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Fair Value
 12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Disclosures
Fair Value
Basis for Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A three-tier fair value hierarchy is used to prioritize the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The three levels of the fair value hierarchy are as follows:
Level 1 — Valuation is based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 — Valuation is based on quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 — Valuation is based on inputs that are both significant to the fair value measurement and unobservable.
The accounting guidance concerning fair value allows the Company to elect to measure financial instruments at fair value and report the changes in fair value through net income or loss. This election can only be made at certain specified dates and is irrevocable once made. Other than mortgage loans held for sale, which the Company has elected to measure at fair value, the Company does not have a fair value election policy, but rather makes the election on an instrument-by-instrument basis as assets and liabilities are acquired or incurred, other than for those assets and liabilities that are required to be recorded and subsequently measured at fair value.
Transfers into and out of the fair value hierarchy levels are assumed to be as of the end of the quarter in which the transfer occurred. The Company transferred $14.6 million and $34.8 million in servicing rights carried at fair value from Level 3 to Level 2 during the period from February 10, 2018 through December 31, 2018 and the year ended December 31, 2017, respectively, as there was direct observable input in a non-active market available to measure these assets.
Items Measured at Fair Value on a Recurring Basis
The following table summarizes the assets and liabilities in each level of the fair value hierarchy (in thousands). There were an insignificant amount of assets or liabilities measured at fair value on a recurring basis utilizing Level 1 assumptions.
 
 
Successor
 
 
Predecessor
 
 
December 31, 2018
 
 
December 31, 2017
Level 2
 
 
 
 
 
Assets
 
 
 
 
 
Mortgage loans held for sale
 
$
777,226

 
 
$
588,485

Servicing rights carried at fair value
 
14,565

 
 
—

Freestanding derivative instruments
 
1,770

 
 
2,757

Level 2 assets
 
$
793,561

 
 
$
591,242

Liabilities
 
 
 
 
 
Freestanding derivative instruments
 
$
13,410

 
 
$
981

Servicing rights related liabilities
 
—

 
 
32

Level 2 liabilities
 
$
13,410

 
 
$
1,013

 
 
 
 
 
 
Level 3
 
 
 
 
 
Assets
 
 
 
 
 
Reverse loans
 
$
8,202,775

 
 
$
9,789,444

Mortgage loans related to Non-Residual Trusts
 
117,410

 
 
301,435

Mortgage loans related to Residual Trusts and other loans held for investment (1)
 
1,044

 
 
—

Mortgage loans held for sale
 
61

 
 
68

Charged-off loans
 
48,440

 
 
45,800

Receivables related to Non-Residual Trusts
 
1,945

 
 
5,608

Servicing rights carried at fair value
 
548,579

 
 
714,774

Freestanding derivative instruments (IRLCs)
 
16,617

 
 
26,637

Level 3 assets
 
$
8,936,871

 
 
$
10,883,766

Liabilities
 
 
 
 
 
Freestanding derivative instruments (IRLCs)
 
$
327

 
 
$
269

Mortgage-backed debt related to Non-Residual Trusts
 
131,313

 
 
348,682

HMBS related obligations
 
7,264,821

 
 
9,175,128

Level 3 liabilities
 
$
7,396,461

 
 
$
9,524,079


__________
(1)
In connection with the adoption of fresh start accounting effective February 10, 2018, the Company elected to change its method of accounting for mortgage loans related to Residual Trusts and other loans held for investment as well as mortgage-backed debt related to Residual Trusts from amortized cost to fair value.
The following assets and liabilities are measured on the consolidated balance sheets at fair value on a recurring basis utilizing significant unobservable inputs or Level 3 assumptions in their valuation. The following tables provide a reconciliation of the beginning and ending balances of these assets and liabilities (in thousands):
 
Successor
 
For the Period From February 10, 2018 Through December 31, 2018
 
Fair Value
February 10, 2018
 
Total
Gains (Losses)
Included in
Comprehensive
Loss
 
Purchases and Other
 
Sales and other
 
Originations / Issuances
 
Settlements
 
Transfers Out of Level 3
 
Fair Value December 31, 2018
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reverse loans
$
9,702,263

 
$
202,844

 
$
—

 
$
(210,172
)
 
$
224,001

 
$
(1,716,161
)
 
$
—

 
$
8,202,775

Mortgage loans related to Non-Residual Trusts (1)
299,790

 
15,728

 
—

 
(159,344
)
 
—

 
(38,764
)
 
—

 
117,410

Mortgage loans related to Residual Trusts and other loans held for investment
304,051

 
(830
)
 
—

 
(287,068
)
 
—

 
(15,109
)
 
—

 
1,044

Mortgage loans held for sale
67

 
24

 
—

 
—

 
—

 
(30
)
 
—

 
61

Charged-off loans (2)
50,299

 
32,411

 
—

 
—

 
—

 
(34,270
)
 
—

 
48,440

Receivables related to Non-Residual Trusts
4,730

 
48

 
—

 
—

 
—

 
(2,833
)
 
—

 
1,945

Servicing rights carried at fair value
688,466

 
(96,873
)
 
55

 
(140,434
)
 
111,930

 
—

 
(14,565
)
 
548,579

Freestanding derivative instruments (IRLCs)
24,460

 
(7,786
)
 
—

 
—

 
—

 
(57
)
 
—

 
16,617

Total assets
$
11,074,126

 
$
145,566

 
$
55

 
$
(797,018
)
 
$
335,931

 
$
(1,807,224
)
 
$
(14,565
)
 
$
8,936,871

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Freestanding derivative instruments (IRLCs)
$
(3,023
)
 
$
2,696

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(327
)
Mortgage-backed debt related to Non-Residual Trusts
(344,002
)
 
(7,784
)
 
—

 
—

 
—

 
220,473

 
—

 
(131,313
)
Mortgage-backed debt related to Residual Trusts
(390,152
)
 
1,331

 
—

 
356,621

 
—

 
32,200

 
—

 
—

HMBS related obligations
(8,913,052
)
 
(156,011
)
 
—

 
—

 
(251,946
)
 
2,056,188

 
—

 
(7,264,821
)
Total liabilities
$
(9,650,229
)
 
$
(159,768
)
 
$
—

 
$
356,621

 
$
(251,946
)
 
$
2,308,861

 
$
—

 
$
(7,396,461
)
__________
(1)
Sales and other for mortgage loans related to Non-Residual Trusts represents loans transferred to the counterparty under the Clean-up Call Agreement upon the counterparty's exercise of the mandatory clean-up call on the remaining trusts. Refer to Notes 5 and 29 for further information.
(2)
Included in gains on charged-off loans are gains from instrument-specific credit risk, which primarily result from changes in assumptions related to collection rates, of $11.6 million during the period from February 10, 2018 through December 31, 2018.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Predecessor
 
For the Period From January 1, 2018 Through February 9, 2018
 
Fair Value
January 1, 2018
 
Total
Gains (Losses)
Included in
Comprehensive Income
 
Purchases and Other
 
Sales
 
Originations / Issuances
 
Settlements
 
Fresh Start Accounting Adjustment
 
Fair Value
February 9, 2018
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reverse loans
$
9,789,444

 
$
31,476

 
$
—

 
$
—

 
$
33,300

 
$
(151,957
)
 
$
—

 
$
9,702,263

Mortgage loans related to Non-Residual Trusts
301,435

 
5,690

 
—

 
—

 
—

 
(7,335
)
 
—

 
299,790

Mortgage loans related to Residual Trusts and other loans held for investment
—

 
—

 
—

 
—

 
—

 
—

 
304,051

 
304,051

Mortgage loans held for sale
68

 
—

 
—

 
—

 
—

 
(1
)
 
—

 
67

Charged-off loans (1)
45,800

 
8,843

 
—

 
—

 
—

 
(4,344
)
 
—

 
50,299

Receivables related to Non-Residual Trusts
5,608

 
848

 
—

 
—

 
—

 
(1,726
)
 
—

 
4,730

Servicing rights carried at fair value
714,774

 
64,663

 
(7
)
 
(100,399
)
 
9,435

 
—

 
—

 
688,466

Freestanding derivative instruments (IRLCs)
26,637

 
(2,171
)
 
—

 
—

 
—

 
(6
)
 
—

 
24,460

Total assets
$
10,883,766

 
$
109,349

 
$
(7
)
 
$
(100,399
)
 
$
42,735

 
$
(165,369
)
 
$
304,051

 
$
11,074,126

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Freestanding derivative instruments (IRLCs)
$
(269
)
 
$
(2,754
)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(3,023
)
Mortgage-backed debt related to Non-Residual Trusts
(348,682
)
 
(2,956
)
 
—

 
—

 
—

 
7,636

 
—

 
(344,002
)
Mortgage-backed debt related to Residual Trusts
—

 
—

 
—

 
—

 
—

 
—

 
(390,152
)
 
(390,152
)
HMBS related obligations
(9,175,128
)
 
(20,900
)
 
—

 
—

 
(27,881
)
 
310,857

 
—

 
(8,913,052
)
Total liabilities
$
(9,524,079
)
 
$
(26,610
)
 
$
—

 
$
—

 
$
(27,881
)
 
$
318,493

 
$
(390,152
)
 
$
(9,650,229
)
__________
(1)
Included in gains on charged-off loans are gains from instrument-specific credit risk, which primarily result from changes in assumptions related to collection rates, of $5.7 million during the period from January 1, 2018 through February 9, 2018.
 
Predecessor
 
For the Year Ended December 31, 2017
 
Fair Value
January 1,
2017
 
Total
Gains (Losses)
Included in
Comprehensive Loss
 
Purchases and Other
 
Sales and Other
 
Originations / Issuances
 
Settlements
 
Transfers Out of Level 3
 
Fair Value
December 31, 2017
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reverse loans
$
10,742,922

 
$
242,288

 
$
44,769

 
$
—

 
$
337,378

 
$
(1,577,913
)
 
$
—

 
$
9,789,444

Mortgage loans related to Non-Residual Trusts (1)
450,377

 
25,214

 
—

 
(88,842
)
 
—

 
(85,314
)
 
—

 
301,435

Mortgage loans held for sale (1)
—

 
(131
)
 
—

 
1,671

 
—

 
(1,472
)
 
—

 
68

Charged-off loans (2)
46,963

 
39,072

 
—

 
—

 
—

 
(40,235
)
 
—

 
45,800

Receivables related to Non-Residual Trusts
15,033

 
5,224

 
—

 
—

 
—

 
(14,649
)
 
—

 
5,608

Servicing rights carried at fair value (3)
936,423

 
(263,629
)
 
670

 
5,356

 
70,801

 
—

 
(34,847
)
 
714,774

Freestanding derivative instruments (IRLCs)
53,394

 
(26,556
)
 
—

 
—

 
—

 
(201
)
 
—

 
26,637

Total assets
$
12,245,112

 
$
21,482

 
$
45,439

 
$
(81,815
)
 
$
408,179

 
$
(1,719,784
)
 
$
(34,847
)
 
$
10,883,766

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Freestanding derivative instruments (IRLCs)
$
(4,193
)
 
$
3,924

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(269
)
Mortgage-backed debt related to Non-Residual Trusts
(514,025
)
 
(26,519
)
 
—

 
—

 
—

 
191,862

 
—

 
(348,682
)
HMBS related obligations
(10,509,449
)
 
(199,869
)
 
—

 
—

 
(464,192
)
 
1,998,382

 
—

 
(9,175,128
)
Total liabilities
$
(11,027,667
)
 
$
(222,464
)
 
$
—

 
$
—

 
$
(464,192
)
 
$
2,190,244

 
$
—

 
$
(9,524,079
)
__________
(1)
During the year ended December 31, 2017, $25.1 million of loans transferred from mortgage loans related to Non-Residual Trusts to mortgage loans held for sale upon exercising mandatory call obligations reflected within "Sales and Other" in the above table. Refer to Note 29 for additional information on the mandatory call obligations. In December 2017, a majority of these loans were sold to NRM for $23.4 million
(2)
Included in gains on charged-off loans are gains from instrument-specific credit risk, which primarily result from changes in assumptions related to collection rates, of $15.8 million during the year ended December 31, 2017.
(3)
Amounts transferred out of Level 3 consisted of servicing rights that were transferred to Level 2 during the third quarter of 2017. These transfers resulted from an agreement with a third-party to sell such servicing rights, which were subsequently sold during the fourth quarter of 2017. In total, the Company sold $117.5 million of servicing rights during the year ended December 31, 2017. Refer to Note 13 for additional information on servicing rights sold during the year.
Refer to Note 3 for the location within the consolidated statements of comprehensive income (loss) of the gains and losses resulting from changes in fair value of assets and liabilities disclosed above. Total gains and losses included above include interest income and interest expense at the stated rate for interest-bearing assets and liabilities, respectively, accretion and amortization, and the impact of the changes in valuation inputs and assumptions.
The Company’s Valuation Committee determines and approves valuation policies and unobservable inputs used to estimate the fair value of items measured at fair value on a recurring basis. The Valuation Committee, consisting of certain members of the senior executive management team, meets on a quarterly basis to review the assets and liabilities that require fair value measurement, including how each asset and liability has actually performed in comparison to the unobservable inputs and the projected performance. The Valuation Committee also reviews related available market data. Fair value adjustments relating to the adoption of fresh start accounting are discussed in more detail in Note 2.
The following is a description of the methods used to estimate the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis, as well as the basis for classifying these assets and liabilities as Level 2 or 3 within the fair value hierarchy. The Company’s valuations consider assumptions that it believes a market participant would consider in valuing the assets and liabilities, the most significant of which are disclosed below. The Company reassesses and periodically adjusts the underlying inputs and assumptions used in the valuations for recent historical experience, as well as for current and expected relevant market conditions.
Residential loans
•
Reverse loans, mortgage loans related to Non-Residual Trusts, mortgage loans related to Residual Trusts and other loans held for investment, and charged-off loans — These loans are not traded in an active, open market with readily observable prices. Accordingly, the Company estimates fair value using Level 3 unobservable market inputs. The estimated fair value is based on the net present value of projected cash flows over the estimated life of the loans. The discount rate assumption for these assets considers, as applicable, collateral and credit risk characteristics of the loans, collection rates, current market interest rates, expected duration, and current market yields.
•
Mortgage loans held for sale — These loans are primarily valued using a market approach by utilizing observable quoted market prices, where available, or prices for other whole loans with similar characteristics. The Company classifies these loans as Level 2 within the fair value hierarchy. Loans held for sale also includes loans that are not traded in an active, open market with readily observable prices. Accordingly, the Company estimates fair value using Level 3 unobservable market inputs. The estimated fair value is based on the net present value of projected cash flows over the estimated life of the loans. The discount rate assumption for these assets considers, as applicable, collateral and credit risk characteristics of the loans, collection rates, current market interest rates, expected duration, and current market yields.
Receivables related to Non-Residual Trusts — The Company estimates the fair value of these receivables using the net present value of expected cash flows from the LOCs to be used to pay bondholders over the remaining life of the securitization trusts and applies Level 3 unobservable market inputs in its valuation. Receivables related to Non-Residual Trusts are recorded in receivables, net on the consolidated balance sheets.
Servicing rights carried at fair value — The Company accounts for servicing rights associated with the risk-managed loan class at fair value. The Company primarily uses a discounted cash flow model to estimate the fair value of these assets, unless there is an agreed upon sales price for a specific portfolio on or prior to the applicable reporting date relating to such reporting period, in which case the assets are valued at the price that the trade will be executed. The assumptions used in the discounted cash flow model vary based on collateral stratifications including product type, remittance type, geography, delinquency, and coupon dispersion of the underlying loan portfolio. The Company classifies servicing rights that are valued at the agreed upon sales price within Level 2 of the fair value hierarchy, and the servicing rights that are valued using a discounted cash flow model are classified within Level 3 of the fair value hierarchy. The Company obtains third-party valuations on a quarterly basis to assess the reasonableness of the fair values calculated by the cash flow model.
Freestanding derivative instruments — Fair values of IRLCs are derived using valuation models incorporating market pricing for instruments with similar characteristics and by estimating the fair value of the servicing rights expected to be recorded at sale of the loan. The fair values are then adjusted for anticipated loan funding probability. Both the fair value of servicing rights expected to be recorded at the date of sale of the loan and anticipated loan funding probability are significant unobservable inputs and, as a result, IRLCs are classified as Level 3 within the fair value hierarchy. The loan funding probability ratio represents the aggregate likelihood that loans currently in a lock position will ultimately close, which is largely dependent on the loan processing stage that a loan is currently in and changes in interest rates from the time of the rate lock through the time a loan is closed. IRLCs have positive fair value at inception and change in value as interest rates and loan funding probability change. Rising interest rates have a positive effect on the fair value of the servicing rights component of the IRLC fair value and increase the loan funding probability. An increase in loan funding probability (i.e., higher aggregate likelihood of loans estimated to close) will result in the fair value of the IRLC increasing if in a gain position, or decreasing, to a lower loss, if in a loss position. A significant increase (decrease) to the fair value of servicing rights component in isolation could result in a significantly higher (lower) fair value measurement.
The fair value of forward sales commitments and MBS purchase commitments is determined based on observed market pricing for similar instruments; therefore, these contracts are classified as Level 2 within the fair value hierarchy. Counterparty credit risk is taken into account when determining fair value, although the impact is diminished by daily margin posting on all forward sales and purchase commitments. Refer to Note 8 for additional information on freestanding derivative financial instruments.
Mortgage-backed debt related to Non-Residual Trusts and mortgage-backed debt related to Residual Trusts — This debt is not traded in an active, open market with readily observable prices. Accordingly, the Company estimates fair value using Level 3 unobservable market inputs. The estimated fair value of the debt is based on the net present value of the projected principal and interest payments owed for the estimated remaining life of the securitization trusts. An analysis of the credit assumptions for the underlying collateral in each of the securitization trusts is performed to determine the required payments to bondholders.
HMBS related obligations — These obligations are not traded in an active, open market with readily observable prices. Accordingly, the Company estimates fair value using Level 3 unobservable market inputs. The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liabilities. The discount rate assumption for these liabilities is based on an assessment of current market yields for HMBS, expected duration, and current market interest rates. The yield on seasoned HMBS is adjusted based on the duration of each HMBS and assuming a constant spread to LIBOR.
The following tables present the significant unobservable inputs used in the fair value measurement of the assets and liabilities described above. The Company utilizes a discounted cash flow model to estimate the fair value of all Level 3 assets and liabilities included on the Consolidated Financial Statements at fair value on a recurring basis, with the exception of IRLCs for which the Company utilizes a market approach. Significant increases or decreases in any of the inputs disclosed below could result in a significantly lower or higher fair value measurement.
 
 
Successor
 
 
Predecessor
 
 
December 31, 2018
 
 
February 9, 2018
 
December 31, 2017
Significant
Unobservable Input
 
Range of Input (1)
 
Weighted
Average of Input (1)
 
 
Range of Input (1)
 
Weighted
Average of Input (1)
 
Range of Input (1)
 
Weighted
Average of Input (1)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Reverse loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average remaining life in years (2)
 
0.0 - 9.4
 
2.8

 
 
0.3 - 10.2
 
3.5
 
0.3 - 10.2
 
3.8

Conditional repayment rate (3)
 
12.71% - 65.89%
 
32.25
%
 
 
12.61% - 71.68%
 
34.43%
 
12.61% - 71.68%
 
30.23
%
Discount rate
 
1.82% - 4.36%
 
3.84
%
 
 
2.79% - 4.17%
 
3.59%
 
3.05% - 4.17%
 
3.60
%
Mortgage loans related to Non-Residual Trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
Conditional prepayment rate (4)
 
2.09% - 2.41%
 
2.23
%
 
 
1.99% - 2.51%
 
2.30%
 
2.08% - 2.53%
 
2.34
%
Conditional default rate (4)
 
1.21% - 4.14%
 
2.06
%
 
 
1.05% - 4.70%
 
2.55%
 
1.01% - 4.97%
 
2.61
%
Loss severity
 
78.97% - 99.96%
 
93.55
%
 
 
96.30% - 100.00%
 
99.79%
 
90.60% - 100.00%
 
99.46
%
Discount rate
 
8.32%
 
8.32
%
 
 
8.32%
 
8.32%
 
8.32%
 
8.32
%
Mortgage loans related to Residual Trusts and other loans held for investment
 
 
 
 
 
 
 
 
 
 
 
 
 
Conditional prepayment rate (4)(5)
 
—
 
—

 
 
2.66% - 3.57%
 
3.06%
 
—
 
—

Conditional default rate (4)(5)
 
—
 
—

 
 
4.13% - 5.32%
 
4.53%
 
—
 
—

Loss severity (5)
 
—
 
—

 
 
27.00% - 30.00%
 
28.25%
 
—
 
—

Discount rate (5)
 
—
 
—

 
 
8.25%
 
8.25%
 
—
 
—

Mortgage loans held for sale
 
 
 
 
 
 
 
 
 
 
 
 
 
Conditional prepayment rate (4)
 
4.81%
 
4.81
%
 
 
4.81%
 
4.81%
 
4.81%
 
4.81
%
Conditional default rate (4)
 
2.46%
 
2.46
%
 
 
2.46%
 
2.46%
 
2.46%
 
2.46
%
Loss severity
 
99.40%
 
99.40
%
 
 
99.40%
 
99.40%
 
99.40%
 
99.40
%
Discount rate
 
9.80%
 
9.80
%
 
 
9.80%
 
9.80%
 
9.80%
 
9.80
%
Charged-off loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Collection rate
 
3.71% - 5.69%
 
3.80
%
 
 
3.42% - 6.05%
 
3.55%
 
2.84% - 4.47%
 
2.92
%
Discount rate
 
28.00%
 
28.00
%
 
 
28.00%
 
28.00%
 
28.00%
 
28.00
%
Receivables related to Non-Residual Trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
Conditional prepayment rate (4)
 
2.42% - 2.57%
 
2.37
%
 
 
2.46% - 3.29%
 
3.02%
 
2.49% - 3.01%
 
2.79
%
Conditional default rate (4)
 
1.41% - 4.14%
 
3.07
%
 
 
1.99% - 5.32%
 
3.50%
 
1.72% - 6.02%
 
3.61
%
Loss severity
 
77.03% - 99.96%
 
94.33
%
 
 
94.86% - 100.00%
 
98.89%
 
88.88% - 100.00%
 
97.71
%
Discount rate
 
0.50%
 
0.50
%
 
 
0.50%
 
0.50%
 
0.50%
 
0.50
%
Servicing rights carried at fair value
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average remaining life in years (2)
 
2.1 - 7.5
 
5.4

 
 
2.4 - 7.5
 
5.9
 
2.4 - 7.1
 
5.6

Discount rate
 
9.63% - 13.11%
 
10.78
%
 
 
9.63% - 14.62%
 
11.70%
 
9.91% - 14.97%
 
11.92
%
Conditional prepayment rate (4)
 
5.12% - 24.87%
 
10.79
%
 
 
6.07% - 27.00%
 
9.70%
 
6.80% - 25.85%
 
11.10
%
Conditional default rate (4)
 
0.03% - 6.42%
 
0.77
%
 
 
0.09% - 10.22%
 
0.90%
 
0.06% - 3.20%
 
0.91
%
Cost to service
 
$62 - $1,260
 
$121
 
 
$62 - $1,260
 
$137
 
$62 - $1,260
 
$136
Interest rate lock commitments
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan funding probability
 
4.20% - 100.00%
 
69.44
%
 
 
1.00% - 100.00%
 
62.49%
 
1.00% - 100.00%
 
62.97
%
Fair value of initial servicing rights multiple (6)
 
0.01 - 6.50
 
3.60

 
 
0.02 - 5.64
 
2.79
 
0.01 - 5.24
 
2.74

 
 
Successor
 
 
Predecessor
 
 
December 31, 2018
 
 
February 9, 2018
 
December 31, 2017
Significant
Unobservable Input
 
Range of Input (1)
 
Weighted
Average of Input (1)
 
 
Range of Input (1)
 
Weighted
Average of Input (1)
 
Range of Input (1)
 
Weighted
Average of Input (1)
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate lock commitments
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan funding probability
 
43.00% - 100.00%
 
88.46
%
 
 
14.19% - 100.00%
 
82.62%
 
33.64% - 100.00%
 
84.76
%
Fair value of initial servicing rights multiple (6)
 
0.50 - 5.90
 
3.60

 
 
0.08 - 5.86
 
3.39
 
0.24 - 4.92
 
3.32

Mortgage-backed debt related to Non-Residual Trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
Conditional prepayment rate (4)
 
2.24% - 2.57%
 
2.37
%
 
 
2.46% - 3.29%
 
3.02%
 
2.49% - 3.01%
 
2.79
%
Conditional default rate (4)
 
1.41% - 4.14%
 
3.07
%
 
 
1.99% - 5.32%
 
3.50%
 
1.72% - 6.02%
 
3.61
%
Loss severity
 
77.03% - 99.96%
 
94.33
%
 
 
94.86% - 100.00%
 
98.89%
 
88.88% - 100.00%
 
97.71
%
Discount rate
 
6.00%
 
6.00
%
 
 
6.00%
 
6.00%
 
6.00%
 
6.00
%
Mortgage-backed debt related to Residual Trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
Conditional prepayment rate (4)(5)
 
—
 
—

 
 
2.66% - 3.57%
 
3.06%
 
—
 
—

Conditional default rate (4)(5)
 
—
 
—

 
 
4.13% - 5.32%
 
4.53%
 
—
 
—

Loss severity (5)
 
—
 
—

 
 
27.00% - 30.00%
 
28.25%
 
—
 
—

Discount rate (5)
 
—
 
—

 
 
6.00%
 
6.00%
 
—
 
—

HMBS related obligations
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average remaining life in years (2)(7)
 
0.0 - 7.0
 
3.0

 
 
0.3 - 7.7
 
3.2
 
0.4 - 7.8
 
3.7

Conditional repayment rate (3)(7)
 
13.00% - 77.52%
 
34.60
%
 
 
12.90% - 79.57%
 
37.32%
 
12.90% - 86.87%
 
32.07
%
Discount rate (7)
 
1.75% - 4.02%
 
3.64
%
 
 
2.81% - 3.91%
 
3.39%
 
3.02% - 3.98%
 
3.45
%
__________
(1)
With the exception of loss severity, fair value of initial servicing rights embedded in IRLCs and discount rate on charged-off loans, all significant unobservable inputs above are based on the related unpaid principal balance of the underlying collateral, or in the case of HMBS related obligations, the balance outstanding. Loss severity is based on projected liquidations. Fair value of servicing rights embedded in IRLCs represents a multiple of the annual servicing fee. The discount rate on charged-off loans is based on the loan balance at fair value.
(2)
Represents the remaining weighted-average life of the related unpaid principal balance or balance outstanding of the underlying collateral adjusted for assumptions for conditional repayment rate, conditional prepayment rate and conditional default rate, as applicable.
(3)
Conditional repayment rate includes assumptions for both voluntary and involuntary rates as well as assumptions for the assignment of HECMs to HUD, in accordance with obligations as servicer.
(4)
Voluntary and involuntary prepayment rates have been presented as conditional prepayment rate and conditional default rate, respectively.
(5)
Significant observable inputs used in the fair value measurement of mortgage loans related to Residual Trusts and other loans held for investment and mortgage-backed debt related to Residual Trusts was omitted at December 31, 2018 as the Residual Trusts were deconsolidated in November 2018 and the remaining loans held for investment are insignificant.
(6)
Fair value of servicing rights embedded in IRLCs, which represents a multiple of the annual servicing fee, excludes the impact of certain IRLCs identified as servicing released for which the Company does not ultimately realize the benefits.
(7)
The Company has revised the February 9, 2018 disclosed inputs for HMBS related obligations. The total HMBS related obligations balance reported in Note 2 was not impacted by this disclosure revision.
Fair Value Option
With the exception of freestanding derivative instruments, the Company has elected the fair value option for the assets and liabilities described above as measured at fair value on a recurring basis. The fair value option was elected for these assets and liabilities as the Company believes fair value best reflects their expected future economic performance.
Presented in the table below is the estimated fair value and unpaid principal balance of loans and debt instruments that have contractual principal amounts and for which the Company has elected the fair value option (in thousands):
 
 
Successor
 
 
Predecessor
 
 
December 31, 2018
 
 
December 31, 2017
 
 
Estimated
Fair Value
 
Unpaid Principal
Balance
 
 
Estimated
Fair Value
 
Unpaid Principal
Balance
Loans at fair value under the fair value option
 
 
 
 
 
 
 
 
 
Reverse loans (1)
 
$
8,202,775

 
$
8,030,431

 
 
$
9,789,444

 
$
9,460,616

Mortgage loans held for sale (1)
 
777,287

 
746,229

 
 
588,553

 
567,492

Mortgage loans related to Non-Residual Trusts
 
117,410

 
130,840

 
 
301,435

 
344,421

Mortgage loans related to Residual Trusts and other loans held for investment (2)
 
1,044

 
1,052

 
 
—

 
—

Charged-off loans
 
48,440

 
2,202,491

 
 
45,800

 
2,333,820

Total
 
$
9,146,956

 
$
11,111,043

 
 
$
10,725,232

 
$
12,706,349

 
 
 
 
 
 
 
 
 
 
Debt instruments at fair value under the fair value option
 
 
 
 
 
 
 
 
 
Mortgage-backed debt related to Non-Residual Trusts
 
$
131,313

 
$
139,064

 
 
$
348,682

 
$
353,262

HMBS related obligations (3)
 
7,264,821

 
6,987,306

 
 
9,175,128

 
8,743,700

Total
 
$
7,396,134

 
$
7,126,370

 
 
$
9,523,810

 
$
9,096,962

__________
(1)
Includes loans that collateralize master repurchase agreements. Refer to Note 19 for additional information.
(2)
In connection with the adoption of fresh start accounting effective February 10, 2018, the Company changed its method of accounting for the residential loans and mortgage-backed debt of the Residual Trusts from amortized cost to fair value.
(3)
For HMBS related obligations, the unpaid principal balance represents the balance outstanding.
Included in mortgage loans related to Non-Residual Trusts are loans that are 90 days or more past due that have a fair value of $1.1 million and a loss severity rate of 89% at December 31, 2018, and no fair value at December 31, 2017 as a result of severity rates being greater than 100%. These loans have an unpaid principal balance of $9.9 million and $22.2 million at December 31, 2018 and 2017, respectively. Mortgage loans held for sale that are 90 days or more past due had an unpaid principal balance of $5.6 million and $10.1 million at December 31, 2018 and 2017, respectively. Charged-off loans are predominantly 90 days or more past due.
Items Measured at Fair Value on a Non-Recurring Basis
The Company held real estate owned, net of $75.6 million and $116.6 million at December 31, 2018 and 2017, respectively. In addition, the Company had loans that were in the process of foreclosure of $349.0 million and $489.0 million at December 31, 2018 and 2017, respectively, which are included in residential loans at amortized cost, net and residential loans at fair value on the consolidated balance sheets. Real estate owned, net is included within other assets on the consolidated balance sheets and is measured at net realizable value on a non-recurring basis utilizing significant unobservable inputs or Level 3 assumptions in the valuation.
The following table presents the significant unobservable input used in the fair value measurement of real estate owned, net:
 
 
Successor
 
 
Predecessor
 
 
December 31, 2018
 
 
February 9, 2018
 
December 31, 2017
Significant
Unobservable Input
 
Range of Input
 
Weighted
Average of Input
 
 
Range of Input
 
Weighted
Average of Input
 
Range of Input
 
Weighted
Average of Input
Real estate owned, net
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss severity (1)
 
0.00% - 49.70%
 
4.99
%
 
 
0.00% - 68.66%
 
7.54%
 
0.00% - 78.76%
 
6.16
%
__________
(1)
Loss severity is based on the unpaid principal balance of the related loan at the time of foreclosure.
The Company held real estate owned, net in the Reverse Mortgage and Servicing segments and the Corporate and Other non-reportable segment of $67.3 million, $7.8 million and $0.5 million, respectively, at December 31, 2018 and $101.8 million, $13.7 million and $1.1 million, respectively, at December 31, 2017. At December 31, 2018, concentrations of properties (represented by 5% or more of real estate owned) were located in Texas, Alabama, Illinois, Maryland, and Pennsylvania. In determining fair value, the Company either obtains appraisals or performs a review of historical severity rates of real estate owned previously sold by the Company. When utilizing historical severity rates, the properties are stratified by collateral type and/or geographical concentration and length of time held by the Company. The severity rates are reviewed for reasonableness by comparison to third-party market trends and fair value is determined by applying severity rates to the stratified population. In the determination of fair value of real estate owned associated with reverse mortgages, the Company considers amounts typically covered by FHA insurance. Management approves valuations that have been determined using the historical severity rate method.
Real estate owned expenses, net, which are recorded in other expenses, net on the consolidated statements of comprehensive income (loss) were $(38.6) million, less than $0.1 million and $7.4 million for the period from February 10, 2018 through December 31, 2018, the period from January 1, 2018 through February 9, 2018 and the year ended December 31, 2017, respectively. Included in real estate owned expenses, net are lower of cost or fair value adjustments of $3.9 million, $0.7 million and $5.3 million for the period from February 10, 2018 through December 31, 2018, the period from January 1, 2018 through February 9, 2018 and the year ended December 31, 2017, respectively. In addition, real estate owned expenses, net includes a gain of $37.3 million for the period from February 10, 2018 through December 31, 2018, relating to the reversal of deferred income as a result of the sale and deconsolidation of the Residual Trusts which is discussed in further detail in Note 5.
Fair Value of Other Financial Instruments
The following table presents the carrying amounts and estimated fair values of financial assets and liabilities that are not recorded at fair value on a recurring or non-recurring basis and their respective levels within the fair value hierarchy (in thousands). This table excludes cash and cash equivalents, restricted cash and cash equivalents, servicer payables and warehouse borrowings as these financial instruments are highly liquid or short-term in nature and as a result, their carrying amounts approximate fair value.
 
 
 
 
Successor
 
 
Predecessor
 
 
 
 
December 31, 2018
 
 
December 31, 2017
 
 
Fair Value
Hierarchy
 
Carrying
Amount
 
Estimated
Fair Value
 
 
Carrying
Amount
 
Estimated
Fair Value
Financial assets
 
 
 
 
 
 
 
 
 
 
 
Residential loans at amortized cost, net (1)(2)
 
Level 3
 
$
7,428

 
$
7,186

 
 
$
443,056

 
$
432,518

Servicer and protective advances, net
 
Level 3
 
440,497

 
438,032

 
 
813,433

 
778,007

 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities (1)
 
 
 
 
 
 
 
 
 
 
 
Servicing advance liabilities (3)
 
Level 3
 
217,991

 
218,291

 
 
478,838

 
483,462

Corporate debt (4)(5)
 
Level 2
 
1,133,218

 
850,647

 
 
1,994,411

 
1,553,076

Mortgage-backed debt carried at amortized cost (2)
 
Level 3
 
—

 
—

 
 
387,200

 
391,539

__________
(1)
Excludes loans subject to repurchase from Ginnie Mae and the related liability.
(2)
In connection with the adoption of fresh start accounting effective February 10, 2018, the Company changed its method of accounting for the residential loans and mortgage-backed debt of the Residual Trusts from amortized cost to fair value.
(3)
The carrying amounts of servicing advance liabilities are net of deferred issuance costs, including those relating to line-of-credit arrangements, which are recorded in other assets.
(4)
At December 31, 2017, the carrying amounts of corporate debt are net of the 2013 Revolver deferred issuance costs, which are recorded in other assets on the consolidated balance sheets.
(5)
Includes liabilities subject to compromise with a carrying value of $781.1 million and an estimated fair value of $358.8 million at December 31, 2017.
The following is a description of the methods and significant assumptions used in estimating the fair value of the Company’s financial instruments that are not measured at fair value on a recurring or non-recurring basis.
Residential loans at amortized cost, net — The methods and assumptions used to estimate the fair value of residential loans carried at amortized cost are the same as those described above for mortgage loans related to Non-Residual Trusts and Residual Trusts.
Servicer and protective advances, net — The estimated fair value of these advances is based on the net present value of expected cash flows. The determination of expected cash flows includes consideration of recoverability clauses in the Company’s servicing agreements, as well as assumptions related to the underlying collateral and when proceeds may be used to recover these receivables.
Servicing advance liabilities — The estimated fair value of the majority of these liabilities approximates carrying value as these liabilities bear interest at a rate that is adjusted regularly based on a market index.
Corporate debt — The Company’s 2013 Term Loan, 2018 Term Loan, Convertible Notes, Senior Notes and Second Lien Notes are not traded in an active, open market with readily observable prices. The estimated fair value of corporate debt is primarily based on an average of broker quotes.
Mortgage-backed debt carried at amortized cost — The methods and assumptions used to estimate the fair value of mortgage-backed debt carried at amortized cost are the same as those described above for mortgage-backed debt related to Non-Residual Trusts and Residual Trusts.
Net Gains on Sales of Loans
Provided in the table below is a summary of the components of net gains on sales of loans (in thousands):
 
 
Successor
 
 
Predecessor
 
 
For the Period From February 10, 2018 Through December 31, 2018
 
 
For the Period From January 1, 2018 Through February 9, 2018
 
For the Year Ended 
 December 31, 2017
Realized gains (losses) on sales of loans
 
$
(5,602
)
 
 
$
3,582

 
$
171,537

Change in unrealized gains (losses) on loans held for sale
 
7,425

 
 
(9,343
)
 
10,309

Losses on interest rate lock commitments
 
(5,089
)
 
 
(4,926
)
 
(22,632
)
Gains (losses) on forward sales commitments
 
(22,948
)
 
 
24,570

 
(31,662
)
Gains (losses) on MBS purchase commitments
 
13,807

 
 
(872
)
 
(2,749
)
Capitalized servicing rights
 
155,989

 
 
13,227

 
132,581

Provision for repurchases
 
(5,522
)
 
 
(729
)
 
(6,991
)
Interest income
 
23,790

 
 
2,298

 
34,126

Other
 
(140
)
 
 
156

 
(128
)
Net gains on sales of loans
 
$
161,710



$
27,963

 
$
284,391


Net Fair Value Gains on Reverse Loans and Related HMBS Obligations
Provided in the table below is a summary of the components of net fair value gains on reverse loans and related HMBS obligations (in thousands):
 
 
Successor
 
 
Predecessor
 
 
For the Period From February 10, 2018 Through December 31, 2018
 
 
For the Period From January 1, 2018 Through February 9, 2018
 
For the Year Ended 
 December 31, 2017
Interest income on reverse loans
 
$
379,215

 
 
$
47,116

 
$
450,628

Change in fair value of reverse loans
 
(176,371
)
 
 
(15,640
)
 
(208,340
)
Net fair value gains on reverse loans
 
202,844



31,476


242,288

 
 
 
 
 
 
 
 
Interest expense on HMBS related obligations (1)
 
(310,721
)
 
 
(40,427
)
 
(398,241
)
Change in fair value of HMBS related obligations
 
154,710

 
 
19,527

 
198,372

Net fair value losses on HMBS related obligations
 
(156,011
)


(20,900
)

(199,869
)
Net fair value gains on reverse loans and related HMBS obligations
 
$
46,833



$
10,576


$
42,419

__________
(1)
Excludes interest expense related to the warehouse facilities used to fund Ginnie Mae buyouts.