XML 18 R9.htm IDEA: XBRL DOCUMENT
v3.23.3

FAIR VALUE MEASUREMENTS | 9 Months Ended
--- | ---
Sep. 30, 2023
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTSFair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Inputs used to measure fair value are prioritized within a three-level fair value hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The categorization of assets and liabilities measured at fair value within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The three levels of inputs used to measure fair value are as follows: •Level One - Level One inputs are unadjusted, quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. •Level Two - Level Two inputs are observable for that asset or liability, either directly or indirectly, and include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, observable inputs for the asset or liability other than quoted prices and inputs derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified contractual term, the inputs must be observable for substantially the full term of the asset or liability. •Level Three - Level Three inputs are unobservable inputs for the asset or liability that reflect the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, and are developed based on the best information available. The Company updates the valuation of each instrument recorded at fair value on a monthly or quarterly basis, evaluating all available observable information, which may include current market prices or bids, recent trade activity, changes in the levels of market activity and benchmarking of industry data. The assessment also includes consideration of identifying the valuation approach that would be used currently by market participants. If it is determined that a change in valuation technique or its application is appropriate, or if there are other changes in availability of observable data or market activity, the current methodology will be analyzed to determine if a transfer between levels of the valuation hierarchy is appropriate. Such reclassifications are reported as transfers into or out of a level as of the beginning of the quarter that the change occurs. Fair value is based on quoted market prices, when available. If quoted prices are not available, fair value is estimated based upon other observable inputs. Unobservable inputs are used when observable inputs are not available and are based upon judgments and assumptions, which are the Company’s assessment of the assumptions market participants would use in pricing the asset or liability. These inputs may include assumptions about risk, counterparty credit quality, the Company’s creditworthiness and liquidity and are developed based on the best information available. When a determination is made to classify an asset or liability within Level Three of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement of the asset or liability. The fair value of assets and liabilities classified within Level Three of the valuation hierarchy also typically includes observable factors and the realized or unrealized gain or loss recorded from the valuation of these instruments would also include amounts determined by observable factors. Recurring Fair Value Measurements The Company’s fair value measurements are evaluated within the fair value hierarchy, based on the nature of the inputs used to determine the fair value at the measurement date. At September 30, 2023 and December 31, 2022, the Company had the following assets and liabilities that are measured at fair value on a recurring basis: Trading Securities — Trading securities are classified within Level One of the valuation hierarchy. Valuation is based upon quoted prices for identical instruments traded in active markets. Level One trading securities include securities traded on active exchange markets, such as the New York Stock Exchange. Trading securities are included within other assets in the Condensed Consolidated Balance Sheets. Notes Receivable — Notes receivable are classified within Level Three of the valuation hierarchy as the Company's valuation includes significant unobservable inputs, including consideration of estimates of future earn-out payments, discount rates and expectations about settlement. Derivative Instruments — Derivative instruments are classified within Level Two and Level Three of the valuation hierarchy, and include the following: Interest Rate Lock Commitments — "IRLCs" are classified within Level Three of the valuation hierarchy. IRLCs represent an agreement to extend credit to a mortgage loan applicant, or an agreement to purchase a loan from a third-party originator, whereby the interest rate on the loan is set (or "locked") prior to funding. The fair value of IRLCs recorded at lock inception is based upon the estimated fair value of the underlying mortgage loan, including the expected net future cash flows related to servicing the mortgage loan, net of estimated incentive compensation expenses, and adjusted for: (i) estimated costs to complete and originate the loan and (ii) an adjustment to reflect the estimated percentage of IRLCs that will result in a closed mortgage loan under the original terms of the agreement (pull-through rate). The pull-through rate is considered a significant unobservable input and is estimated based on changes in pricing and actual borrower behavior using a historical analysis of loan closing and fallout data. The average pull-through rate used to calculate the fair value of IRLCs as of September 30, 2023 and December 31, 2022, was 84.3% and 93.4%, respectively. On a quarterly basis, actual loan pull-through rates are compared to the modeled estimates to confirm the assumptions are reflective of current trends. Generally, a change in interest rates is accompanied by a directionally opposite change in the assumption used for the pull-through percentage, and the impact to fair value of a change in pull-through would be partially offset by the related change in price. We regularly review our critical estimates and assumptions used in the valuation of our IRLCs. Forward Delivery Commitments — Forward delivery commitments are classified within Level Two of the valuation hierarchy. Forward delivery commitments fix the forward sales price that will be realized upon the sale of mortgage loans into the secondary market. The fair value of forward delivery commitments is primarily based upon the current agency mortgage-backed security market to-be-announced pricing specific to the loan program, delivery coupon and delivery date of the trade. Best efforts sales commitments are also entered into for certain loans at the time the borrower commitment is made. These best-efforts sales commitments are valued using the committed price to the counterparty against the current market price of the IRLC or mortgage loan held for sale. Option contracts are a type of forward commitment that represents the rights to buy or sell mortgage-backed securities at specified prices in the future. Their value is based upon the underlying current to-be-announced pricing of the agency mortgage-backed security market, and market-based volatility. See Note 6 for additional information on the derivative instruments. Mortgage Loans Held for Sale — "MLHS" are carried at fair value. The fair value of MLHS is based on secondary market pricing for loans with similar characteristics, and as such, is classified as a Level Two measurement. Fair value is estimated through a market approach by using either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to servicing rights and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. The agency mortgage-backed security market is a highly liquid and active secondary market for conforming conventional loans whereby quoted prices exist for securities at the pass-through level and are published on a regular basis. The Company has the ability to access this market and it is the market into which conforming mortgage loans are typically sold. We regularly review our critical estimates and assumptions used in the valuation of our MLHS. Reverse Mortgage Loans Held for Investment — Reverse mortgage loans held for investment are carried at fair value and classified within Level Three of the valuation hierarchy. Fair value is estimated using a present value methodology that discounts estimated projected cash flows over the life of the loan using unobservable inputs which include conditional prepayment rates and discount rates. The conditional prepayment rate assumption is inclusive of voluntary (repayment or payoff) and involuntary (inactive/delinquent status and default) prepayments. The discount rate assumption used is primarily based on an assessment of current market yields on reverse mortgage loan and tail securitizations, expected duration of the asset and current market interest rates. The Company engages a third-party valuation expert to assist in estimating the fair value. See Note 9 for additional information on the Company's reverse mortgage loans held for investment. Mortgage Servicing Rights — "MSRs" are classified within Level Three of the valuation hierarchy due to the use of significant unobservable inputs and the lack of an active market for such assets. The fair value of MSRs is estimated based upon projections of expected future cash flows considering prepayment estimates, the Company’s historical prepayment rates, portfolio characteristics, interest rates based on interest rate yield curves, implied volatility, costs to service and other economic factors. The Company obtains valuations from an independent third party on a monthly basis, and records an adjustment based on this third-party valuation. See Note 7 for additional information on the Company's MSRs. Investment in Warrants — The Company was a party to a joint marketing agreement with a private independent insurance carrier whereby the Company marketed their products and submitted leads for borrowers needing insurance. In connection with satisfying the conditions set forth under such agreement, the Company received warrants that may be exercised to purchase shares of common stock of the private company. The Company’s equity investment in the warrants is carried at its estimated fair value, which was determined using the price per share paid by an investor in an equity sale transaction completed by the private company, resulting in a Level Three classification. The warrants are exercisable until June 2025. The warrants are initially and subsequently measured at fair value until they are exercised or expire, with material changes in the fair value reported in other income, net in the Condensed Consolidated Statements of Income each reporting period. The Company's investment in warrants is included within other assets in the Condensed Consolidated Balance Sheets. Contingent Liabilities Due to Acquisitions — Contingent liabilities represent future obligations of the Company to make payments to the former owners of its acquired companies. The Company determines the fair value of its contingent liabilities using a discounted cash flow approach whereby the Company forecasts the cash outflows related to the future payments, which are based on a percentage of net income specified in the purchase agreements. The Company then discounts these expected payment amounts to calculate the present value, or fair value, as of the valuation date. The Company’s management evaluates the underlying projections used in determining fair value each period and makes updates to these underlying projections. The Company uses a risk-adjusted discount rate to value the contingent liabilities, which is considered a significant unobservable input, and as such, the liabilities are classified as a Level Three measurement. Management’s underlying projections adjust for market penetration and other economic expectations, and the discount rate is risk-adjusted for key factors such as uncertainty in the mortgage banking industry due to its reliance on external influences (interest rates, regulatory changes, etc.), upfront payments, and credit risk. An increase in the discount rate will result in a decrease in the fair value of the contingent liabilities. Conversely, a decrease in the discount rate will result in an increase in the fair value of the contingent liabilities. At September 30, 2023 the risk adjusted discount rate was 25.0% and at December 31, 2022 the range of the risk adjusted discount rate was 14.5% - 25.0%, with a median of 15.0%. Adjustments to the fair value of the contingent liabilities (other than payments) are recorded as a gain or loss and are included within general and administrative expenses in the Condensed Consolidated Statements of Income. HMBS-Related Borrowings — HMBS-related borrowings are carried at fair value and classified within Level Three of the valuation hierarchy. These borrowings are not actively traded; therefore, quoted market prices are not available. The Company determines fair value using a discounted cash flow model, by discounting the projected payment of principal and interest over the estimated life of the borrowing at a market rate, due to significant unobservable inputs, including conditional prepayment rates and discount rates. The discount rate assumption used is primarily based on an assessment of current market yields for newly issued HMBS, expected duration and current market interest rates. The Company engages a third-party valuation expert to assist in estimating the fair value. See Note 9 for additional information on the Company's HMBS-related borrowings. The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2023:
Description |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |
Trading securities |  | $ | 89 |  |  | $ | — |  |  | $ | — |  |  | $ | 89 |
Notes receivable |  | — |  |  | — |  |  | 14,809 |  |  | 14,809 |
Derivative |  |  |  |  |  |  |  |
Forward delivery commitments and best efforts sales commitments |  | — |  |  | 12,182 |  |  | — |  |  | 12,182 |
Interest rate lock commitments |  | — |  |  | — |  |  | 12,219 |  |  | 12,219 |
Mortgage loans held for sale |  | — |  |  | 932,771 |  |  | — |  |  | 932,771 |
Reverse mortgage loans held for investment |  | — |  |  | — |  |  | 81,457 |  |  | 81,457 |
Mortgage servicing rights |  | — |  |  | — |  |  | 1,258,313 |  |  | 1,258,313 |
Investment in warrants |  | — |  |  | — |  |  | 961 |  |  | 961 |
Total assets at fair value |  | $ | 89 |  |  | $ | 944,953 |  |  | $ | 1,367,759 |  |  | $ | 2,312,801 |
Liabilities: |  |  |  |  |  |  |  |
HMBS-related borrowings |  | $ | — |  |  | $ | — |  |  | $ | 71,278 |  |  | $ | 71,278 |
Contingent liabilities due to acquisitions |  | — |  |  | — |  |  | 7,239 |  |  | 7,239 |
Total liabilities at fair value |  | $ | — |  |  | $ | — |  |  | $ | 78,517 |  |  | $ | 78,517 |
The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2022:
Description |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |
Trading securities |  | $ | 96 |  |  | $ | — |  |  | $ | — |  |  | $ | 96 |
Derivative |  |  |  |  |  |  |  |
Forward delivery commitments |  | — |  |  | 1,602 |  |  | — |  |  | 1,602 |
Interest rate lock commitments |  | — |  |  | — |  |  | 1,518 |  |  | 1,518 |
Mortgage loans held for sale |  | — |  |  | 845,775 |  |  | — |  |  | 845,775 |
Mortgage servicing rights |  | — |  |  | — |  |  | 1,139,539 |  |  | 1,139,539 |
Investment in warrants |  | — |  |  | — |  |  | 961 |  |  | 961 |
Total assets at fair value |  | $ | 96 |  |  | $ | 847,377 |  |  | $ | 1,142,018 |  |  | $ | 1,989,491 |
Liabilities: |  |  |  |  |  |  |  |
Derivative |  |  |  |  |  |  |  |
Forward delivery commitments and best efforts sales commitments |  | $ | — |  |  | $ | 5,173 |  |  | $ | — |  |  | $ | 5,173 |
Contingent liabilities due to acquisitions |  | — |  |  | — |  |  | 526 |  |  | 526 |
Total liabilities at fair value |  | $ | — |  |  | $ | 5,173 |  |  | $ | 526 |  |  | $ | 5,699 |
The table below presents a reconciliation of certain Level Three assets and liabilities measured at fair value on a recurring basis for the three and nine months ended September 30, 2023 and 2022:
|  | IRLCs |  | Contingent Liabilities |  | Notes Receivable
Balance at June 30, 2023 |  | $ | 5,613 |  |  | $ | 7,793 |  |  | $ | 9,824 |
Net transfers and revaluation gains |  | 6,606 |  |  | — |  |  | — |
Additions |  | — |  |  | — |  |  | 5,156 |
Valuation adjustments |  | — |  |  | (554) |  |  | (171) |
Balance at September 30, 2023 |  | $ | 12,219 |  |  | $ | 7,239 |  |  | $ | 14,809 |
Balance at December 31, 2022 |  | $ | 1,518 |  |  | $ | 526 |  |  | $ | — |
Net transfers and revaluation gains |  | 10,701 |  |  | — |  |  | — |
Additions |  | — |  |  | 6,103 |  |  | 16,406 |
Valuation adjustments |  | — |  |  | 610 |  |  | (1,597) |
Balance at September 30, 2023 |  | $ | 12,219 |  |  | $ | 7,239 |  |  | $ | 14,809 |
Balance at June 30, 2022 |  | $ | 14,600 |  |  | $ | 1,557 |  |  | $ | — |
Net transfers and revaluation losses |  | (38,177) |  |  | — |  |  | — |
Payments |  | — |  |  | (1,884) |  |  | — |
Valuation adjustments |  | — |  |  | 327 |  |  |
Balance at September 30, 2022 |  | $ | (23,577) |  |  | $ | — |  |  | $ | — |
Balance at December 31, 2021 |  | $ | 22,119 |  |  | $ | 59,500 |  |  | $ | — |
Net transfers and revaluation losses |  | (45,696) |  |  | — |  |  | — |
Payments |  | — |  |  | (14,425) |  |  | — |
Valuation adjustments |  | — |  |  | (45,075) |  |  |
Balance at September 30, 2022 |  | $ | (23,577) |  |  | $ | — |  |  | $ | — |
Changes in the availability of observable inputs may result in reclassifications of certain assets or liabilities. Such reclassifications are reported as transfers in or out of Level Three as of the beginning of the period that the change occurs. There were no transfers between fair value levels during the three and nine months ended September 30, 2023 and 2022. Non-Recurring Fair Value Measurements Certain assets and liabilities that are not typically measured at fair value on a recurring basis may be subject to fair value measurement requirements under certain circumstances. These adjustments to fair value usually result from write-downs of individual assets. At September 30, 2023 and December 31, 2022, the Company had the following financial assets measured at fair value on a non-recurring basis: Ginnie Mae Loans Subject to Repurchase Right — Government National Mortgage Association ("GNMA" or "Ginnie Mae") securitization programs allow servicers to buy back individual delinquent mortgage loans from the securitized loan pool once certain conditions are met. If a borrower makes no payment for three consecutive months, the servicer has the option to repurchase the delinquent loan for an amount equal to 100% of the loan’s remaining principal balance. Under ASC 860, Transfers and Servicing, this buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option becomes unconditional. The Company records these assets and liabilities at their fair value, which is determined to be the remaining unpaid principal balance ("UPB"). The Company’s future expected realizable cash flows are the cash payments of the remaining UPB whether paid by the borrower or reimbursed through a claim filed with HUD. The Company considers the fair value of these assets and liabilities to fall into the Level Two bucket in the valuation hierarchy due to the assets and liabilities having specified contractual terms and the inputs are observable for substantially the full term of the assets' and liabilities' lives. The following table summarizes the Company’s financial assets and liabilities measured at fair value on a non-recurring basis at September 30, 2023:
Description |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |
Ginnie Mae loans subject to repurchase right |  | $ | — |  |  | $ | 639,023 |  |  | $ | — |  |  | $ | 639,023 |
Total assets at fair value |  | $ | — |  |  | $ | 639,023 |  |  | $ | — |  |  | $ | 639,023 |
Liabilities: |  |  |  |  |  |  |  |
Ginnie Mae loans subject to repurchase right |  | $ | — |  |  | $ | 639,370 |  |  | $ | — |  |  | $ | 639,370 |
Total liabilities at fair value |  | $ | — |  |  | $ | 639,370 |  |  | $ | — |  |  | $ | 639,370 |
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a non-recurring basis at December 31, 2022:
Description |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |
Ginnie Mae loans subject to repurchase right |  | $ | — |  |  | $ | 650,179 |  |  | $ | — |  |  | $ | 650,179 |
Total assets at fair value |  | $ | — |  |  | $ | 650,179 |  |  | $ | — |  |  | $ | 650,179 |
Liabilities: |  |  |  |  |  |  |  |
Ginnie Mae loans subject to repurchase right |  | $ | — |  |  | $ | 650,179 |  |  | $ | — |  |  | $ | 650,179 |
Total liabilities at fair value |  | $ | — |  |  | $ | 650,179 |  |  | $ | — |  |  | $ | 650,179 |
Fair Value Option The following is the estimated fair value and UPB of MLHS that have contractual principal amounts and for which the Company has elected the fair value option. The fair value option was elected for MLHS as the Company believes fair value best reflects their expected future economic performance:
|  | Fair Value |  | Principal Amount Due Upon Maturity |  | Difference (1)
Balance at September 30, 2023 |  | $ | 932,771 |  |  | $ | 959,523 |  |  | $ | (26,752) |
Balance at December 31, 2022 |  | $ | 845,775 |  |  | $ | 868,833 |  |  | $ | (23,058) |
_______________________________ (1)Represents the amount of losses included in loan origination fees and gain on sale of loans, net due to changes in fair value of items accounted for using the fair value option.

X
- References No definition available. + Details
Name: | us-gaap_FairValueDisclosuresAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_FairValueDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration