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INDEMNIFIED AND REPURCHASED LOANS

12 Months Ended

Dec. 31, 2025

NOTE 5 – INDEMNIFIED AND REPURCHASED LOANS

The Company has repurchased, agreed to indemnify, or expects to indemnify the GSEs for $221.6 million of loans that were originated for the GSEs’ programs. In 2025, the Company received requests from one of the GSEs to repurchase loans with an aggregate unpaid principal balance (“UPB”) of $100.0 million as a result of fraudulent documentation submitted by the borrower in connection with the loans. The Company executed a forbearance and indemnification agreement with the GSE for loans with a UPB of $50.7 million that delays the repurchase of the loans until the fourth quarter of 2027 pursuant to which the Company agreed to indemnify the GSE against any losses until the repurchase date. A small portion of these loans were purchased credit deteriorated, and the Company recognized an insignificant allowance for credit losses and discount attributable to these loans. Additionally, the Company is in negotiations to enter into a forbearance and indemnification agreement with the GSE for the remaining $49.3 million of loans. Additionally, the Company believes that it is probable that the GSE will deliver a repurchase request for another $34.3 million of loans. If the Company fails to reach an agreement on a forbearance and indemnification agreement or some other form of increased loss sharing on either portfolio of loans, the Company may be required to repurchase these loans in 2026, resulting in a cash outlay for the UPB of the loans and any costs associated with repurchasing these loans.

During 2024, the Company received requests to repurchase five GSE loans totaling $87.3 million. As of December 31, 2025, the Company has repurchased four of the loans, totaling $52.5 million, and has a forbearance and indemnification agreement in place for the other loan (this is the other asset referenced in NOTE 2) totaling $24.1 million. The forbearance and indemnification agreement for the other asset expires on March 29, 2026, at which time the Company would, absent an extension, be expected to repurchase the other asset. The Company is in the process of negotiating a six-month extension of the forbearance and indemnification agreement to delay the repurchase until September 2026.

A summary of the Company’s indemnified and repurchased loans and their location on the Consolidated Balance Sheets as of December 31, 2025 and 2024 follows:


	As of December 31,
Other Assets Related to Indemnified and Repurchased Loans (in thousands)	2025		2024
Other Assets
Loans held for investment
Indemnified loans	$	46,253	$	24,617
Repurchased loans		36,926		12,309
Allowance for loan losses		(5,410)		(4,060)
Loans held for investment, net	$	77,769	$	32,866
OREO		14,756		14,756
Other asset, net		24,124		25,524
Total other assets related to indemnified and repurchased loans	$	116,649	$	73,146

Other Liabilities Related to Indemnified and Repurchased Loans (in thousands)
Secured borrowings	$	83,402	$	59,441
Indemnification reserves ⁽¹⁾		23,920		5,527
Total other liabilities related to indemnified and repurchased loans	$	107,322	$	64,968

(1)

NOTE 2 contains information about the nature of these reserves.


	As of December 31,
Maximum Expected Future Payments (in thousands)	2025		2024
Secured Borrowings	$	83,402	$	59,441
Collateral for Secured borrowings ⁽¹⁾		(22,668)		(12,538)
Total	$	60,734	$	46,903

(1)

Collateral for secured borrowings is included in Receivables, net on the Consolidated Balance Sheets.

In addition to the provision for credit losses related to the indemnified and repurchased loan portfolio, the Company also incurs costs related to operating the indemnified and repurchased loans and other asset. A summary of losses related to indemnified and repurchased loans for the years ended December 31, 2025 and 2024 follows (there were no such costs in 2023 as the Company received its first ever repurchase request in 2024):


	For the year ended December 31,
Impact of Indemnified and Repurchased Loans (in thousands)	2025		2024
Initial loan repurchase costs	$	8,318	$	7,041
Indemnified and repurchased loan operating costs		12,440		3,532
Expected principal losses on loan repurchase ("loan repurchase losses")		20,092		—
Indemnified and repurchased loan expenses	$	40,850	$	10,573

Provision (benefit) for loan losses — Indemnified Loans ⁽¹⁾	$	199	$	11,860
Total impact of indemnified and repurchased loans	$	41,049	$	22,433

(1)

Included as a component of Provision (benefit) for credit losses in the Consolidated Statements of Income.

A portion of the indemnified and repurchased loans above are on nonaccrual status. A summary of these loans as of December 31, 2025 and 2024 follows:


	As of December 31,
Non-accrual Loans (in thousands)	2025		2024
Loans held for investment UPB	$	48,630	$	36,926
Cost basis and fair value adjustments, net		1,331		—
Allowance for loan losses		(5,410)		(4,060)
Non-accrual Loans, net	$	44,551	$	32,866