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FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2025

NOTE 10—FAIR VALUE MEASUREMENTS

The Company uses valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach to measure assets and liabilities that are measured at fair value. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, accounting standards establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

●

Level 1—Financial assets and liabilities whose values are based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

●

Level 2—Financial assets and liabilities whose values are based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

●

Level 3—Financial assets and liabilities whose values are based on inputs that are both unobservable and significant to the overall valuation.

The Company's MSRs are measured at fair value at inception, and thereafter on a nonrecurring basis and are carried at the lower of amortized costs or fair value. That is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value measurement

when there is evidence of impairment and for disclosure purposes (NOTE 3). The Company's MSRs do not trade in an active, open market with readily observable prices. While sales of multifamily MSRs do occur on occasion, precise terms and conditions vary with each transaction and are not readily available. Accordingly, the estimated fair value of the Company’s MSRs was developed using discounted cash flow models that calculate the present value of estimated future net servicing income. The model considers contractually specified servicing fees, prepayment assumptions, estimated placement fee revenue from escrow deposits, and other economic factors. The Company periodically reassesses and adjusts, when necessary, the underlying inputs and assumptions used in the model to reflect observable market conditions and assumptions that a market participant would consider in valuing MSR assets.

A description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

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Derivative Instruments—Designated Derivatives and Hedged Item—The Company determines the fair value of the interest rate swap and hedged item using observable market data to determine the expected net cash flows of the receive-fix and pay-variable legs and is classified as Level 2 of the valuation hierarchy.

●

Derivative Instruments—Undesignated Derivatives—These derivative positions primarily consist of interest rate lock commitments and forward sale agreements to the Agencies related to the Company’s mortgage banking activities. The fair value of these instruments is estimated using a discounted cash flow model developed based on changes in the U.S. Treasury rate and other observable market data. The value was determined after considering the potential impact of collateralization, adjusted to reflect the nonperformance risk of both the counterparty and the Company, and is classified within Level 2 of the valuation hierarchy.

●

Loans Held for Sale—All loans held for sale presented in the Consolidated Balance Sheets are reported at fair value. The Company determines the fair value of the loans held for sale using discounted cash flow models that incorporate quoted observable inputs from market participants such as changes in the U.S. Treasury rate. Therefore, the Company classifies these loans held for sale as Level 2.

●

Pledged Securities—Investments in money market funds are valued using quoted market prices from recent trades and typically have maturities of 90 days or less. Therefore, the Company classifies this portion of pledged securities as Level 1. The Company determines the fair value of its AFS Agency MBS using third party estimates of fair value. Consequently, the Company classifies this portion of pledged securities as Level 2. Additional details on Pledged securities are included in NOTE 12.

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Contingent Consideration Liabilities—Contingent consideration liabilities from acquisitions are initially recognized at fair value at acquisition and subsequently remeasured using a Monte Carlo simulation that uses updated management forecasts and current valuation assumptions and discount rates. The Company determines the fair value of each contingent consideration liability based on a probability of earnout achievement, which incorporates management estimates, volatility rates, and discount rate to determine the expected earn-out cash flows. As a result, the Company classifies these liabilities as Level 3. Additional details on Contingent consideration liabilities are included in NOTE 9.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of December 31, 2025 and 2024, segregated by the level of the valuation inputs within the fair value hierarchy used to measure fair value:


							Balance as of
(in thousands)	Level 1		Level 2		Level 3		Period End
December 31, 2025
Assets
Loans held for sale	$	—	$	1,436,350	$	—	$	1,436,350
Pledged securities		22,288		202,666		—		224,954
Derivative assets		—		27,216		—		27,216
Total	$	22,288	$	1,666,232	$	—	$	1,688,520

Liabilities
Derivative liabilities	$	—	$	1,718	$	—	$	1,718
Corporate notes payable —Senior Notes		—		400,927		—		400,927
Contingent consideration liabilities⁽¹⁾		—		—		9,663		9,663
Total	$	—	$	402,645	$	9,663	$	412,308

December 31, 2024
Assets
Loans held for sale	$	—	$	780,749	$	—	$	780,749
Pledged securities		23,472		183,432		—		206,904
Derivative assets		—		30,175		—		30,175
Total	$	23,472	$	994,356	$	—	$	1,017,828

Liabilities
Derivative liabilities	$	—	$	915	$	—	$	915
Contingent consideration liabilities⁽¹⁾		—		—		30,537		30,537
Total	$	—	$	915	$	30,537	$	31,452

(1)

For a detailed roll forward of this Level 3 liability, refer to “Roll Forward of Contingent Consideration Liabilities” in NOTE 9.

There were no transfers between any of the levels within the fair value hierarchy during any of the years presented in the consolidated financial statements.

Undesignated derivative instruments related to the Company’s mortgage banking activities (Level 2) are outstanding for short periods of time (generally less than 60 days). Designated derivatives related to interest rate swaps are outstanding for the length of the hedged item, which currently matures on April 1, 2033. A roll forward of derivative instruments is presented below for the years ended December 31, 2025 and 2024:


	For the year ended December 31,
Derivative Assets and Liabilities, net (in thousands)	2025		2024
Beginning balance	$	29,260	$	3,204
Settlements		(525,592)		(404,099)
Realized gains (losses) recorded in earnings⁽¹⁾		496,332		400,895
Unrealized gains (losses) recorded in earnings⁽¹⁾⁽²⁾		25,498		29,260
Ending balance	$	25,498	$	29,260

(1)

Realized and unrealized gains (losses) from undesignated derivatives are recognized in Loan origination and debt brokerage fees, net and Fair value of expected net cash flows from servicing, net of guaranty obligation in the Consolidated Statements of Income.

(2)

Unrealized gain (loss) from designated derivatives is recognized in Interest expense on corporate debt in the Consolidated Statements of Income

The following table presents information about significant unobservable inputs used in the recurring measurement of the fair value of the Company’s Level 3 assets and liabilities as of December 31, 2025:


		Quantitative Information about Level 3 Fair Value Measurements
(in thousands)	* *	Fair Value			Valuation Technique		Unobservable Input⁽¹⁾		Input Range ⁽¹⁾	Weighted Average ⁽²⁾
Contingent consideration liabilities		$	9,663		Monte Carlo Simulation		Probability of earnout achievement		0% - 34%	4%

(1)

Significant changes in this input may lead to significant changes in the fair value measurements.

(2)

Contingent consideration weighted based on maximum remaining gross earnout amount.

The carrying amounts and the fair values of the Company's financial instruments as of December 31, 2025 and December 31, 2024 are presented below:


		December 31, 2025						December 31, 2024
		Carrying			Fair			Carrying			Fair
(in thousands)	Level	Amount			Value			Amount			Value
Financial Assets:
Cash and cash equivalents	Level 1	$	299,315		$	299,315		$	279,270		$	279,270
Restricted cash	Level 1		22,772			22,772			25,156			25,156
Pledged securities	Level 1 & 2		224,954			224,954			206,904			206,904
Loans held for sale	Level 2		1,436,350			1,436,350			780,749			780,749
Loans held for investment, net⁽¹⁾	Level 3		77,769			77,769			32,866			32,866
Derivative assets⁽¹⁾	Level 2		27,216			27,216			30,175			30,175
Total financial assets		$	2,088,376		$	2,088,376		$	1,355,120		$	1,355,120

Financial Liabilities:
Derivative liabilities⁽²⁾	Level 2	$	1,718		$	1,718		$	915		$	915
Contingent consideration liabilities⁽²⁾	Level 3		9,663			9,663			30,537			30,537
Secured borrowings⁽²⁾	Level 2		83,402			83,402			59,441			59,441
Warehouse notes payable⁽³⁾	Level 2		1,420,272			1,420,662			781,706			781,972
Corporate notes payable⁽³⁾⁽⁴⁾	Level 2		829,218			847,552			768,044			778,481
Total financial liabilities		$	2,344,273		$	2,362,997		$	1,640,643		$	1,651,346

(1)

Included as a component of Other assets (NOTE 16) on the Consolidated Balance Sheets.

(2)

Included as a component of Other liabilities (NOTE 16) on the Consolidated Balance Sheets.

(3)

Carrying value includes unamortized debt issuance costs.

(4)

Carrying value includes unamortized debt discount.

Fair Value of Undesignated Derivative Instruments and Loans Held for Sale—In the normal course of business, the Company enters into contractual commitments to originate and sell multifamily mortgage loans at fixed prices with fixed expiration dates. The commitments become effective when the borrowers "lock-in" a specified interest rate within time frames established by the Company. All mortgagors are evaluated for creditworthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the "lock-in" of rates by the borrower and the sale date of the loan to an investor.

To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, the Company enters into a sale commitment with the investor simultaneously with the rate lock commitment with the borrower. The sale contract with the investor locks in an interest rate and price for the sale of the loan. The terms of the contract with the investor and the rate lock with the borrower are matched in substantially all respects, with the objective of eliminating interest rate risk to the extent practical. Sale commitments with the investors have an expiration date that is longer than the Company’s related commitments to the borrower to allow for, among other things, the closing of the loan and processing of paperwork to deliver the loan into the sale commitment.

Both the rate lock commitments to borrowers and the forward sale contracts to buyers are undesignated derivatives and, accordingly, are marked to fair value through Loan origination and debt brokerage fees, net in the Consolidated Statements of Income. The fair value of the Company's rate lock commitments to borrowers and loans held for sale and the related input levels includes, as applicable:

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the estimated gain of the expected loan sale to the investor;

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the expected net cash flows associated with servicing the loan, net of any guaranty obligations retained;

●

the effects of interest rate movements between the date of the rate lock and the balance sheet date and

●

the nonperformance risk of both the counterparty and the Company.

The estimated gain considers the origination fees the Company expects to collect upon loan closing (derivative instruments only) and premiums the Company expects to receive upon sale of the loan. The fair value of the expected net cash flows associated with servicing the loan is calculated pursuant to the valuation techniques applicable to the fair value of future servicing, net at loan sale.

To calculate the effects of interest rate movements, the Company uses applicable published U.S. Treasury prices and multiplies the price movement between the rate lock date and the balance sheet date by the notional loan commitment amount.

The fair value of the Company's forward sales contracts to investors considers the effects of interest rate movements between the trade date and the balance sheet date. The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.

The fair value of the Company’s interest rate lock commitments and forward sales contracts is adjusted to reflect the risk that the agreement will not be fulfilled. The Company’s exposure to nonperformance in interest rate lock commitments and forward sale contracts is represented by the contractual amount of those instruments. Given the credit quality of the Company’s counterparties and the short duration of interest rate lock commitments and forward sale contracts, the risk of nonperformance by the Company’s counterparties has historically been minimal.

The following table presents the components of fair value and other relevant information associated with the Company’s derivative instruments and loans held for sale as of December 31, 2025 and 2024:


			Fair Value Adjustment Components						Balance Sheet Location
	Notional or		Estimated				Total
	Principal		Gain		Interest Rate		Fair Value		Derivative		Derivative		Fair Value
(in thousands)	Amount		on Sale		Movement		Adjustment		Assets⁽¹⁾		Liabilities⁽²⁾		Adjustment
December 31, 2025
Undesignated derivatives
Rate lock commitments	$	374,384	$	18,673	$	(1,546)	$	17,127	$	17,608	$	(481)	$	—
Forward sale contracts		1,804,114		—		7,444		7,444		8,681		(1,237)		—
Loans held for sale⁽³⁾		1,429,730		12,518		(5,898)		6,620		—		—		6,620
Total undesignated derivatives			$	31,191	$	—	$	31,191	$	26,289	$	(1,718)	$	6,620
Designated derivatives
Interest rate swap		400,000		—		927		927		927		—		—
Senior Notes⁽⁴⁾		400,000		—		(927)		(927)		—		—		(927)
Total designated derivatives			$	—	$	—	$	—	$	927	$	—	$	(927)
Total			$	31,191	$	—	$	31,191	$	27,216	$	(1,718)	$	5,693

December 31, 2024
Rate lock commitments	$	472,905	$	19,968	$	(5,338)	$	14,630	$	14,930	$	(300)	$	—
Forward sale contracts		1,258,323		—		14,630		14,630		15,245		(615)		—
Loans held for sale		785,418		4,623		(9,292)		(4,669)		—		—		(4,669)
Total			$	24,591	$	—	$	24,591	$	30,175	$	(915)	$	(4,669)

(1)	Included as a component of Other assets (NOTE 16) on the Consolidated Balance Sheets.

(2)	Included as a component of Other liabilities (NOTE 16) on the Consolidated Balance Sheets.

(3)	Fair value adjustment included as an adjustment to Loans held for sale, at fair value on the Consolidated Balance Sheets.

(4)	Fair value adjustment included as adjustment to Corporate notes payable on the Consolidated Balance Sheets.