Fair Value (Tables)

3 Months Ended

Mar. 31, 2020

Fair Value

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

	March 31, 2020
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	1,884	$	—	$	—	$	1,884
Loans held for sale at fair value		—		4,735,400		806,587		5,541,987
Derivative assets:
Interest rate lock commitments		—		—		317,621		317,621
Repurchase agreement derivatives		—		—		8,187		8,187
Forward purchase contracts		—		421,860		—		421,860
Forward sales contracts		—		23,346		—		23,346
MBS put options		—		4,062		—		4,062
Swaptions		—		36,696		—		36,696
Put options on interest rate futures purchase contracts		13,676		—		—		13,676
Call options on interest rate futures purchase contracts		24,434		—		—		24,434
Total derivative assets before netting		38,110		485,964		325,808		849,882
Netting		—		—		—		(416,671)
Total derivative assets		38,110		485,964		325,808		433,211
Mortgage servicing rights at fair value		—		—		2,193,697		2,193,697
Investment in PennyMac Mortgage Investment Trust		797		—		—		797
	$	40,791	$	5,221,364	$	3,326,092	$	8,171,576
Liabilities:
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value	$	—	$	—	$	157,109	$	157,109
Derivative liabilities:
Interest rate lock commitments		—		—		2,427		2,427
Forward purchase contracts		—		12,553		—		12,553
Forward sales contracts		—		334,111		—		334,111
Total derivative liabilities before netting		—		346,664		2,427		349,091
Netting		—		—		—		(305,939)
Total derivative liabilities		—		346,664		2,427		43,152
Mortgage servicing liabilities at fair value		—		—		29,761		29,761
	$	—	$	346,664	$	189,297	$	230,022

	December 31, 2019
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	74,611	$	—	$	—	$	74,611
Loans held for sale at fair value		—		4,529,075		383,878		4,912,953
Derivative assets:
Interest rate lock commitments		—		—		138,511		138,511
Repurchase agreement derivatives		—		—		8,187		8,187
Forward purchase contracts		—		12,364		—		12,364
Forward sales contracts		—		17,097		—		17,097
MBS put options		—		3,415		—		3,415
Swaptions		—		2,409		—		2,409
Put options on interest rate futures purchase contracts		3,945		—		—		3,945
Call options on interest rate futures purchase contracts		1,469		—		—		1,469
Total derivative assets before netting		5,414		35,285		146,698		187,397
Netting		—		—		—		(27,711)
Total derivative assets		5,414		35,285		146,698		159,686
Mortgage servicing rights at fair value		—		—		2,926,790		2,926,790
Investment in PennyMac Mortgage Investment Trust		1,672		—		—		1,672
	$	81,697	$	4,564,360	$	3,457,366	$	8,075,712
Liabilities:
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value	$	—	$	—	$	178,586	$	178,586
Derivative liabilities:
Interest rate lock commitments		—		—		1,861		1,861
Forward purchase contracts		—		19,040		—		19,040
Forward sales contracts		—		18,045		—		18,045
Total derivative liabilities before netting		—		37,085		1,861		38,946
Netting		—		—		—		(16,616)
Total derivative liabilities		—		37,085		1,861		22,330
Mortgage servicing liabilities at fair value		—		—		29,140		29,140
	$	—	$	37,085	$	209,587	$	230,056

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

	Quarter ended March 31, 2020
			Net interest		Repurchase		Mortgage
	Loans held		rate lock		agreement		servicing
Assets	for sale		commitments (1)		derivatives		rights		Total
	(in thousands)
Balance, December 31, 2019	$	383,878	$	136,650	$	8,187	$	2,926,790	$	3,455,505
Purchases and issuances, net		1,641,231		341,980		—		25,760		2,008,971
Capitalization of interest and advances		18,027		—		—		—		18,027
Sales and repayments		(738,928)		—		—		—		(738,928)
Mortgage servicing rights resulting from loan sales		—		—		—		282,315		282,315
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		(7,523)		—		—		—		(7,523)
Other factors		—		199,918		—		(1,041,168)		(841,250)
		(7,523)		199,918		—		(1,041,168)		(848,773)
Transfers from Level 3 to Level 2		(489,407)		—		—		—		(489,407)
Transfers to real estate acquired in settlement of loans		(691)		—		—		—		(691)
Transfers of interest rate lock commitments to loans held for sale		—		(363,354)		—		—		(363,354)
Balance, March 31, 2020	$	806,587	$	315,194	$	8,187	$	2,193,697	$	3,323,665
Changes in fair value recognized during the quarter relating to assets still held at March 31, 2020	$	(11,856)	$	315,194	$	—	$	(1,041,168)	$	(737,830)

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

	Quarter ended March 31, 2020
	Excess
	servicing		Mortgage
	spread		servicing
Liabilities	financing		liabilities		Total
	(in thousands)
Balance, December 31, 2019	$	178,586	$	29,140	$	207,726
Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		379		—		379
Accrual of interest		1,974		—		1,974
Repayments		(9,308)		—		(9,308)
Mortgage servicing liabilities resulting from loan sales		—		6,576		6,576
Changes in fair value included in income		(14,522)		(5,955)		(20,477)
Balance, March 31, 2020	$	157,109	$	29,761	$	186,870
Changes in fair value recognized during the quarter relating to liabilities still outstanding at March 31, 2020	$	(14,522)	$	(5,955)	$	(20,477)

	Quarter ended March 31, 2019
			Net interest		Repurchase		Mortgage
	Loans held		rate lock		agreement		servicing
Assets	for sale		commitments (1)		derivatives		rights			Total
	(in thousands)
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 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 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
Liabilities	financing		liabilities		Total
	(in thousands)
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 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)

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,
	2020						2019
	Net		Net gains on				Net		Net gains on
	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:
Loans held for sale	$	—	$	398,718	$	398,718	$	—	$	101,995	$	101,995
Mortgage servicing rights		(1,041,168)		—		(1,041,168)		(259,045)		—		(259,045)
	$	(1,041,168)	$	398,718	$	(642,450)	$	(259,045)	$	101,995	$	(157,050)
Liabilities:
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust	$	14,522	$	—	$	14,522	$	4,051	$	—	$	4,051
Mortgage servicing liabilities		5,955		—		5,955		1,631		—		1,631
	$	20,477	$	—	$	20,477	$	5,682	$	—	$	5,682

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

	March 31, 2020						December 31, 2019
			Principal						Principal
			amount						amount
	Fair		due upon				Fair		due upon
Loans held for sale	value		maturity		Difference		value		maturity		Difference
	(in thousands)
Current through 89 days delinquent	$	4,907,823	$	4,624,282	$	283,541	$	4,628,333	$	4,431,854	$	196,479
90 days or more delinquent:
Not in foreclosure		547,287		560,331		(13,044)		236,650		241,958		(5,308)
In foreclosure		86,877		92,075		(5,198)		47,970		50,194		(2,224)
	$	5,541,987	$	5,276,688	$	265,299	$	4,912,953	$	4,724,006	$	188,947

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, 2020	$	—	$	—	$	11,104	$	11,104
December 31, 2019	$	—	$	—	$	9,850	$	9,850

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

	Quarter ended March 31,
	2020		2019
	(in thousands)
Real estate acquired in settlement of loans	$	(3,980)	$	21

Summary of carrying value and fair value of debt

Term Notes	March 31, 2020		December 31, 2019
	(in thousands)
Fair value	$	978,250	$	1,303,047
Carrying value	$	1,294,514	$	1,294,070

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

	Quarter ended March 31,
	2020		2019
	(Amount recognized and unpaid principal balance of underlying loans in thousands)
MSR and pool characteristics:
Amount recognized	$	282,315	$	115,751
Unpaid principal balance of underlying loans	$	18,330,384	$	8,145,850
Weighted average servicing fee rate (in basis points)		40		39
Key inputs (1):
Pricing spread (2)
Range		6.8% – 15.6%		5.8% – 15.6%
Weighted average		8.2%		8.9%
Annual total prepayment speed (3)
Range		9.1% – 49.8%		5.8% – 73.0%
Weighted average		14.5%		15.3%
Equivalent average life (in years)
Range		1.5 – 7.8		0.8 – 10.2
Weighted average		5.9		5.8
Per-loan annual cost of servicing
Range		$77 – $100		$78 – $100
Weighted average		$97		$95

(1) Weighted average inputs are based on the UPB of the underlying 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) Annual total prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is included for informational purposes.

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 of the Company’s MSRs and the effect on the fair value from adverse changes in those inputs:

	March 31, 2020	December 31, 2019
	(Fair value, unpaid principal balance of underlying
	loans and effect on fair value amounts in thousands)
Fair value	$    2,193,697	$    2,926,790
Pool characteristics:
Unpaid principal balance of underlying loans	$    231,484,161	$    225,787,103
Weighted average note interest rate	3.9%	3.9%
Weighted average servicing fee rate (in basis points)	35	35
Key inputs (1):
Pricing spread (2):
Range	8.3% – 18.1%	6.8% – 15.8%
Weighted average	10.7%	8.5%
Effect on fair value of:
5% adverse change	($38,151)	($44,561)
10% adverse change	($74,912)	($87,734)
20% adverse change	($144,545)	($170,155)
Annual total prepayment speed (3):
Range	9.7% – 27.9%	9.3% – 40.9%
Weighted average	16.5%	12.7%
Equivalent average life (in years)
Range	1.3 – 7.2	1.4 – 7.4
Weighted average	5.0	6.1
Effect on fair value of:
5% adverse change	($61,123)	($63,569)
10% adverse change	($119,166)	($124,411)
20% adverse change	($226,812)	($238,549)
Annual per-loan cost of servicing:
Range	$78 – $112	$77 – $100
Weighted average	$108	$97
Effect on fair value of:
5% adverse change	($24,995)	($24,516)
10% adverse change	($49,991)	($49,032)
20% adverse change	($99,981)	($98,065)

(1) Weighted average inputs are based on the UPB of the underlying 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) Annual total prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is included for informational purposes.

Mortgage servicing liabilities

Fair Value

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

		March 31,		December 31,
		2020		2019
Fair value (in thousands)	$	29,761	$	29,140
Pool characteristics:
Unpaid principal balance of underlying loans (in thousands)	$	2,635,734	$	2,758,454
Servicing fee rate (in basis points)		25		25
Key inputs:
Pricing spread (1)		8.2%		8.2%
Annual total prepayment speed (2)		31.6%		29.2%
Equivalent average life (in years)		3.3		3.9
Annual per-loan cost of servicing	$	304	$	300

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

Annual total 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,
	2020	2019
Fair value (in thousands)	$    157,109	$    178,586
Pool characteristics:
Unpaid principal balance of underlying loans (in thousands)	$    19,153,856	$    19,904,571
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	5.4% – 5.8%	3.0% – 3.3%
Weighted average	5.6%	3.1%
Annual total prepayment speed (3):
Range	8.7% – 14.9%	8.7% – 16.2%
Weighted average	11.9%	11.0%
Equivalent average life (in years)
Range	2.7 – 7.1	2.7 – 7.2
Weighted average	5.8	6.1

(1) Weighted average inputs are based on the UPB of the underlying 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) Annual total prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is included for informational purposes.

Interest rate lock commitments

Fair Value

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

	March 31, 2020		December 31, 2019
Fair value (in thousands) (1)	$	315,194	$	136,650
Key inputs (2):
Pull-through rate:
Range		11.8% – 100%		12.2% – 100%
Weighted average		78.9%		86.5%
Mortgage servicing rights value expressed as:
Servicing fee multiple:
Range		0.9 – 5.4		1.4 – 5.7
Weighted average		3.5		4.2
Percentage of unpaid principal balance:
Range		0.2% – 2.8%		0.3% – 2.8%
Weighted average		1.2%		1.6%

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

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

Loans held for sale

Fair Value

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

	March 31, 2020		December 31, 2019
Fair value (in thousands)	$	806,587	$	383,878
Key inputs (1):
Discount rate:
Range		2.9% – 9.2%		3.0% – 9.2%
Weighted average		2.9%		3.0%
Twelve-month projected housing price index change:
Range		1.4% – 2.1%		2.6% – 3.2%
Weighted average		1.6%		2.8%
Voluntary prepayment/resale speed (2):
Range		0.4% – 21.2%		0.4% – 21.4%
Weighted average		18.8%		18.2%
Total prepayment speed (3):
Range		0.6% – 38.2%		0.5% – 39.2%
Weighted average		37.0%		36.2%

(1) Weighted average inputs are based on the fair value of the “Level 3” 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, which includes both voluntary and involuntary prepayments/resale and defaults.