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Fair Value
 3 Months Ended
Mar. 31, 2022
Fair Value Disclosures [Abstract]  
Fair Value
Note 3 – Fair Value
Fair value is estimated based on a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs 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. The fair value hierarchy prioritizes the inputs to valuation techniques into three broad levels whereby the highest priority is given to Level 1 inputs and the lowest to Level 3 inputs.
The carrying amounts and the estimated fair values of our financial instruments and certain of our nonfinancial assets measured at fair value on a recurring or non-recurring basis or disclosed, but not measured, at fair value are as follows:
  March 31, 2022December 31, 2021
 LevelCarrying ValueFair ValueCarrying ValueFair Value
Financial assets     
Loans held for sale
Loans held for sale, at fair value (a) (e)3, 2$716,024 $716,024 $917,534 $917,534 
Loans held for sale, at lower of cost or fair value (b)
39,027 9,027 10,993 10,993 
Total Loans held for sale$725,051 $725,051 $928,527 $928,527 
Loans held for investment
Loans held for investment - Reverse mortgages (a) 3$7,451,555 $7,451,555 $7,199,762 $7,199,762 
Loans held for investment - Restricted for securitization investors (a)
37,722 7,722 7,879 7,879 
Total loans held for investment
$7,459,277 $7,459,277 $7,207,641 $7,207,641 
  March 31, 2022December 31, 2021
 LevelCarrying ValueFair ValueCarrying ValueFair Value
Advances, net (c)
3$729,973 $729,973 $772,433 $772,433 
Receivables, net (c)3213,460 213,460 180,707 180,707 
Mortgage-backed securities (a)3— — 1 1 
Corporate bonds (a)2211 211 211 211 
Financial liabilities:     
Advance match funded liabilities (c)3$497,310 $495,880 $512,297 $511,994 
Financing liabilities:
HMBS-related borrowings (a)3$7,118,844 $7,118,844 $6,885,022 $6,885,022 
Other financing liabilities
Financing liability -Transferred MSR liability (a) 3864,315 864,315 797,084 797,084 
Financing liability - Owed to securitization investors (a)37,721 7,721 7,879 7,879 
Total Other financing liabilities872,036 872,036 804,963 804,963 
 
Mortgage loan warehouse facilities (c)3959,121 959,121 1,085,076 1,085,076 
MSR financing facilities (c) (d)3892,635 870,538 900,760 873,820 
Senior notes:
PMC Senior secured notes due 2026 (c) (d)2392,928 374,528 392,555 413,472 
OFC Senior secured notes due 2027 (c) (d)3224,204 236,272 222,242 261,455 
Total Senior notes$617,132 $610,800 $614,797 $674,927 
Derivative financial instrument assets (liabilities)
     
Interest rate lock commitments (IRLCs) (a) 3$5,673 $5,673 $18,085 $18,085 
Forward trades - Loans held for sale (a)
18 8 364 364 
TBA / Forward mortgage-backed securities (MBS) trades (a)1(3,952)(3,952)(240)(240)
Interest rate swap futures (a)1— — 1,734 1,734 
Option contracts (a)2(4,666)(4,666)(277)(277)
Other (a)3(677)(677)(1,070)(1,070)
MSRs (a) 3$2,323,281 $2,323,281 $2,250,147 $2,250,147 
(a)Measured at fair value on a recurring basis.
(b)Measured at fair value on a non-recurring basis.
(c)Disclosed, but not measured, at fair value. 
(d)The carrying values are net of unamortized debt issuance costs and discount. See Note 13 – Borrowings for additional information.
(e)Loans repurchased from Ginnie Mae securitizations with a fair value of $230.4 million and $220.9 million at March 31, 2022 and December 31, 2021, respectively, are classified as Level 3. The remaining balance of loans held for sale at fair value is classified as Level 2.
The following tables present a reconciliation of the changes in fair value of Level 3 assets and liabilities that we measure at fair value on a recurring basis:
Loans Held for Investment - Restricted for Securitization InvestorsFinancing Liability - Owed to Securitization InvestorsLoans Held for Sale - Fair ValueIRLCs
Three months ended March 31, 2022
Beginning balance$7,879 $(7,879)$220,940 $18,085 
Cumulative effect of fair value election
— — — — 
Purchases, issuances, sales and settlements 
Purchases— — 60,695 — 
Issuances (1)— — — 79,625 
Sales— — (47,802)— 
Settlements (157)157 — — 
Transfers (to) from:
Loans held for sale, at fair value (1)— — — (57,505)
Receivables, net— — (115)— 
 (157)157 12,778 22,120 
Change in fair value included in earnings (1)— — (3,275)(34,532)
Transfers in and / or out of Level 3
— — — — 
Ending balance$7,722 $(7,722)$230,443 $5,673 
(1)IRLC activity (issuances and transfers) represent changes in fair value included in earnings. This activity is presented on a gross basis in the table for disclosure purposes. Total net change in fair value included in earnings attributed to IRLCs for the three months ended March 31, 2022 is a loss of $12.4 million. Note 15 – Derivative Financial Instruments and Hedging Activities.
Loans Held for Investment - Restricted for Securitization InvestorsFinancing Liability - Owed to Securitization InvestorsLoans Held for Sale - Fair ValueMortgage-Backed SecuritiesIRLCs
Three months ended March 31, 2021
Beginning balance$9,770 $(9,770)$51,072 $2,019 $22,706 
Purchases, issuances, sales and settlements
Purchases— — 58,916 — — 
Issuances— — — — 134,370 
Sales— — (32,889)— — 
Settlements (950)950 — — — 
Transfers (to) from:
Loans held for sale, at fair value— — — — (128,564)
Other assets— — (96)— — 
 (950)950 25,931 — 5,806 
Change in fair value included in earnings— — (5,640)(406)(13,923)
Calls and other— — 4 — — 
Transfers in and / or out of Level 3— — — — — 
Ending balance$8,820 $(8,820)$71,367 $1,613 $14,589 
A reconciliation from the beginning balances to the ending balances of Loans Held for Investment and HMBS-related borrowings, MSRs and Pledged liabilities that we measure at fair value on a recurring and non-recurring basis is disclosed in Note 5 - Reverse Mortgages, Note 7 – Mortgage Servicing and Note 8 — MSR Transfers Not Qualifying for Sale Accounting, respectively.
During the three months ended March 31, 2022, there have been no changes to the methodologies that we use in estimating fair values or classifications under the valuation hierarchy as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021. The significant unobservable assumptions that we make to estimate the fair value of significant assets and liabilities classified as Level 3 and measured at fair value on a recurring or non-recurring basis are provided below.
Loans Held for Sale
The fair value of loans we purchased from Ginnie Mae guaranteed securitizations is estimated using both observable and unobservable inputs, including published forward Ginnie Mae prices or existing sale contracts, as well as estimated default, prepayment, and discount rates. The significant unobservable input in estimating fair value is the estimated default rate. Accordingly, these repurchased Ginnie Mae loans are classified as Level 3 within the valuation hierarchy.
Loans Held for Investment - Reverse Mortgages
Reverse mortgage loans held for investment are carried at fair value and classified as Level 3 within the valuation hierarchy. Significant unobservable assumptions include conditional prepayment rate and discount rate. The conditional prepayment rate assumption displayed in the table below is inclusive of voluntary (repayment or payoff) and involuntary (inactive/delinquent status and default) prepayments. The discount rate assumption 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.
Significant unobservable assumptionsMarch 31,
2022		December 31,
2021
Life in years
Range
1.0 to 8.4
1.0 to 8.2
Weighted average 5.45.7 
Conditional prepayment rate, including voluntary and involuntary prepayments
Range
11.9% to 46.4%
11.2% to 36.6%
Weighted average 16.8 %16.0 %
Discount rate3.6 %2.6 %
Significant increases or decreases in any of these assumptions in isolation could result in a significantly lower or higher fair value, respectively. The effects of changes in the assumptions used to value the securitized loans held for investment, excluding future draw commitments, are partially offset by the effects of changes in the assumptions used to value the HMBS-related borrowings that are associated with these loans.
MSRs
MSRs are carried at fair value and classified within Level 3 of the valuation hierarchy. The fair value is equal to the fair value mark provided by the third-party valuation experts, without adjustment, except in the event we have a potential or completed sale, including transactions where we have executed letters of intent, in which case the fair value of the MSRs is recorded at the estimated sale price.
A change in the valuation inputs or assumptions may result in a significantly higher or lower fair value measurement. Changes in market interest rates predominantly impact the fair value of Agency MSRs via prepayment speeds by altering the borrower refinance incentive and the non-Agency MSRs due to the impact on advance funding costs. The significant unobservable assumptions used in the valuation of these MSRs include prepayment speeds, delinquency rates, cost to service and discount rates.
Significant unobservable assumptionsMarch 31, 2022December 31, 2021
AgencyNon-AgencyAgencyNon-Agency
Weighted average prepayment speed7.2 %12.1 %8.5 %12.1 %
Weighted average lifetime delinquency rate1.1 %11.1 %1.2 %11.9 %
Weighted average discount rate8.4 %10.7 %8.5 %11.2 %
Weighted average cost to service (in dollars)$70 $205 $71 $205 
Because the mortgages underlying these MSRs permit the borrowers to prepay the loans, the value of the MSRs generally tends to diminish in periods of declining interest rates, an improving housing market or expanded product availability (as prepayments increase) and increase in periods of rising interest rates, a deteriorating housing market or reduced product
availability (as prepayments decrease). The following table summarizes the estimated change in the value of the MSRs as of March 31, 2022 given hypothetical increases in lifetime prepayments and yield assumptions:
Adverse change in fair value10%20%
Weighted average prepayment speeds$(57,105)$(111,271)
Weighted average discount rate (57,701)(111,293)
Financing Liabilities
HMBS-Related Borrowings
HMBS-related borrowings are carried at fair value and classified as Level 3 within the valuation hierarchy. These borrowings are not actively traded, and therefore, quoted market prices are not available.
Significant unobservable assumptions include yield spread and discount rate. The yield spread and discount rate assumption for these liabilities are primarily based on an assessment of current market yields for newly issued HMBS, expected duration and current market interest rates.
Significant unobservable assumptionsMarch 31,
2022		December 31,
2021
Life in years
Range
1.0 to 8.4
1.0 to 8.2
Weighted average 5.45.7 
Conditional prepayment rate
Range
11.9% to 46.4%
11.2% to 36.6%
Weighted average16.8 %16.0 %
Discount rate3.5 %2.5 %
Significant increases or decreases in any of these assumptions in isolation could result in a significantly higher or lower fair value, respectively. The effects of changes in the assumptions used to value the HMBS-related borrowings are partially offset by the effects of changes in the assumptions used to value the associated pledged loans held for investment, excluding future draw commitments.
Pledged MSR Liabilities
Pledged MSR liabilities are carried at fair value and classified as Level 3 within the valuation hierarchy. We determine the fair value of the pledged MSR liability consistent with the mid-point of the range of prices provided by third-party valuation experts for the related MSR, considering retained cash flows.
Significant unobservable assumptionsMarch 31,
2022		December 31,
2021
Weighted average prepayment speed10.4 %10.9 %
Weighted average delinquency rate7.8 %8.8 %
Weighted average discount rate10.0 %10.5 %
Weighted average cost to service (in dollars)$178 $182 
Significant increases or decreases in these assumptions in isolation would result in a significantly higher or lower fair value.
Derivative Financial Instruments
IRLCs are classified as Level 3 assets as fallout rates were determined to be significant unobservable assumptions.