Fair Value (Tables)

9 Months Ended

Sep. 30, 2020

Fair Value

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

	September 30, 2020
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	102,136	$	—	$	—	$	102,136
Loans held for sale at fair value		—		6,351,175		2,774,997		9,126,172
Derivative assets:
Interest rate lock commitments		—		—		544,151		544,151
Forward purchase contracts		—		72,640		—		72,640
Forward sales contracts		—		21,652		—		21,652
MBS put options		—		27,336		—		27,336
MBS call options		—		4,255		—		4,255
Swaptions		—		5,568		—		5,568
Put options on interest rate futures purchase contracts		5,910		—		—		5,910
Call options on interest rate futures purchase contracts		1,570		—		—		1,570
Total derivative assets before netting		7,480		131,451		544,151		683,082
Netting		—		—		—		(104,828)
Total derivative assets		7,480		131,451		544,151		578,254
Mortgage servicing rights at fair value		—		—		2,333,821		2,333,821
Investment in PennyMac Mortgage Investment Trust		991		—		—		991
	$	110,607	$	6,482,626	$	5,652,969	$	12,141,374
Liabilities:
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value	$	—	$	—	$	142,990	$	142,990
Derivative liabilities:
Interest rate lock commitments		—		—		2,706		2,706
Forward purchase contracts		—		15,903		—		15,903
Forward sales contracts		—		98,765		—		98,765
Total derivative liabilities before netting		—		114,668		2,706		117,374
Netting		—		—		—		(92,837)
Total derivative liabilities		—		114,668		2,706		24,537
Mortgage servicing liabilities at fair value		—		—		31,698		31,698
	$	—	$	114,668	$	177,394	$	199,225

	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 September 30, 2020
			Net interest		Repurchase		Mortgage
	Loans held		rate lock		agreement		servicing
Assets	for sale		commitments (1)		derivatives		rights		Total
	(in thousands)
Balance, June 30, 2020	$	661,719	$	368,064	$	8,187	$	2,213,539	$	3,251,509
Purchases (purchase adjustment) and issuances, net		2,734,321		593,065		—		(287)		3,327,099
Capitalization of interest and advances		22,262		—		—		—		22,262
Sales and repayments		(88,955)		—		(8,270)		—		(97,225)
Mortgage servicing rights resulting from loan sales		—		—		—		245,946		245,946
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		42,029		—		—		—		42,029
Other factors		—		311,790		83		(125,377)		186,496
		42,029		311,790		83		(125,377)		228,525
Transfers from Level 3 to Level 2		(597,134)		—		—		—		(597,134)
Reinstatement from real estate acquired in settlement of loans		755		—		—		—		755
Transfers of interest rate lock commitments to loans held for sale		—		(731,474)		—		—		(731,474)
Balance, September 30, 2020	$	2,774,997	$	541,445	$	—	$	2,333,821	$	5,650,263
Changes in fair value recognized during the quarter relating to assets still held at September 30, 2020	$	38,217	$	541,445	$	—	$	(125,377)	$	454,285

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

	Quarter ended September 30, 2020
	Excess
	servicing		Mortgage
	spread		servicing
Liabilities	financing		liabilities		Total
	(in thousands)
Balance, June 30, 2020	$	151,206	$	29,858	$	181,064
Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		531		—		531
Accrual of interest		2,070		—		2,070
Repayments		(7,682)		—		(7,682)
Changes in fair value included in income		(3,135)		1,840		(1,295)
Balance, September 30, 2020	$	142,990	$	31,698	$	174,688
Changes in fair value recognized during the quarter relating to liabilities still outstanding at September 30, 2020	$	(3,135)	$	1,840	$	(1,295)

	Quarter ended September 30, 2019
			Net interest		Repurchase		Mortgage
	Loans held		rate lock		agreement		servicing
Assets	for sale		commitments (1)		derivatives		rights			Total
	(in thousands)
Balance, June 30, 2019	$	217,998	$	111,776	$	16,015	$	2,720,335	$	3,066,124
Purchases and issuances, net		1,861,769		199,274		1,502		46		2,062,591
Sales and repayments		(1,582,564)		—		(9,422)		—		(1,591,986)
Mortgage servicing rights resulting from loan sales		—		—		—		246,757		246,757
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		4,252		—		—		—		4,252
Other factors		—		92,138		92		(410,885)		(318,655)
		4,252		92,138		92		(410,885)		(314,403)
Transfers from Level 3 to Level 2		(416,062)		—		—		—		(416,062)
Transfers to real estate acquired in settlement of loans		(376)		—		—		—		(376)
Transfers of interest rate lock commitments to loans held for sale		—		(258,064)		—		—		(258,064)
Balance, September 30, 2019	$	85,017	$	145,124	$	8,187	$	2,556,253	$	2,794,581
Changes in fair value recognized during the quarter relating to assets still held at September 30, 2019	$	(2,328)	$	145,124	$	41	$	(410,885)	$	(268,048)

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

	Quarter ended September 30, 2019
	Excess
	servicing		Mortgage
	spread		servicing
Liabilities	financing		liabilities		Total
	(in thousands)
Balance, June 30, 2019	$	194,156	$	12,948	$	207,104
Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		377		—		377
Accrual of interest		2,291		—		2,291
Repayments		(9,819)		—		(9,819)
Mortgage servicing liabilities resulting from loan sales		—		19,501		19,501
Changes in fair value included in income		(3,864)		1,845		(2,019)
Balance, September 30, 2019	$	183,141	$	34,294	$	217,435
Changes in fair value recognized during the quarter relating to liabilities still outstanding at September 30, 2019	$	(3,864)	$	1,845	$	(2,019)

	Nine months ended September 30, 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		4,664,408		1,431,194		—		25,473		6,121,075
Capitalization of interest and advances		55,283		—		—		—		55,283
Sales and repayments		(888,247)		—		(8,270)		—		(896,517)
Mortgage servicing rights resulting from loan sales		—		—		—		753,795		753,795
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		35,638		—		—		—		35,638
Other factors		—		808,906		83		(1,372,237)		(563,248)
		35,638		808,906		83		(1,372,237)		(527,610)
Transfers from Level 3 to Level 2		(1,476,027)		—		—		—		(1,476,027)
Transfers to real estate acquired in settlement of loans		(691)		—		—		—		(691)
Reinstatement from real estate acquired in settlement of loans		755		—		—		—		755
Transfers of interest rate lock commitments to loans held for sale		—		(1,835,305)		—		—		(1,835,305)
Balance, September 30, 2020	$	2,774,997	$	541,445	$	—	$	2,333,821	$	5,650,263
Changes in fair value recognized during the period relating to assets still held at September 30, 2020	$	31,389	$	541,445	$	—	$	(1,372,237)	$	(799,403)

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

	Nine months ended September 30, 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		1,393		—		1,393
Accrual of interest		6,416		—		6,416
Repayments		(25,112)		—		(25,112)
Mortgage servicing liabilities resulting from loan sales		—		6,576		6,576
Changes in fair value included in income		(18,293)		(4,018)		(22,311)
Balance, September 30, 2020	$	142,990	$	31,698	$	174,688
Changes in fair value recognized during the period relating to liabilities still outstanding at September 30, 2020	$	(18,293)	$	(4,018)	$	(22,311)

	Nine months ended September 30, 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		3,537,177		376,137		15,019		227,445		4,155,778
Sales and repayments		(2,414,899)		—		(31,994)		—		(2,446,893)
Mortgage servicing rights resulting from loan sales		—		—		—		545,839		545,839
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		(2,025)		—		—		—		(2,025)
Other factors		—		248,889		(1,608)		(1,037,643)		(790,362)
		(2,025)		248,889		(1,608)		(1,037,643)		(792,387)
Transfers from Level 3 to Level 2		(1,292,824)		—		—		—		(1,292,824)
Transfers to real estate acquired in settlement of loans		(2,420)		—		—		—		(2,420)
Transfers of interest rate lock commitments to loans held for sale		—		(529,240)		—		—		(529,240)
Balance, September 30, 2019	$	85,017	$	145,124	$	8,187	$	2,556,253	$	2,794,581
Changes in fair value recognized during the period relating to assets still held at September 30, 2019	$	(2,478)	$	145,124	$	165	$	(1,037,643)	$	(894,832)

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

	Nine months ended September 30, 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		1,327		—		1,327
Accrual of interest		8,124		—		8,124
Repayments		(30,901)		—		(30,901)
Mortgage servicing liabilities resulting from loan sales		—		27,133		27,133
Changes in fair value included in income		(11,519)		(1,520)		(13,039)
Balance, September 30, 2019	$	183,141	$	34,294	$	217,435
Changes in fair value recognized during the period relating to liabilities still outstanding at September 30, 2019	$	(11,519)	$	(1,520)	$	(13,039)

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

	Quarter ended September 30,
	2020						2019
	Net gains on		Net				Net gains on		Net
	loans held		loan				loans held		loan
	for sale at		servicing				for sale at		servicing
	fair value		fees		Total		fair value		fees		Total
Assets:
Loans held for sale	$	773,313	$	—	$	773,313	$	263,339	$	—	$	263,339
Mortgage servicing rights		—		(125,377)		(125,377)		—		(410,885)		(410,885)
	$	773,313	$	(125,377)	$	647,936	$	263,339	$	(410,885)	$	(147,546)
Liabilities:
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust	$	—	$	3,135	$	3,135	$	—	$	3,864	$	3,864
Mortgage servicing liabilities		—		(1,840)		(1,840)		—		(1,845)		(1,845)
	$	—	$	1,295	$	1,295	$	—	$	2,019	$	2,019

	Nine months ended September 30,
	2020						2019
	Net gains on		Net				Net gains on		Net
	loans held		loan				loans held		loan
	for sale at		servicing				for sale at		servicing
	fair value		fees		Total		fair value		fees		Total
Assets:
Loans held for sale	$	1,911,828	$	—	$	1,911,828	$	538,086	$	—	$	538,086
Mortgage servicing rights		—		(1,372,237)		(1,372,237)		—		(1,037,643)		(1,037,643)
	$	1,911,828	$	(1,372,237)	$	539,591	$	538,086	$	(1,037,643)	$	(499,557)
Liabilities:
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust	$	—	$	18,293	$	18,293	$	—	$	11,519	$	11,519
Mortgage servicing liabilities		—		4,018		4,018		—		1,520		1,520
	$	—	$	22,311	$	22,311	$	—	$	13,039	$	13,039

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

	September 30, 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	$	8,670,895	$	8,279,163	$	391,732	$	4,628,333	$	4,431,854	$	196,479
90 days or more delinquent:
Not in foreclosure		392,866		404,183		(11,317)		236,650		241,958		(5,308)
In foreclosure		62,411		66,327		(3,916)		47,970		50,194		(2,224)
	$	9,126,172	$	8,749,673	$	376,499	$	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)
September 30, 2020	$	—	$	—	$	7,346	$	7,346
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 September 30,				Nine months ended September 30,
	2020		2019		2020		2019
	(in thousands)
Real estate acquired in settlement of loans	$	(825)	$	139	$	(2,059)	$	162

Summary of carrying value and fair value of debt

	September 30, 2020				December 31, 2019
	Fair value		Carrying value		Fair value		Carrying value
	(in thousands)
2018 Term Notes	$	1,259,619	$	1,295,143	$	1,303,047	$	1,294,070
Unsecured Notes	$	510,000	$	492,358	$	—	$	—

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

	Quarter ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
	(Amount recognized and unpaid principal balance of underlying loans in thousands)
MSR and pool characteristics:
Amount recognized	$	245,946	$	246,757	$	753,795	$	545,839
Unpaid principal balance of underlying loans	$	25,369,941	$	15,709,249	$	63,766,627	$	35,532,425
Weighted average servicing fee rate (in basis points)		32		43		36		42
Key inputs (1):
Pricing spread (2)
Range		8.0% – 17.6%		5.5% – 16.2%		6.8% – 18.1%		5.5% – 16.2%
Weighted average		9.6%		8.3%		9.3%		8.6%
Annual total prepayment speed (3)
Range		7.2% – 41.0%		8.8% – 32.1%		7.2% – 49.8%		7.7% – 32.8%
Weighted average		10.4%		15.7%		12.4%		15.0%
Equivalent average life (in years)
Range		2.3 – 9.1		2.7 – 7.5		1.5 – 9.1		2.6 – 7.8
Weighted average		7.3		5.5		6.6		5.8
Per-loan annual cost of servicing
Range		$80 – $110		$78 – $100		$77 – $110		$78 – $100
Weighted average		$102		$97		$100		$97

(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:

	September 30, 2020	December 31, 2019
	(Fair value, unpaid principal balance of underlying
	loans and effect on fair value amounts in thousands)
Fair value	$ 2,333,821	$ 2,926,790
Pool characteristics:
Unpaid principal balance of underlying loans	$ 234,850,997	$ 225,787,103
Weighted average note interest rate	3.8%	3.9%
Weighted average servicing fee rate (in basis points)	35	35
Key inputs (1):
Pricing spread (2):
Range	8.0% – 17.6%	6.8% – 15.8%
Weighted average	10.1%	8.5%
Effect on fair value of:
5% adverse change	($42,266)	($44,561)
10% adverse change	($82,935)	($87,734)
20% adverse change	($159,813)	($170,155)
Annual total prepayment speed (3):
Range	10.4% – 32.3%	9.3% – 40.9%
Weighted average	15.3%	12.7%
Equivalent average life (in years)
Range	1.7 – 6.8	1.4 – 7.4
Weighted average	5.4	6.1
Effect on fair value of:
5% adverse change	($67,933)	($63,569)
10% adverse change	($132,698)	($124,411)
20% adverse change	($253,474)	($238,549)
Annual per-loan cost of servicing:
Range	$78 – $110	$77 – $100
Weighted average	$104	$97
Effect on fair value of:
5% adverse change	($25,138)	($24,516)
10% adverse change	($50,275)	($49,032)
20% adverse change	($100,551)	($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

		September 30,		December 31,
		2020		2019
Fair value (in thousands)	$	31,698	$	29,140
Pool characteristics:
Unpaid principal balance of underlying loans (in thousands)	$	1,799,562	$	2,758,454
Servicing fee rate (in basis points)		25		25
Key inputs:
Pricing spread (1)		7.1%		8.2%
Annual total prepayment speed (2)		35.1%		29.2%
Equivalent average life (in years)		2.9		3.9
Annual per-loan cost of servicing	$	343	$	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.

(2) 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.

Excess servicing spread financing

Fair Value

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

	September 30,	December 31,
	2020	2019
Fair value (in thousands)	$ 142,990	$ 178,586
Pool characteristics:
Unpaid principal balance of underlying loans (in thousands)	$ 17,070,283	$ 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	4.9% – 5.3%	3.0% – 3.3%
Weighted average	5.1%	3.1%
Annual total prepayment speed (3):
Range	9.6% – 17.6%	8.7% – 16.2%
Weighted average	11.8%	11.0%
Equivalent average life (in years)
Range	2.4 – 6.7	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

	September 30, 2020		December 31, 2019
Fair value (in thousands) (1)	$	541,445	$	136,650
Key inputs (2):
Pull-through rate:
Range		11.8% – 100%		12.2% – 100%
Weighted average		80.6%		86.5%
Mortgage servicing rights value expressed as:
Servicing fee multiple:
Range		1.0 – 5.1		1.4 – 5.7
Weighted average		3.5		4.2
Percentage of loan commitment amount
Range		0.2% – 2.5%		0.3% – 2.8%
Weighted average		1.1%		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

	September 30, 2020		December 31, 2019
Fair value (in thousands)	$	2,774,997	$	383,878
Key inputs (1):
Discount rate:
Range		3.2% – 9.2%		3.0% – 9.2%
Weighted average		3.2%		3.0%
Twelve-month projected housing price index change:
Range		2.1% – 2.6%		2.6% – 3.2%
Weighted average		2.2%		2.8%
Voluntary prepayment/resale speed (2):
Range		0.5% – 24.9%		0.4% – 21.4%
Weighted average		19.6%		18.2%
Total prepayment speed (3):
Range		0.6% – 38.7%		0.5% – 39.2%
Weighted average		29.9%		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.