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Fair Value Measurements

6 Months Ended

Jun. 30, 2024

13. Fair Value Measurements

Fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a three-tiered fair value hierarchy has been established based on the level of observable inputs used in the measurement of fair value (e.g., Level 1 representing quoted prices for identical assets or liabilities in an active market; Level 2 representing values using observable inputs other than quoted prices included within Level 1; and Level 3 representing estimated values based on significant unobservable inputs).

There have been no significant changes to the valuation techniques and inputs used by the Company in estimating fair values of Level 2 and Level 3 assets and liabilities as disclosed in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2023.

The following tables present the estimated carrying amount and fair value of the Company’s financial instruments and other assets and liabilities measured at fair value on a recurring basis:


	June 30, 2024
			Recurring Fair Value Measurements
Fair Value - Recurring Basis	Total Fair Value		Level 1		Level 2		Level 3
Assets
Mortgage servicing rights	$	10,352	$	—	$	—	$	10,352
Mortgage loans held for sale	1,539		—		1,449		90
Equity investments	9		1		—		8
Derivative financial instruments
IRLCs	31		—		—		31
LPCs	2		—		—		2
Forward MBS trades	7		—		7		—
Treasury Futures	62		—		62		—

Liabilities
Derivative financial instruments
LPCs	2		—		—		2
Forward MBS trades	8		—		8		—
Treasury futures	3		—		3		—
Excess spread financing	406		—		—		406
Mortgage servicing rights financing	33		—		—		33


	December 31, 2023
			Recurring Fair Value Measurements
Fair Value - Recurring Basis	Total Fair Value		Level 1		Level 2		Level 3
Assets
Mortgage servicing rights	$	9,090	$	—	$	—	$	9,090
Mortgage loans held for sale	927		—		846		81
Equity investments	9		1		—		8
Derivative financial instruments
Treasury futures	113		—		113		—
IRLCs	21		—		—		21
Forward MBS trades	22		—		22		—
LPCs	3		—		—		3

Liabilities
Derivative financial instruments
Forward MBS trades	9		—		9		—
Excess spread financing	437		—		—		437
Mortgage servicing rights financing	29		—		—		29

The tables below set forth the activities for all of the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis:


	Six Months Ended June 30, 2024
	Assets								Liabilities
Fair Value - Level 3 Assets and Liabilities	Mortgage servicing rights		Mortgage loans held for sale		Equity investments		IRLCs		Excess spread financing		Mortgage servicing rights financing
Balance - beginning of period	$	9,090	$	81	$	8	$	21	$	437	$	29
Changes in fair value included in earnings	(61)		(1)		—		10		2		4
Purchases/additions(1)	1,403		66		—		—		—		—
Issuances	137		—		—		—		—		—
Sales/dispositions(2)	(237)		(51)		—		—		—		—
Repayments	—		(2)		—		—		—		—
Settlements	—		—		—		—		(33)		—
Other changes	20		(3)		—		—		—		—
Balance - end of period	$	10,352	$	90	$	8	$	31	$	406	$	33


	Six Months Ended June 30, 2023
	Assets								Liabilities
Fair Value - Level 3 Assets and Liabilities	Mortgage servicing rights		Mortgage loans held for sale		Equity investments		IRLCs		Excess spread financing		Mortgage servicing rights financing
Balance - beginning of period	$	6,654	$	74	$	45	$	22	$	509	$	19
Changes in fair value included in earnings	(239)		2		(3)		8		(10)		4
Purchases/additions(1)	870		47		—		—		—		—
Issuances	133		—		—		—		—		—
Sales/dispositions(2)	(280)		(54)		—		—		—		—
Repayments	—		(2)		—		—		(4)		—
Settlements	—		—		—		—		(36)		—
Other changes	11		—		—		—		—		—
Balance - end of period	$	7,149	$	67	$	42	$	30	$	459	$	23

(1)Additions for mortgages loans held for sale include loans that are purchased or transferred in.

(2)Dispositions for mortgage loans held for sales include loans that are sold or transferred out.

The Company had immaterial LPCs assets and liabilities as of June 30, 2024 and 2023. No transfers were made in or out of Level 3 fair value assets and liabilities for the Company during the six months ended June 30, 2024 and 2023.

The table below presents the quantitative information for significant unobservable inputs used in the fair value measurement of Level 3 assets and liabilities.


	June 30, 2024									December 31, 2023
	Range						Weighted Average			Range						Weighted Average
Level 3 Inputs	Min			Max						Min			Max
MSRs(1)
Option adjusted spread(2)	6.8		%	12.3		%	7.7		%	6.9		%	12.3		%	8.0		%

Prepayment speed	7.7		%	8.7		%	7.9		%	6.8		%	9.3		%	7.5		%
Cost to service per loan(3)	$	53		$	123		$	68		$	56		$	160		$	80
Average life(4)							7.8 years									7.9 years

Mortgage loans held for sale
Market pricing	45.0		%	102.3		%	79.4		%	45.0		%	103.4		%	81.1		%

IRLCs
Value of servicing (reflected as a percentage of loan commitment)	—		%	3.8		%	1.6		%	1.1		%	3.5		%	1.9		%

Excess spread financing(1)
Option adjusted spread(2)	6.9		%	12.3		%	8.7		%	7.0		%	12.3		%	8.8		%
Prepayment speed	7.0		%	9.4		%	8.3		%	7.7		%	9.1		%	8.4		%
Average life(4)							6.7 years									6.7 years

Mortgage servicing rights financing
Advance financing and counterparty fee rates	7.1		%	9.3		%	8.3		%	6.6		%	9.2		%	7.6		%
Annual advance recovery rates	15.0		%	16.5		%	16.0		%	12.2		%	14.8		%	13.0		%

(1)The inputs are weighted by investor.

(2)OAS represents incremental spread above a risk-free rate (one-month SOFR), which is an observable input.

(3)Presented in whole dollar amounts.

(4)Average life is included for informational purposes.

The tables below present a summary of the estimated carrying amount and fair value of the Company’s financial instruments not carried at fair value:


	June 30, 2024
	Carrying Amount		Fair Value
Financial Instruments			Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	642	$	642	$	—	$	—
Restricted cash	162		162		—		—
Advances and other receivables, net	934		—		—		934

Loans subject to repurchase from Ginnie Mae	829		—		829		—
Financial liabilities
Unsecured senior notes, net	4,141		—		4,062		—
Advance, warehouse and MSR facilities, net	4,925		—		4,939		—
Liability for loans subject to repurchase from Ginnie Mae	829		—		829		—


	December 31, 2023
	Carrying Amount		Fair Value
Financial Instruments			Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	571	$	571	$	—	$	—
Restricted cash	169		169		—		—
Advances and other receivables, net	996		—		—		996
Loans subject to repurchase from Ginnie Mae	966		—		966		—
Financial liabilities
Unsecured senior notes, net	3,151		—		3,056		—
Advance, warehouse and MSR facilities, net	4,302		—		4,318		—
Liability for loans subject to repurchase from Ginnie Mae	966		—		966		—

- 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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