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Fair Value | 12 Months Ended
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Dec. 31, 2023
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. Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Unobservable inputs for the asset or liability. We classify assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. 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:
|  |  | December 31,
|  |  | 2023 |  | 2022
| Level |  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Financial assets: |  |  |  |  |  |  |  |  |
Loans held for sale |  |  |  |  |  |  |  |  |
Loans held for sale, at fair value (a) (e) | 3, 2 |  | $ | 674.2 |  |  | $ | 674.2 |  |  | $ | 617.8 |  |  | $ | 617.8 |
Loans held for sale, at lower of cost or fair value (b) | 3 |  | 3.1 |  |  | 3.1 |  |  | 4.9 |  |  | 4.9 |
Total Loans held for sale |  |  | $ | 677.3 |  |  | $ | 677.3 |  |  | $ | 622.7 |  |  | $ | 622.7 |
Loans held for investment, at fair value |  |  |  |  |  |  |  |  |
Loans held for investment - Reverse mortgages (a) | 3 |  | $ | 7,970.0 |  |  | $ | 7,970.0 |  |  | $ | 7,504.1 |  |  | $ | 7,504.1 |
Loans held for investment - Restricted for securitization investors (a) | 3 |  | 5.6 |  |  | 5.6 |  |  | 6.7 |  |  | 6.7 |
Total Loans held for investment, at fair value |  |  | $ | 7,975.5 |  |  | $ | 7,975.5 |  |  | $ | 7,510.8 |  |  | $ | 7,510.8 |
Advances, net (c) | 3 |  | $ | 678.8 |  |  | $ | 678.8 |  |  | $ | 718.9 |  |  | $ | 718.9 |
Receivables, net (c) | 3 |  | $ | 154.8 |  |  | $ | 154.8 |  |  | $ | 180.8 |  |  | $ | 180.8 |
Financial liabilities: |  |  |  |  |  |  |  |  |
Advance match funded liabilities (c) | 3 |  | $ | 499.7 |  |  | $ | 499.7 |  |  | $ | 513.7 |  |  | $ | 513.7 |
Financing liabilities, at fair value: |  |  |  |  |  |  |  |  |
HMBS-related borrowings (a) | 3 |  | $ | 7,797.3 |  |  | $ | 7,797.3 |  |  | $ | 7,326.8 |  |  | $ | 7,326.8 |
Other financing liabilities: |  |  |  |  |  |  |  |  |
Financing liability - Pledged MSR liability (a) | 3 |  | 645.5 |  |  | 645.5 |  |  | 931.7 |  |  | 931.7 |
Financing liability - Excess Servicing Spread (ESS) (a) | 3 |  | 248.9 |  |  | 248.9 |  |  | 199.0 |  |  | 199.0 |
Financing liability - Owed to securitization investors (a) | 3 |  | 5.6 |  |  | 5.6 |  |  | 6.7 |  |  | 6.7 |
Total Other financing liabilities |  |  | $ | 900.0 |  |  | $ | 900.0 |  |  | $ | 1,137.4 |  |  | $ | 1,137.4 |
Mortgage loan financing facilities (c) (d) | 3 |  | $ | 710.6 |  |  | $ | 717.6 |  |  | $ | 702.7 |  |  | $ | 702.7 |
MSR financing facilities (c) (d) | 3 |  | $ | 916.2 |  |  | $ | 900.3 |  |  | $ | 953.8 |  |  | $ | 932.1 |
Senior notes: |  |  |  |  |  |  |  |  |
PHH Senior secured notes due 2026 (c) (d) | 2 |  | $ | 356.1 |  |  | $ | 326.0 |  |  | $ | 369.4 |  |  | $ | 331.4 |
OFC Senior secured notes due 2027 (c) (d) | 3 |  | 239.7 |  |  | 230.5 |  |  | 230.2 |  |  | 223.9 |
Total Senior notes |  |  | $ | 595.8 |  |  | $ | 556.5 |  |  | $ | 599.6 |  |  | $ | 555.2 |
|  |  | December 31,
|  |  | 2023 |  | 2022
| Level |  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Derivative financial instrument assets (liabilities), net |  |  |  |  |  |  |  |  |
Interest rate lock commitments (IRLCs) (a) | 3 |  | $ | 5.6 |  |  | $ | 5.6 |  |  | $ | (0.7) |  |  | $ | (0.7) |
Forward sales of loans (a) | 1 |  | (0.1) |  |  | (0.1) |  |  | 0.5 |  |  | 0.5 |
TBA / Forward mortgage-backed securities (MBS) trades (a) | 1 |  | 9.6 |  |  | 9.6 |  |  | (0.7) |  |  | (0.7) |
Interest rate swap futures (a) | 1 |  | 3.9 |  |  | 3.9 |  |  | (13.6) |  |  | (13.6) |
TBA forward pipeline trades (a) | 1 |  | (6.3) |  |  | (6.3) |  |  | 6.6 |  |  | 6.6 |
Option contracts (a) | 1 |  | 1.9 |  |  | 1.9 |  |  | — |  |  | — |
Other (a) | 3 |  | (0.1) |  |  | (0.1) |  |  | (0.1) |  |  | (0.1) |
MSRs (a) | 3 |  | $ | 2,272.2 |  |  | $ | 2,272.2 |  |  | $ | 2,665.2 |  |  | $ | 2,665.2 |
(a)Measured at fair value on a recurring basis in our financial statements. (b)Measured at fair value on a non-recurring basis in our financial statements. (c)Disclosed, but not measured at fair value in our financial statements. (d)The carrying values are net of unamortized debt issuance costs and discount. See Note 14 — Borrowings for additional information. (e)The newly originated portfolio of GSE and forward Ginnie Mae loans held for sale pending securitization with the Agencies is classified as Level 2; all other loans are classified as Level 3. The following tables present a reconciliation of the changes in fair value of certain Level 3 assets and liabilities that we measure at fair value on a recurring basis (refer to the respective notes for other Level 3 assets and liabilities):
|  |  |  |  |  |  |  |  | Loans Held for Sale - Fair Value |  |  |  | ESS Financing Liability |  | IRLCs |  |  |  |
Year Ended December 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  |  |  |  |  |  |  |  | $ | 32.1 |  |  |  |  | $ | (199.0) |  |  | $ | (0.7) |  |  |  |  |
Purchases, issuances, sales and settlements |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchases and other |  |  |  |  |  |  |  |  | 364.2 |  |  |  |  | — |  |  | — |  |  |  |  |
Issuances (1) |  |  |  |  |  |  |  |  | — |  |  |  |  | (68.7) |  |  | 39.3 |  |  |  |  |
Sales |  |  |  |  |  |  |  |  | (102.4) |  |  |  |  | — |  |  | — |  |  |  |  |
Settlements |  |  |  |  |  |  |  |  | (60.5) |  |  |  |  | 29.9 |  |  | — |  |  |  |  |
Transfers from (to): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans held for sale, at fair value (1) |  |  |  |  |  |  |  |  | — |  |  |  |  | — |  |  | (64.9) |  |  |  |  |
Loans held for investment, at fair value |  |  |  |  |  |  |  |  | 4.5 |  |  |  |  | — |  |  | — |  |  |  |  |
Receivables, net |  |  |  |  |  |  |  |  | (34.7) |  |  |  |  | — |  |  | — |  |  |  |  |
REO (Other assets) |  |  |  |  |  |  |  |  | (15.2) |  |  |  |  | — |  |  | — |  |  |  |  |
Advances (Capitalization upon Ginnie Mae modifications) |  |  |  |  |  |  |  |  | 4.4 |  |  |  |  | — |  |  | — |  |  |  |  |
Other |  |  |  |  |  |  |  |  | (0.9) |  |  |  |  | — |  |  | — |  |  |  |  |
Net addition (disposition/derecognition) |  |  |  |  |  |  |  |  | 159.3 |  |  |  |  | (38.7) |  |  | (25.6) |  |  |  |  |
Included in earnings: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Change in fair value (1) |  |  |  |  |  |  |  |  | 11.7 |  |  |  |  | (11.1) |  |  | 32.0 |  |  |  |  |
Ending balance |  |  |  |  |  |  |  |  | $ | 203.1 |  |  |  |  | $ | (248.9) |  |  | $ | 5.6 |  |  |  |  |
|  |  |  |  |  |  |  |  | Loans Held for Sale - Fair Value |  |  |  | ESS Financing Liability |  | IRLCs |  |  |  |
Year Ended December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  |  |  |  |  |  |  |  | $ | 220.9 |  |  |  |  | $ | — |  |  | $ | 18.1 |  |  |  |  |
Purchases, issuances, sales and settlements |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchases and other |  |  |  |  |  |  |  |  | 140.4 |  |  |  |  | — |  |  | — |  |  |  |  |
Issuances (1) |  |  |  |  |  |  |  |  | — |  |  |  |  | (200.9) |  |  | 168.0 |  |  |  |  |
Sales |  |  |  |  |  |  |  |  | (318.0) |  |  |  |  | — |  |  | — |  |  |  |  |
Settlements |  |  |  |  |  |  |  |  | — |  |  |  |  | 6.6 |  |  | — |  |  |  |  |
Transfers: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans held for sale, at fair value (1) |  |  |  |  |  |  |  |  | — |  |  |  |  | — |  |  | (141.5) |  |  |  |  |
Receivables, net |  |  |  |  |  |  |  |  | (4.2) |  |  |  |  | — |  |  | — |  |  |  |  |
Other assets |  |  |  |  |  |  |  |  | (0.3) |  |  |  |  | (6.1) |  |  | — |  |  |  |  |
Net addition (disposition/derecognition) |  |  |  |  |  |  |  |  | (182.1) |  |  |  |  | (200.5) |  |  | 26.5 |  |  |  |  |
Included in earnings: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Change in fair value (1) |  |  |  |  |  |  |  |  | (6.8) |  |  |  |  | 1.4 |  |  | (45.3) |  |  |  |  |
Ending balance |  |  |  |  |  |  |  |  | $ | 32.1 |  |  |  |  | $ | (199.0) |  |  | $ | (0.7) |  |  |  |  |
|  |  |  |  | Loans Held for Sale - Fair Value |  | Mortgage-Backed Securities |  |  |  | IRLCs |  |  |  |
Year Ended December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  |  |  |  | $ | 51.1 |  |  | $ | 2.0 |  |  |  |  | $ | 22.7 |  |  |  |  |
Purchases, issuances, sales and settlements |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchases |  |  |  |  | 436.2 |  |  | — |  |  |  |  | — |  |  |  |  |
Issuances (1) |  |  |  |  | — |  |  | — |  |  |  |  | 627.7 |  |  |  |  |
Sales |  |  |  |  | (260.0) |  |  | (1.6) |  |  |  |  | — |  |  |  |  |
Settlements |  |  |  |  |  |  | — |  |  |  |  | — |  |  |  |  |
Transfers: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans held for sale, at fair value (1) |  |  |  |  | — |  |  | — |  |  |  |  | (591.7) |  |  |  |  |
Receivables, net |  |  |  |  | (1.6) |  |  | — |  |  |  |  | — |  |  |  |  |
Other assets |  |  |  |  | (0.4) |  |  | — |  |  |  |  | — |  |  |  |  |
Net addition (disposition/derecognition) |  |  |  |  | 174.1 |  |  | (1.6) |  |  |  |  | 36.0 |  |  |  |  |
Included in earnings: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Change in fair value (1) |  |  |  |  | (4.3) |  |  | (0.4) |  |  |  |  | (40.6) |  |  |  |  |
Ending balance |  |  |  |  | $ | 220.9 |  |  | $ | — |  |  |  |  | $ | 18.1 |  |  |  |  |
(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 is a gain (loss) of $6.3 million, $(18.8) million and $(4.6) million for 2023, 2022 and 2021, respectively. See Note 17 — Derivative Financial Instruments and Hedging Activities. A reconciliation from the beginning balances to the ending balances of Loans held for investment and HMBS-related borrowings, MSRs and Pledged MSR liabilities that we measure at fair value on a recurring basis is disclosed in Note 5 – Reverse Mortgages, Note 7 — Mortgage Servicing and Note 8 — Other Financing Liabilities, at Fair Value, respectively. The methodologies that we use and key assumptions that we make to estimate the fair value of financial instruments and other assets and liabilities measured at fair value on a recurring or non-recurring basis and those disclosed, but not carried, at fair value are described below. Loans Held for Sale Residential forward and reverse mortgage loans that we intend to sell are carried at fair value as a result of a fair value election. Such loans are subject to changes in fair value due to fluctuations in interest rates from the closing or purchased date through the date of the sale or securitization of the loan into the secondary market. These loans are generally classified within Level 2 of the valuation hierarchy because the primary component of the price is obtained from observable values of mortgage forwards for loans of similar terms and characteristics. We have the ability to access this market, and it is the market into which conventional and government-insured mortgage loans are typically sold. We purchase certain loans from Ginnie Mae guaranteed securitizations in connection with loan modifications, strategic EBO and loan resolution activity as part of our contractual obligations as the servicer of the loans. Effective January 1, 2020, we elected to classify any repurchased loans as loans held for sale at fair value as we expect to redeliver (sell) the loans into new Ginnie Mae guaranteed securitizations (in the case of modified loans) or sell the loans to a private investor (in the case of EBO loans). Modified and EBO loans purchased before January 1, 2020 are classified as loans held for sale at the lower of cost or fair value. The fair value of the loans we purchased from Ginnie Mae guaranteed securitization is estimated using both observable and unobservable inputs, including published 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 repurchased in connection with loan resolution activities are classified as receivables. Because these loans are insured or guaranteed by the FHA or VA, the fair value of these loans represents the net recovery value taking into consideration the insured or guaranteed claim. When we enter into an agreement to sell a loan or pool of loans to an investor at a set price, we value the loan or loans at the commitment price, unless facts and circumstances exist that could impact deal economics, at which point we use judgment to determine appropriate adjustments to recorded fair value, if any. We determine the fair value of loans for which we have no agreement to sell on the expected future cash flows discounted at a rate commensurate with the risk of the estimated cash flows. Loans Held for Investment Loans Held for Investment - Reverse Mortgages We measure these loans at fair value based on the expected future cash flows discounted over the expected life of the loans at a rate commensurate with the risk of the estimated cash flows, including future draw commitments for HECM loans. Inputs of the discounted cash flows of these assets include future draws and tail securitization spreads, conditional prepayment rate (including voluntary and involuntary prepayments) and discount rate. We engage third-party valuation experts in the determination of fair value. While the models and related assumptions used by the valuation experts are proprietary to them, we understand the methodologies, the significant inputs and the assumptions used to develop the prices based on our ongoing due diligence, which includes regular discussions with the valuation experts. We evaluate the reasonableness of our third-party experts’ assumptions using historical experience, or cash flow backtesting, adjusted for prevailing market conditions and benchmarks of assumptions and value estimates. The fair value is equal to the third-party valuation expert fair value mark. Reverse mortgage loans are 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.
| December 31,
Significant unobservable assumptions | 2023 |  | 2022
Life in years |  |  |
Range | 0.8 to 7.9 |  | 1.0 to 7.6
Weighted average | 5.2 |  |  | 5.0 |
Conditional prepayment rate, including voluntary and involuntary prepayments |  |  |
Range | 12.0% to 35.4% |  | 13.2% to 45.0%
Weighted average | 17.2 | % |  | 18.0 | %
Discount rate | 4.9 | % |  | 5.1 | %
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 We determine the fair value of MSRs primarily using discounted cash flow methodologies. The significant components of the estimated future cash inflows for MSRs include servicing fees, late fees, float earnings and other ancillary fees. Significant cash outflows include the cost of servicing, the cost of financing servicing advances and compensating interest payments. We engage third-party valuation experts who generally utilize: (a) transactions involving instruments with similar collateral and risk profiles, adjusted as necessary based on specific characteristics of the asset or liability being valued; and/or (b) industry-standard modeling, such as a discounted cash flow model and prepayment model, in arriving at their estimate of fair value. The prices provided by the valuation experts reflect their observations and assumptions related to market activity, generally the bulk market, incorporating available industry survey results and client feedback, and including risk premiums and liquidity adjustments. While interest rates are a key value driver, MSR fair value may change for other market-driven factors, including but not limited to the supply and demand of the market or the required yield or perceived value by investors of such MSRs. While the models and related assumptions used by the valuation experts are proprietary to them, we understand the methodologies and assumptions used to develop the prices based on our ongoing due diligence, which includes regular discussions with the valuation experts. We believe that the procedures executed by the valuation experts, supported by our verification and analytical procedures, provide reasonable assurance that the prices used in our consolidated financial statements comply with the accounting guidance for fair value measurements and disclosures and reflect the assumptions that a market participant would use. We evaluate the reasonableness of our third-party experts’ assumptions using historical experience adjusted for prevailing market conditions and benchmarks of assumptions and value estimates. Assumptions used in the valuation of MSRs include:
• | Mortgage prepayment speeds | • | Delinquency rates
• | Cost of servicing | • | Interest rate used for computing float earnings
• | Discount rate | • | Compensating interest expense
• | Interest rate used for computing the cost of financing servicing advances | • | Collection rate of other ancillary fees
• | Curtailment on advances |  |
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. In addition, changes in market interest rates impact float income. The significant unobservable assumptions used in the valuation of these MSRs include prepayment speeds, delinquency rates, cost to service and discount rates.
| December 31,
| 2023 |  | 2022
Significant unobservable assumptions | Agency |  | Non-Agency |  | Agency |  | Non-Agency
Weighted average prepayment speed | 7.7 | % |  | 7.9 | % |  | 6.9 | % |  | 7.9 | %
Weighted average lifetime delinquency rate | 1.3 | % |  | 10.0 | % |  | 1.4 | % |  | 10.1 | %
Weighted average discount rate | 9.2 | % |  | 11.4 | % |  | 9.6 | % |  | 10.6 | %
Weighted average cost to service (in dollars) | $ | 71 |  |  | $ | 192 |  |  | $ | 72 |  |  | $ | 201 |
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 December 31, 2023 given hypothetical increases in lifetime prepayments and yield assumptions:
Adverse change in fair value | 10% |  | 20%
Change in weighted average prepayment speeds (in percentage points) | 0.9 |  |  | 1.9 |
Change in fair value due to change in weighted average prepayment speeds | $ | (65.5) |  |  | $ | (127.3) |
Change in weighted average discount rate (in percentage points) | 0.9 |  |  | 1.9 |
Change in fair value due to change in weighted average discount rate | $ | (68.6) |  |  | $ | (131.9) |
Advances We value advances at their net realizable value, which generally approximates fair value. Servicing advances have no stated maturity and do not bear interest. Principal and interest advances are generally realized within a relatively short period of time. The timing of recovery of taxes, insurance and other corporate advances depends on the underlying loan attributes, performance, and in many cases, foreclosure or liquidation timeline. The fair value adjustment to servicing advances associated with the estimated time to recover such advances is separately measured and reported as a component of the fair value of the associated MSR, consistent with actual market transactions. Refer to MSRs above for a description of the valuation methodology and assumptions related to the cost of financing servicing advances and discount rate, among other factors. Receivables The carrying value of receivables generally approximates fair value because of the relatively short period of time between their origination and realization. Advance Match Funded Liabilities For advance match funded liabilities that bear interest at a rate that is adjusted regularly based on a market index, the carrying value approximates fair value. We assume the notes are refinanced at the end of their revolving periods, consistent with how we manage our advance facilities. 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. We determine fair value using a discounted cash flow approach, by discounting the projected recovery of principal and interest over the estimated life of the borrowing at a market rate commensurate with the risk of the estimated cash flows. We engage third-party valuation experts to support our valuation and provide observations and assumptions related to market activities. The fair value is equal to the fair value mark provided by a third-party valuation expert. We evaluate the reasonableness of our fair value estimate and assumptions using historical experience, or cash flow backtesting, adjusted for prevailing market conditions and benchmarks of assumptions and value estimates. 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.
| December 31,
Significant unobservable assumptions | 2023 |  | 2022
Life in years |  |  |
Range | 0.8 to 7.9 |  | 1.0 to 7.6
Weighted average | 5.2 |  |  | 5.0
Conditional prepayment rate |  |  |
Range | 12.0% to 35.4% |  | 13.2% to 45.0%
Weighted average | 17.2 | % |  | 18.0 | %
Discount rate | 4.9 | % |  | 5.0 | %
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 recognize the proceeds received in connection with MSRs transferred or sold in transactions which do not qualify for sale accounting treatment as a secured financing that we account for at fair value. We determine the fair value of the pledged MSR liability following a similar approach as for the associated transferred MSRs. Fair value of the pledged MSR liability in connection with the MAV MSR transactions is determined using the fair value mark provided by third-party valuation expert, consistent with the associated MSR, using the same methodology and assumptions, while considering cash flows contractually retained by PHH and expected life of subservicing agreement, when applicable. Fair value for the portion of the borrowing attributable to the MSRs underlying the Rights to MSRs in connection with Rithm transactions is determined using the fair value mark provided by the third-party valuation experts.
| December 31,
Significant unobservable assumptions | 2023 |  | 2022
Weighted average prepayment speed | 6.5 | % |  | 7.6 | %
Weighted average delinquency rate | 2.8 | % |  | 7.1 | %
Weighted average subservicing life (in years) | 4.3 |  | 5.6
Weighted average discount rate | 9.6 | % |  | 10.2 | %
Weighted average cost to service (in dollars) | $ | 130 |  |  | $ | 174 |
Significant increases or decreases in these assumptions in isolation would result in a significantly higher or lower fair value. ESS Financing Liability The Excess Servicing Spread (ESS) financing liability consists of the obligation to remit to a third party a specified percentage of future servicing fee collections on reference pools of mortgage loans, which we are entitled to as owner of the related MSRs. We have elected to carry the ESS financing liability at fair value and have classified it as Level 3 within the valuation hierarchy. The fair value represents the net present value of the expected servicing spread cash flows, consistent with the valuation model and behavioral projections of the underlying MSR, as applicable. The fair value of the ESS financing liability is determined using a third-party valuation expert. The significant unobservable assumptions used in the valuation of the ESS financing liability include prepayment speeds, delinquency rates, and discount rates. The discount rate is initially determined based on the expected cash flows and the proceeds from each issuance, and is subsequently updated, at each issuance level, to incorporate discount rate assumption updates for the underlying MSR or other factors, as provided by third-party valuation expert. At December 31, 2023 and 2022, the weighted average discount rate of the ESS financing liability was 9.4% and 7.6%, respectively. Refer to MSRs above for a description of other significant unobservable assumptions. Also see Note 8 — Other Financing Liabilities, at Fair Value. Mortgage Loan Financing Facilities Our mortgage loan warehouse facilities bear interest at a rate that is adjusted regularly based on a market index. The carrying value of the outstanding borrowings under the revolving facilities approximates fair value. In June 2023, OLIT issued senior and mezzanine classes of notes, at a discount, with a stated interest rate of 3.0% and a mandatory call date of June 2026. We determine the fair value of these notes based on bid prices provided by third parties involved in the issuance and placement of the notes. MSR Financing Facilities Our MSR financing facilities bear interest at a rate that is adjusted regularly based on a market index. The carrying value of the outstanding borrowings under these facilities approximates fair value. In 2014, we issued Ocwen Asset Servicing Income Series (OASIS), Series 2014-1 Notes secured by Ocwen-owned MSRs relating to Freddie Mac mortgages. In 2019, we issued Ocwen Excess Spread-Collateralized Notes, Series 2019-PLS1 notes secured by certain of PHH’s private label MSRs. In 2022, we refinanced these notes into a new Series 2022-PLS1 notes. We determine the fair value of these notes based on bid prices provided by third parties involved in the issuance and placement of the notes. Senior Notes We base the fair value on quoted prices in a market with available limited trading activity, or on valuation data obtained from a pricing service in the absence of trading data. For Senior Notes with no pricing activity or trading data, we determine the fair value by discounting future principal and interest payments at a market rate commensurate with the risk of the estimated cash flows. Derivative Financial Instruments Interest rate lock commitments (IRLCs) represent an agreement to purchase loans from a third-party originator or an agreement to extend credit to a mortgage applicant (locked pipeline), whereby the interest rate is set prior to funding. Fair value amounts of IRLCs are adjusted for expected “fallout” (locked pipeline loans not expected to close) using models that consider cumulative historical fallout rates and other factors. IRLCs are classified as Level 3 assets as fallout rates were determined to be significant unobservable assumptions. We use derivative instruments, including forward trades of MBS or Agency “to be announced” securities (TBAs) and exchange-traded interest rate swap futures, as economic hedging instruments of the fair value of our loans held for sale and MSR portfolio. Forward contracts, TBAs and interest rate swap futures are actively traded in the market and we obtain unadjusted market quotes for these derivatives; thus, they are classified within Level 1 of the valuation hierarchy.

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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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