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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2023
Fair Value Disclosures [Abstract] |
Fair Value Measurements | 14. 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, 2022, with the exception of the following: Mortgage Servicing Rights – Fair Value (Level 3) – The Company estimates the fair value of its MSRs on a recurring basis using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. Beginning in the second quarter of 2023, the Company valued MSRs using a stochastic option adjusted spread (OAS) instead of a static discount rate. OAS is the incremental spread added to the risk-free rate to reflect embedded (prepayment) optionality and other risk inherent in the MSRs to discount cash flows. The cash flow assumptions used in the discounted cash flow model incorporate prepayment speeds, OAS, costs to service, delinquencies, ancillary revenues, recapture rates and other assumptions, with the key assumptions being mortgage prepayment speeds, OAS, and cost to service. The cash flow assumptions are generated and applied based on collateral stratifications including product type, remittance type, geography, delinquency and coupon dispersion. These assumptions require the use of judgment by the Company and can have a significant impact on the fair value of the MSRs. Quarterly, management obtains third-party valuations to assess the reasonableness of the fair value calculations provided by the internal cash flow model. Because of the nature of the valuation inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 4, Mortgage Servicing Rights and Related Liabilities, for more information. Excess Spread Financing (Level 3) – The Company estimates fair value on a recurring basis based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. Beginning in the second quarter of 2023, the Company valued excess spread financing using a stochastic OAS instead of a static discount rate. The cash flow assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds and OAS. Quarterly, management obtains a third-party valuation to assess the reasonableness of the fair value calculations provided by the internal cash flow model. As these prices are derived from a combination of internally developed valuation models and quoted market prices based on the value of the underlying MSRs, the Company classifies these valuations as Level 3 in the fair value disclosures. Excess spread financing is recorded in MSR related liabilities within the condensed consolidated balance sheets. 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, 2023
|  |  | Recurring Fair Value Measurements
Fair Value - Recurring Basis | Total Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |
Mortgage loans held for sale | $ | 893 |  |  | $ | — |  |  | $ | 792 |  |  | $ | 101 |
Mortgage servicing rights | 8,504 |  |  | — |  |  | — |  |  | 8,504 |
Equity investments | 9 |  |  | 1 |  |  | — |  |  | 8 |
Derivative financial instruments |  |  |  |  |  |  |
IRLCs | 22 |  |  | — |  |  | — |  |  | 22 |
LPCs | 1 |  |  | — |  |  | — |  |  | 1 |
Forward MBS trades | 13 |  |  | — |  |  | 13 |  |  | — |
Liabilities |  |  |  |  |  |  |
Derivative financial instruments |  |  |  |  |  |  |
LPCs | 2 |  |  | — |  |  | — |  |  | 2 |
Forward MBS trades | 28 |  |  | — |  |  | 28 |  |  | — |
Treasury futures | 65 |  |  | — |  |  | 65 |  |  | — |
Mortgage servicing rights financing | 21 |  |  | — |  |  | — |  |  | 21 |
Excess spread financing | 446 |  |  | — |  |  | — |  |  | 446 |
| December 31, 2022 |
|  |  | Recurring Fair Value Measurements |
Fair Value - Recurring Basis | Total Fair Value |  | Level 1 |  | Level 2 |  | Level 3 |
Assets |  |  |  |  |  |  |  |
Mortgage loans held for sale | $ | 893 |  |  | $ | — |  |  | $ | 819 |  |  | $ | 74 |  |
Mortgage servicing rights | 6,654 |  |  | — |  |  | — |  |  | 6,654 |  |
Equity investments | 47 |  |  | 2 |  |  | — |  |  | 45 |  |
Derivative financial instruments |  |  |  |  |  |  |  |
IRLCs | 22 |  |  | — |  |  | — |  |  | 22 |  |
Forward MBS trades | 8 |  |  | — |  |  | 8 |  |  | — |  |
LPCs | 1 |  |  | — |  |  | — |  |  | 1 |  |
Liabilities |  |  |  |  |  |  |  |
Derivative financial instruments |  |  |  |  |  |  |  |
Forward MBS trades | 9 |  |  | — |  |  | 9 |  |  | — |  |
LPCs | 1 |  |  | — |  |  | — |  |  | 1 |  |
Treasury futures | 14 |  |  | — |  |  | 14 |  |  | — |  |
Mortgage servicing rights financing | 19 |  |  | — |  |  | — |  |  | 19 |  |
Excess spread financing | 509 |  |  | — |  |  | — |  |  | 509 |  |
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, 2023
| Assets | Liabilities
Fair Value - Level 3 Assets and Liabilities | Mortgage servicing rights |  | Mortgage loans held for sale |  | Equity investments |  | IRLCs |  | Excess spread financing |  | Mortgage servicing rights financing
Balance - beginning of period | $ | 6,654 |  |  | $ | 74 |  |  | $ | 45 |  |  | $ | 22 |  |  | $ | 509 |  |  | $ | 19 |
Changes in fair value included in earnings | (140) |  |  | 3 |  |  | (37) |  |  | — |  |  | (4) |  |  | 2 |
Purchases/additions (1) | 2,305 |  |  | 130 |  |  | — |  |  | — |  |  | — |  |  | — |
Issuances | 219 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Sales/dispositions (2) | (555) |  |  | (105) |  |  | — |  |  | — |  |  | — |  |  | — |
Repayments | — |  |  | (3) |  |  | — |  |  | — |  |  | (5) |  |  | — |
Settlements | — |  |  | — |  |  | — |  |  | — |  |  | (54) |  |  | — |
Other changes | 21 |  |  | 2 |  |  | — |  |  | — |  |  | — |  |  | — |
Balance - end of period | $ | 8,504 |  |  | $ | 101 |  |  | $ | 8 |  |  | $ | 22 |  |  | $ | 446 |  |  | $ | 21 |
| Nine Months Ended September 30, 2022
| Assets |  | Liabilities
Fair Value - Level 3 Assets and Liabilities | Mortgage servicing rights |  | Equity investments |  | IRLCs |  | Excess spread financing |  | Mortgage servicing rights financing
Balance - beginning of period | $ | 4,223 |  |  | $ | 54 |  |  | $ | 134 |  |  | $ | 768 |  |  | $ | 10 |
Changes in fair value included in earnings | 719 |  |  | (9) |  |  | (113) |  |  | 124 |  |  | 10 |
Purchases | 1,256 |  |  | — |  |  | — |  |  | — |  |  | — |
Issuances | 481 |  |  | — |  |  | — |  |  | — |  |  | — |
Sales | (293) |  |  | — |  |  | — |  |  | — |  |  | — |
Repayments | — |  |  | — |  |  | — |  |  | (293) |  |  | — |
Settlements | — |  |  | — |  |  | — |  |  | (80) |  |  | — |
Other changes | 22 |  |  | — |  |  | — |  |  | — |  |  | — |
Balance - end of period | $ | 6,408 |  |  | $ | 45 |  |  | $ | 21 |  |  | $ | 519 |  |  | $ | 20 |
(1)Additions for mortgages loans held for sale include loans that are purchased or transferred in. (2)Dispositions for mortgage loans held for sales include loans that are sold or transferred out. The Company had immaterial LPCs assets and liabilities as of September 30, 2023 and 2022. 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, 2023 and 2022. The table below presents the quantitative information for significant unobservable inputs used in the fair value measurement of Level 3 assets and liabilities.
| September 30, 2023 |  | December 31, 2022
| Range |  | Weighted Average |  | Range |  | Weighted Average
Level 3 Inputs | Min |  | Max |  |  | Min |  | Max |
MSRs(1) |  |  |  |  |  |  |  |  |  |  |
Option adjusted spread(2) | 6.9 | % |  | 12.3 | % |  | 8.0 | % |  | N/A |  | N/A |  | N/A
Discount rate | N/A |  | N/A |  | N/A |  | 10.4 | % |  | 13.7 | % |  | 11.4 | %
Prepayment speed | 6.1 | % |  | 9.8 | % |  | 7.0 | % |  | 6.3 | % |  | 12.2 | % |  | 7.2 | %
Cost to service per loan(3) | $ | 56 |  |  | $ | 151 |  |  | $ | 80 |  |  | $ | 54 |  |  | $ | 155 |  |  | $ | 80 |
Average life(4) |  |  |  |  | 8.2 years |  |  |  |  |  | 8.1 years
Mortgage loans held for sale |  |  |  |  |  |  |  |  |  |  |
Market pricing | 45.0 | % |  | 99.5 | % |  | 88.3 | % |  | 37.3 | % |  | 114.7 | % |  | 77.4 | %
IRLCs |  |  |  |  |  |  |  |  |  |  |
Value of servicing (reflected as a percentage of loan commitment) | 0.8 | % |  | 4.6 | % |  | 1.9 | % |  | (0.6) | % |  | 3.9 | % |  | 2.3 | %
Excess spread financing(1) |  |  |  |  |  |  |  |  |  |  |
Option adjusted spread(2) | 7.0 | % |  | 12.3 | % |  | 8.8 | % |  | N/A |  | N/A |  | N/A
Discount rate | N/A |  | N/A |  | N/A |  | 10.0 | % |  | 13.8 | % |  | 11.3 | %
Prepayment speed | 7.5 | % |  | 10.5 | % |  | 8.5 | % |  | 6.9 | % |  | 13.3 | % |  | 9.2 | %
Average life(4) |  |  |  |  | 6.7 years |  |  |  |  |  | 6.6 years
Mortgage servicing rights financing |  |  |  |  |  |  |  |  |  |  |
Advance financing and counterparty fee rates | 6.5 | % |  | 8.8 | % |  | 7.7 | % |  | 5.2 | % |  | 8.6 | % |  | 7.1 | %
Annual advance recovery rates | 12.6 | % |  | 15.4 | % |  | 13.5 | % |  | 15.9 | % |  | 20.6 | % |  | 17.3 | %
(1)The inputs are weighted by investor. (2)OAS represents incremental spread above a risk-free rate (one-month SOFR), which is an observable input. See discussion on methodology above. (3)Presented in whole dollar amounts. (4)Average life is included for informational purposes. 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, 2023
| Carrying Amount |  | Fair Value
Financial Instruments | Level 1 |  | Level 2 |  | Level 3
Financial assets |  |  |  |  |  |  |
Cash and cash equivalents | $ | 553 |  |  | $ | 553 |  |  | $ | — |  |  | $ | — |
Restricted cash | 151 |  |  | 151 |  |  | — |  |  | — |
Advances and other receivables, net | 758 |  |  | — |  |  | — |  |  | 758 |
Loans subject to repurchase from Ginnie Mae | 1,027 |  |  | — |  |  | 1,027 |  |  | — |
Financial liabilities |  |  |  |  |  |  |
Unsecured senior notes, net | 3,147 |  |  | — |  |  | 2,815 |  |  | — |
Advance, warehouse and MSR facilities, net | 3,545 |  |  | — |  |  | 3,560 |  |  | — |
Liability for loans subject to repurchase from Ginnie Mae | 1,027 |  |  | — |  |  | 1,027 |  |  | — |
| December 31, 2022
| Carrying Amount |  | Fair Value
Financial Instruments | Level 1 |  | Level 2 |  | Level 3
Financial assets |  |  |  |  |  |  |
Cash and cash equivalents | $ | 527 |  |  | $ | 527 |  |  | $ | — |  |  | $ | — |
Restricted cash | 175 |  |  | 175 |  |  | — |  |  | — |
Advances and other receivables, net | 1,019 |  |  | — |  |  | — |  |  | 1,019 |
Loans subject to repurchase from Ginnie Mae | 1,865 |  |  | — |  |  | 1,865 |  |  | — |
Financial liabilities |  |  |  |  |  |  |
Unsecured senior notes, net | 2,673 |  |  | — |  |  | 2,209 |  |  | — |
Advance, warehouse and MSR facilities, net | 2,885 |  |  | — |  |  | 2,896 |  |  | — |
Liability for loans subject to repurchase from Ginnie Mae | 1,865 |  |  | — |  |  | 1,865 |  |  | — |

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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 -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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