Fair Value (Tables)

12 Months Ended

Dec. 31, 2018

Summary of financial statement items measured at estimated fair value on a recurring basis


	December 31, 2018
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	117,824	$	—	$	—	$	117,824
Mortgage loans held for sale at fair value		—		2,261,639		260,008		2,521,647
Derivative assets:
Interest rate lock commitments		—		—		50,507		50,507
Repurchase agreement derivatives		—		—		26,770		26,770
Forward purchase contracts		—		35,916		—		35,916
Forward sales contracts		—		437		—		437
MBS put options		—		720		—		720
MBS call options		—		2,135		—		2,135
Put options on interest rate futures purchase contracts		866		—		—		866
Call options on interest rate futures purchase contracts		5,965		—		—		5,965
Total derivative assets before netting		6,831		39,208		77,277		123,316
Netting		—		—		—		(26,969)
Total derivative assets		6,831		39,208		77,277		96,347
Investment in PennyMac Mortgage Investment Trust		1,397		—		—		1,397
Mortgage servicing rights at fair value		—		—		2,820,612		2,820,612
	$	126,052	$	2,300,847	$	3,157,897	$	5,557,827
Liabilities:
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value	$	—	$	—	$	216,110	$	216,110
Derivative liabilities:
Interest rate lock commitments		—		—		1,169		1,169
Forward purchase contracts		—		215		—		215
Forward sales contracts		—		26,762		—		26,762
Total derivative liabilities before netting		—		26,977		1,169		28,146
Netting		—		—		—		(25,082)
Total derivative liabilities		—		26,977		1,169		3,064
Mortgage servicing liabilities at fair value		—		—		8,681		8,681
	$	—	$	26,977	$	225,960	$	227,855


	December 31, 2017
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	170,080	$	—	$	—	$	170,080
Mortgage loans held for sale at fair value		—		2,316,892		782,211		3,099,103
Derivative assets:
Interest rate lock commitments		—		—		60,012		60,012
Repurchase agreement derivatives		—		—		10,656		10,656
Forward purchase contracts		—		4,288		—		4,288
Forward sales contracts		—		2,101		—		2,101
MBS put options		—		3,481		—		3,481
Put options on interest rate futures purchase contracts		3,570		—		—		3,570
Call options on interest rate futures purchase contracts		938		—		—		938
Total derivative assets before netting		4,508		9,870		70,668		85,046
Netting		—		—		—		(6,867)
Total derivative assets		4,508		9,870		70,668		78,179
Investment in PennyMac Mortgage Investment Trust		1,205		—		—		1,205
Mortgage servicing rights at fair value		—		—		638,010		638,010
	$	175,793	$	2,326,762	$	1,490,889	$	3,986,577
Liabilities:
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value	$	—	$	—	$	236,534	$	236,534
Derivative liabilities:
Interest rate lock commitments		—		—		1,740		1,740
Forward purchase contracts		—		1,272		—		1,272
Forward sales contracts		—		7,031		—		7,031
Total derivative liabilities before netting		—		8,303		1,740		10,043
Netting		—		—		—		(4,247)
Total derivative liabilities		—		8,303		1,740		5,796
Mortgage servicing liabilities at fair value		—		—		14,120		14,120
	$	—	$	8,303	$	252,394	$	256,450

Summary of roll forward of items measured using Level 3 inputs on a recurring basis


	Year ended December 31, 2018
	Mortgage		Net interest		Repurchase		Mortgage
	loans held		rate lock		agreement		servicing
	for sale		commitments (1)		derivatives		rights			Total
	(in thousands)
Assets:
Balance, December 31, 2017	$	782,211	$	58,272	$	10,656	$	638,010	$	1,489,149
Reclassification of mortgage servicing rights previously accounted for under the amortization method pursuant to adoption of the fair value method of accounting		—		—		—		1,482,426		1,482,426
Balance, January 1, 2018		782,211		58,272		10,656		2,120,436		2,971,575
Purchases and issuances, net		2,972,042		195,974		49,725		237,803		3,455,544
Sales and repayments		(1,360,667)		—		(31,907)		—		(1,392,574)
Mortgage servicing rights resulting from mortgage loan sales		—		—		—		591,757		591,757
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		158		—		—		—		158
Other factors		—		1,285		(1,704)		(129,384)		(129,803)
		158		1,285		(1,704)		(129,384)		(129,645)
Transfers from Level 3 to Level 2		(2,128,551)		—		—		—		(2,128,551)
Transfers to real estate acquired in settlement of loans		(5,185)		—		—		—		(5,185)
Transfers of interest rate lock commitments to mortgage loans held for sale		—		(206,193)		—		—		(206,193)
Balance, December 31, 2018	$	260,008	$	49,338	$	26,770	$	2,820,612	$	3,156,728
Changes in fair value recognized during the year relating to assets still held at December 31, 2018	$	(263)	$	49,338	$	—	$	(129,384)	$	(80,309)

(1)

For the purpose of this table, the IRLC asset and liability positions are shown net.


	Year ended December 31, 2018
	Excess
	servicing		Mortgage
	spread		servicing
	financing		liabilities		Total
	(in thousands)
Liabilities:
Balance, December 31, 2017	$	236,534	$	14,120	$	250,654
Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		2,688		—		2,688
Accrual of interest		15,138		—		15,138
Repayments		(46,750)		—		(46,750)
Mortgage servicing liabilities resulting from mortgage loan sales		—		7,601		7,601
Changes in fair value included in income		8,500		(13,040)		(4,540)
Balance, December 31, 2018	$	216,110	$	8,681	$	224,791
Changes in fair value recognized during the year relating to liabilities still outstanding at December 31, 2018	$	8,500	$	(13,040)	$	(4,540)


	Year ended December 31, 2017
	Mortgage		Net interest		Repurchase		Mortgage
	loans held		rate lock		agreement		servicing
	for sale		commitments (1)		derivatives		rights			Total
	(in thousands)
Assets:
Balance, December 31, 2016	$	47,271	$	59,391	$	—	$	515,925	$	622,587
Purchases and issuances, net		2,928,249		302,389		10,986		183,850		3,425,474
Sales and repayments		(1,339,580)		—		—		—		(1,339,580)
Mortgage servicing rights resulting from mortgage loan sales		—		—		—		24,471		24,471
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		(1,794)		—		—		—		(1,794)
Other factors		—		115,434		(330)		(86,236)		28,868
		(1,794)		115,434		(330)		(86,236)		27,074
Transfers from Level 3 to Level 2		(851,935)		—		—		—		(851,935)
Transfers of interest rate lock commitments to mortgage loans held for sale		—		(418,942)		—		—		(418,942)
Balance, December 31, 2017	$	782,211	$	58,272	$	10,656	$	638,010	$	1,489,149
Changes in fair value recognized during the year relating to assets still held at December 31, 2017	$	(556)	$	58,272	$	(330)	$	(86,236)	$	(28,850)

(1)

For the purpose of this table, the IRLC asset and liability positions are shown net.


	Year ended December 31, 2017
	Excess
	servicing		Mortgage
	spread		servicing
	financing		liabilities		Total
	(in thousands)
Liabilities:
Balance, December 31, 2016	$	288,669	$	15,192	$	303,861
Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		5,244		—		5,244
Accrual of interest		16,951		—		16,951
Repayments		(54,980)		—		(54,980)
Mortgage servicing liabilities resulting from mortgage loan sales		—		17,229		17,229
Changes in fair value included in income		(19,350)		(18,301)		(37,651)
Balance, December 31, 2017	$	236,534	$	14,120	$	250,654
Changes in fair value recognized during the year relating to liabilities still outstanding at December 31, 2017	$	(19,350)	$	(18,301)	$	(37,651)


	Year ended December 31, 2016
	Mortgage		Net interest		Mortgage
	loans held		rate lock		servicing
	for sale		commitments (1)		rights		Total
	(in thousands)
Assets:
Balance December 31, 2015	$	48,531	$	43,773	$	660,247	$	752,551
Purchases		1,608,627		—		146		1,608,773
Sales and repayments		(1,202,621)		—		—		(1,202,621)
Interest rate lock commitments issued, net		—		429,598		—		429,598
Mortgage servicing rights resulting from mortgage loan sales		—		—		17,319		17,319
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		3,469		—		—		3,469
Other factors		—		143,867		(161,787)		(17,920)
		3,469		143,867		(161,787)		(14,451)
Transfers from Level 3 to Level 2		(410,735)		—		—		(410,735)
Transfers of interest rate lock commitments to mortgage loans held for sale		—		(557,847)		—		(557,847)
Balance, December 31, 2016	$	47,271	$	59,391	$	515,925	$	622,587
Changes in fair value recognized during the year relating to assets still held at December 31, 2016	$	936	$	59,391	$	(161,787)	$	(101,460)

(1)

For the purpose of this table, the IRLC asset and liability positions are shown net.


	Year ended December 31, 2016
	Excess
	servicing		Mortgage
	spread		servicing
	financing		liabilities		Total
	(in thousands)
Liabilities:
Balance December 31, 2015	$	412,425	$	1,399	$	413,824
Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		6,603		—		6,603
Accrual of interest		22,601		—		22,601
Repayments		(69,992)		—		(69,992)
Settlement		(59,045)		—		(59,045)
Mortgage servicing liabilities resulting from mortgage loan sales		—		14,991		14,991
Mortgage servicing liabilities assumed		—		10,139		10,139
Changes in fair value included in income		(23,923)		(11,337)		(35,260)
Balance, December 31, 2016	$	288,669	$	15,192	$	303,861
Changes in fair value recognized during the year relating to liabilities still outstanding at December 31, 2016	$	(16,713)	$	(11,337)	$	(28,050)

Summary of net gains (losses) from changes in fair values included in earnings for financial statement items carried at fair value


	Year ended December 31,
	2018						2017						2016
	Net		Net gains on				Net		Net gains on				Net		Net gains on
	mortgage		mortgage				mortgage		mortgage				mortgage		mortgage
	loan		loans held				loan		loans held				loan		loans held
	servicing		for sale at				servicing		for sale at				servicing		for sale at
	fees		fair value		Total		fees		fair value		Total		fees		fair value		Total
	(in thousands)
Assets:
Mortgage loans held for sale	$	—	$	188,611	$	188,611	$	—	$	426,092	$	426,092	$	—	$	513,331	$	513,331
Mortgage servicing rights		(129,384)		—		(129,384)		(86,236)		—		(86,236)		(161,787)		—		(161,787)
	$	(129,384)	$	188,611	$	59,227	$	(86,236)	$	426,092	$	339,856	$	(161,787)	$	513,331	$	351,544
Liabilities:
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust	$	(8,500)	$	—	$	(8,500)	$	19,350	$	—	$	19,350	$	23,923	$	—	$	23,923
Mortgage servicing liabilities		13,040		—		13,040		18,301		—		18,301		11,337		—		11,337
	$	4,540	$	—	$	4,540	$	37,651	$	—	$	37,651	$	35,260	$	—	$	35,260

Schedule of fair value and related principal amounts due upon maturity of assets and liabilities accounted for under the fair value option


	December 31, 2018						December 31, 2017
			Principal						Principal
			amount						amount
	Fair		due upon				Fair		due upon
	value		maturity		Difference		value		maturity		Difference
	(in thousands)
Mortgage loans held for sale:
Current through 89 days delinquent	$	2,324,203	$	2,220,371	$	103,832	$	2,430,517	$	2,326,772	$	103,745
90 days or more delinquent:
Not in foreclosure		143,631		144,011		(380)		614,329		614,357		(28)
In foreclosure		53,813		56,254		(2,441)		54,257		57,248		(2,991)
	$	2,521,647	$	2,420,636	$	101,011	$	3,099,103	$	2,998,377	$	100,726

Summary of financial statement items measured at estimated fair value on a nonrecurring basis


	December 31, 2018
	Level 1		Level 2		Level 3		Total
	(in thousands)
Real estate acquired in settlement of loans	$	—	$	—	$	2,150	$	2,150


	December 31, 2017
	Level 1		Level 2		Level 3		Total
	(in thousands)
Mortgage servicing rights at lower of amortized cost or fair value	$	—	$	—	$	1,463,552	$	1,463,552
Real estate acquired in settlement of loans		—		—		2,355		2,355
	$	—	$	—	$	1,465,907	$	1,465,907

Summary of total gains (losses) on assets measured at estimated fair values on a nonrecurring basis


	Year ended December 31,
	2018		2017		2016
	(in thousands)
Mortgage servicing rights at lower of amortized cost or fair value	$	—	$	(6,853)	$	(60,487)
Real estate acquired in settlement of loans		(75)		(125)		(86)
	$	(75)	$	(6,978)	$	(60,487)

Quantitative summary of key inputs used in the valuation of the MSRs at year end and the effect on estimated fair value from adverse changes in those inputs


	December 31, 2018	December 31, 2017
	Fair	Fair	Amortized
	value	value	cost
	(Carrying value, unpaid principal balance of underlying
	mortgage loans and effect on fair value amounts in thousands)
MSR and pool characteristics:
Carrying value	$2,820,612	$638,010	$1,481,578
Unpaid principal balance of underlying mortgage loans	$201,054,144	$51,883,539	$114,365,698
Weighted average note interest rate	4.0%	4.0%	3.8%
Weighted average servicing fee rate (in basis points)	33	32	31
Key inputs (1):
Pricing spread (2):
Range	5.8% – 16.1%	7.6% – 14.1%	7.6% – 14.1%
Weighted average	8.7%	9.8%	10.3%
Effect on fair value of (3):
5% adverse change	($45,268)	($10,760)	($27,700)
10% adverse change	($89,073)	($21,155)	($54,376)
20% adverse change	($172,556)	($40,916)	($104,869)
Prepayment speed (4):
Range	8.4% – 32.6%	7.9% – 46.2%	7.4% – 44.1%
Weighted average	9.9%	10.5%	9.7%
Average life (in years):
Range	1.5 – 7.9	1.2 – 7.8	2.0 – 8.3
Weighted average	7.2	6.6	7.5
Effect on fair value of (3):
5% adverse change	($47,687)	($10,809)	($23,544)
10% adverse change	($93,626)	($21,239)	($46,284)
20% adverse change	($180,623)	($41,038)	($89,514)
Annual per-loan cost of servicing:
Range	$78 – $99	$78 – $97	$79 – $97
Weighted average	$93	$89	$89
Effect on fair value of (3):
5% adverse change	($22,944)	($6,247)	($11,216)
10% adverse change	($45,888)	($12,494)	($22,431)
20% adverse change	($91,775)	($24,987)	($44,863)

(1)

Weighted average inputs are based on UPB of the underlying mortgage loans.

(2)

The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSRs.

(3)

For MSRs carried at fair value, an adverse change in one of the above-mentioned key inputs is expected to result in a reduction in fair value which would be recognized in income. For MSRs carried at lower of amortized cost or fair value, an adverse change in one of the above-mentioned key inputs may have resulted in recognition of MSR impairment. The extent of the recognized MSR impairment depended on the relationship of fair value to the carrying value of such MSRs immediately before the adverse change event.

(4)

Prepayment speed is measured using Life Total CPR.

Mortgage servicing liabilities

Fair Value

Quantitative summary of key inputs or assumptions used in the valuation of financial statement items


		December 31,
		2018		2017
MSL and pool characteristics:
Carrying value (in thousands)	$	8,681	$	14,120
Unpaid principal balance of underlying mortgage loans (in thousands)	$	1,160,938	$	1,620,609
Servicing fee rate (in basis points)		25		25
Key inputs:
Pricing spread (1)		7.3%		7.7%
Prepayment speed (2)		32.2%		32.9%
Average life (in years)		3.8		3.5
Annual per-loan cost of servicing	$	373	$	404

(1)

The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to MSLs.

Prepayment speed is measured using Life Total CPR.

Excess servicing spread financing

Fair Value

Quantitative summary of key inputs or assumptions used in the valuation of financial statement items


	December 31,	December 31,
	2018	2017
Carrying value (in thousands)	$216,110	$236,534
ESS and pool characteristics:
Unpaid principal balance of underlying mortgage loans (in thousands)	$23,196,033	$27,217,199
Average servicing fee rate (in basis points)	34	34
Average excess servicing spread (in basis points)	19	19
Key inputs (1):
Pricing spread (2):
Range	2.8% – 3.2%	3.8% – 4.3%
Weighted average	3.1%	4.1%
Annualized prepayment speed (3):
Range	8.2% – 29.5%	8.4% – 41.4%
Weighted average	9.7%	10.8%
Average life (in years):
Range	1.6 – 7.6	1.4 – 7.7
Weighted average	6.8	6.5

(1)

Weighted average inputs are based on UPB of the underlying mortgage loans.

(2)

The Company applies a pricing spread to the United States Dollar LIBOR curve for purposes of discounting cash flows relating to ESS.

(3)

Prepayment speed is measured using Life Total CPR.

Interest rate lock commitments

Fair Value

Quantitative summary of key inputs or assumptions used in the valuation of financial statement items



Key inputs (1)	December 31, 2018	December 31, 2017
Pull-through rate:
Range	16.6% – 100%	25.0% – 100%
Weighted average	84.1%	85.6%
Mortgage servicing rights value expressed as:
Servicing fee multiple:
Range	1.5 – 5.5	1.4 – 5.8
Weighted average	3.8	4.0
Percentage of unpaid principal balance:
Range	0.4% – 3.2%	0.3% – 3.0%
Weighted average	1.5%	1.4%

(1)

Weighted average inputs are based on the committed amounts.

Mortgage servicing rights

Fair Value

Quantitative summary of key inputs or assumptions used in the valuation of financial statement items, excluding MSR purchases


	Year ended December 31,
	2018	2017		2016
	Fair	Fair	Amortized	Fair	Amortized
	value	value	cost	value	cost
	(Amount recognized and unpaid principal balance of underlying mortgage loans amounts in thousands)
MSR and pool characteristics:
Amount recognized	$591,757	$24,471	$556,630	$17,319	$560,212
Unpaid principal balance of underlying mortgage loans	$42,008,585	$2,316,539	$44,664,551	$1,452,779	$44,827,516
Weighted average servicing fee rate (in basis points)	36	31	31	33	30
Key inputs (1):
Pricing spread (2):
Range	5.8% – 16.4%	7.6% – 11.2%	7.6% – 15.2%	7.2% – 10.5%	7.2% – 14.4%
Weighted average	9.9%	10.5%	10.7%	9.2%	9.5%
Annual total prepayment speed (3):
Range	3.9% – 61.8%	3.9% – 71.8%	3.4% – 47.6%	3.3% – 53.8%	2.8% – 50.9%
Weighted average	10.8%	12.6%	9.1%	11.8%	9.0%
Life (in years):
Range	0.5 – 11.6	0.8 – 11.7	1.5 – 12.2	0.5 – 11.9	1.3 – 12.9
Weighted average	7.3	6.6	8.1	6.8	8.1
Per-loan annual cost of servicing:
Range	$78 – $99	$78 – $101	$79 – $101	$68 – $105	$68 – $106
Weighted average	$91	$89	$89	$88	$89

(1)

Weighted average inputs are based on UPB of the underlying mortgage loans.

(2)

Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. The Company applies a pricing spread to the United States Dollar London Interbank Offered Rate (“LIBOR”) curve for purposes of discounting cash flows relating to MSRs.

(3)

Prepayment speed is measured using Life Total CPR.

Mortgage loans held for sale

Fair Value

Quantitative summary of key inputs or assumptions used in the valuation of financial statement items



Key inputs (1)	December 31, 2018	December 31, 2017
Discount rate:
Range	2.8% – 9.2%	2.9% – 10.0%
Weighted average	2.9%	2.9%
Twelve-month projected housing price index change:
Range	2.2% – 5.0%	3.1% – 5.6%
Weighted average	3.5%	3.6%
Voluntary prepayment / resale speed (2):
Range	0.1% – 21.8%	0.2% – 72.2%
Weighted average	20.1%	44.6%
Total prepayment speed (3):
Range	0.1% – 40.5%	0.2% – 75.2%
Weighted average	37.7%	55.8%

(1)

Weighted average inputs are based on fair value of mortgage loans.

(2)

Voluntary prepayment/resale speed is measured using Life Voluntary Conditional Prepayment Rate (“CPR”).

(3)

Total prepayment speed is measured using Life Total CPR.