Allowance for Loss-Sharing Obligations

9 Months Ended

Sep. 30, 2022

Allowance for Loss-Sharing Obligations

Allowance for Loss-Sharing Obligations

Note 10 — Allowance for Loss-Sharing Obligations

Our allowance for loss-sharing obligations related to the Fannie Mae DUS program is as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Beginning balance	$	53,053	$	65,645	$	56,064	$	64,303
Provisions for loss sharing		2,346		(3,022)		2,593		(557)
Provisions reversal for loan repayments		(1,934)		(250)		(4,792)		(513)
Recoveries (charge-offs), net		46		455		(354)		(405)
Ending balance	$	53,511	$	62,828	$	53,511	$	62,828

When a loan is sold under the Fannie Mae DUS program, we undertake an obligation to partially guarantee the performance of the loan. A liability is recognized for the fair value of the guarantee obligation undertaken for the non-contingent aspect of the guarantee and is removed only upon either the expiration or settlement of the guarantee. At September 30, 2022 and 2021, guarantee obligations of $34.2 million and $34.4 million, respectively, were included in the allowance for loss-sharing obligations.

In addition to and separately from the fair value of the guarantee, we estimate our allowance for loss-sharing under CECL over the contractual period in which we are exposed to credit risk. The current expected loss related to loss-sharing was based on a collective pooling basis with similar risk characteristics, a reasonable and supportable forecast and a reversion period based on our average historical losses through the remaining contractual term of the portfolio.

When we settle a loss under the DUS loss-sharing model, the net loss is charged-off against the previously recorded loss-sharing obligation. The settled loss is often net of any previously advanced principal and interest payments in accordance with the DUS program, which are reflected as reductions to the proceeds needed to settle losses. At September 30, 2022 and December 31, 2021, we had outstanding advances of $0.4 million and less than $0.1 million, respectively, which were netted against the allowance for loss-sharing obligations.

At September 30, 2022 and December 31, 2021, our allowance for loss-sharing obligations, associated with expected losses under CECL, was $19.3 million and $21.7 million, respectively, and represented 0.11% of our Fannie Mae servicing portfolio for both periods. During the three and nine months ended September 30, 2022, we recorded a $0.6 million increase and a $2.4 million decrease, respectively, in CECL reserves, which included a $1.2 million recovery for a loan that paid off during the second quarter of 2022.

At September 30, 2022 and December 31, 2021, the maximum quantifiable liability associated with our guarantees under the Fannie Mae DUS agreement was $3.42 billion and $3.60 billion, respectively. The maximum quantifiable liability is not representative of the actual loss we would incur. We would be liable for this amount only if all of the loans we service for Fannie Mae, for which we retain some risk of loss, were to default and all of the collateral underlying these loans was determined to be without value at the time of settlement.