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FAIR VALUE

12 Months Ended

Dec. 31, 2023

The Company's consolidated financial statements include assets and liabilities that are measured based on their estimated fair values. Refer to Note 1- Description of Business and Summary of Significant Accounting Policies for information on the fair value hierarchy, valuation methodologies, and key inputs used to measure financial assets and liabilities recorded at fair value, as well as methods and assumptions used to estimate fair value disclosures for financial instruments not recorded at fair value in their entirety on a recurring basis.

Financial Statement Items Measured at Fair Value on a Recurring Basis

The following tables presents the Company’s assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy as of the dates indicated.


	December 31, 2023
	Level 1		Level 2		Level 3		Total
Fair value through net income:
Assets:
Loans held for sale	$	—	$	2,132,880	$	—	$	2,132,880
Trading securities	—		92,901		—		92,901
Derivative assets:
Interest rate lock commitments	—		—		49,112		49,112
Forward sale contracts	—		16,610		—		16,610
Interest rate swap futures	26,476		—		—		26,476
MBS put options	—		1,376		—		1,376
Servicing rights	—		—		1,999,763		1,999,763
Total assets at fair value	$	26,476	$	2,243,767	$	2,048,875	$	4,319,118
Liabilities:
Derivative liabilities:
Interest rate lock commitments	$	—	$	—	$	1,172	$	1,172

Forward sale contracts	—		83,728		—		83,728
Put options on treasuries	62		—		—		62

Servicing rights	—		—		14,045		14,045
Total liabilities at fair value	$	62	$	83,728	$	15,217	$	99,007


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Fair value through net income:
Assets:
Loans held for sale	$	—	$	2,373,427	$	—	$	2,373,427
Trading securities	—		94,243		—		94,243
Derivative assets:
Interest rate lock commitments	—		—		29,374		29,374
Forward sale contracts	—		6,676		—		6,676

MBS put options	—		3,361		—		3,361

Servicing rights	—		—		2,037,447		2,037,447
Total assets at fair value	$	—	$	2,477,707	$	2,066,821	$	4,544,528
Liabilities:
Derivative liabilities:
Interest rate lock commitments	$	—	$	—	$	5,784	$	5,784
Interest rate swap futures	7,395		—		—		7,395
Forward sale contracts	—		43,482		—		43,482
Put options on treasuries	10,831		—		—		10,831


Servicing rights	—		—		12,311		12,311

Total liabilities at fair value	$	18,226	$	43,482	$	18,095	$	79,803

The following presents the changes in the Company’s assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):


	Year Ended December 31, 2023
	IRLCs, net		Servicing Rights, net
Balance at beginning of period	$	23,590	$	2,025,136
Total net gains (losses) included in:
Gain on origination and sale of loans, net:
Issuances and additions	387,498		277,387
Transfers of IRLC to LHFS	(275,451)		—
Other factors	(87,697)		—
Change in fair value of servicing rights, net(1)	—		(136,118)
Sales	—		(180,687)
Balance at end of period	$	47,940	$	1,985,718

(1)The change in unrealized gains or losses relating to servicing rights still held at December 31, 2023 amounted to a net loss of $61.1 million for the year ended December 31, 2023.


	Year Ended December 31, 2022
	IRLCs, net		Servicing Rights, net
Balance at beginning of period	$	180,620	$	1,999,402
Total net gains (losses) included in:
Gain on origination and sale of loans, net:
Issuances and additions	380,443		647,716
Transfers of IRLC to LHFS	(377,071)		—
Other factors	(160,402)		—
Change in fair value of servicing rights, net(1)	—		143,169
Sales	—		(765,151)
Balance at end of period	$	23,590	$	2,025,136

(1)The change in unrealized gains or losses relating to servicing rights that were still held at December 31, 2022, amounted to a net gain of $710.3 million for the year ended December 31, 2022.


	Year Ended December 31, 2021
		IRLCs, net		Servicing Rights, net
Balance at beginning of period		$	647,045	$	1,124,302
Total net gains (losses) included in:
Gain on origination and sale of loans, net:
Issuances and additions		2,169,847		1,610,596
Transfers of IRLC to LHFS		(1,969,541)		—
Other factors		(666,731)		—
Change in fair value of servicing rights, net(1)		—		(351,767)
Sales		—		(383,729)
Balance at end of period		$	180,620	$	1,999,402

(1)The change in unrealized gains or losses relating to servicing rights that were still held at December 31, 2021, amounted to a net gain of $1.3 billion for the year ended December 31, 2021.

The following table presents quantitative information about the valuation techniques and unobservable inputs applied to Level 3 fair value measurements for financial instruments measured at fair value on a recurring basis:



	December 31, 2023				December 31, 2022
Unobservable Input	Range of inputs			Weighted Average(1)	Range of inputs			Weighted Average(1)
IRLCs
Pull-through rate	2.7%	-	99.9%	76.7%	8.4%	-	99.9%	75.3%

Servicing rights
Discount rate(2)	4.6%	-	16.8%	6.4%	5.0%	-	16.1%	6.5%
Prepayment rate(2)	5.6%	-	22.4%	8.1%	5.8%	-	17.6%	7.2%
Cost to service (per loan)	$72	-	$126	$90	$63	-	$138	$87

(1)Weighted average inputs are based on the committed amounts for IRLCs and the UPB of the underlying loans for servicing rights.

(2)The Company estimates the fair value of MSRs using an option-adjusted spread (“OAS”) model, which projects MSR cash flows over multiple interest rate scenarios in conjunction with the Company’s prepayment model, and then discounts these cash flows at risk-adjusted rates.

Financial Statement Items Measured at Fair Value on a Nonrecurring Basis

The Company did not have any material assets or liabilities that were recorded at fair value on a non-recurring basis as of December 31, 2023 or December 31, 2022.

Financial Statement Items Measured at Amortized Cost

The following table presents the carrying amount and estimated fair value of financial instruments included in the consolidated financial statements that are not recorded at fair value on a recurring or nonrecurring basis. The table excludes cash and cash equivalents, restricted cash, warehouse and other lines of credit, and secured debt facilities as these financial instruments are highly liquid or short-term in nature and as a result, their carrying amounts approximate fair value:


	December 31, 2023				December 31, 2022
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Senior Notes	$	989,318	$	886,492	$	991,822	$	645,495

Fair value of the Company’s Senior Notes issued in October 2020 and March 2021 was estimated using quoted market prices and classified as Level 2 in the fair value hierarchy.

- 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.

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