and $1.0 million, respectively. As of June 30, 2012 the total unrecognized compensation cost for outstanding restricted shares and options was $11.1 million, net of estimated forfeitures. The unrecognized compensation cost will be recognized over each grant’s applicable vesting period, with the latest vesting date being June 5, 2015.

NOTE 12—EARNINGS PER SHARE

The following weighted average shares and share equivalents are used to calculate basic and diluted earnings per share for the three and six months ended June 30, 2012 and 2011:

	For the three months ended June 30,		For the six months ended June 30,
	2012	2011	2012	2011
Weighted average number of shares outstanding used to calculate basic earnings per share	21,779,379	21,629,463	21,764,976	21,606,233

Dilutive securities
Unvested restricted shares	196,474	113,449	149,476	89,593
Weighted average number of shares and share equivaltents outstanding used to calculate diluted earnings per share	21,975,853	21,742,912	21,914,452	21,695,826

The assumed proceeds used in the treasury method used for calculating the dilutive impact of restricted stock awards includes the unrecognized compensation costs and excess tax benefits associated with the awards. Options issued under the 2010 Equity Incentive Plan to purchase 214,987 shares of common stock (in both 2012 and 2011), and 219,259 and 0 restricted shares were outstanding during the three months ended June 30, 2012 and 2011, respectively, but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive. Options issued under the 2010 Equity Incentive Plan to purchase 214,987 shares of common stock (in both 2012 and 2011), and 219,259 and 0 restricted shares were outstanding during the six months ended June 30, 2012 and 2011, respectively, but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive.

NOTE 13—STOCKHOLDERS’ EQUITY

A summary of changes in stockholders’ equity is presented below (dollars in thousands):

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					Additional					Total
	Common Stock				Paid-In			Retained		Stockholders’
	Shares		Amount		Capital			Earnings		Equity
Balances at December 31, 2011	21,748,598		$	217	$	81,190		$	82,245	$	163,652
Net income	—		—		—			15,131		15,131
Issuance of common shares in connection with equity incentive plans	56,674		1		—			—		1
Repurchase and retirement of common stock	(9,893	)	—		(124		)	—		(124		)
Stock-based compensation	—		—		1,709			—		1,709
Tax benefit from vesting of restricted shares	—		—		(5		)			(5		)
Balances at June 30, 2012	21,795,379		$	218	$	82,770		$	97,376	$	180,364

NOTE 14—TRANSACTIONS WITH RELATED PARTIES

As of June 30, 2012, Credit Suisse Securities (USA) LLC, through its ownership of Column, owns a 22% interest in the Company. From time to time, Credit Suisse refers HUD related financing opportunities to the Company, for which it receives fees. For the three and six months ended June 30, 2012, Credit Suisse earned fees of $0.8 million and $0.8 million, respectively, for the referral of HUD transactions to the Company (co-broker fees). At June 30, 2012, the Company had accrued $0.8 million of co-broker fees payable to Credit Suisse.

On February 9, 2012, the Company entered into an amendment to the agreement regarding the allocation of origination fees and trade premiums generated by certain transactions, amending the terms of the allocation of origination fees and trade premiums between Credit Suisse and the Company and providing for other terms and conditions with respect to future loan origination opportunities. The amendment resulted in a $2.5 million reduction in the amount the Company owed to Credit Suisse at December 31, 2011, which was recognized as Other revenues in the six months ended June 30, 2012.

A subsidiary of the Company has contracted with Walker & Dunlop Fund Management, LLC (the “Advisor”), a registered investment advisor, of which Mr. Walker, our Chairman, President and Chief Executive Officer, is the sole member, for the Advisor to provide investment advisory services to a real estate fund pursuant to an investment advisory agreement. The Company provides consulting, overhead and other corporate services to the Advisor pursuant to a corporate services agreement for a fee which approximates the Company’s costs for such services.

A third party entity, Walker & Dunlop Multifamily Equity I, LLC (the “Managing Member”), in which Mr. Walker and other individuals hold ownership, is the managing member of an investment fund. The Company provides consulting and related services to the Managing Member pursuant to a corporate services agreement for a fee which approximates our cost for such services.

The amount of such fees was $0.2 million for each of the three months ended June 30, 2012 and 2011; and was approximately $0.4 million and $0.3 million for the six months ended June 30, 2012 and 2011.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the historical financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. The following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those expressed or contemplated in those forward looking statements as a result of certain factors, including those set forth under the headings “Forward-Looking Statements” and “Risk Factors” elsewhere in this Quarterly Report on Form 10-Q.

Forward-Looking Statements

Some of the statements in this quarterly report on Form 10-Q of Walker & Dunlop, Inc. and subsidiaries (the “Company,” “Walker & Dunlop,” “we,” “us”), may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

The forward-looking statements contained in this Form 10-Q reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ significantly from those expressed or contemplated in any forward-looking statement. Statements regarding the following subjects, among others, may be forward-looking:

· the future of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac,” and together with Fannie Mae, the government-sponsored enterprises, or the “GSEs”) and their impact on our business;

· our growth strategy;

· our projected financial condition, liquidity and results of operations;

· our ability to obtain and maintain warehouse and other loan funding arrangements;

· availability of and our ability to retain qualified personnel and our ability to develop relationships with borrowers, key principals and lenders;

· degree and nature of our competition;

· the outcome of pending litigation;

· changes in governmental regulations and policies, tax laws and rates, and similar matters and the impact of such regulations, policies and actions;

· our ability to comply with the laws, rules and regulations applicable to us;

· trends in the commercial real estate finance market, interest rates, commercial real estate values, the credit and capital markets or the general economy; and

· general volatility of the capital markets and the market price of our common stock.

While forward-looking statements reflect our good faith projections, assumptions and expectations, they are not guarantees of future results. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by applicable law. For a further discussion of these and other factors that could cause future results to differ materially from those expressed or contemplated in any forward-looking statements, see “Risk Factors.”

Business

We are one of the leading commercial real estate finance companies in the United States, with a primary focus on multifamily lending. We originate, sell and service a range of multifamily and other commercial real estate financing products. Our clients are owners and developers of commercial real estate across the country. We originate and sell loans through the programs of Fannie Mae, Freddie Mac, 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”), with which we have long-established relationships. We retain servicing rights and asset management responsibilities on nearly all loans that we originate for GSE and HUD programs. We are approved as a Fannie Mae Delegated Underwriting and Servicing (“DUS” ™) lender nationally, a Freddie Mac Program Plus™ lender in seven states, the District of Columbia and the metropolitan New York area, a HUD Multifamily Accelerated Processing (“MAP”) lender nationally, and a Ginnie Mae issuer. We also originate and service loans for a number of life insurance companies, commercial banks and other institutional investors, in which cases we do not fund the loan but rather act as a loan broker. Additionally, through our subsidiary entities, we provide institutional advisory, asset management and investment management services specializing in debt, structured debt and equity.

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We fund loans for GSE and HUD programs, generally through warehouse facility financings, and sell them to investors in accordance with the related loan sale commitment, which we obtain prior to loan closing. Proceeds from the sale of the loan are used to pay off the warehouse facility. The sale of the loan is typically completed within 60 days after the loan is closed. In cases where we do not fund the loan, we act as a loan broker and service some of the loans. Our originators who focus on loan brokerage are engaged by borrowers to work with a variety of institutional lenders to find the most appropriate loan instrument for the borrowers’ needs. These loans are then funded directly by the institutional lender and we receive an origination fee for placing the loan and a servicing fee for any loans we service.

We recognize gains from mortgage banking activities when we commit to both make a loan to a borrower and sell that loan to an investor. The gains from mortgage banking activities reflect the fair value attributable to loan origination fees, premiums or losses on the sale of loans, net of any co-broker fees, and the fair value of the expected net future cash flows associated with the servicing of loans, net of any guaranty obligations retained. We also generate revenue from net warehouse interest income we earn while the loan is held for sale in one of our warehouse facilities.

We retain servicing rights on substantially all of the loans we originate and sell, and generate revenues from the fees we receive for servicing the loans, interest income from escrow deposits held on behalf of borrowers, late charges and other ancillary fees. Servicing fees are set at the time an investor agrees to purchase the loan and are generally paid monthly for the duration of the loan. Our Fannie Mae and Freddie Mac servicing engagements generally provide for prepayment penalties to the Company in the event of a voluntary prepayment. For loans serviced outside of Fannie Mae and Freddie Mac, we typically do not share in any such payments.

We are currently not exposed to interest rate risk during the loan commitment, closing and delivery process. The sale or placement of each loan to an investor is negotiated prior to establishing the coupon rate for the loan. We also seek to mitigate the risk of a loan not closing. We have agreements in place with the GSEs and HUD that specify the cost of a failed loan delivery, also known as a pair off fee, in the event we fail to deliver the loan to the investor. The pair off fee is typically less than the deposit we collect from the borrower. Any potential loss from a catastrophic change in the property condition while the loan is held for sale using warehouse facility financing is mitigated through property insurance equal to replacement cost. We are also protected contractually from any failure to close by an investor. We have experienced only one failed delivery in our history and did not incur any loss.

We have risk-sharing obligations on most loans we originate under the Fannie Mae DUS program. When a Fannie Mae DUS loan is subject to full risk-sharing, we absorb losses on the first 5% of the unpaid principal balance of a loan, and above 5% we share a percentage of the loss with Fannie Mae, with our maximum loss capped at 20% of the unpaid principal balance of a loan (subject to doubling or tripling if the loan does not meet specific underwriting criteria or if the loan defaults within 12 months of its sale to Fannie Mae). We may, however, request modified risk-sharing at the time of origination, which reduces our potential risk-sharing losses from the levels described above. We regularly request modified risk-sharing based on such factors as the size of the loan, market conditions and loan pricing. We may also request modified risk-sharing on large transactions if we do not believe that we are being fully compensated for the risks of the transactions or to manage overall risk levels. Except for certain Fannie Mae DUS loans acquired in the acquisition of certain assets of Column Guaranteed LLC, in 2009, which were acquired subject to their existing Fannie Mae DUS risk-sharing levels, our current credit management policy is to cap each loan balance subject to full risk-sharing at $60 million. Accordingly, we currently elect to use modified risk-sharing for loans of more than $60 million in order to limit our maximum loss exposure on any one loan to $12 million (such exposure would occur in the event that the underlying collateral is determined to be completely without value at the time of loss).

Our servicing fees for risk-sharing loans include compensation for the risk-sharing obligations and are larger than the servicing fees we receive from Fannie Mae for loans with no risk-sharing obligations. We receive a lower servicing fee for modified risk-sharing than for full risk-sharing.

In July 2011, we launched our interim loan program offering floating-rate debt, for terms of up to two years, to experienced borrowers seeking to acquire or reposition multifamily properties that do not currently qualify for permanent financing. We closed our first loans under this program in 2012. We underwrite all loans originated through the program. During the time that they are outstanding, we assume the full risk of loss on the loans. In addition, we service and asset-manage loans originated through the program, with the ultimate goal of providing permanent financing on the properties.

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in the next sentence. Pursuant to the Purchase Agreement, the number of shares constituting the Stock Consideration is fixed at such 11.6 million shares (and the common stock price at $12.02) within a “collar” of a 30 percent upward or downward fluctuation in the volume weighted average price of the common stock within the 20 consecutive trading days immediately preceding the third trading day prior to the closing date, outside of which “collar” the number of shares constituting the Stock Consideration would be variable based on the price of the common stock. In accordance with the terms of the Purchase Agreement, CW Financial may not transfer the Stock Consideration for a period of 180 days after the closing of the Acquisition.

Basis of Presentation

The accompanying condensed consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiaries and all material intercompany transactions have been eliminated.

Critical Accounting Policies

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and other factors management believes to be reasonable. Actual results may differ from those estimates and assumptions. We believe the following critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our condensed consolidated financial statements.

Mortgage Servicing Rights and Guaranty Obligations. MSRs are recorded at fair value the day we sell a loan. We only recognize MSRs for GSE and HUD originations. Our servicing contracts with non-governmental originations are cancelable with limited notice and as a result, have a de minimis fair value. The fair value is based on the expected future net cash flows associated with the servicing rights. The expected net cash flows are discounted at a rate that reflects the credit and liquidity risk of the MSR over the estimated life of the underlying loan.

In addition to the MSR, for all Fannie Mae DUS loans with risk-sharing obligations, upon sale we record the fair value of the obligation to stand ready to perform over the term of the guaranty (non-contingent obligation), and the fair value of the expected loss from the risk-sharing obligations in the event of a borrower default (contingent obligation). In determining the fair value of the guaranty obligation, we consider the risk profile of the collateral, historical loss experience, and various market indicators. Generally, the estimated fair value of the guaranty obligation is based on the present value of the future cash flows expected to be paid under the guaranty over the life of the loan (historically three to five basis points annually), discounted using a 12-15 percent discount rate. Historically, the contingent obligation recognized has been de minimis. The estimated life and discount rate used to calculate the guaranty obligation are consistent with those used to calculate the corresponding MSR.

The MSR and associated guaranty obligation are amortized into expense over the estimated life of the loan. The MSR is amortized in proportion to, and over the period, that net servicing income is expected to be received. The guaranty obligation is amortized evenly over the same period. If a loan defaults and is not expected to become current or pays off prior to the estimated life, the unamortized MSR and guaranty obligation balances are expensed.

We carry the MSRs at the lower of amortized value or fair market value and evaluate the carrying value quarterly. We engage a third party to assist in valuing our MSRs on a semi-annual basis.

The Provision for Risk-Sharing Obligations. The amount of the provision considers our assessment of the likelihood of payment by the borrower or key principal(s), the estimated disposition value of the underlying collateral and the level of risk-sharing. Historically, initial loss recognition occurs at or before the loan becoming 60 days delinquent. We regularly monitor our risk-sharing obligations on all loans and update loss estimates as current information is received.

Overview of Current Business Environment

Thus far in 2012, U.S. multifamily market fundamentals have continued their improvement following the macroeconomic instability experienced in recent years. Occupancy rates and effective rents appear to have increased based upon increased rental market demand, both of which aid loan performance due to their importance to the cash flows of the underlying properties. Despite this improvement in some

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market fundamentals, recovery of the overall real estate market continues to be challenged by the slow recovery of the broader economy.

The passage of Dodd-Frank introduced complex, comprehensive legislation into the financial and real estate recoveries, which will have far reaching effects on the industry and its participants. While we are not a banking institution, there is uncertainty as to how, in the coming years, Dodd-Frank may affect us or our competitors. In addition, the scope, extent and timing of GSE reform continues to be uncertain. Although we cannot predict what actions Congress or other governmental agencies may take affecting the GSEs and/or HUD, we expect some regulatory change is likely. In the interim, the GSEs and HUD continue to supply a significant level of capital to the multifamily market and are expected to do so again in 2012 as commercial and multifamily debt refinancing activity is expected to increase.

Results of Operations

Following is a discussion of our results of operations for the three and six months ended June 30, 2012 and 2011. The financial results are not necessarily indicative of future results. Our business is not typically subject to seasonal trends. However, our quarterly results have fluctuated in the past and are expected to fluctuate in the future, reflecting the interest rate environment, the volume of transactions and general economic conditions. Please refer to the table below, which provides supplemental data regarding our financial performance.

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	For the three months ended June 30,						For the six months ended June 30,
(Dollars in thousands)	2012			2011			2012			2011
Origination Data:
Origination Volumes by Investor
Fannie Mae	$	610,139		$	555,263		$	878,040		$	859,088
Freddie Mac	223,291			213,025			307,808			264,431
Ginnie Mae - HUD	97,317			282,269			209,920			364,585
Other (1)	406,235			258,825			615,670			328,775
Total	$	1,336,982		$	1,309,382		$	2,011,438		$	1,816,879

Key Metrics (as a percentage of total revenues):
Personnel expenses	37		%	30		%	36		%	31		%
Other operating expenses	14		%	10		%	14		%	10		%
Total expenses	68		%	57		%	70		%	59		%
Operating margin	32		%	43		%	30		%	41		%

Key Origination Metrics (as a percentage of origination volume):
Origination related fees	1.28		%	1.17		%	1.36		%	1.25		%
Fair value of MSRs created, net	1.26		%	1.22		%	1.31		%	1.40		%
Fair value of MSRs created, net as a percentage of GSE and HUD origination volume (2)	1.81		%	1.52		%	1.89		%	1.71		%

	As of June 30,
	2012			2011
Servicing Portfolio by Type:
Fannie Mae	$	10,618,195		$	9,922,926
Freddie Mac	3,395,683			2,556,343
Ginnie Mae - HUD	1,578,227			1,073,400
Other (1)	1,970,727			1,873,235
Total	$	17,562,832		$	15,425,904

Key Servicing Metrics (end of period):
Weighted-average servicing fee rate	0.23		%	0.22		%

(1) CMBS, life insurance companies, commercial banks and interim loans. 2012 origination volume includes $16.5 million interim loan volume, which is classified as held for investment.

(2) The fair value of the expected net future cash flows associated with the servicing of the loan, net of any guaranty obligation retained, as a percentage of GSE and HUD volume reflects revenue recognized, as a percentage of loan origination volume, on those loans which the Company will record an MSR upon sale of the loan. No MSRs are recorded on “Other” originations or interim loan originations. For the three and six months ended June 30, 2012, interim loan volume was $9.5 million and $16.5 million, respectively.

Overview

Our net income was $9.3 million for the three months ended June 30, 2012, compared to $11.1 million for the three months ended June 30, 2011, a 17% decrease. For the six months ended June 30, 2012, our net income was $15.1 million, compared to $17.8 million for the same period in 2011, a 15% decrease. Our total revenues were $46.7 million for the three months ended June 30, 2012, compared to $42.4 million for the three months ended June 30, 2011, a 10% increase. The increase in revenues for the three months ended June 30, 2012, was primarily attributable to the 2% increase in origination volumes and 22% increase in servicing fees, when compared to the same period in the prior year. For the six months ended June 30, 2012, our total revenues were $81.1 million, compared to $71.4 million for the same period a year ago, a 14% increase. The increase in revenues for the six months ended June 30, 2012, was primarily attributable to the 11% increase in origination volumes and 22% increase in servicing fees, when compared to the same period in the prior year. Our total expenses were $31.6 million for the three months ended June 30, 2012, compared to $24.2 million for the three months ended June 30, 2011, a 31% increase. During the six months ended June 30, 2012, our total expenses were $56.5 million, compared to $42.3 million for the same period a year ago, a 34% increase. Increases in expenses in both the three and six months ended June 30, 2012, when compared to the same periods in

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the prior year, are primarily attributable to increases in personnel, professional fees and amortization as we grow the scale of our loan origination platform, execute on strategic initiatives and grow our servicing portfolio. Our consolidated income from operations was $15.1 million for the three months ended June 30, 2012, compared to $18.2 million for the three months ended June 30, 2011, a 17% decrease. For the six months ended June 30, 2012, our consolidated income from operations was $24.6 million, compared to $29.1 million for the same period a year ago, a 15% decrease. Our operating margins were 32% and 30% for the three and six months ended June 30, 2012, respectively, compared to 43% and 41% for the three and six months ended June 30, 2011, respectively.

Revenues

Gains From Mortgage Banking Activities. Gains from mortgage banking activities were $33.9 million for the three months ended June 30, 2012, compared to $31.3 million for the three months ended June 30, 2011, an 8% increase. For the six months ended June 30, 2012, gains from mortgage banking activities were $53.7 million, compared to $48.1 million for the same period a year ago, a 12% increase. Gains from mortgage banking activities reflect the fair value of loan origination fees, premiums or losses on the sale of loans, net of any co-broker fees (collectively, “loan origination related fees”), and the fair value of the expected net future cash flows associated with the servicing of the loan, net of any guaranty obligations retained.

Loan origination related fees were $17.1 million for the three months ended June 30, 2012, compared to $15.3 million for the three months ended June 30, 2011, an 11% increase. The increase is primarily attributable to the 2% increase in origination volume, to $1.3 billion for the three months ended June 30, 2012. Origination fees as a percentage of origination volumes were 128 basis points for the three months ended June 30, 2012, up from 117 basis points for the same period in 2011, a 9% increase. The increase in loan origination fees as a percentage of loan origination volumes is primarily attributable to increased fees and premiums across the Company’s product offerings. For the six months ended June 30, 2012, loan origination related fees were $27.4 million, compared to $22.7 million for the same period a year ago, 21% increase. These increases were primarily attributable to an 11% increase in loan origination volume, to $2.0 billion. For the six months ended June 30, 2012, origination fees as a percentage of origination volumes were 136 basis points, an increase of 9% from 125 basis points for the six months ended June 30, 2011.

The fair value of the expected net future cash flows associated with the servicing of originated loans was $16.8 million for the three months ended June 30, 2012, compared to $16.0 million for the three months ended June 30, 2011, a 6% increase. The increase was primarily attributable to the increase in loan origination volume. The fair value of the expected net future cash flows associated with the servicing of originated loans, as a percentage of origination volumes, was 126 basis points for the three months ended June 30, 2012, compared to 122 basis points for the three months ended June 30, 2011, a 3% increase. However, the fair value of the expected net future cash flows associated with the servicing of originated GSE and HUD loans, as a percentage of origination volumes, was 181 basis points for the three months ended June 30, 2012, compared to 152 basis points for the three months ended June 30, 2011, a 19% increase. For the six months ended June 30, 2012, expected net future cash flows were $26.4 million, compared to $25.4 million for the same period a year ago, a 4% increase. This increase was primarily attributable to an 11% increase in loan origination volume. The fair value of the expected net future cash flows associated with the servicing of originated loans, as a percentage of origination volumes, was 131 basis points for the six months ended June 30, 2012, compared to 140 basis points for the six months ended June 30, 2011. The fair value of the expected net future cash flows associated with the servicing of originated GSE and HUD loans, as a percentage of origination volumes, was 189 basis points for the six months ended June 30, 2012, compared to 171 basis points for the same period in 2011, an 11% increase. Due to the higher relative proportions of Other originations in the three and six months ended June 30, 2012, increases in the fair value of expected net future cash flows associated with the servicing of GSE and HUD loans, per dollar originated drove the increases in revenues recognized in the three and six months ended June 30, 2012.

Servicing Fees. Servicing fees were $9.8 million for the three months ended June 30, 2012, compared to $8.0 million for the three months ended June 30, 2011, a 22% increase. For the six months ended June 30, 2012, servicing fees were $19.2 million, compared to $15.8 million for the same period a year ago, a 22% increase. These increases in the three and six months ended June 30, 2012 were primarily attributable to a 14% increase in the size of the servicing portfolio to $17.6 billion at June 30, 2012, from $15.4 billion at June 30, 2011, coupled with an increase in the weighted-average servicing fee rate to 23 basis points at June 30, 2012 from 22 basis points at June 30, 2011, a 5% increase. The increase in the weighted average servicing fee rate is attributed to turnover within the portfolio and the resulting increase in higher servicing fee revenue loans, as a percentage of the overall portfolio.

Net Warehouse Interest Income. Net warehouse interest income was $1.1 million and $2.0 million for the three and six months ended June 30, 2012, compared to $1.1 million and $1.8 million for the three and six months ended June 30, 2011, increases of 1% and 13%, respectively. The increases in the three and six months ended June 30, 2012, were primarily attributable to both increases in origination volumes and increases in the average warehouse balance and the average number of days that loans have been held in warehouse, which have offset decreases in coupon rates on loans funded and outstanding during the warehouse period. The components of net warehouse interest income are (in thousands):

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	For the three months ended June 30,				For the six months ended June 30,
	2012		2011		2012		2011
Warehouse interest income	$	2,978	$	2,380	$	5,553	$	4,101
Warehouse interest expense	1,904		1,321		3,542		2,325
Net warehouse interest income	$	1,074	$	1,059	$	2,011	$	1,776

Escrow Earnings and Other Interest Income. Escrow earnings and other interest income was $0.5 million for the three months ended June 30, 2012, compared to $0.4 million for the three months ended June 30, 2011, a 30% increase. During the six months ended June 30, 2012, escrow earnings and other interest income was $1.1 million, compared to $0.8 million for the same period a year ago, a 38% increase. These increases were primarily attributable to an increase in the rate earned on certain escrow holdings, coupled with greater escrow balances associated with the growth in the servicing portfolio.

Other. Other income was $1.4 million for the three months ended June 30, 2012, compared to $1.6 million for the three months ended June 30, 2011, a 15% decrease. The decrease in the three months ended June 30, 2012, when compared to the same period in 2011 was primarily attributable to decreases in prepayment penalties and application fees. During the six months ended June 30, 2012, other income was $5.1 million, compared to $5.0 million for the same period a year ago, a 3% increase. The increase in the six months ended June 30, 2012, when compared to the six months ended June 30, 2011, was primarily attributable to an increase in advisory fees. In the six months ended June 30, 2012, the Company recognized a $2.5 million gain resulting from an amendment to the contract that specified the allocation of origination fees and trade premiums for the refinance of a portfolio of loans. While there was no similar transaction for the six months ended June 30, 2011, during that period a borrower entered into a purchase and sale agreement for properties which served as collateral for a credit facility, which resulted in a $2.5 million assumption fee.

Expenses

Personnel. Personnel expense was $17.4 million for the three months ended June 30, 2012, compared to $12.9 million for the three months ended June 30, 2011, a 35% increase. Personnel expense as a percentage of total revenues was 37% for the three months ended June 30, 2012, compared to 30% for the same period in 2011. For the six months ended June 30, 2012, personnel expense was $29.0 million, compared to $22.1 million for the same period a year ago, a 31% increase. These increases were primarily attributable to increases in loan origination related fees on which the resulting producer commissions are based, as well as increases in fixed compensation expense as the Company grows its loan origination platform, adding four new regional offices and 41 full time employees, since June 30, 2011.

Amortization and Depreciation. Amortization and depreciation expense was $6.7 million for the three months ended June 30, 2012, compared to $5.1 million for the three months ended June 30, 2011, a 33% increase. For the six months ended June 30, 2012, amortization and depreciation expense was $14.0 million, compared to $10.0 million for the same period a year ago, a 40% increase. These increases were primarily attributable to an increase in the mortgage servicing rights portfolio balance due to increases in the loan origination volume and capitalized mortgage servicing rights in the preceding periods. In addition, for the six months ended June 30, 2012, amortization expense included charges of $1.4 million for the write-off of mortgage servicing rights due to the prepayment of the underlying loans, the majority of which related to the prepayment of a large portfolio that was an atypical, highly negotiated transaction, for which we did not share in any associated prepayment penalties charged to the borrower. For the six months ended June 30, 2011, similar charges for prepayments and write-offs were $0.6 million.

Provision for Risk-Sharing Obligations. The provision for risk-sharing obligations was $0.8 million for the three months ended June 30, 2012, compared to $1.8 million for the three months ended June 30, 2011, a $1.0 million, or 57%, decrease. For the six months ended June 30, 2012, the provision for risk-sharing obligations was $2.0 million, compared to $2.5 million for the same period a year ago, a 21% decrease. For the three months ended June 30, 2012 and 2011, the provision for risk-sharing obligations was one and three basis point(s) of the Fannie Mae at risk portfolio balances, respectively. For the six months ended June 30, 2012 and 2011, the provision for risk-sharing obligations was two and four basis points of the Fannie Mae at risk portfolio balances, respectively. In the three and six months ended June 30, 2012, amounts recorded to the provision for risk-sharing obligations primarily related to the addition of one new loan loss estimate and refinements of loss estimates on loans with existing allowances. We regularly monitor our risk-sharing obligations on all loans and update our loss estimates as current information is received.

The 60+ day delinquency rate decreased to 0.05% of the at risk portfolio at June 30, 2012, from 0.14% of the at risk portfolio at June 30, 2011, and the allowance for risk-sharing obligations as a percentage of the specifically identified at risk balances increased to 10.24% at June 30, 2012, compared to 8.7% at June 30, 2011. There were net write-offs of $1.6 million and $3.3 million for the three and six months ended June 30, 2012, respectively. There were no net write-offs for the same period a year ago. Net write-offs represent the cash settlement of losses previously recorded to the provision. We have not been party to, or incurred any losses relating to, troubled debt restructurings within our at risk servicing portfolio.

Interest Expense on Corporate Debt. The interest expense on corporate debt was $0.2 million for the three months ended June 30,

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2012, compared to $0.2 million for the three months ended June 30, 2011, a 24% decrease. During the six months ended June 30, 2012, interest expense on corporate debt was $0.3 million, compared to $0.5 million for the same periods a year ago, a 29% decrease. These decreases were primarily attributable to a 14% decrease in the average corporate debt outstanding due to contractual principal reduction payments.

Other Operating Expenses. Other operating expenses were $6.6 million for the three months ended June 30, 2012, compared to $4.3 million for the three months ended June 30, 2011, a 55% increase. For the six months ended June 30, 2012, other operating expenses were $11.2 million, compared to $7.3 million for the same period a year ago, a 54% increase. These increases in the three and six months ended June 30, 2012 were primarily attributable to an increase in professional fees when compared to the same periods in 2011. The increase in professional fees resulted from $1.1 million of legal and advisory charges incurred to date related to the pending acquisition of CWCaptial LLC, as well as $0.5 million of recruiting fees paid in connection with the growth of our origination platform.

Income Tax Expense. Income tax expense for the three and six months ended June 30, 2012 was $5.8 million and $9.5 million, respectively. Income tax expense for the three and six months ended June 30, 2011 was $7.1 million and $11.3 million, respectively. The decreases in the three and six months ended June 30, 2012 were primarily attributable to lower net operating income compared to the same periods in 2011.

Financial Condition

Cash Flows from Operating Activities

Our cash flows from operations are generated from loan sales, servicing fees, escrow earnings, net warehouse interest income and other income, net of loan purchases and operating costs. Our cash flows from operations are impacted by the fees generated by our loan originations, the timing of loan closings and the period of time loans are held for sale in the warehouse loan facility, prior to delivery to the investor.

Cash Flow from Investing Activities

We usually lease facilities and equipment for our operations. However, when necessary and cost effective, we invest cash in property, plant and equipment.

Cash Flow from Financing Activities

We use our warehouse loan facilities and our corporate cash to fund loan closings. We believe that our current warehouse loan facilities are adequate to meet our increasing loan origination needs. Historically we have used long-term debt to fund acquisitions.

We currently have no intention to pay dividends on our common stock in the foreseeable future.

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

Our unrestricted cash balance was $46.2 million and $38.2 million as of June 30, 2012, and June 30, 2011, respectively, an $8 million increase.

Changes in cash flows from operations were driven primarily by loans acquired and sold. Such loans are held for short periods of time, generally less than 60 days, and impact cash flows presented as of a point in time. Cash used in operating activities was $140.2 million for the six months ended June 30, 2012, compared to cash used in operating activities of $158.1 million for the six months ended June 30, 2011. The decrease in cash flows used in operations in the six months ended June 30, 2012 is primarily attributable to the net use of $130.4 million for the funding of loan originations, net of sales of loans to third parties; compared to the use of $156.1 million for the funding of loan originations, net of sales to third parties in the six months ended June 30, 2011. Excluding cash provided by and used for the sale and purchase of loans, cash flows used in operations was $9.8 million in the six months ended June 30, 2012, compared to cash flows used in operations of $2.0 million for the six months ended June 30, 2011.

We invested $20.1 million and $0.6 million for the six months ended June 30, 2012, and 2011, respectively, a $19.5 million increase. The increase is primarily attributable to the investment of $16.4 million in two interim loans held for investment and the remaining increase represents investments in property, plant and equipment as the Company expands its corporate headquarters and the number of regional offices.

Cash provided by financing activities was $152.6 million for the six months ended June 30, 2012, compared to $163.6 million for the six months ended June 30, 2011. This decrease was primarily attributable to the decrease borrowings of warehouse notes payable, concurrent with the funding and subsequent sale of loan originations.

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Liquidity and Capital Resources

Uses of Liquidity, Cash and Cash Equivalents

Our cash flow requirements consist of (i) short-term liquidity necessary to fund mortgage loans, (ii) working capital to support our day-to-day operations, servicer advances consisting of principal and interest advances for Fannie Mae or HUD loans that become delinquent and advances on insurance and tax payments if the escrow funds are insufficient, and (iii) debt service payments, including liquidity necessary to meet the annual $3.6 million principal reduction requirement of our term note obligation which matures on October 31, 2015.

Fannie Mae has established benchmark standards for capital adequacy, and reserves the right to terminate the Company’s servicing authority for all or some of the portfolio, if at any time it determines that the Company’s financial condition is not adequate to support its obligation under the DUS agreement. The Company is required to maintain acceptable net worth as defined in the agreement, and the Company satisfied the requirements as of June 30, 2012. The net worth requirement is derived primarily from unpaid balances on Fannie Mae loans and the level of risk-sharing. At June 30, 2012, the net worth requirement was $52.4 million and the Company’s net worth was $203.6 million, as defined. As of June 30, 2012, we were required to maintain at least $9.6 million of liquid assets to meet our operational liquidity requirements for Fannie Mae, Freddie Mac, HUD, Ginnie Mae and our warehouse facility lenders. As of June 30, 2012, we had operational liquidity of $45.6 million.

Under our warehouse lines of credit and term note agreements, we are required to comply with various financial covenants. See “Sources of Liquidity”. As of June 30, 2012, we were in compliance with all such financial covenants.

We currently intend to retain all future earnings for the operation and expansion of our business and, therefore, do not anticipate declaring or paying cash dividends in the foreseeable future.

Historically, our cash flows from operations have been sufficient to enable us to meet our short-term liquidity needs and other funding requirements. Similarly, we believe that cash flows from operations will be sufficient for us to meet our current obligations for the next 12 months.

Restricted Cash and Pledged Securities

We also require working capital to satisfy collateral requirements for our Fannie Mae DUS risk-sharing obligations and to meet the operational liquidity requirements of Fannie Mae, Freddie Mac, HUD, Ginnie Mae and our warehouse facility lenders. Fannie Mae has increased its collateral requirements for certain loans, and Congress and other governmental authorities have also suggested that lenders will be required to retain on their balance sheet a portion of the loans that they originate, although no regulation has yet been implemented. In either scenario, we would require additional liquidity to support any future increased collateral requirements.

Restricted cash and pledged securities consist primarily of collateral for our risk-sharing obligations and good faith deposits held on behalf of borrowers between the time we enter into a loan commitment with the borrower and the investor purchases the loan. The amount of collateral required by Fannie Mae is a formulaic calculation at the loan level and considers the balance of the loan, the risk level of the loan, the age of the loan and the level of risk-sharing. As of June 30, 2012 we pledged securities of $21.1 million to collateralize our Fannie Mae DUS risk-sharing obligations, which was in excess of current requirements.

We fund any growth in our Fannie Mae required operational liquidity and collateral requirements from our working capital. Fannie Mae has recently increased its collateral requirements for certain segments of the Fannie Mae risk-sharing portfolio by approximately 25 basis points effective April 1, 2011. The incremental collateral required for existing and new loans will be funded over approximately the next three years, in accordance with Fannie Mae requirements. Based on our Fannie Mae portfolio as of June 30, 2012, the additional proposed collateral required by the end of the three year period is expected to be approximately $17.8 million. In October 2011, Fannie Mae initiated a process to reassess the adequacy of its collateral requirements on an annual basis. The Company has not received any indication as to the current status or expected outcome of the reassessment at this time.

Warehouse Facilities

To provide financing to borrowers under GSE and HUD programs, and to assist in funding interim loans, we have arranged for committed warehouse lines of credit in the amount of $535 million with certain national banks and a $250 million uncommitted facility with Fannie Mae. Consistent with industry practice, two of these facilities are revolving commitments we expect to renew annually, one is a revolving commitment we expect to renew every two years, and the last facility is provided on an uncommitted basis without a specific maturity date. Our ability to originate mortgage loans depends upon our ability to secure and maintain these types of short-term financings on acceptable terms.

We have a $150 million committed warehouse line agreement that matures on November 26, 2012. The agreement provides us with the ability to fund our Fannie Mae, Freddie Mac and HUD loans. Advances are made at 100% of the loan balance and borrowings under this line

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bear interest at the average 30-day LIBOR plus 200 basis points. As of June 30, 2012, we had $10.6 million of borrowings outstanding under this line and corresponding loans held for sale.

On March 8, 2012, we amended our $150 million committed warehouse agreement that was scheduled to mature on June 29, 2012. The agreement provides us with the ability to fund our Fannie Mae, Freddie Mac and HUD loans. The amendment extended the maturity date to February 28, 2013, increased the credit limit from $150 million to $350 million, and reduced the rate for borrowing from the average 30-day LIBOR plus 200 basis points to the average 30-day LIBOR plus 185 basis points. As of June 30, 2012, we had $246.6 million of borrowings outstanding under this line and corresponding loans held for sale.

We have a $250 million uncommitted facility with Fannie Mae under its ASAP funding program. After approval of certain loan documents, Fannie Mae will fund loans after closing and the advances are used to repay the primary warehouse line. Fannie Mae will advance 99% of the loan balance and borrowings under this program bear interest at the average 30-day LIBOR plus 115 basis points. As of June 30, 2012, we had $103.4 million of borrowings outstanding under this program. There is no expiration date for this facility.

We had an unlimited master purchase and sale agreement which expired on March 16, 2012. In anticipation of the expiration of the master purchase and sale agreement, we amended one of our committed warehouse lines as described above, and on March 16, 2012, we allowed the master purchase and sale agreement to expire.

We have a $35 million committed warehouse line agreement that matures on July 21, 2013, subject to one year extensions at the lenders’ discretion. The facility provides us with the ability to fund first mortgage loans on multifamily real estate properties for periods of up to two years, using available cash in combination with advances under the facility. All borrowings bear interest at the average 30-day LIBOR plus 250 basis points. Borrowings under the facility are full recourse to the Company. As of June 30, 2012, we had $12.4 million of borrowings outstanding under this line and two corresponding loans held for investment.

All of the notes payable, including the warehouse facilities, are senior obligations of the Company. The agreements above contain cross-default provisions, such that if a default occurs under any of our debt agreements, generally the lenders under our other debt agreements could also declare a default. As of June 30, 2012, we were in compliance with all of our warehouse line covenants.

Debt Obligations

On October 31, 2006, we entered into a $42.5 million term note agreement which was originally scheduled to mature on October 31, 2011. On May 11, 2011, the agreement was amended, extending the maturity date to October 31, 2015. Borrowings under the agreement bear interest at the average 30-day LIBOR plus 250 basis points. All of the ownership interests in our operating subsidiary are pledged as collateral for the note. The loan has annual principal reductions of $3.6 million. As of June 30, 2012, the outstanding note balance was $21.6 million.

During 2008, we purchased small amounts of subsidiary equity from certain existing employees and issued notes that are subordinated to the term note agreement. The notes bear interest at the 90-day LIBOR plus 200 basis points and will be repaid in five annual installments after the term note has been repaid. As of June 30, 2012, the aggregate outstanding balance of the notes was $0.5 million.

In connection with the Company’s pending acquisition of CWCapital LLC, the Company obtained a commitment letter, dated June 8, 2012 (the “Commitment Letter”), pursuant to which the Company’s existing term note financing could be amended or replaced to provide for an increase in the amount of borrowings thereunder to the aggregate sum of $83 million (the “Senior Term Loan Facility”), substantially all of the proceeds of which would be used for the purposes of the Acquisition.

The Commitment Letter is subject to, among other conditions (i) the negotiation, execution and delivery of definitive documentation for the Senior Term Loan Facility consistent with the Commitment Letter, and (ii) no change, occurrence or development having occurred or becoming known to the lender since March 31, 2012 that, after giving effect to the Acquisition on a pro forma basis, has had or could reasonably be expected to have a Material Adverse Effect with respect to the Company.

The terms and conditions of the Commitment Letter contemplate that the Company will agree to observe certain customary financial covenants under the Senior Term Loan Facility, including the following requirements:

· Maintenance of certain minimum tangible net worth, liquid asset (i.e., cash, cash equivalents, and self-funded mortgage loans covered by binding purchase commitments from Fannie Mae, Freddie Mac or another investor approved by the Administrative Agent in its sole discretion), and EBITDA values;

· Maintenance of a debt service coverage ratio of not less than 3:1;

· Subject to certain exceptions, (i) all mortgage loans comprised by the Company’s consolidated servicing portfolio may not be less than $20 billion at any time, and (ii) all Fannie Mae DUS mortgage loans comprised by the Company’s consolidated servicing portfolio may not be less than $10.0 billion at any time;

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· Maintenance of an LTSV ratio (i.e., the quotient, expressed as a percentage, of (i) the outstanding unpaid principal balance of the Senior Term Facility divided by (ii) the then fair market value of all servicing contracts of the Company) of no greater than 40 percent;

· Of the total unpaid principal amount of Fannie Mae DUS mortgage loans within the Company’s consolidated servicing portfolio, no more than a to-be-specified percent thereof may be 60 or more days past due or otherwise in default; and

· Maintenance of specified not-to-exceed limits on the ratio of adjusted funded debt to four-quarter EBITDA.

The Commitment Letter provides that all commitments and undertakings of Bank of America thereunder will expire on October 31, 2012, unless definitive documentation for the Senior Term Loan Facility is executed and delivered prior to such date. Additionally, the Commitment Letter provides that if, as of October 31, 2012, the Closing has not occurred but the Acquisition has not been terminated, then, upon request of the Company, the lender will, acting in good faith, consider extending the expiration date of its commitments under the Commitment Letter to no later than December 31, 2012.

The Company has agreed that, until such expiration or earlier termination of this Commitment Letter, it will not solicit or otherwise enter into any discussions in respect of, any competing senior credit facility or facilities for the Company and its subsidiaries.

Credit Quality and Allowance for Risk-Sharing Obligations

The following table sets forth certain information useful in evaluating our credit performance.

	As of and for the three months ended June 30,						As of and for the six months ended June 30,
(Dollars in thousands)	2012			2011			2012			2011
Key Credit Metrics
Unpaid principal balance:
Total servicing portfolio	$	17,562,832		$	15,425,904		$	17,562,832		$	15,425,904
Fannie Mae servicing portfolio:
Fannie Mae Full Risk	7,286,612			6,122,892			7,286,612			6,122,892
Fannie Mae Modified Risk	2,214,869			2,109,525			2,214,869			2,109,525
Fannie Mae No Risk	1,116,714			1,690,509			1,116,714			1,690,509
Total Fannie Mae	$	10,618,195		$	9,922,926		$	10,618,195		$	9,922,926

Fannie Mae at risk servicing portfolio (1)	$	8,269,204		$	7,019,060		$	8,269,204		$	7,019,060
60+ Day delinquencies, within at risk portfolio	4,008			9,535			4,008			9,535
At risk loan balances associated with allowance for risk-sharing obligations (2)	$	133,070		$	153,746		$	133,070		$	153,746

Allowance for risk-sharing obligations:
Beginning balance	$	14,522		$	11,619		$	14,917		$	10,873
Provision for risk-sharing obligations	750			1,764			1,974			2,510
Net write-offs	(1,643		)	—			(3,262		)	—
Ending balance	$	13,629		$	13,383		$	13,629		$	13,383

60+ Day delinquencies as a percentage of the at risk portfolio	0.05		%	0.14		%	0.05		%	0.14		%
Provision for risk-sharing as a percentage of the at risk portfolio	0.01		%	0.03		%	0.02		%	0.04		%
Allowance for risk-sharing as a percentage of the at risk portfolio	0.16		%	0.19		%	0.16		%	0.19		%
Net write-offs as a percentage of the at risk portfolio	0.02		%	0.00		%	0.04		%	0.00		%
Allowance for risk-sharing as a percentage of the specifically identified at risk balances	10.24		%	8.70		%	10.24		%	8.70		%

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(1) At risk servicing portfolio is defined as the balance of Fannie Mae DUS loans subject to the risk-sharing formula described below. Use of the at risk portfolio provides for comparability of the full risk-sharing and modified risk-sharing loans because the provision and allowance for risk-sharing obligations are based on the at risk balances of the associated loans. Accordingly, we have presented the key statistics as a percentage of the at risk portfolio.

For example, a $15 million loan with 50% DUS risk-sharing has the same potential risk exposure as a $7.5 million loan with full DUS risk-sharing. Accordingly, if the $15 million loan with 50% DUS risk-sharing was to default, the Company would view the overall loss as a percentage of the at risk balance, or $7.5 million, to ensure comparability between all risk-sharing obligations. To date, all of the Company’s risk-sharing obligations that we have settled have been from full risk-sharing loans.

(2) There are loans within our servicing portfolio which are greater than 60 days delinquent, for which no allowance has been recorded. We do not anticipate recognizing a loss for these loans upon settlement of our risk-sharing obligation with Fannie Mae because our estimate of the value of the underlying collateral is greater than the unpaid principal balance of the associated loan.

Fannie Mae DUS risk-sharing obligations are based on a tiered formula. The risk-sharing tiers and amount of the risk-sharing obligations we absorb under full risk-sharing are provided below. Except as described in the following paragraph, the maximum amount of risk-sharing obligations we absorb is 20% of the unpaid principal balance of the loan at the time of default.

Risk-Sharing Tier		Percentage Absorbed by Us
First 5% of unpaid principal balance		100%
Next 20% of unpaid principal balance		25%
Losses Above 25% of unpaid principal balance		10%
Maximum lender loss		20% of unpaid principal balance

Fannie Mae can double or triple our risk-sharing obligation if the loan does not meet specific underwriting criteria or if a loan defaults within 12 months of its sale to Fannie Mae. We may request modified risk-sharing at the time of origination, which reduces our potential risk-sharing obligation from the levels described above.

We use several tools to manage our risk exposure under the Fannie Mae DUS risk-sharing program. These tools include maintaining a strong underwriting and approval process, evaluating and modifying our underwriting criteria given the underlying multifamily housing market fundamentals, limiting our geographic market and borrower exposures and electing the modified risk-sharing option under the Fannie Mae DUS program.

We regularly request modified risk-sharing based on such factors as the size of the loan, market conditions and loan pricing. Our current credit management policy is to cap the loan balance subject to full risk-sharing at $60 million. Accordingly, we currently elect to use modified risk-sharing for loans of more than $60 million in order to limit our maximum loss on any loan to $12 million.

A provision for risk-sharing obligations is recorded, and the allowance for risk-sharing obligations is increased, when it is probable that we have incurred risk-sharing obligations. The provisions historically have been for Fannie Mae loans with full risk-sharing. The amount of the provision considers our assessment of the likelihood of payment by the borrower, the value of the underlying collateral and the level of risk-sharing. Historically, the loss recognition occurs at or before the loan becoming 60 days delinquent. Our estimates of value are determined considering broker opinions and other sources of market value information relevant to underlying property and collateral. Risk-sharing obligations are written off against the allowance at final settlement with Fannie Mae.

As of June 30, 2012 and 2011, $4.0 million and $9.5 million, respectively, of our Fannie Mae at risk balances were more than 60 days delinquent. For the three months ended June 30, 2012 and 2011, our provisions for risk-sharing obligations were $0.8 million and $1.8 million, respectively, or one basis point and three basis points of the Fannie Mae at risk balance, respectively.

As of June 30, 2012 and 2011, our allowance for risk-sharing obligations was $13.6 million and $13.4 million, respectively, or 16 basis points and 19 basis points of the Fannie Mae at risk balance, respectively. Our risk-sharing obligation with Fannie Mae requires, in the event of delinquency or default, that we advance principal and interest payments to Fannie Mae on behalf of the borrower. Advances made by us are used to reduce the proceeds required to settle any ultimate loss incurred. As of June 30, 2012, we have advanced $4.8 million of principal and interest payments on the loans associated with our $13.6 million allowance. Accordingly, if the $13.6 million in estimated losses is ultimately realized, the Company would be required to fund an additional $8.8 million.

We have never been required to repurchase a loan.

Off-Balance Sheet Risk

We do not have any off-balance sheet arrangements.

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New/Recent Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. ASU No. 2011-04 was issued to achieve common fair value measurement and disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU No. 2011-04 amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. The adoption of ASU No. 2011-04 expanded our disclosures regarding fair value measurements but did not have a material impact on our financial statement disclosures.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

We are not currently exposed to interest rate risk during the loan commitment, closing and delivery process. The sale or placement of each loan to an investor is negotiated prior to closing on the loan with the borrower, and the sale or placement is effectuated within 60 days of closing. The interest rate for the loan is set after we have established the interest rate with the investor.

Some of our assets and liabilities are subject to changes in interest rates. Earnings from escrows are generally based on LIBOR. A 100 basis point increase or decrease in the average 30-day LIBOR would increase or decrease, respectively, our annual earnings by approximately $2.6 million based on our escrow balance as of June 30, 2012. The borrowing cost of our warehouse facilities are based on LIBOR. A 100 basis point increase or decrease in the average 30-day LIBOR would decrease or increase, respectively, our annual net warehouse interest income by approximately $3.7 million based on our outstanding warehouse balance as of June 30, 2012. Approximately $21.6 million of our corporate debt is based on the average 30-day LIBOR. A 100 basis point increase or decrease in the average 30-day LIBOR would decrease or increase, respectively, our annual earnings by approximately $0.2 million based on our outstanding corporate debt as of June 30, 2012. Our loans held for investment and associated warehouse borrowings are based on LIBOR, and reset at the same intervals. As a result, any increase or decrease in the average 30-day LIBOR would have an equal and offsetting impact on our interim loan interest income and expense, and no impact on our annual earnings.

The fair value of our MSRs is subject to market risk. A 100 basis point increase or decrease in the weighted average discount rate would decrease or increase, respectively, the fair value of our MSRs by approximately $5.3 million or $5.7 million, respectively, as of June 30, 2012. Our Fannie Mae and Freddie Mac servicing engagements generally provide for prepayment penalties, which we share in, in the event of a voluntary prepayment prior to the expiration of the prepayment protection period. In our servicing contracts with institutional investors and HUD, we do not share in the prepayment penalties. As of June 30, 2012, 91% of the service fees are protected from the risk of prepayment through our sharing in contractual prepayment penalties; hence, we do not hedge our servicing portfolio for prepayment risk.

Item 4. Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. There have been no changes in our internal controls over financial reporting in the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes in legal proceedings affecting us and our subsidiaries, except as described below. The discussion of our business and operations should be read together with the legal proceedings contained in Part I, Item 3 “Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2011.

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Capital Funding Litigation—Previously, after the initial case was dismissed without prejudice, Capital Funding filed an amended complaint. In November 2011, the Circuit Court of Montgomery County rejected our motion to dismiss the amended complaint. In the second quarter of 2012, the parties agreed to postpone the commencement of a trial that was scheduled to begin July 9, 2012, and are in settlement discussions.

As a result of the indemnification listed above, the Company’s loss exposure is limited to $3.0 million.

In the normal course of business, the Company may be party to various claims and litigation.

Item 1A. Risk Factors

The Company has included in Part I, Item 1A of its Annual Report on Form 10-K for the year ended December 31, 2011, a description of certain risks and uncertainties that could affect the Company’s business, future performance or financial condition (the “Risk Factors”). Except as discussed below, there are no material changes from the disclosure provided in the Form 10-K for the year ended December 31, 2011 with respect to the Risk Factors. Investors should consider the Risk Factors prior to making an investment decision with respect to the Company’s stock.

On June 7, 2012, the Company entered into an agreement to acquire (the “Acquisition”) CWCapital LLC, (“CWCapital”), a direct wholly owned subsidiary of CW Financial Services LLC (“CW Financial” or “Seller”) pursuant to a Purchase Agreement (the “Purchase Agreement”), dated June 7, 2012, by and among Walker & Dunlop, Inc. (as “Parent”), Walker & Dunlop, LLC (as “Purchaser”), CW Financial, and CWCaptial. The risk factors related to the Acquisition present risks directly related to the Acquisition and the integration of the two companies. We have also included risks associated with each of the businesses of Walker & Dunlop and CWCapital because these risks will also affect the combined company. The risks and uncertainties described below, and in the definitive proxy materials filed with the SEC on July 26, 2012 (the “Proxy Statement”) are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations

The market price of our common stock may decline as a result of the Acquisition or the issuance of shares of our common stock.

We could encounter transaction and integration-related costs, may fail to realize all of the benefits anticipated in the Acquisition or be subject to other factors that affect preliminary estimates. Any of these factors could cause a decrease in our adjusted earnings per share or decrease or delay the expected accretive effect of the Acquisition and contribute to a decrease in the price of our common Stock.

In addition, we are unable to predict the potential effects of the issuance of shares of our common stock in connection with the Acquisition on the trading activity and market price of our common stock. We have granted registration rights to CW Financial for the resale of the shares of our common stock issued in connection with the Acquisition. These registration rights would facilitate the resale of such securities into the public market, and any such resale would increase the number of shares of our Common Stock available for public trading. Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock.

The Acquisition will result in changes to our Board and management that may affect the strategy and operations of the Company.

If we complete the Acquisition, the composition of our Board and management team will change. Following the completion of the Acquisition, our Board will increase from eight to eleven directors and two of the three new directors will be designated for appointment by CW Financial. This new composition of our Board may affect our business strategy and operating decisions following completion of the Acquisition. In addition, there can be no assurances that the new Board will function effectively as a team and that there will not be any adverse effects on our business as a result.

The Acquisition is subject to a number of conditions, including the receipt of consents and clearances from domestic regulatory and quasi-governmental authorities that may not be obtained, may not be completed on a timely basis or may impose conditions that could have an adverse effect on us.

Completion of the Acquisition is conditioned upon, among other matters, the receipt of certain governmental and quasi-governmental authorizations, consents, orders, clearances or other approvals, including consents from Fannie Mae, Freddie Mac, Ginnie Mae, HUD and the Federal Housing Administration of HUD, and such other consents, approvals and clearances necessary to permit all parties to perform their obligations under the Purchase Agreement and complete the Acquisition. There can be no assurance that regulators will not

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impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying completion of the Acquisition or imposing additional material costs on, or materially reducing the revenues of, our operations following the Acquisition. In addition, such conditions, terms, obligations or restrictions may result in the delay or abandonment of the Acquisition.

Failure to complete the Acquisition could negatively impact our business, financial condition, results of operations or stock prices.

Completion of the Acquisition is conditioned upon the satisfaction of certain closing conditions, including the approval of the stock issuance by our stockholders, as set forth in the Purchase Agreement. The required conditions to closing may not be satisfied in a timely manner, if at all, or, if permissible, waived. If the Acquisition is not consummated for these or any other reasons, our ongoing business may be adversely affected and the market price of our common stock may decline to the extent that the current market price reflects a market assumption that the Acquisition will be completed.

Current stockholders will have reduced ownership and voting interests after the Acquisition.

We will issue 11,647,255 shares of our common stock (which represents approximately 34 percent of the Company on a fully diluted basis), subject to adjustment as described within the Proxy Statement under “The Purchase Agreement”. As a result, the percentage ownership of Walker & Dunlop held by each of our current stockholders will be smaller than such stockholder’s percentage ownership of Walker & Dunlop prior to the Acquisition. Our current stockholders will, therefore, have proportionately less ownership and voting interests in Walker & Dunlop following the Acquisition than they have now.

Our future results following the Acquisition may differ materially from the unaudited pro forma financial information included in the Proxy Statement.

The unaudited pro forma combined financial information contained in the Proxy Statement is presented for purposes of presenting our historical consolidated financial statements with CWCapital’s historical financial statements as adjusted to give effect to the contemplated Acquisition and is not necessarily indicative of the financial condition or results of operations of the combined company following the Acquisition. The unaudited pro forma financial information reflects adjustments, which are based upon preliminary estimates, to allocate the purchase price to CWCapital’s acquired assets and liabilities. The purchase price allocation reflected in the Proxy Statement is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of CWCapital as of the date of the completion of the Acquisition. In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect our financial condition and results of operations following the Acquisition. Any change in our financial condition or results of operations may cause significant variations in the price of our Common Stock. See the section of the Proxy Statement entitled “Unaudited Pro Forma Combined Financial Information” for more information.

The Acquisition may result in a loss of customers, clients and strategic alliances.

Prior to the Acquisition, some of the loan originators, customers, clients and strategic partners of CWCapital may terminate their business relationships with CWCapital because of uncertainty regarding the pending Acquisition. As a result of the Acquisition, some of the loan originators, customers, clients, potential customers or clients or strategic partners of Walker & Dunlop and CWCapital may terminate their business relationships with Walker & Dunlop following the Acquisition. Furthermore, potential clients or strategic partners may delay entering into, or decide not to enter into, a business relationship with us because of the Acquisition. If customer or client relationships or strategic alliances are adversely affected by the Acquisition, our business and financial performance following the Acquisition would suffer.

We depend on the recruitment and retention of qualified personnel, and failure to retain and attract such personnel could seriously harm our business.

Our continued successful performance following the Acquisition will require our business and the business of CWCapital to retain, attract and motivate skilled mortgage loan origination personnel. In light of the specialized skills of these professionals and the competitive market for their services, we cannot assure you that we will be successful at retaining, attracting and motivating qualified and high-performing, experienced mortgage loan origination professionals for those businesses. The success of our efforts in those respects may impact our ability to execute our business strategy and our future results of operations and financial condition following the Acquisition.

We may be unable to integrate CWCapital’s business with our own successfully.

Following the Acquisition, we and the Purchaser will be required to devote significant management attention and resources to integrating CWCapital’s business practices and operations with our own. Potential difficulties we may encounter as part of the integration process include the following:

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· challenges of effectively implementing and integrating our credit standards, which we believe are material contributors to our success, with respect to the business and operations of CWCapital;

· the potential inability to successfully transition, maintain and develop CWCapital’s mortgage loan origination and servicing portfolio;

· complexities associated with managing the acquired business of CWCapital with our existing business, including difficulty addressing possible differences in corporate cultures and management philosophies and the challenge of integrating complex systems, technology, networks and other assets of each of the companies in a manner that minimizes any adverse impact on customers, employees and other constituencies; and

· potential unknown liabilities and unforeseen increased expenses or delays associated with the Acquisition.

In addition, it is possible that the integration process could result in diversion of the attention of our management which could adversely affect our ability to achieve the anticipated benefits of the Acquisition.

We may fail to uncover all liabilities of CWCapital through the due diligence process prior to the Acquisition, exposing us to potentially large, unanticipated costs.

Prior to completing the Acquisition, we expect to perform certain due diligence reviews of the business of CWCapital. In view of timing and other considerations relevant to our successfully achieving the closing of the Acquisition, our due diligence reviews will necessarily be limited in nature and may not adequately uncover all of the contingent or undisclosed liabilities we may incur as a consequence of the Acquisition. Any such liabilities could cause us to experience potentially significant losses, which could materially adversely affect our business, results of operations and financial condition.

In the event of the occurrence of certain material adverse events prior to the closing of the Acquisition with respect to CWCapital, we may nevertheless be required to close the Acquisition, which could have a material adverse effect on us.

The occurrence of the closing of the Acquisition is subject to a number of closing conditions, including that there shall not have occurred any “material adverse effect” (as specifically defined in the Purchase Agreement) on CWCapital, taken as a whole, after the date of the Purchase Agreement and continuing on the closing date. Prior to the closing of the Acquisition, events might occur that materially and adversely affect CWCapital, but that do not constitute a “material adverse effect” within the meaning of such Purchase Agreement closing conditions. If any such events were to occur, we would (without more) nevertheless be required under the Purchase Agreement to proceed with the closing of the Acquisition. Our completing the Acquisition under such circumstances could have a material adverse affect on our business, results of operations and financial condition.

We will incur substantial additional indebtedness in connection with the Acquisition.

In connection with the Acquisition, pursuant to the Commitment Letter, we expect to enter into the financing providing for up to $83 million in additional indebtedness under our Senior Term Loan Facility. As a result, following the Acquisition, we will have indebtedness that is substantially greater than our indebtedness prior to the Acquisition. This higher level of indebtedness may:

· require us to dedicate a greater percentage of our cash flow from operations to payments on our debt, thereby reducing the availability of cash flow to fund capital expenditures, pursue other acquisitions or investments in new technologies, make stock repurchases, pay dividends and use for general corporate purposes;

· increase our vulnerability to general adverse economic conditions, including increases in interest rates if the borrowings bear interest at variable rates or if such indebtedness is refinanced at a time when interest rates are higher; and

· limit our flexibility in planning for, or reacting to, changes in or challenges relating to our business and industry, creating competitive disadvantages compared to other competitors with lower debt levels and borrowing costs.

We cannot assure you that cash flow from operations, combined with any additional borrowings available to us, will be obtainable in an amount sufficient to enable us to repay our indebtedness, or to fund other liquidity needs. We may incur substantial additional indebtedness in the future, which could cause the related risks to intensify. We may need to refinance all or a portion of our indebtedness on or before their respective maturities. We cannot assure you that we will be able to refinance any of our indebtedness, including under our Senior Term Loan Facility, on commercially reasonable terms or at all. If we are unable to refinance our debt, we may default under the terms of our indebtedness, which could lead to an acceleration of the debt. We do not expect that we could repay all of our outstanding indebtedness if the repayment of such indebtedness were to be accelerated.

Additional risk and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition or results.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits:

2.1		Contribution Agreement, dated as of October 29, 2010, by and among Mallory Walker, Howard W. Smith, William M. Walker, Taylor Walker, Richard C. Warner, Donna Mighty, Michael Yavinsky, Edward B. Hermes, Deborah A. Wilson and Walker & Dunlop, Inc. (incorporated by reference to Exhibit 2.1 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (File No. 333-168535) filed on December 1, 2010)
2.2		Contribution Agreement, dated as of October 29, 2010, between Column Guaranteed LLC and Walker & Dunlop, Inc. (incorporated by reference to Exhibit 2.2 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (File No. 333-168535) filed on December 1, 2010)
2.3		Amendment No. 1 to Contribution Agreement, dated as of December 13, 2010, by and between Walker & Dunlop, Inc. and Column Guaranteed LLC. (incorporated by reference to Exhibit 2.3 to Amendment No. 6 to the Company’s Registration Statement on Form S-1 (File No. 333-168535) filed on December 13, 2010)
2.4		Purchase Agreement, dated June 7, 2012, by and among Walker & Dunlop, Inc., Walker & Dunlop, LLC, CW Financial Services LLC and CWCapital LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 15, 2012)
3.1		Articles of Amendment and Restatement of Walker & Dunlop, Inc. (incorporated by reference to Exhibit 3.1 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (File No. 333-168535) filed on December 1, 2010)
3.2		Amended and Restated Bylaws of Walker & Dunlop, Inc. (incorporated by reference to Exhibit 3.2 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (File No. 333-168535) filed on December 1, 2010)
4.1		Specimen Common Stock Certificate of Walker & Dunlop, Inc. (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-168535) filed on September 30, 2010)
4.2		Registration Rights Agreement, dated December 20, 2010, by and among Walker & Dunlop, Inc. and Mallory Walker, Taylor Walker, William M. Walker, Howard W. Smith, III, Richard C. Warner, Donna Mighty, Michael Yavinsky, Ted Hermes, Deborah A. Wilson and Column Guaranteed LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 20, 2010)
4.3	*	Piggy Back Registration Rights Agreement, dated June 7, 2012, by and among Column Guaranteed, LLC, William M. Walker, Mallory Walker, Howard W. Smith, III, Deborah A. Wilson, Richard C. Warner, CW Financial Services LLC and Walker & Dunlop, Inc.
4.4		Stockholders Agreement, dated December 20, 2010, by and among William M. Walker, Mallory Walker, Column Guaranteed LLC and Walker & Dunlop, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 20, 2010)
4.5		Voting Agreement, dated as of June 7, 2012, by and among Walker & Dunlop, Inc., Mallory Walker, William M. Walker, Richard Warner, Deborah Wilson, Richard M. Lucas, and Howard W. Smith, III, and CW Financial Services LLC (incorporated by reference to Annex C of the Company’s proxy statement filed on July 26, 2012)
4.6		Voting Agreement, dated as of June 7, 2012, by and among Walker & Dunlop, Inc., Walker & Dunlop, LLC, Column Guaranteed, LLC and CW Financial Services LLC (incorporated by reference to Annex D of the Company’s proxy statement filed on July 26, 2012)
31.1	*	Certification of Walker & Dunlop, Inc.’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	*	Certification of Walker & Dunlop, Inc.’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	*	Certification of Walker & Dunlop, Inc.’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.1	#	XBRL Instance Document
101.2	#	XBRL Taxonomy Extension Schema Document
101.3	#	XBRL Taxonomy Extension Calculation Linkbase Document
101.4	#	XBRL Taxonomy Extension Definition Linkbase Document
101.5	#	XBRL Taxonomy Extension Label Linkbase Document
101.6	#	XBRL Taxonomy Extension Presentation Linkbase Document

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*: Filed herewith.

#: Furnished, not filed.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 9, 2012	By:	/s/ William M. Walker
		William M. Walker
		Chairman, President and Chief Executive Officer


	By:	/s/ Deborah A. Wilson
		Deborah A. Wilson
		Executive Vice President, Chief Financial Officer and Treasurer

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Exhibit Index

Exhibit
Number		Description

2.1		Contribution Agreement, dated as of October 29, 2010, by and among Mallory Walker, Howard W. Smith, William M. Walker, Taylor Walker, Richard C. Warner, Donna Mighty, Michael Yavinsky, Edward B. Hermes, Deborah A. Wilson and Walker & Dunlop, Inc. (incorporated by reference to Exhibit 2.1 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (File No. 333-168535) filed on December 1, 2010)
2.2		Contribution Agreement, dated as of October 29, 2010, between Column Guaranteed LLC and Walker & Dunlop, Inc. (incorporated by reference to Exhibit 2.2 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (File No. 333-168535) filed on December 1, 2010)
2.3		Amendment No. 1 to Contribution Agreement, dated as of December 13, 2010, by and between Walker & Dunlop, Inc. and Column Guaranteed LLC. (incorporated by reference to Exhibit 2.3 to Amendment No. 6 to the Company’s Registration Statement on Form S-1 (File No. 333-168535) filed on December 13, 2010)
2.4		Purchase Agreement, dated June 7, 2012, by and among Walker & Dunlop, Inc., Walker & Dunlop, LLC, CW Financial Services LLC and CWCapital LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 15, 2012)
3.1		Articles of Amendment and Restatement of Walker & Dunlop, Inc. (incorporated by reference to Exhibit 3.1 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (File No. 333-168535) filed on December 1, 2010)
3.2		Amended and Restated Bylaws of Walker & Dunlop, Inc. (incorporated by reference to Exhibit 3.2 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (File No. 333-168535) filed on December 1, 2010)
4.1		Specimen Common Stock Certificate of Walker & Dunlop, Inc. (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-168535) filed on September 30, 2010)
4.2		Registration Rights Agreement, dated December 20, 2010, by and among Walker & Dunlop, Inc. and Mallory Walker, Taylor Walker, William M. Walker, Howard W. Smith, III, Richard C. Warner, Donna Mighty, Michael Yavinsky, Ted Hermes, Deborah A. Wilson and Column Guaranteed LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 20, 2010)
4.3	*	Piggy Back Registration Rights Agreement, dated June 7, 2012, by and among Column Guaranteed, LLC, William M. Walker, Mallory Walker, Howard W. Smith, III, Deborah A. Wilson, Richard C. Warner, CW Financial Services LLC and Walker & Dunlop, Inc.
4.4		Stockholders Agreement, dated December 20, 2010, by and among William M. Walker, Mallory Walker, Column Guaranteed LLC and Walker & Dunlop, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 20, 2010)
4.5		Voting Agreement, dated as of June 7, 2012, by and among Walker & Dunlop, Inc., Mallory Walker, William M. Walker, Richard Warner, Deborah Wilson, Richard M. Lucas, and Howard W. Smith, III, and CW Financial Services LLC (incorporated by reference to Annex C of the Company’s proxy statement filed on July 26, 2012)
4.6		Voting Agreement, dated as of June 7, 2012, by and among Walker & Dunlop, Inc., Walker & Dunlop, LLC, Column Guaranteed, LLC and CW Financial Services LLC (incorporated by reference to Annex D of the Company’s proxy statement filed on July 26, 2012)
31.1	*	Certification of Walker & Dunlop, Inc.’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	*	Certification of Walker & Dunlop, Inc.’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	*	Certification of Walker & Dunlop, Inc.’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.1	#	XBRL Instance Document
101.2	#	XBRL Taxonomy Extension Schema Document
101.3	#	XBRL Taxonomy Extension Calculation Linkbase Document
101.4	#	XBRL Taxonomy Extension Definition Linkbase Document
101.5	#	XBRL Taxonomy Extension Label Linkbase Document
101.6	#	XBRL Taxonomy Extension Presentation Linkbase Document

*: Filed herewith.

#: Furnished, not filed.