Fair Value (Tables)

6 Months Ended

Jun. 30, 2020

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following tables display the Company’s assets and liabilities measured at fair value on a recurring basis. The Company often economically hedges the fair value change of its assets or liabilities with derivatives and other financial instruments. The tables below display the hedges separately from the hedged items, and therefore do not directly display the impact of the Company’s risk management activities.


	Recurring Fair Value Measurements
	June 30, 2020
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale securities	$	—	$	17,669,429	$	3,860	$	17,673,289

Mortgage servicing rights	—		—		1,279,195		1,279,195

Derivative assets	37,705		72,822		—		110,527

Total assets	$	37,705	$	17,742,251	$	1,283,055	$	19,063,011
Liabilities

Derivative liabilities	$	1,298	$	—	$	—	$	1,298
Total liabilities	$	1,298	$	—	$	—	$	1,298


	Recurring Fair Value Measurements
	December 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale securities	$	—	$	31,157,154	$	249,174	$	31,406,328

Mortgage servicing rights	—		—		1,909,444		1,909,444

Derivative assets	8,513		179,538		—		188,051

Total assets	$	8,513	$	31,336,692	$	2,158,618	$	33,503,823
Liabilities

Derivative liabilities	$	6,711	$	29	$	—	$	6,740
Total liabilities	$	6,711	$	29	$	—	$	6,740

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

The following tables present the reconciliation for the Company’s Level 3 assets measured at fair value on a recurring basis:



	Three Months Ended							Six Months Ended

	June 30, 2020							June 30, 2020
(in thousands)	Available-For-Sale Securities		Mortgage Servicing Rights			Available-For-Sale Securities		Mortgage Servicing Rights
Beginning of period level 3 fair value	$	—	$	1,505,163		$	249,174	$	1,909,444
Gains (losses) included in net loss:
Realized (losses) gains, net	(292)		(128,790)			(4,391)		(218,424)
Unrealized (losses) gains, net	—		(110,001)		⁽¹⁾	—		(607,032)		⁽¹⁾
Provision for credit losses	(896)		—			(896)		—
Net gains (losses) included in net loss	(1,188)		(238,791)			(5,287)		(825,456)
Other comprehensive income (loss)	583		—			(24,338)		—
Purchases	—		21,551			—		205,334
Sales	—		381			(214,673)		1,814
Settlements	—		(9,109)			—		(11,941)
Gross transfers into level 3	4,465		—			4,465		—
Gross transfers out of level 3	—		—			(5,481)		—
End of period level 3 fair value	$	3,860	$	1,279,195		$	3,860	$	1,279,195
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	—	$	(104,129)	⁽²⁾	$	—	$	(552,303)	⁽²⁾
Change in unrealized gains or losses for the period included in other comprehensive (loss) income for assets held at the end of the reporting period	$	583	$	—		$	583	$	—

____________________

(1)The change in unrealized gains or losses on MSR was recorded in loss on servicing asset on the condensed consolidated statements of comprehensive income (loss).

(2)The change in unrealized gains or losses on MSR that were held at the end of the reporting period was recorded in loss on servicing asset on the condensed consolidated statements of comprehensive income (loss).

Fair Value Inputs, Assets, Quantitative Information

The tables below present information about the significant unobservable market data used by the third-party pricing vendors as inputs into models utilized to inform their best estimates of the fair value measurement of the Company’s MSR classified as Level 3 fair value assets at June 30, 2020 and December 31, 2019:


June 30, 2020
Valuation Technique	Unobservable Input ⁽¹⁾	Range					Weighted Average ⁽²⁾
Discounted cash flow	Constant prepayment speed	14.8	-	25.6	%	21.2%
	Delinquency	1.5	-	2.5	%	2.2%
	Discount rate	4.7	-	7.5	%	5.1%
	Per loan annual cost to service	$64.82	-	$80.31		$68.50


December 31, 2019
Valuation Technique	Unobservable Input ⁽¹⁾	Range					Weighted Average ⁽²⁾
Discounted cash flow	Constant prepayment speed	12.6	-	16.4	%	14.8%
	Delinquency	0.7	-	1.0	%	0.9%
	Discount rate	6.4	-	7.8	%	7.2%
	Per loan annual cost to service	$63.38	-	$78.04		$66.62

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(1)Significant increases (decreases) in any of the inputs in isolation may result in significantly lower (higher) fair value measurement. A change in the assumption used for discount rates may be accompanied by a directionally similar change in the assumption used for the probability of delinquency and a directionally opposite change in the assumption used for prepayment rates.

(2)Calculated by averaging the weighted average significant unobservable inputs used by the multiple third-party pricing vendors in the fair value measurement of MSR

Fair Value, by Balance Sheet Grouping

The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at June 30, 2020 and December 31, 2019:


	June 30, 2020						December 31, 2019
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Available-for-sale securities	$	17,673,289	$	17,673,289	$	31,406,328	$	31,406,328


Mortgage servicing rights	$	1,279,195	$	1,279,195	$	1,909,444	$	1,909,444

Cash and cash equivalents	$	1,615,639	$	1,615,639	$	558,136	$	558,136
Restricted cash	$	434,644	$	434,644	$	1,058,690	$	1,058,690
Derivative assets	$	110,527	$	110,527	$	188,051	$	188,051
Reverse repurchase agreements	$	76,416	$	76,416	$	220,000	$	220,000
Other assets	$	13,292	$	13,292	24,352		24,352
Liabilities
Repurchase agreements	$	16,991,248	$	16,991,248	$	29,147,463	$	29,147,463

Federal Home Loan Bank advances	$	—	$	—	$	210,000	$	210,000
Revolving credit facilities	$	267,181	$	267,181	$	300,000	$	300,000
Term notes payable	$	395,048	$	340,000	$	394,502	$	400,000
Convertible senior notes	$	285,515	$	282,245	$	284,954	$	299,147
Derivative liabilities	$	1,298	$	1,298	$	6,740	$	6,740