10-Q 1 a12-20043_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2012

 

or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from               to             .

 

Commission File Number: 1-14100

 

IMPAC MORTGAGE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Maryland

 

33-0675505

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

19500 Jamboree Road, Irvine, California 92612

(Address of principal executive offices)

 

(949) 475-3600

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company x

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2)  Yes o No x

 

There were 7,925,383 shares of common stock outstanding as of November 9, 2012.

 

 

 



Table of Contents

 

IMPAC MORTGAGE HOLDINGS, INC.

 

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

 

 

Consolidated Balance Sheets as of September 30, 2012 (unaudited) and December 31, 2011

3

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011 (unaudited)

4

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (unaudited)

5

 

Notes to Unaudited Consolidated Financial Statements

6

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

 

 

Forward-Looking Statements

25

 

The Mortgage Industry and Discussion of Relevant Fiscal Periods

25

 

Market Update

25

 

Selected Financial Results for the Three Months Ended September 30, 2012

26

 

Selected Financial Results for the Nine Months Ended September 30, 2012

27

 

Status of Operations, Liquidity and Capital Resources

27

 

Critical Accounting Policies

33

 

Financial Condition and Results of Operations

34

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

52

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

53

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

53

 

 

 

ITEM 1A.

RISK FACTORS

54

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

55

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

55

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

55

 

 

 

ITEM 5.

OTHER INFORMATION

55

 

 

 

ITEM 6.

EXHIBITS

55

 

 

 

 

SIGNATURES

56

 

 

 

 

CERTIFICATIONS

 

 

2



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1.                                                CONSOLIDATED FINANCIAL STATEMENTS

 

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

September 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

8,031

 

$

7,653

 

Restricted cash

 

2,601

 

5,019

 

Trust assets

 

 

 

 

 

Investment securities available-for-sale

 

112

 

688

 

Securitized mortgage collateral

 

5,738,150

 

5,449,001

 

Derivative assets

 

37

 

37

 

Real estate owned

 

26,502

 

56,467

 

Total trust assets

 

5,764,801

 

5,506,193

 

 

 

 

 

 

 

Mortgage loans held-for-sale

 

145,346

 

61,718

 

Mortgage servicing rights

 

9,317

 

4,141

 

Assets of discontinued operations

 

125

 

264

 

Other assets

 

36,853

 

27,052

 

Total assets

 

$

5,967,074

 

$

5,612,040

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Trust liabilities

 

 

 

 

 

Securitized mortgage borrowings

 

$

5,725,469

 

$

5,454,901

 

Derivative liabilities

 

19,112

 

24,786

 

Total trust liabilities

 

5,744,581

 

5,479,687

 

 

 

 

 

 

 

Warehouse borrowings

 

131,690

 

58,691

 

Long-term debt

 

12,274

 

11,561

 

Notes payable

 

4,507

 

5,182

 

Liabilities of discontinued operations

 

19,264

 

9,932

 

Other liabilities

 

26,009

 

15,890

 

Total liabilities

 

5,938,325

 

5,580,943

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Series A junior participating preferred stock, $0.01 par value; 2,500,000 shares authorized; none issued or outstanding

 

 

 

Series B 9.375% redeemable preferred stock, $0.01 par value; liquidation value $16,640; 2,000,000 shares authorized, 665,592 noncumulative shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively

 

7

 

7

 

Series C 9.125% redeemable preferred stock, $0.01 par value; liquidation value $35,127; 5,500,000 shares authorized; 1,405,086 noncumulative shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively

 

14

 

14

 

Common stock, $0.01 par value; 200,000,000 shares authorized; 7,898,162 and 7,814,946 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively

 

79

 

78

 

Additional paid-in capital

 

1,077,666

 

1,076,723

 

Net accumulated deficit:

 

 

 

Cumulative dividends declared

 

(822,520

)

(822,520

)

Retained deficit

 

(227,191

)

(224,334

)

Net accumulated deficit

 

(1,049,711

)

(1,046,854

)

Total Impac Mortgage Holdings, Inc. stockholders’ equity

 

28,055

 

29,968

 

Noncontrolling interests

 

694

 

1,129

 

Total equity

 

28,749

 

31,097

 

Total liabilities and stockholders’ equity

 

$

5,967,074

 

$

5,612,040

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

 

 

 

For the Three Months

 

For the Nine Months

 

 

 

Ended September 30,

 

Ended September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

INTEREST INCOME

 

$

115,091

 

$

172,779

 

$

384,792

 

$

592,962

 

INTEREST EXPENSE

 

114,794

 

172,497

 

382,918

 

590,117

 

Net interest income

 

297

 

282

 

1,874

 

2,845

 

 

 

 

 

 

 

 

 

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

 

 

Change in fair value of net trust assets, excluding REO

 

(5,998

)

10,297

 

5,562

 

17,596

 

Gains (losses) from REO

 

3,548

 

(6,867

)

(9,761

)

(11,855

)

Non-interest (loss) income - net trust assets

 

(2,450

)

3,430

 

(4,199

)

5,741

 

 

 

 

 

 

 

 

 

 

 

Mortgage lending gains and fees, net

 

24,324

 

4,574

 

48,587

 

7,670

 

Real estate services fees, net

 

5,776

 

13,272

 

16,815

 

36,820

 

Gain on sale of Experience 1, Inc.

 

 

1,780

 

 

1,780

 

Other

 

617

 

1,159

 

1,353

 

1,527

 

Total non-interest income

 

28,267

 

24,215

 

62,556

 

53,538

 

 

 

 

 

 

 

 

 

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

Personnel expense

 

16,664

 

13,599

 

39,469

 

36,659

 

General, administrative and other

 

4,938

 

5,505

 

13,689

 

15,089

 

Total non-interest expense

 

21,602

 

19,104

 

53,158

 

51,748

 

Earnings from continuing operations before income taxes

 

6,962

 

5,393

 

11,272

 

4,635

 

Income tax expense from continuing operations

 

8

 

957

 

44

 

978

 

Earnings from continuing operations

 

6,954

 

4,436

 

11,228

 

3,657

 

Loss from discontinued operations, net of tax

 

(9,021

)

(1,490

)

(13,402

)

(1,832

)

Net (loss) earnings

 

(2,067

)

2,946

 

(2,174

)

1,825

 

Net (earnings) loss attributable to noncontrolling interests

 

(212

)

156

 

(683

)

651

 

Net (loss) earnings attributable to IMH

 

$

(2,279

)

$

3,102

 

$

(2,857

)

$

2,476

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share - basic:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations attributable to IMH

 

$

0.86

 

$

0.59

 

$

1.35

 

$

0.55

 

Loss from discontinued operations

 

(1.15

)

(0.19

)

(1.71

)

(0.23

)

Net (loss) earnings per share available to common stockholders

 

$

(0.29

)

$

0.40

 

$

(0.36

)

$

0.32

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share - diluted:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations attributable to IMH

 

$

0.86

 

$

0.55

 

$

1.35

 

$

0.52

 

Loss from discontinued operations

 

(1.15

)

(0.18

)

(1.71

)

(0.22

)

Net (loss) earnings per share available to common stockholders

 

$

(0.29

)

$

0.37

 

$

(0.36

)

$

0.30

 

 

See accompanying notes to consolidated financial statements

 

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Table of Contents

 

IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

For the Nine Months

 

 

 

Ended September 30,

 

 

 

2012

 

2011

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net (loss) earnings

 

$

(2,174

)

$

1,825

 

 

 

 

 

 

 

Losses from REO

 

9,761

 

11,855

 

Extinguishment of debt

 

423

 

338

 

Change in fair value of mortgage servicing rights

 

869

 

(106

)

Gain on sale of loans

 

(39,088

)

(6,312

)

Change in fair value of mortgage loans held-for-sale

 

(7,048

)

(1,272

)

Provision for repurchases

 

1,179

 

350

 

Origination of mortgage loans held-for-sale

 

(1,568,847

)

(525,106

)

Sale and principal reduction on mortgage loans held-for-sale

 

1,521,098

 

486,235

 

Change in fair value of net trust assets, excluding REO

 

(14,032

)

(61,693

)

Change in fair value of long-term debt

 

(872

)

(2,102

)

Accretion of interest income and expense

 

200,194

 

251,040

 

Change in REO impairment reserve

 

(20,620

)

(22,248

)

Stock-based compensation

 

201

 

222

 

Impairment of deferred charge

 

 

949

 

Gain on sale of Experience 1, Inc.

 

 

(1,780

)

Net change in restricted cash

 

2,418

 

(3,420

)

Amortization of discount on note payable

 

89

 

985

 

Net cash provided by (used in) operating activities of discontinued operations

 

9,502

 

(2,685

)

Net change in other assets and liabilities

 

3,286

 

3,439

 

Net cash provided by operating activities

 

96,339

 

130,514

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Net change in securitized mortgage collateral

 

494,552

 

530,949

 

Net change in mortgages held-for-investment

 

6

 

(61

)

Purchase of premises and equipment

 

(144

)

(612

)

Net principal change on investment securities available-for-sale

 

167

 

161

 

Sale of Experience 1, Inc.

 

 

512

 

Proceeds from the sale of real estate owned

 

80,120

 

117,265

 

Net cash provided by investing activities

 

574,701

 

648,214

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Repayment of warehouse borrowings

 

(1,464,471

)

(474,848

)

Borrowings under warehouse agreement

 

1,537,470

 

517,739

 

Repayment of line of credit

 

(14,750

)

(1,850

)

Borrowings under line of credit

 

14,750

 

3,850

 

Repayment of securitized mortgage borrowings

 

(742,270

)

(825,447

)

Issuance of note payable

 

7,500

 

8,815

 

Principal payments on notes payable

 

(8,687

)

(9,688

)

Principal payments on capital lease

 

(239

)

(201

)

Proceeds from exercise of stock options

 

66

 

14

 

Net cash used in financing activities

 

(670,631

)

(781,616

)

 

 

 

 

 

 

Net change in cash and cash equivalents

 

409

 

(2,888

)

Cash and cash equivalents at beginning of year

 

7,665

 

11,620

 

Cash and cash equivalents at end of period - continuing operations

 

8,031

 

8,716

 

Cash and cash equivalents at end of period - discontinued operations

 

43

 

16

 

Cash and cash equivalents at end of period

 

$

8,074

 

$

8,732

 

 

 

 

 

 

 

NON-CASH TRANSACTIONS (Continuing and Discontinued Operations):

 

 

 

 

 

Transfer of securitized mortgage collateral to real estate owned

 

$

39,296

 

$

75,419

 

Acquisition of equipment purchased through capital leases

 

199

 

587

 

Increase in ownership of AmeriHome

 

677

 

 

Notes received upon sale of Experience 1, Inc.

 

 

200

 

 

See accompanying notes to consolidated financial statements.

 

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IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data or as otherwise indicated)

 

Note 1.—Summary of Business, Market Conditions, and Financial Statement Presentation

 

Business Summary

 

Impac Mortgage Holdings, Inc. (the Company or IMH) is a Maryland corporation incorporated in August 1995 and has the following subsidiaries: Integrated Real Estate Service Corporation (IRES), IMH Assets Corp. (IMH Assets) and Impac Funding Corporation (IFC).

 

The Company’s continuing operations include mortgage lending and real estate services conducted by IRES and the long-term mortgage portfolio (residual interests in securitizations reflected as net trust assets and liabilities in the consolidated balance sheets). The discontinued operations include the former non-conforming mortgage operations conducted by IFC and subsidiaries.

 

The information set forth in these notes is presented on a continuing operations basis, unless otherwise stated.

 

Market Update and Liquidity –

 

The U.S. economy expanded at a 2.0% annual rate during the third quarter of 2012 as compared to 1.3% in the second quarter of 2012 primarily as a result of government and consumer spending. While the economy added jobs in the third quarter of 2012, the pace of new job creation continues to be slower than needed to meaningfully reduce unemployment.  U.S. unemployment rates, which have been a major factor in the deterioration of credit quality in the U.S., although improving slightly, continue to remain high at 7.8% in September 2012.  Despite the trend toward improving U.S. data, significant downside risk factors remain in place, at least through mid-2013.  Downside risk associated with global macroeconomic conditions, particularly in Europe and Asia, remains significant.  Also, the combination of federal tax increases and spending cuts known as the “Fiscal Cliff” is scheduled to take effect in early 2013 unless the U.S. Congress acts to change current laws.   According to studies done by the Congressional budget office, if nothing is done to address the Fiscal Cliff, the U.S. economy may be pushed back into a recession in 2013.  As a result, there continues to be significant uncertainty as to how pronounced the economic recovery will be and whether it can be sustained.

 

Real estate activity showed some encouraging signs as the nationwide average of home prices have appeared to hit a bottom and are starting to recover, although home prices continued to decline in many parts of the U.S. during the first nine months of 2012. Some positive news indicates that construction of new homes continued to grow in the third quarter, although at a slow rate.  However, foreclosures remain one of the biggest risks to the housing market recovery. As the industry-wide compliance issues associated with foreclosures are resolved, an increase in foreclosures is anticipated which is expected to result in downward pressure and uncertainty in the housing market.

 

As a result of the current conditions of the U.S. economy, in September 2012, the Federal Reserve announced a new quantitative easing program including agency mortgage-backed securities purchases, known as QE3.  In addition to QE3, the Federal Reserve announced its intention to keep the federal funds rate near zero through mid-2015.  The combination of these actions may increase equity prices and has decreased mortgage interest rates.  Although the benefits of these actions are difficult to assess, the expectation is that they will add to the current moderate pace of consumer spending and to the improving pace of new and existing home purchases for the remainder of 2012 and into 2013.

 

In late October, hurricane Sandy impacted the Mid-Atlantic and Northeast coasts of the U.S.  Given the severe magnitude and recent occurrence of this event, the ongoing dislocation within the affected region and lack of data available, the effect of hurricane Sandy on the economy cannot yet be fully assessed.

 

The Company believes that current cash balances, cash flows from its mortgage lending activities, real estate and loss mitigation services fees generated from the long-term mortgage portfolio, and residual interest cash flows from the long-term mortgage portfolio are adequate for current operating needs. However, the Company believes the mortgage lending and real estate services markets will continue to be highly competitive and subject to increased regulation. Competition in mortgage lending comes primarily from mortgage bankers, commercial banks, credit unions and other finance companies which have offices in the Company’s market area as well as operations throughout the U.S. The Company competes for loans principally on the basis of the interest rates and loan fees charged, the types of loans originated and the quality of services provided to borrowers.  Additionally, competition for real estate recovery services, loss mitigation servicing, loan modification services and other portfolio services has increased due to the unprecedented difficult mortgage environment and severe credit tightening, coupled with the stagnant economy. The Company’s competitors in its real estate service operations include large mortgage servicers, established special servicers, and newer entrants to the specialty servicing and recovery collections business. It is more difficult for the Company than its competitors to promote its ability to provide loss mitigation, special servicing and real estate services for others because the Company has not historically provided such services to unrelated third parties, and the Company is not a rated primary or special servicer of residential mortgage loans as designated by a rating agency.

 

6



Table of Contents

 

The Company has experienced recent success in expanding its mortgage lending business, primarily due to its origination of mortgages eligible for sale to government agencies on a service retained basis.  However, retaining servicing is a use of capital and the Company must carefully manage the size of its servicing portfolio, including selling servicing rights on a selective basis, to stay within capital constraints.  The Company is currently exploring opportunities to obtain additional capital to support the growth of the mortgage servicing portfolio and expansion of its origination platform and volumes.  Without additional capital, the Company’s mortgage lending business may not grow at the same pace as recently experienced.  Additionally, performance of the long-term mortgage portfolio is affected by the ongoing slow recoveries of both the real estate market and the general economy as a whole. Cash flows from the residual interests in securitizations can be volatile and difficult to predict, because they are sensitive to delinquencies, defaults and credit losses associated with the securitized loans and interest rates associated with the securitized bonds. Losses in excess of current estimates will reduce the residual interest cash receipts from the long-term mortgage portfolio. To the extent the related multifamily portion of the long-term mortgage portfolio experiences higher than expected credit losses, the Company, as the master servicer, may need to make advances on the multifamily portion.

 

Financial Statement Presentation

 

The accompanying unaudited consolidated financial statements of IMH and its subsidiaries (as defined above) have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. These interim period condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed with the United States Securities and Exchange Commission (SEC).

 

All significant inter-company balances and transactions have been eliminated in consolidation. In addition, certain amounts in the prior periods’ consolidated financial statements have been reclassified to conform to the current year presentation.

 

Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period to prepare these consolidated financial statements in conformity with GAAP. The items affected by such estimates and assumptions include the valuation of trust assets and trust liabilities, the estimated obligation of repurchase liabilities related to sold loans, the valuation of long-term debt, mortgage servicing rights and mortgage loans held-for-sale. Actual results could differ from those estimates and assumptions.

 

Recent Accounting Pronouncements

 

In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-08, Testing Goodwill for Impairment. Under this new standard, entities testing goodwill for impairment now have an option of performing a qualitative assessment before having to calculate the fair value of a reporting unit. If an entity determines, on the basis of qualitative factors, that the fair value of the reporting unit is more-likely-than-not less than the carrying amount, the existing quantitative impairment test is required. Otherwise, no further impairment testing is required. This ASU was effective beginning January 1, 2012 with early adoption permitted under certain conditions. The adoption of this standard did not have a material impact on the Company’s consolidated results of operations or financial condition.

 

In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 amends guidance listed under ASC Topic 820, “Fair Value Measurement,” and represents the converged guidance of the FASB and the International Accounting Standards Board on fair value measurement. This Update also permits entities to measure fair value on a net basis for financial instruments that are managed based on net exposure to market risks and/or counterparty credit risk. ASU 2011-04 requires new disclosures for financial instruments classified as Level 3, including: 1) quantitative information about unobservable inputs used in measuring fair value; 2) qualitative discussion of the sensitivity of fair value measurements to changes in unobservable inputs; and 3) a description of valuation processes used.  This update also requires disclosure of fair value levels for financial instruments that are not recorded at fair value but for which fair value is required to be disclosed.  ASU 2011-04 became effective prospectively for interim and annual periods beginning after December 15, 2011. The Company has conformed to the new disclosures required in ASU 2011-04 during the first quarter of 2012.

 

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In July 2012, the FASB issued ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350)—Testing Indefinite-Lived Intangible Assets for Impairment, which updated guidance on the periodic testing of indefinite-lived intangible assets, other than goodwill, for impairment. This guidance will allow companies to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset, other than goodwill, is impaired in order to determine whether it is necessary to perform a quantitative impairment test. ASU 2012-02 will be effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted.  The Company does not plan to early adopt ASU 2012-02; therefore, the ASU 2012-02 is effective for the Company beginning with the first quarter of fiscal year 2013. The Company does not anticipate the adoption of ASU 2012-02 to have a material impact on its results of operations, financial condition or cash flows.

 

Note 2.—Fair Value of Financial Instruments

 

The use of fair value to measure the Company’s financial instruments is fundamental to its consolidated financial statements and is a critical accounting estimate because a substantial portion of its assets and liabilities are recorded at estimated fair value.

 

The following table presents the estimated fair value of financial instruments included in the consolidated financial statements as of the dates indicated:

 

 

 

September 30, 2012

 

December 31, 2011

 

 

 

Carrying
Amount

 

Estimated
Fair Value

 

Carrying
Amount

 

Estimated
Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,031

 

$

8,031

 

$

7,653

 

$

7,653

 

Restricted cash

 

2,601

 

2,601

 

5,019

 

5,019

 

Investment securities available-for-sale

 

112

 

112

 

688

 

688

 

Securitized mortgage collateral

 

5,738,150

 

5,738,150

 

5,449,001

 

5,449,001

 

Derivative assets, securitized trusts

 

37

 

37

 

37

 

37

 

Derivative assets, lending

 

9,409

 

9,409

 

1,179

 

1,179

 

Mortgage servicing rights

 

9,317

 

9,317

 

4,141

 

4,141

 

Mortgage loans held-for-sale

 

145,346

 

145,346

 

61,718

 

61,718

 

Call option

 

73

 

73

 

253

 

253

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Securitized mortgage borrowings

 

5,725,469

 

5,725,469

 

5,454,901

 

5,454,901

 

Derivative liabilities, securitized trusts

 

19,112

 

19,112

 

24,786

 

24,786

 

Derivative liabilities, lending

 

3,786

 

3,786

 

624

 

624

 

Long-term debt

 

12,274

 

12,274

 

11,561

 

11,561

 

Warehouse borrowings

 

131,690

 

131,690

 

58,691

 

58,691

 

Notes payable

 

4,507

 

4,909

 

5,182

 

5,941

 

Line of credit

 

4,000

 

4,000

 

4,000

 

4,000

 

Put option

 

9

 

9

 

 

 

 

The fair value amounts above have been estimated by management using available market information and appropriate valuation methodologies. Considerable judgment is required to interpret market data to develop the estimates of fair value in both inactive and orderly markets. Accordingly, the estimates presented are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

 

For securitized mortgage collateral and securitized mortgage borrowings, the underlying Alt-A residential and commercial loans and mortgage-backed securities market have experienced significant declines in market activity, along with a lack of orderly transactions. The Company’s methodology to estimate fair value of these assets and liabilities include the use of internal pricing techniques such as the net present value of future expected cash flows (with observable market participant assumptions, where available) discounted at a rate of return based on the Company’s estimates of market participant requirements. The significant assumptions utilized in these internal pricing techniques, which are based on the characteristics of the underlying collateral, include estimated credit losses, estimated prepayment speeds and appropriate discount rates.

 

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Table of Contents

 

Refer to Recurring Fair Value Measurements below for a description of the valuation methods used to determine the fair value of investment securities available for sale, securitized mortgage collateral and borrowings, derivative assets and liabilities, long-term debt, mortgage servicing rights, loans held-for-sale, and call and put options.

 

The carrying amount of cash and cash equivalents and restricted cash approximates fair value.

 

Warehouse borrowings fair value approximates carrying amounts due to the short-term nature of the liabilities and do not present unanticipated interest rate or credit concerns.

 

Line of credit fair value approximates carrying amount due to the short-term nature of the liability and does not present unanticipated interest rate or credit concerns.

 

Notes payable includes notes with maturities ranging from less than a year to three years. Notes payable is recorded at amortized cost, net of any discounts. The estimated fair value is determined using a discounted cash flow model using estimated market rates.

 

Fair Value Hierarchy

 

The application of fair value measurements may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability or whether management has elected to carry the item at its estimated fair value.

 

FASB ASC 820-10-35 specifies a hierarchy of valuation techniques based on whether the inputs to those techniques are observable or unobservable. 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—Quoted prices (unadjusted) in active markets for identical instruments or liabilities that an entity has the ability to assess at measurement date.

 

·                  Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices that are observable for an asset or liability, including interest rates and yield curves observable at commonly quoted intervals, prepayment speeds, loss severities, credit risks and default rates; and market-corroborated inputs.

 

·                  Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when estimating fair value.

 

As a result of the lack of observable market data resulting from inactive markets, the Company has classified its investment securities available-for-sale, securitized mortgage collateral and borrowings, net derivative liabilities — securitized trusts, long-term debt, mortgage servicing rights, and call and put options as Level 3 fair value measurements. Level 3 assets and liabilities were 97% and 100% and 99% and 100%, respectively, of total assets and total liabilities measured at estimated fair value at September 30, 2012 and December 31, 2011.

 

Recurring Fair Value Measurements

 

We assess our financial instruments on a quarterly basis to determine the appropriate classification within the fair value hierarchy, as defined by ASC Topic 810. Transfers between fair value classifications occur when there are changes in pricing observability levels. Transfers of financial instruments among the levels occur at the beginning of the reporting period. There were no material transfers between our Level 1 and Level 2 classified instruments during the three and nine months ended September 30, 2012.

 

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Table of Contents

 

The following tables present the Company’s assets and liabilities that are measured at estimated fair value on a recurring basis, including financial instruments for which the Company has elected the fair value option at September 30, 2012 and December 31, 2011, based on the fair value hierarchy:

 

 

 

Recurring Fair Value Measurements

 

 

 

September 30, 2012

 

December 31, 2011

 

 

 

Level 1

 

Level 2

 

Level 3

 

Level 1

 

Level 2

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available-for-sale

 

$

 

$

 

$

112

 

$

 

$

 

$

688

 

Mortgage loans held-for-sale

 

 

145,346

 

 

 

61,718

 

 

Derivative assets, net, lending (1)

 

 

5,623

 

 

 

555

 

 

Mortgage servicing rights

 

 

 

9,317

 

 

 

4,141

 

Call option (2)

 

 

 

73

 

 

 

253

 

Securitized mortgage collateral

 

 

 

5,738,150

 

 

 

5,449,001

 

Total assets at fair value

 

$

 

$

150,969

 

$

5,747,652

 

$

 

$

62,273

 

$

5,454,083

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Securitized mortgage borrowings

 

$

 

$

 

$

5,725,469

 

$

 

$

 

$

5,454,901

 

Derivative liabilities, net, securitized trusts (3)

 

 

 

19,075

 

 

 

24,749

 

Long-term debt

 

 

 

12,274

 

 

 

11,561

 

Put option (4)

 

 

 

9

 

 

 

 

Total liabilities at fair value

 

$

 

$

 

$

5,756,827

 

$

 

$

 

$

5,491,211

 

 


(1)         At September 30, 2012, derivative assets, net, lending, included $9.4 million in interest rate lock commitments (IRLCs) and $3.8 million in hedging instruments, respectively, associated with the Company’s mortgage lending operations, and is included in other assets and other liabilities in the accompanying consolidated balance sheets.

(2)         Included in other assets in the accompanying consolidated balance sheets.

(3)         At September 30, 2012, derivative liabilities, net—securitized trusts, included $37 thousand in derivative assets and $19.1 million in derivative liabilities, included within trust assets and trust liabilities, respectively. At December 31, 2011, derivative liabilities, net—securitized trusts, included $37 thousand in derivative assets and $24.8 million in derivative liabilities, included within trust assets and trust liabilities, respectively.

(4)         Included in other liabilities in the accompanying consolidated balance sheets.

 

The following tables present a reconciliation for all assets and liabilities measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2012 and 2011:

 

 

 

Level 3 Recurring Fair Value Measurements

 

 

 

For the three months ended September 30, 2012

 

 

 

Investment
securities available-
for-sale

 

Securitized
mortgage
collateral

 

Securitized
mortgage
borrowings

 

Derivative
liabilities, net

 

Mortgage
servicing
rights

 

Call
option

 

Put
option

 

Long-term
debt

 

Fair value, June 30, 2012

 

$

140

 

$

5,430,443

 

$

(5,426,042

)

$

(20,402

)

$

7,090

 

$

73

 

$

(9

)

$

(11,952

)

Total gains (losses) included in earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (1)

 

7

 

32,452

 

 

 

 

 

 

 

Interest expense (1)

 

 

 

(95,316

)

 

 

 

 

(512

)

Change in fair value

 

15

 

467,423

 

(472,583

)

(853

)

(494

)

 

 

190

 

Total (losses) gains included in earnings

 

22

 

499,875

 

(567,899

)

(853

)

(494

)

 

 

(322

)

Transfers in and/or out of Level 3

 

 

 

 

 

 

 

 

 

Purchases, issuances and settlements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases

 

 

 

 

 

 

 

 

 

Issuances

 

 

 

 

 

4,621

 

 

 

 

Settlements

 

(50

)

(192,168

)

268,472

 

2,180

 

(1,900

)

 

 

 

Fair value, September 30, 2012

 

$

112

 

$

5,738,150

 

$

(5,725,469

)

$

(19,075

)

$

9,317

 

$

73

 

$

(9

)

$

(12,274

)

Unrealized gains (losses) still held (2)

 

$

40

 

$

(2,992,344

)

$

5,026,505

 

$

(18,342

)

$

 

$

 

$

 

$

58,489

 

 


(1)          Amounts primarily represent accretion to recognize interest income and interest expense using effective yields based on estimated fair values for trust assets and trust liabilities. The net interest income, including cash received and paid, was $1.8 million for the three months ended September 30, 2012. The difference between accretion of interest income and expense and the amounts of interest income and expense recognized in the consolidated statements of operations is primarily from contractual interest on the securitized mortgage collateral and borrowings.

(2)          Represents the amount of unrealized gains (losses) relating to assets and liabilities classified as Level 3 that are still held and reflected in the fair values at September 30, 2012.

 

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Table of Contents

 

 

 

 

Level 3 Recurring Fair Value Measurements

 

 

 

For the three months ended September 30, 2011

 

 

 

Investment
securities available-
for-sale

 

Securitized
mortgage
collateral

 

Securitized
mortgage
borrowings

 

Derivative
liabilities, net

 

Mortgage
servicing
rights

 

Call
option

 

Put
option

 

Long-term
debt

 

Fair value, June 30, 2011

 

$

447

 

$

5,641,957

 

$

(5,651,842

)

$

(38,104

)

$

1,405

 

$

454

 

$

(23

)

$

(12,148

)

Total gains (losses) included in earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (1)

 

30

 

73,164

 

 

 

 

 

 

 

Interest expense (1)

 

 

 

(152,229

)

 

 

 

 

(644

)

Change in fair value

 

17

 

(92,459

)

106,771

 

(4,032

)

140

 

(202

)

8

 

1,459

 

Total gains (losses) included in earnings

 

47

 

(19,295

)

(45,458

)

(4,032

)

140

 

(202

)

8

 

815

 

Transfers in and/or out of Level 3

 

 

 

 

 

 

 

 

 

Purchases, issuances and settlements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases

 

 

 

 

 

 

 

 

 

 

Issuances

 

 

 

 

 

645

 

 

 

 

Settlements

 

(50

)

(181,072

)

251,270

 

11,111

 

 

 

 

 

Fair value, September 30, 2011

 

$

444

 

$

5,441,590

 

$

(5,446,030

)

$

(31,025

)

$

2,190

 

$

252

 

$

(15

)

$

(11,333

)

Unrealized gains (losses) still held (2)

 

$

279

 

$

(4,333,232

)

$

6,294,503

 

$

(30,665

)

$

 

$

 

$

 

$

59,430

 

 


(1)          Amounts primarily represent accretion to recognize interest income and interest expense using effective yields based on estimated fair values for trust assets and trust liabilities. The net interest income, including cash received and paid, was $2.0 million for the three months ended September 30, 2011. The difference between accretion of interest income and expense and the amounts of interest income and expense recognized in the consolidated statements of operations is primarily from contractual interest on the securitized mortgage collateral and borrowings.

(2)          Represents the amount of unrealized gains (losses) relating to assets and liabilities classified as Level 3 that are still held and reflected in the fair values at September 30, 2011.

 

 

 

Level 3 Recurring Fair Value Measurements

 

 

 

For the nine months ended September 30, 2012

 

 

 

Investment
securities available-
for-sale

 

Securitized
mortgage
collateral

 

Securitized
mortgage
borrowings

 

Derivative
liabilities, net

 

Mortgage
servicing rights

 

Call
option

 

Put
option

 

Long-term
debt

 

Fair value, December 31, 2011

 

$

688

 

$

5,449,001

 

$

(5,454,901

)

$

(24,749

)

$

4,141

 

$

253

 

$

 

$

(11,561

)

Total gains (losses) included in earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (1)

 

30

 

124,292

 

 

 

 

 

 

 

Interest expense (1)

 

 

 

(322,931

)

 

 

 

 

(1,585

)

Change in fair value

 

(439

)

698,704

 

(689,979

)

(2,724

)

(869

)

(180

)

(9

)

872

 

Total (losses) gains included in earnings

 

(409

)

822,996

 

(1,012,910

)

(2,724

)

(869

)

(180

)

(9

)

(713

)

Transfers in and/or out of Level 3

 

 

 

 

 

 

 

 

 

 

 

 

Purchases, issuances and settlements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases

 

 

 

 

 

 

 

 

 

Issuances

 

 

 

 

 

10,257

 

 

 

 

Settlements

 

(167

)

(533,847

)

742,342

 

8,398

 

(4,212

)

 

 

 

Fair value, September 30, 2012

 

$

112

 

$

5,738,150

 

$

(5,725,469

)

$

(19,075

)

$

9,317

 

$

73

 

$

(9

)

$

(12,274

)

Unrealized gains (losses) still held (2)

 

$

40

 

$

(2,992,344

)

$

5,026,505

 

$

(18,342

)

$

 

$

 

$

 

$

58,489

 

 


(1)          Amounts primarily represent accretion to recognize interest income and interest expense using effective yields based on estimated fair values for trust assets and trust liabilities. The net interest income, including cash received and paid, was $6.2 million for the nine months ended September 30, 2012.  The difference between accretion of interest income and expense and the amounts of interest income and expense recognized in the consolidated statements of operations is primarily from contractual interest on the securitized mortgage collateral and borrowings.

(2)          Represents the amount of unrealized gains (losses) relating to assets and liabilities classified as Level 3 that are still held and reflected in the fair values at September 30, 2012.

 

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Table of Contents

 

 

 

 

Level 3 Recurring Fair Value Measurements

 

 

 

For the nine months ended September 30, 2011

 

 

 

Investment
securities available-
for-sale

 

Securitized
mortgage
collateral

 

Securitized
mortgage
borrowings

 

Derivative
liabilities, net

 

Mortgage
servicing rights

 

Call
option

 

Put
option

 

Long-term
debt

 

Fair value, December 31, 2010

 

$

645

 

$

6,011,675

 

$

(6,012,745

)

$

(65,876

)

$

1,439

 

$

706

 

$

(61

)

$

(11,728

)

Total gains (losses) included in earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (1)

 

88

 

276,009

 

 

 

 

 

 

 

Interest expense (1)

 

 

 

(525,430

)

 

 

 

 

(1,707

)

Change in fair value

 

(128

)

(239,727

)

265,754

 

(8,303

)

106

 

(454

)

46

 

2,102

 

Total (losses) gains included in earnings

 

(40

)

36,282

 

(259,676

)

(8,303

)

106

 

(454

)

46

 

395

 

Transfers in and/or out of Level 3

 

 

 

 

 

 

 

 

 

Purchases, issuances and settlements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases

 

 

 

 

 

 

 

 

 

Issuances

 

 

 

 

 

645

 

 

 

 

Settlements

 

(161

)

(606,367

)

826,391

 

43,154

 

 

 

 

 

Fair value, September 30, 2011

 

$

444

 

$

5,441,590

 

$

(5,446,030

)

$

(31,025

)

$

2,190

 

$

252

 

$

(15

)

$

(11,333

)

Unrealized gains (losses) still held (2)

 

$

279

 

$

(4,333,232

)

$

6,294,503

 

$

(30,665

)

$

 

$

 

$

 

$

59,430

 

 


(1)          Amounts primarily represent accretion to recognize interest income and interest expense using effective yields based on estimated fair values for trust assets and trust liabilities. The net interest income, including cash received and paid, was $7.5 million for the nine months ended September 30, 2011.  The difference between accretion of interest income and expense and the amounts of interest income and expense recognized in the consolidated statements of operations is primarily from contractual interest on the securitized mortgage collateral and borrowings.

(2)          Represents the amount of unrealized gains (losses) relating to assets and liabilities classified as Level 3 that are still held and reflected in the fair values at September 30, 2011.

 

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 and non-recurring basis at September 30, 2012.

 

Financial Instrument

 

Estimated Fair
Value

 

Valuation
Technique

 

Unobservable
Input

 

Range of
Inputs

 

Assets and liabilities backed by real estate

 

 

 

 

 

 

 

 

 

Investment securities available-for-sale,

 

$

112

 

DCF

 

Discount rates

 

3.72 - 30.0%

 

Securitized mortgage collateral, and

 

5,738,150

 

 

 

Prepayment rates

 

0.82 - 10.6%

 

Securitized mortgage borrowings

 

(5,725,469

)

 

 

Default rates

 

0.79 - 10.2%

 

 

 

 

 

 

 

Loss severities

 

12.7 - 62.8%

 

Other assets and liabilities

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

$

9,317

 

DCF

 

Discount rate

 

12.0%

 

 

 

 

 

 

 

Prepayment rates

 

4.09 - 15.4%

 

Derivative liabilities, net, securitized trusts

 

(19,075

)

DCF

 

1M forward LIBOR

 

0.21 - 3.52%

 

Long-term debt

 

(12,274

)

DCF

 

Discount rate

 

25.0%

 

Lease liability

 

(1,841

)

DCF

 

Discount rate

 

12.0%

 

 

DCF = Discounted Cash Flow

1M = 1 Month

 

For assets and liabilities backed by real estate, a significant increase in discount rates, default rates or loss severities would result in a significantly lower estimated fair value.  The effect of changes in prepayment speeds would have differing effects depending on the seniority or other characteristics of the instrument.  For other assets and liabilities, a significant increase in discount rates would result in a significantly lower estimated fair value.  A significant increase in one-month LIBOR would result in a significantly higher estimated fair value for derivative liabilities, net, securitized trusts.  The Company believes that the imprecision of an estimate could be significant.

 

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Table of Contents

 

The table below illustrates hypothetical fair values of MSRs, caused by assumed immediate changes to key assumptions that are used to determine fair value.

 

Mortgage Servicing Rights Sensitivity Analysis

 

September 30,
2012

 

 

 

 

 

Fair value of MSRs

 

$

9,317

 

 

 

 

 

Prepayment Speed:

 

 

 

Decrease in fair value from 25 basis points (bps) adverse change

 

(168

)

Decrease in fair value from 50 bps adverse change

 

(333

)

 

 

 

 

Discount Rate:

 

 

 

Decrease in fair value from 25 bps adverse change

 

(16

)

Decrease in fair value from 50 bps adverse change

 

(37

)

 

 

 

 

Default Rate:

 

 

 

Decrease in fair value from 25 bps adverse change

 

(461

)

Decrease in fair value from 50 bps adverse change

 

(1,535

)

 

Sensitivities are hypothetical changes in fair value and cannot be extrapolated because the relationship of changes in assumptions to changes in fair value may not be linear.  Also, the effect of a variation in a particular assumption is calculated without changing any other assumption, whereas a change in one factor may result in changes to another.  Accordingly, no assurance can be given that actual results would be consistent with the results of these estimates.  As a result, actual future changes in MSR values may differ significantly from those displayed above.

 

The following tables present the changes in recurring fair value measurements included in net earnings (loss) for the three and nine months ended September 30, 2012 and 2011:

 

 

 

Recurring Fair Value Measurements

 

 

 

Change in Fair Value Included in Net Earnings

 

 

 

For the three months ended September 30, 2012

 

 

 

Interest

 

Interest

 

Change in Fair Value of

 

Other Non-interest

 

Mortgage lending

 

 

 

 

 

Income (1)

 

Expense (1)

 

Net Trust Assets

 

Long-term Debt

 

Income

 

gains and fees, net

 

Total

 

Investment securities available-for-sale

 

$

7

 

$

 

$

15

 

$

 

$

 

$

 

$

22

 

Securitized mortgage collateral

 

32,452

 

 

467,423

 

 

 

 

499,875

 

Securitized mortgage borrowings

 

 

(95,316

)

(472,583

)

 

 

 

(567,899

)

Mortgage servicing rights

 

 

 

 

 

(494

)

 

(494

)

Call option

 

 

 

 

 

 

 

 

Put option

 

 

 

 

 

 

 

 

Derivative liabilities, net

 

 

 

(853

)(2)

 

 

 

(853

)

Long-term debt

 

 

(512

)

 

190

 

 

 

(322

)

Mortgage loans held-for-sale

 

 

 

 

 

 

4,220

 

4,220

 

Derivative assets - IRLCs

 

 

 

 

 

 

4,950

 

4,950

 

Derivative liabilities - Hedging Instruments

 

 

 

 

 

 

(2,234

)

(2,234

)

Total

 

$

32,459

 

$

(95,828

)

$

(5,998

)

$

190

 

$

(494

)

$

6,936

 

$

(62,735

)

 


(1)             Amounts primarily represent accretion to recognize interest income and interest expense using effective yields based on estimated fair values for trust assets and trust liabilities.

(2)             Included in this amount is $1.3 million in change in the fair value of derivative instruments, offset by $2.2 million in cash payments from the securitization trusts for the three months ended September 30, 2012.

 

 

 

Recurring Fair Value Measurements

 

 

 

Change in Fair Value Included in Net Loss

 

 

 

For the three months ended September 30, 2011

 

 

 

Interest

 

Interest

 

Change in Fair Value of

 

Other Non-interest

 

Mortgage lending

 

 

 

 

 

Income (1)

 

Expense (1)

 

Net Trust Assets

 

Long-term Debt

 

Income

 

gains and fees, net

 

Total

 

Investment securities available-for-sale

 

$

30

 

$

 

$

17

 

$

 

$

 

$

 

$

47

 

Securitized mortgage collateral

 

73,164

 

 

(92,459

)

 

 

 

(19,295

)

Securitized mortgage borrowings

 

 

(152,229

)

106,771

 

 

 

 

(45,458

)

Mortgage servicing rights

 

 

 

 

 

140

 

 

140

 

Call option

 

 

 

 

 

(202

)

 

(202

)

Put option

 

 

 

 

 

8

 

 

8

 

Derivative liabilities, net

 

 

 

(4,032

)(2)

 

 

 

(4,032

)

Long-term debt

 

 

(644

)

 

1,459

 

 

 

815

 

Mortgage loans held-for-sale

 

 

 

 

 

 

457

 

457

 

Derivative assets - IRLCs

 

 

 

 

 

 

1,064

 

1,064

 

Derivative liabilities - Hedging Instruments

 

 

 

 

 

 

(796

)

(796

)

Total

 

$

73,194

 

$

(152,873

)

$

10,297

 

$

1,459

 

$

(54

)

$

725

 

$

(67,252

)

 


(1)             Amounts primarily represent accretion to recognize interest income and interest expense using effective yields based on estimated fair values for trust assets and trust liabilities.

(2)             Included in this amount is $7.4 million in changes in the fair value of derivative instruments, offset by $11.4 million in cash payments from the securitization trusts for the three months ended September 30, 2011.

 

13



Table of Contents

 

 

 

Recurring Fair Value Measurements

 

 

 

Changes in Fair Value Included in Net Earnings

 

 

 

For the nine months ended September 30, 2012

 

 

 

Interest

 

Interest

 

Change in Fair Value of

 

Other Non-interest

 

Mortgage lending

 

 

 

 

 

Income (1)

 

Expense (1)

 

Net Trust Assets

 

Long-term Debt

 

Income

 

gains and fees, net

 

Total

 

Investment securities available-for-sale

 

$

30

 

$

 

$

(439

)

$

 

$

 

$

 

$

(409

)

Securitized mortgage collateral

 

124,292

 

 

698,704

 

 

 

 

822,996

 

Securitized mortgage borrowings

 

 

(322,931

)

(689,979

)

 

 

 

(1,012,910

)

Mortgage servicing rights

 

 

 

 

 

(869

)

 

(869

)

Call option

 

 

 

 

 

(180

)

 

(180

)

Put option

 

 

 

 

 

(9

)

 

(9

)

Derivative liabilities, net

 

 

 

(2,724

)(2)

 

 

 

(2,724

)

Long-term debt

 

 

(1,585

)

 

872

 

 

 

(713

)

Mortgage loans held-for-sale

 

 

 

 

 

 

7,048

 

7,048

 

Derivative assets - IRLCs

 

 

 

 

 

 

8,231

 

8,231

 

Derivative liabilities - Hedging Instruments

 

 

 

 

 

 

(3,163

)

(3,163

)

Total

 

$

124,322

 

$

(324,516

)

$

5,562

(3)

$

872

 

$

(1,058

)

$

12,116

 

$

(182,702

)

 


(1)             Amounts primarily represent accretion to recognize interest income and interest expense using effective yields based on estimated fair values for trust assets and trust liabilities.

(2)             Included in this amount is $5.8 million in change in the fair value of derivative instruments, offset by $8.5 million in cash payments from the securitization trusts for the nine months ended September 30, 2012.

(3)             For the nine months ended September 30, 2012, change in the fair value of trust assets, excluding REO was $5.6 million.  Excluded from the $14.1 million change in fair value of net trust assets, excluding REO, in the accompanying consolidated statement of cash flows is $8.5 million in cash payments from the securitization trusts related to the Company’s net derivative liabilities.

 

 

 

Recurring Fair Value Measurements

 

 

 

Changes in Fair Value Included in Net Earnings

 

 

 

For the nine months ended September 30, 2011

 

 

 

Interest

 

Interest

 

Change in Fair Value of

 

Other Non-interest

 

Mortgage lending

 

 

 

 

 

Income (1)

 

Expense (1)

 

Net Trust Assets

 

Long-term Debt

 

Income

 

gains and fees, net