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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
Fair value measurements | 13. Fair Value Measurements Fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a three-tiered fair value hierarchy has been established based on the level of observable inputs used in the measurement of fair value (e.g., Level 1 representing quoted prices for identical assets or liabilities in an active market; Level 2 representing values using observable inputs other than quoted prices included within Level 1; and Level 3 representing estimated values based on significant unobservable inputs). There have been no significant changes to the valuation techniques and inputs used by the Company in estimating fair values of Level 2 and Level 3 assets and liabilities as disclosed in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2019, with the exception of the following: Derivative Financial Instruments (Level 2 and Level 3) – During the three months ended June 30, 2020, the Company changed the fair value classification of its IRLCs and LPCs derivatives from Level 2 to Level 3. IRLCs and LPCs are carried at fair value primarily based on secondary market prices for underlying mortgage loans, which is observable data, with adjustments made to such observable data for the inherent value of servicing, which is an unobservable input. The fair value is also subject to adjustments for the estimated pull-through rate. The impact of the unobservable input to the overall valuation of IRLCs and LPCs was previously much less significant, resulting in a classification of Level 2 in the fair value hierarchy as of December 31, 2019. During the three months ended June 30,2020, market interest rates continued to decline and fell to record lows, which drove an increase in the volume of the Company’s IRLCs and LPCs and increased the impact of the unobservable input on the overall valuation of IRLCs and LPCs. Such increased impact of the unobservable input on the overall valuation resulted in a classification of Level 3 in the fair value hierarchy as of June 30, 2020. For other derivatives, they are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract; therefore, the Company classifies these contracts as Level 2 in the fair value disclosure. Derivative financial instruments are recorded in other assets and payables and other liabilities within the consolidated balance sheets. See Note 8, Derivative Financial Instruments, for more information. The following tables present the estimated carrying amount and fair value of the Company’s financial instruments and other assets and liabilities measured at fair value on a recurring basis:
| September 30, 2020
|  |  | Recurring Fair Value Measurements
Fair value - Recurring basis | Total Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |
Mortgage loans held for sale | $ | 3,817 |  |  | $ | — |  |  | $ | 3,817 |  |  | $ | — |
Forward mortgage servicing rights | 2,663 |  |  | — |  |  | — |  |  | 2,663 |
Derivative financial instruments |  |  |  |  |  |  |
IRLCs | 414 |  |  | — |  |  | — |  |  | 414 |
Forward MBS trades | 23 |  |  | — |  |  | 23 |  |  | — |
LPCs | 38 |  |  | — |  |  | — |  |  | 38 |
Liabilities |  |  |  |  |  |  |
Derivative financial instruments |  |  |  |  |  |  |
Forward MBS trades | $ | 42 |  |  | $ | — |  |  | $ | 42 |  |  | $ | — |
LPCs | 2 |  |  | — |  |  | — |  |  | 2 |
Mortgage servicing rights financing | 47 |  |  | — |  |  | — |  |  | 47 |
Excess spread financing | 1,044 |  |  | — |  |  | — |  |  | 1,044 |
| December 31, 2019
|  |  | Recurring Fair Value Measurements
Fair value - Recurring basis | Total Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |
Mortgage loans held for sale | $ | 4,077 |  |  | $ | — |  |  | $ | 4,077 |  |  | $ | — |
Forward mortgage servicing rights | 3,496 |  |  | — |  |  | — |  |  | 3,496 |
Derivative financial instruments |  |  |  |  |  |  |
IRLCs | 135 |  |  | — |  |  | 135 |  |  | — |
Forward MBS trades | 7 |  |  | — |  |  | 7 |  |  | — |
LPCs | 12 |  |  | — |  |  | 12 |  |  | — |
Liabilities |  |  |  |  |  |  |
Derivative financial instruments |  |  |  |  |  |  |
Forward MBS trades | $ | 12 |  |  | $ | — |  |  | $ | 12 |  |  | $ | — |
LPCs | 3 |  |  | — |  |  | 3 |  |  | — |
Mortgage servicing rights financing | 37 |  |  | — |  |  | — |  |  | 37 |
Excess spread financing | 1,311 |  |  | — |  |  | — |  |  | 1,311 |
The tables below present a reconciliation for all of the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis:
| Nine Months Ended September 30, 2020
| Assets |  | Liabilities
Fair value - Level 3 assets and liabilities | Forward mortgage servicing rights |  | IRLCs |  | LPCs |  | Excess spread financing |  | Mortgage servicing rights financing
Balance - beginning of period | $ | 3,496 |  |  | $ | 135 |  |  | $ | 12 |  |  | $ | 1,311 |  |  | $ | 37 |
Total gains or losses included in earnings | (1,275) |  |  | 279 |  |  | 26 |  |  | (132) |  |  | 10 |
Purchases, issuances, sales, repayments and settlements |  |  |  |  |  |  |  |  |
Purchases | 30 |  |  | — |  |  | — |  |  | — |  |  | — |
Issuances | 412 |  |  | — |  |  | — |  |  | 24 |  |  | — |
Settlements and repayments | — |  |  | — |  |  | — |  |  | (159) |  |  | — |
Balance - end of period | $ | 2,663 |  |  | $ | 414 |  |  | $ | 38 |  |  | $ | 1,044 |  |  | $ | 47 |
| Nine Months Ended September 30, 2019
| Assets |  | Liabilities
Fair value - Level 3 assets and liabilities | Forward mortgage servicing rights |  | Mortgage loans held for investment |  | Excess spread financing |  | Mortgage servicing rights financing
Balance - beginning of period | $ | 3,665 |  |  | $ | 119 |  |  | $ | 1,184 |  |  | $ | 32 |
Total gains or losses included in earnings | (1,039) |  |  | 3 |  |  | (190) |  |  | 15 |
Payments received from borrowers | — |  |  | (11) |  |  | — |  |  | — |
Purchases, issuances, sales, repayments and settlements |  |  |  |  |  |  |
Purchases | 732 |  |  | — |  |  | 469 |  |  | — |
Issuances | 298 |  |  | — |  |  | — |  |  | — |
Sales | (317) |  |  | (94) |  |  | — |  |  | — |
Settlements and repayments | — |  |  | — |  |  | (182) |  |  | — |
Transfers to mortgage loans held for sale | — |  |  | (12) |  |  | — |  |  | — |
Transfers to real estate owned | — |  |  | (5) |  |  | — |  |  | — |
Balance - end of period | $ | 3,339 |  |  | $ | — |  |  | $ | 1,281 |  |  | $ | 47 |
The Company had LPCs liabilities of $2 and $3 as of September 30, 2020 and December 31, 2019, respectively. During the nine months ended September 30, 2020, the Company had an immaterial change in LPCs liabilities. No transfers were made in or out of Level 3 fair value assets and liabilities for the Company during the nine months ended September 30, 2020, with the exception of the change in classification for IRLCs and LPCs from Level 2 fair value assets to Level 3 fair value assets as discussed above. No transfers were made into Level 3 fair value assets and liabilities for the Company during the nine months ended September 30, 2019. During the nine months ended September 30, 2019, $12 was transferred from mortgage loans held for investment, a Level 3 fair value asset, to mortgage loans held for sale, a Level 2 fair value asset, in connection with the collapse of Trust 2009-A, the Company’s legacy portfolio, and sale of the loans held in the trust. The tables below present the quantitative information for significant unobservable inputs used in the fair value measurement of Level 3 assets and liabilities:
| September 30, 2020
| Range |  | Weighted Average
Level 3 inputs | Min |  | Max |
Forward MSR |  |  |  |  |
Discount rate | 8.3 | % |  | 12.0 | % |  | 9.5 | %
Prepayment speed | 12.6 | % |  | 19.2 | % |  | 14.4 | %
Cost to service per loan(1) | $ | 68 |  |  | $ | 295 |  |  | $ | 105 |
IRLCs |  |  |  |  |
Value of servicing (basis points per loan) | (0.4) |  |  | 2.1 |  |  | 1.2 |
Excess spread financing |  |  |  |  |
Discount rate | 9.8 | % |  | 15.5 | % |  | 11.9 | %
Prepayment speed | 13.4 | % |  | 14.0 | % |  | 13.6 | %
Recapture rate | 17.1 | % |  | 23.5 | % |  | 19.1 | %
Average life | 5.2 years |  | 5.5 years |  | 5.3 years
Mortgage servicing rights financing |  |  |  |  |
Advance financing and counterparty fee rates | 6.4 | % |  | 9.4 | % |  | 8.2 | %
Annual advance recovery rates | 18.6 | % |  | 22.6 | % |  | 20.2 | %
(1)Presented in whole dollar amounts. The tables below present a summary of the estimated carrying amount and fair value of the Company’s financial instruments not carried at fair value:
| September 30, 2020
| Carrying Amount |  | Fair Value
Financial instruments | Level 1 |  | Level 2 |  | Level 3
Financial assets |  |  |  |  |  |  |
Cash and cash equivalents | $ | 946 |  |  | $ | 946 |  |  | $ | — |  |  | $ | — |
Restricted cash | 229 |  |  | 229 |  |  | — |  |  | — |
Advances and other receivables, net | 745 |  |  | — |  |  | — |  |  | 745 |
Reverse mortgage interests, net | 5,460 |  |  | — |  |  | — |  |  | 5,574 |
Financial liabilities |  |  |  |  |  |  |
Unsecured senior notes(1) | 2,167 |  |  | 2,237 |  |  | — |  |  | — |
Advance and warehouse facilities(1) | 4,851 |  |  | — |  |  | 4,851 |  |  | — |
Participating interest financing(1) | 3,676 |  |  | — |  |  | — |  |  | 3,679 |
HECM Securitization (HMBS)(1) |  |  |  |  |  |  |
Trust 2020-1 | 513 |  |  | — |  |  | — |  |  | 513 |
Trust 2019-2 | 257 |  |  | — |  |  | — |  |  | 257 |
Trust 2019-1 | 225 |  |  | — |  |  | — |  |  | 225 |
(1)The amounts are presented net of unamortized debt issuance costs, premium and discount.
| December 31, 2019
| Carrying Amount |  | Fair Value
Financial instruments | Level 1 |  | Level 2 |  | Level 3
Financial assets |  |  |  |  |  |  |
Cash and cash equivalents | $ | 329 |  |  | $ | 329 |  |  | $ | — |  |  | $ | — |
Restricted cash | 283 |  |  | 283 |  |  | — |  |  | — |
Advances and other receivables, net | 988 |  |  | — |  |  | — |  |  | 988 |
Reverse mortgage interests, net | 6,279 |  |  | — |  |  | — |  |  | 6,318 |
Financial liabilities |  |  |  |  |  |  |
Unsecured senior notes(1) | 2,366 |  |  | 2,505 |  |  | — |  |  | — |
Advance and warehouse facilities(1) | 4,997 |  |  | — |  |  | 4,997 |  |  | — |
Participating interest financing(1) | 4,299 |  |  | — |  |  | — |  |  | 4,299 |
HECM Securitization (HMBS)(1) |  |  |  |  |  |  |
Trust 2019-2 | 331 |  |  | — |  |  | — |  |  | 331 |
Trust 2019-1 | 300 |  |  | — |  |  | — |  |  | 300 |
Trust 2018-3 | 208 |  |  | — |  |  | — |  |  | 208 |
Trust 2018-2 | 148 |  |  | — |  |  | — |  |  | 148 |
(1)The amounts are presented net of unamortized debt issuance costs, premium and discount.

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- References No definition available. + Details
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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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