Note 8 - Fair Value Accounting

12 Months Ended

Dec. 31, 2020

Note

Fair Value Accounting

Fair Value Measurements

The Company's valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These

two

types of inputs create the following fair value hierarchy:

•	Level 1 – Valuations based on quoted prices in active markets for identical assets and liabilities.
•	Level 2 – Valuations based on observable inputs in active markets for similar assets and liabilities, other than Level 1 prices, such as quoted interest or currency exchange rates for substantially the full term of the asset or liability.
•	Level 3 – Valuations based on significant unobservable inputs that are supported by little or no market activity, such as discounted cash flow methodologies based on internal cash flow forecasts.

The following table provides the estimated fair value of financial instruments and presents amounts that have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are

not

necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions or estimation methodologies could have a material impact on the estimated fair value amounts. The fair value of short-term financial assets and liabilities, such as service fees receivable, notes receivable, and accounts payable and accrued expenses are

not

included in the following table as their carrying value approximates their fair value.

The estimated fair values of the Company's financial instruments are as follows as of

December 31, 2020

and

2019

(in thousands):

	December 31, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial liabilities:
2017 Notes (Level 3)	$	90,115	$	11,365	$	86,824	$	21,289

The

2017

Notes in the table above are

not

measured at fair value in the consolidated balance sheets but are required to be disclosed at fair value. The fair value of the

2017

Notes has been estimated using Level

methodologies, based on significant unobservable inputs that are supported by little or

market activity, such as discounted cash flow calculations based on internal cash flow forecasts.

assets or liabilities have been transferred between levels during any period presented. The fair value is estimated by discounting future projected cash flows using a discount rate commensurate with the risks involved. The interest rate on the senior notes is

per annum from

April 1, 2019

through

December 31, 2023;

per annum from

January 1, 2024

through

December 31, 2028;

and

10%

per annum from

January 1, 2029

through the maturity date in

March 2033.

Goodwill

— See Note

to the consolidated financial statements for more information on the goodwill impairment assessments performed in

2020.

Assets reported at fair value on a nonrecurring basis include the following (in thousands):

	December 31, 2020
	Fair Value (Level 3)		Gains and (Losses)
Goodwill	$	—	$	(3,905	)

Activity during

2020

for Goodwill, the Company's only Level

asset, measured on a nonrecurring basis is included in the following table (in thousands):

Goodwill Activity:
Balance, December 31, 2019	$	3,905
Impairment charge		(3,905	)
Balance, December 31, 2020	$	—

The determination of the goodwill impairment was based on a discounted cash flow approach utilizing forecasted revenue ranging from

$57

million to

$69

million, historical operating income percentages, and a cost of capital of approximately

15%.

Prior to the Company's acquisition of HCS in

2017,

the Company originated, purchased, securitized, sold, invested in and serviced residential nonconforming mortgage loans and mortgage securities. The Company retains clean-up call rights associated with prior servicing activities and has determined these clean-up call rights have

fair value as of

December 31, 2020

and

2019.

- 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 + Details