Fair Value (Tables)

3 Months Ended

Mar. 31, 2019

Fair Value

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

	March 31, 2019
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	149,372	$	—	$	—	$	149,372
Mortgage loans held for sale at fair value		—		2,213,396		455,533		2,668,929
Derivative assets:
Interest rate lock commitments		—		—		68,248		68,248
Repurchase agreement derivatives		—		—		24,632		24,632
Forward purchase contracts		—		61,932		—		61,932
Forward sales contracts		—		1,215		—		1,215
MBS put options		—		6,287		—		6,287
MBS call options		—		6,251		—		6,251
Put options on interest rate futures purchase contracts		2,639		—		—		2,639
Call options on interest rate futures purchase contracts		14,078		—		—		14,078
Total derivative assets before netting		16,717		75,685		92,880		185,282
Netting		—		—		—		(64,129)
Total derivative assets		16,717		75,685		92,880		121,153
Investment in PennyMac Mortgage Investment Trust		1,553		—		—		1,553
Mortgage servicing rights at fair value		—		—		2,905,090		2,905,090
	$	167,642	$	2,289,081	$	3,453,503	$	5,846,097
Liabilities:
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value	$	—	$	—	$	205,081	$	205,081
Derivative liabilities:
Interest rate lock commitments		—		—		2,183		2,183
Forward purchase contracts		—		3,170		—		3,170
Forward sales contracts		—		25,962		—		25,962
Total derivative liabilities before netting		—		29,132		2,183		31,315
Netting		—		—		—		(13,477)
Total derivative liabilities		—		29,132		2,183		17,838
Mortgage servicing liabilities at fair value		—		—		7,844		7,844
	$	—	$	29,132	$	215,108	$	230,763

	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

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

	Quarter ended March 31, 2019
	Mortgage		Net interest		Repurchase		Mortgage
	loans held		rate lock		agreement		servicing
	for sale		commitments (1)		derivatives		rights			Total
	(in thousands)
Assets:
Balance, December 31, 2018	$	260,008	$	49,338	$	26,770	$	2,820,612	$	3,156,728
Purchases and issuances, net		784,262		56,983		9,855		227,772		1,078,872
Sales and repayments		(176,302)		—		(11,436)		—		(187,738)
Mortgage servicing rights resulting from mortgage loan sales		—		—		—		115,751		115,751
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		(6,091)		—		—		—		(6,091)
Other factors		—		59,978		(557)		(259,045)		(199,624)
		(6,091)		59,978		(557)		(259,045)		(205,715)
Transfers from Level 3 to Level 2		(405,163)		—		—		—		(405,163)
Transfers to real estate acquired in settlement of loans		(1,181)		—		—		—		(1,181)
Transfers of interest rate lock commitments to mortgage loans held for sale		—		(100,234)		—		—		(100,234)
Balance, March 31, 2019	$	455,533	$	66,065	$	24,632	$	2,905,090	$	3,451,320
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2019	$	(3,540)	$	66,065	$	—	$	(259,045)	$	(196,520)

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

	Quarter ended March 31, 2019
	Excess
	servicing		Mortgage
	spread		servicing
	financing		liabilities		Total
	(in thousands)
Liabilities:
Balance, December 31, 2018	$	216,110	$	8,681	$	224,791
Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		508		—		508
Accrual of interest		3,066		—		3,066
Repayments		(10,552)		—		(10,552)
Mortgage servicing liabilities resulting from mortgage loan sales		—		794		794
Changes in fair value included in income		(4,051)		(1,631)		(5,682)
Balance, March 31, 2019	$	205,081	$	7,844	$	212,925
Changes in fair value recognized during the quarter relating to liabilities still outstanding at March 31, 2019	$	(4,051)	$	(1,631)	$	(5,682)

	Quarter ended March 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		647,269		65,598		10,751		27,606		751,224
Sales and repayments		(604,094)		—		(7)		—		(604,101)
Mortgage servicing rights resulting from mortgage loan sales		—		—		—		143,910		143,910
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		(8,755)		—		—		—		(8,755)
Other factors		—		(44,913)		(426)		62,537		17,198
		(8,755)		(44,913)		(426)		62,537		8,443
Transfers from Level 3 to Level 2		(356,232)		—		—		—		(356,232)
Transfers of interest rate lock commitments to mortgage loans held for sale		—		(28,061)		—		—		(28,061)
Balance, March 31, 2018	$	460,399	$	50,896	$	20,974	$	2,354,489	$	2,886,758
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2018	$	(7,598)	$	50,896	$	(77)	$	62,537	$	105,758

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

	Quarter ended March 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		904		—		904
Accrual of interest		3,934		—		3,934
Repayments		(12,291)		—		(12,291)
Mortgage servicing liabilities resulting from mortgage loan sales		—		2,037		2,037
Changes in fair value included in income		6,921		(4,094)		2,827
Balance, March 31, 2018	$	236,002	$	12,063	$	248,065
Changes in fair value recognized during the quarter relating to liabilities still outstanding at March 31, 2018	$	6,921	$	(4,094)	$	2,827

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

	Quarter ended March 31,
	2019						2018
	Net		Net gains on				Net		Net gains on
	mortgage		mortgage				mortgage		mortgage
	loan		loans held				loan		loans held
	servicing		for sale at				servicing		for sale at
	fees		fair value		Total		fees		fair value		Total
	(in thousands)
Assets:
Mortgage loans held for sale	$	—	$	101,995	$	101,995	$	—	$	(6,118)	$	(6,118)
Mortgage servicing rights		(259,045)		—		(259,045)		62,537		—		62,537
	$	(259,045)	$	101,995	$	(157,050)	$	62,537	$	(6,118)	$	56,419
Liabilities:
Excess servicing spread financing at fair value payable to PennyMac Mortgage Investment Trust	$	4,051	$	—	$	4,051	$	(6,921)	$	—	$	(6,921)
Mortgage servicing liabilities		1,631		—		1,631		4,094		—		4,094
	$	5,682	$	—	$	5,682	$	(2,827)	$	—	$	(2,827)

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

	March 31, 2019						December 31, 2018
			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	$	2,357,344	$	2,252,816	$	104,528	$	2,324,203	$	2,220,371	$	103,832
90 days or more delinquent:
Not in foreclosure		235,957		240,728		(4,771)		143,631		144,011		(380)
In foreclosure		75,628		79,577		(3,949)		53,813		56,254		(2,441)
	$	2,668,929	$	2,573,121	$	95,808	$	2,521,647	$	2,420,636	$	101,011

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

Real estate acquired in settlement of loans	Level 1		Level 2		Level 3		Total
	(in thousands)
March 31, 2019	$	—	$	—	$	719	$	719
December 31, 2018	$	—	$	—	$	2,150	$	2,150

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

	Quarter ended March 31,
	2019		2018
	(in thousands)
Real estate acquired in settlement of loans	$	21	$	27

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

	Quarter ended March 31,
	2019		2018
	(Amount recognized and unpaid principal balance of underlying mortgage loans in thousands)
MSR and pool characteristics:
Amount recognized	$	115,751	$	143,910
Unpaid principal balance of underlying mortgage loans	$	8,145,850	$	10,162,316
Weighted average servicing fee rate (in basis points)		39		35
Key inputs (1):
Pricing spread (2)
Range		5.8% – 15.6%		7.4% – 14.1%
Weighted average		8.9%		10.3%
Annual total prepayment speed (3)
Range		5.8% – 73.0%		3.9% – 49.0%
Weighted average		15.3%		8.9%
Life (in years)
Range		0.8 – 10.2		1.1 – 11.6
Weighted average		5.8		8.2
Per-loan annual cost of servicing
Range		$78 – $100		$78 – $98
Weighted average		$95		$89

(1) Weighted average inputs are based on the 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”)/swap curve for purposes of discounting cash flows relating to MSRs.

(3) Prepayment speed is measured using Life Total CPR.

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

Following is a quantitative summary of key inputs used in the valuation and assessment for the Company’s MSRs and the effect on the fair value from adverse changes in those inputs:

	March 31, 2019	December 31, 2018
	(Carrying value, unpaid principal balance of underlying
	mortgage loans and effect on fair value amounts in thousands)
MSR and pool characteristics:
Carrying value	$2,905,090	$2,820,612
Unpaid principal balance of underlying mortgage loans	$219,834,361	$201,054,144
Weighted average note interest rate	4.0%	4.0%
Weighted average servicing fee rate (in basis points)	33	33
Key inputs (1):
Pricing spread (2):
Range	6.0% – 15.8%	5.8% – 16.1%
Weighted average	8.7%	8.7%
Effect on fair value of:
5% adverse change	($45,330)	($45,268)
10% adverse change	($89,217)	($89,073)
20% adverse change	($172,915)	($172,556)
Prepayment speed (3):
Range	9.0% – 33.5%	8.4% – 32.6%
Weighted average	11.4%	9.9%
Average life (in years):
Range	1.5 – 7.6	1.5 – 7.9
Weighted average	6.6	7.2
Effect on fair value of:
5% adverse change	($54,920)	($47,687)
10% adverse change	($107,628)	($93,626)
20% adverse change	($206,907)	($180,623)
Annual per-loan cost of servicing:
Range	$78 – $100	$78 – $99
Weighted average	$97	$93
Effect on fair value of:
5% adverse change	($24,494)	($22,944)
10% adverse change	($49,004)	($45,888)
20% adverse change	($98,024)	($91,775)

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

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

(3) 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

		March 31,		December 31,
		2019		2018
MSL and pool characteristics:
Carrying value (in thousands)	$	7,844	$	8,681
Unpaid principal balance of underlying mortgage loans (in thousands)	$	1,000,403	$	1,160,938
Servicing fee rate (in basis points)		25		25
Key inputs:
Pricing spread (1)		7.4%		7.3%
Prepayment speed (2)		32.6%		32.2%
Average life (in years)		3.6		3.8
Annual per-loan cost of servicing	$	364	$	373

(1) The Company applies a pricing spread to the United States Dollar LIBOR/swap 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

	March 31,	December 31,
	2019	2018
Carrying value (in thousands)	$205,081	$216,110
ESS and pool characteristics:
Unpaid principal balance of underlying mortgage loans (in thousands)	$22,664,211	$23,196,033
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	3.0% – 3.3%	2.8% – 3.2%
Weighted average	3.2%	3.1%
Annualized prepayment speed (3):
Range	8.5% – 29.9%	8.2% – 29.5%
Weighted average	10.4%	9.7%
Average life (in years):
Range	1.5 – 7.4	1.6 – 7.6
Weighted average	6.5	6.8

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

(2) The Company applies a pricing spread to the United States Dollar LIBOR/swap 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)	March 31, 2019	December 31, 2018
Pull-through rate:
Range	12.2% – 100%	16.6% – 100%
Weighted average	82.8%	84.1%
Mortgage servicing rights value expressed as:
Servicing fee multiple:
Range	1.1 – 5.7	1.5 – 5.5
Weighted average	3.8	3.8
Percentage of unpaid principal balance:
Range	0.3% – 2.7%	0.4% – 3.2%
Weighted average	1.5%	1.5%

(1) Weighted average inputs are based on the committed amounts.

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)	March 31, 2019	December 31, 2018
Discount rate:
Range	3.1% – 9.2%	2.8% – 9.2%
Weighted average	3.1%	2.9%
Twelve-month projected housing price index change:
Range	3.0% – 4.8%	2.2% – 5.0%
Weighted average	3.3%	3.5%
Voluntary prepayment / resale speed (2):
Range	0.1% – 24.3%	0.1% – 21.8%
Weighted average	22.0%	20.1%
Total prepayment speed (3):
Range	0.1% – 42.0%	0.1% – 40.5%
Weighted average	39.2%	37.7%

(1) Weighted average inputs are based on the 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.