Fair Value (Tables)

9 Months Ended

Sep. 30, 2022

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


	September 30, 2022
	Level 1		Level 2		Level 3		Total

	(in thousands)
Assets:
Short-term investment	$	36,098	$	—	$	—	$	36,098
Loans held for sale at fair value		—		3,805,090		344,636		4,149,726
Derivative assets:
Interest rate lock commitments		—		—		12,195		12,195
Forward purchase contracts		—		5,042		—		5,042
Forward sales contracts		—		375,955		—		375,955
MBS put options		—		17,152		—		17,152
MBS call options		—		55		—		55
Put options on interest rate futures purchase contracts		70,577		—		—		70,577
Call options on interest rate futures purchase contracts		4,680		—		—		4,680
Total derivative assets before netting		75,257		398,204		12,195		485,656
Netting		—		—		—		(321,496)
Total derivative assets		75,257		398,204		12,195		164,160
Mortgage servicing rights at fair value		—		—		5,661,672		5,661,672
Investment in PennyMac Mortgage Investment Trust		884		—		—		884
	$	112,239	$	4,203,294	$	6,018,503	$	10,012,540
Liabilities:
Derivative liabilities:
Interest rate lock commitments	$	—	$	—	$	68,398	$	68,398
Forward purchase contracts		—		226,369		—		226,369
Forward sales contracts		—		8,819		—		8,819
MBS call options		—		118		—		118
Put options on interest rate futures sales contracts		11,766		—		—		11,766
Call options on interest rate futures sale contracts		375		—		—		375
Total derivative liabilities before netting		12,141		235,306		68,398		315,845
Netting		—		—		—		(190,358)
Total derivative liabilities		12,141		235,306		68,398		125,487
Mortgage servicing liabilities at fair value		—		—		2,214		2,214
	$	12,141	$	235,306	$	70,612	$	127,701


	December 31, 2021
	Level 1		Level 2		Level 3		Total

	(in thousands)
Assets:
Short-term investment	$	6,873	$	—	$	—	$	6,873
Loans held for sale at fair value		—		8,613,607		1,128,876		9,742,483
Derivative assets:
Interest rate lock commitments		—		—		323,473		323,473
Forward purchase contracts		—		20,485		—		20,485
Forward sales contracts		—		40,215		—		40,215
MBS put options		—		7,655		—		7,655
Swaption purchase contracts		—		1,625		—		1,625
Put options on interest rate futures purchase contracts		3,141		—		—		3,141
Call options on interest rate futures purchase contracts		2,078		—		—		2,078
Total derivative assets before netting		5,219		69,980		323,473		398,672
Netting		—		—		—		(64,977)
Total derivative assets		5,219		69,980		323,473		333,695
Mortgage servicing rights at fair value		—		—		3,878,078		3,878,078
Investment in PennyMac Mortgage Investment Trust		1,300		—		—		1,300
	$	13,392	$	8,683,587	$	5,330,427	$	13,962,429
Liabilities:
Derivative liabilities:
Interest rate lock commitments	$	—	$	—	$	1,280	$	1,280
Forward purchase contracts		—		18,007		—		18,007
Forward sales contracts		—		35,415		—		35,415
Total derivative liabilities before netting		—		53,422		1,280		54,702
Netting		—		—		—		(32,096)
Total derivative liabilities		—		53,422		1,280		22,606
Mortgage servicing liabilities at fair value		—		—		2,816		2,816
	$	—	$	53,422	$	4,096	$	25,422

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


	Quarter ended September 30, 2022
			Net interest		Mortgage
	Loans held		rate lock		servicing
Assets	for sale		commitments (1)		rights		Total

	(in thousands)
Balance, June 30, 2022	$	503,553	$	65,151	$	5,217,167	$	5,785,871
Purchases and issuances, net		260,721		38,481		4,140		303,342
Capitalization of interest and advances		6,361		—		—		6,361
Sales and repayments		(71,078)		—		—		(71,078)
Mortgage servicing rights resulting from loan sales		—		—		345,077		345,077
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		(9,217)		—		—		(9,217)
Other factors		(4,801)		(127,835)		95,288		(37,348)
		(14,018)		(127,835)		95,288		(46,565)
Transfers from Level 3 to Level 2		(340,903)		—		—		(340,903)
Transfers to loans held for sale		—		(32,000)		—		(32,000)
Balance, September 30, 2022	$	344,636	$	(56,203)	$	5,661,672	$	5,950,105
Changes in fair value recognized during the quarter relating to assets still held at September 30, 2022	$	(16,166)	$	(56,203)	$	95,288	$	22,919

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

	Quarter ended
Liabilities	September 30, 2022
	(in thousands)
Mortgage servicing liabilities:
Balance, June 30, 2022	$	2,337
Changes in fair value included in income		(123)
Balance, September 30, 2022	$	2,214
Changes in fair value recognized during the quarter relating to liabilities still outstanding at September 30, 2022	$	(123)


	Quarter ended September 30, 2021
			Net interest		Mortgage
	Loans held		rate lock		servicing
Assets	for sale		commitments (1)		rights			Total

	(in thousands)
Balance, June 30, 2021	$	3,818,261	$	343,610	$	3,412,648	$	7,574,519
Purchases and issuances, net		5,573,766		449,834		—		6,023,600
Capitalization of interest and advances		40,035		—		—		40,035
Sales and repayments		(4,286,574)		—		—		(4,286,574)
Mortgage servicing rights resulting from loan sales		—		—		432,429		432,429
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		38,698		—		—		38,698
Other factors		—		236,316		(233,957)		2,359
		38,698		236,316		(233,957)		41,057
Transfers from Level 3 to Level 2		(3,068,841)		—		—		(3,068,841)
Transfers to loans held for sale		—		(668,837)		—		(668,837)
Balance, September 30, 2021	$	2,115,345	$	360,923	$	3,611,120	$	6,087,388
Changes in fair value recognized during the quarter relating to assets still held at September 30, 2021	$	16,415	$	360,923	$	(233,957)	$	143,381

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



	Quarter ended
Liabilities	September 30, 2021
	(in thousands)
Mortgage servicing liabilities:
Balance, June 30, 2021	$	100,091
Mortgage servicing liabilities resulting from loan sales		33,764
Changes in fair value included in income		(86,288)
Balance, September 30, 2021	$	47,567
Changes in fair value recognized during the quarter relating to liabilities still outstanding at September 30, 2021	$	(86,288)


	Nine months ended September 30, 2022
			Net interest		Mortgage
	Loans held		rate lock		servicing
Assets	for sale		commitments (1)		rights		Total

	(in thousands)
Balance, December 31, 2021	$	1,128,876	$	322,193	$	3,878,078	$	5,329,147
Purchases and issuances, net		2,994,447		345,770		4,140		3,344,357
Capitalization of interest and advances		54,080		—		—		54,080
Sales and repayments		(1,335,966)		—		—		(1,335,966)
Mortgage servicing rights resulting from loan sales		—		—		1,359,632		1,359,632
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		(39,427)		—		—		(39,427)
Other factors		(26,119)		(694,318)		419,822		(300,615)
		(65,546)		(694,318)		419,822		(340,042)
Transfers from Level 3 to Level 2		(2,430,869)		—		—		(2,430,869)
Transfers to real estate acquired in settlement of loans		(386)		—		—		(386)
Transfers to loans held for sale		—		(29,848)		—		(29,848)
Balance, September 30, 2022	$	344,636	$	(56,203)	$	5,661,672	$	5,950,105
Changes in fair value recognized during the period relating to assets still held at September 30, 2022	$	(31,587)	$	(56,203)	$	419,822	$	332,032

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



	Nine months ended
Liabilities	September 30, 2022
	(in thousands)
Mortgage servicing liabilities:
Balance, December 31, 2021	$	2,816
Changes in fair value included in income		(602)
Balance, September 30, 2022	$	2,214
Changes in fair value recognized during the period relating to liabilities still outstanding at September 30, 2022	$	(602)


	Nine months ended September 30, 2021
			Net interest		Mortgage
	Loans held		rate lock		servicing
Assets	for sale		commitments (1)		rights		Total

	(in thousands)
Balance, December 31, 2020	$	4,675,169	$	677,026	$	2,581,174	$	7,933,369
Purchases and issuances, net		16,630,301		1,279,701		—		17,910,002
Capitalization of interest and advances		118,879		—		—		118,879
Sales and repayments		(9,081,815)		—		—		(9,081,815)
Mortgage servicing rights resulting from loan sales		—		—		1,386,324		1,386,324
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		266,644		—		—		266,644
Other factors		—		389,138		(356,378)		32,760
		266,644		389,138		(356,378)		299,404
Transfers from Level 3 to Level 2		(10,493,751)		—		—		(10,493,751)
Transfers to real estate acquired in settlement of loans		(82)		—		—		(82)
Transfers of interest rate lock commitments to loans held for sale		—		(1,984,942)		—		(1,984,942)
Balance, September 30, 2021	$	2,115,345	$	360,923	$	3,611,120	$	6,087,388
Changes in fair value recognized during the period relating to assets still held at September 30, 2021	$	79,529	$	360,923	$	(356,378)	$	84,074

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


	Nine months ended September 30, 2021
	Excess
	servicing		Mortgage
	spread		servicing
Liabilities	financing		liabilities		Total

	(in thousands)
Balance, December 31, 2020	$	131,750	$	45,324	$	177,074
Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		557		—		557
Accrual of interest		1,280		—		1,280
Mortgage servicing liabilities resulting from loan sales		—		98,147		98,147
Changes in fair value included in income		1,037		(95,904)		(94,867)
Repayments		(134,624)		—		(134,624)
Balance, September 30, 2021	$	—	$	47,567	$	47,567
Changes in fair value recognized during the period relating to liabilities still outstanding at September 30, 2021	$	—	$	(95,904)	$	(95,904)

Summary of changes in fair value relating to financial statement items


	Quarter ended September 30,
	2022						2021
	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

	(in thousands)
Assets:
Loans held for sale	$	(69,358)	$	—	$	(69,358)	$	645,536	$	—	$	645,536
Mortgage servicing rights		—		95,288		95,288		—		(233,957)		(233,957)
	$	(69,358)	$	95,288	$	25,930	$	645,536	$	(233,957)	$	411,579
Liabilities:
Mortgage servicing liabilities	$	—	$	123	$	123	$	—	$	86,288	$	86,288


	Nine months ended September 30,
	2022						2021
	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

	(in thousands)
Assets:
Loans held for sale	$	(273,701)	$	—	$	(273,701)	$	2,057,496	$	—	$	2,057,496
Mortgage servicing rights		—		419,822		419,822		—		(356,378)		(356,378)
	$	(273,701)	$	419,822	$	146,121	$	2,057,496	$	(356,378)	$	1,701,118
Liabilities:
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust	$	—	$	—	$	—	$	—	$	(1,037)	$	(1,037)
Mortgage servicing liabilities		—		602		602		—		95,904		95,904
	$	—	$	602	$	602	$	—	$	94,867	$	94,867

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


	September 30, 2022						December 31, 2021
			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	$	4,087,039	$	4,217,099	$	(130,060)	$	9,577,398	$	9,263,242	$	314,156
90 days or more delinquent:
Not in foreclosure		50,232		54,141		(3,909)		153,162		153,875		(713)
In foreclosure		12,455		16,345		(3,890)		11,923		13,649		(1,726)
	$	4,149,726	$	4,287,585	$	(137,859)	$	9,742,483	$	9,430,766	$	311,717

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, 2022	$	—	$	—	$	911	$	911
December 31, 2021	$	—	$	—	$	2,588	$	2,588

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,
	2022		2021		2022		2021

	(in thousands)
Real estate acquired in settlement of loans	$	(131)	$	(284)	$	(838)	$	(912)

Summary of carrying value and fair value of debt


	September 30, 2022				December 31, 2021
	Fair value		Carrying value		Fair value		Carrying value

	(in thousands)
Notes payable secured by mortgage servicing assets	$	1,717,125	$	1,793,972	$	1,302,640	$	1,297,622
Unsecured senior notes	$	1,371,500	$	1,778,988	$	1,790,375	$	1,776,219

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,
	2022		2021		2022		2021

	(Amount recognized and unpaid principal balance of underlying loans in thousands)
MSR and pool characteristics:
Amount recognized	$	345,077	$	432,429	$	1,359,632	$	1,386,324
Unpaid principal balance of underlying loans	$	16,003,556	$	33,697,228	$	65,956,748	$	105,470,580
Weighted average servicing fee rate (in basis points)		49		34		44		33
Key inputs (1):
Annual total prepayment speed (2):
Range		6.8% – 19.1%		7.2% – 31.0%		5.7% – 23.4%		6.2% – 31.0%
Weighted average		11.1%		9.2%		9.0%		8.5%
Equivalent average life (in years):
Range		4.0 – 8.1		3.0 – 8.4		3.7 – 9.2		3.0 – 9.0
Weighted average		7.4		7.7		8.1		8.1
Pricing spread (3):
Range		5.5% – 11.4%		6.0% – 16.9%		5.5% – 16.1%		6.0% – 16.9%
Weighted average		8.1%		8.5%		7.8%		9.0%
Per-loan annual cost of servicing:
Range		$79 – $116		$80 – $117		$79 – $177		$80 – $117
Weighted average		$105		$102		$104		$104

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

(2)	Annual total prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.

(3)

Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. Effective January 1, 2022, the Company applies a pricing spread to the United State Treasury Securities (the “Treasury”) yield curve for purposes of discounting cash flows relating to MSRs. Through December 31, 2021, the Company applied its pricing spread to the United States Dollar London Interbank Offered Rate (“LIBOR”)/swap curve. The change in reference interest rate from the LIBOR/swap curve to the Treasury yield curve did not have a significant effect on the Company’s fair value measurement of MSRs.

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, 2022	December 31, 2021

	(Fair value, unpaid principal balance of underlying
	loans and effect on fair value amounts in thousands)
Fair value	$ 5,661,672	$ 3,878,078
Pool characteristics:
Unpaid principal balance of underlying loans	$ 303,800,226	$ 278,324,780
Weighted average note interest rate	3.3%	3.2%
Weighted average servicing fee rate (in basis points)	36	34
Key inputs (1):
Annual total prepayment speed (2):
Range	5.1% – 17.1%	7.9% – 26.7%
Weighted average	7.6%	10.7%
Equivalent average life (in years):
Range	3.8 – 9.3	3.1 – 7.7
Weighted average	8.3	6.8
Effect on fair value of (3):
5% adverse change	($75,034)	($80,109)
10% adverse change	($147,692)	($157,252)
20% adverse change	($286,318)	($303,259)
Pricing spread (4):
Range	4.9% – 14.8%	5.3% – 15.5%
Weighted average	6.9%	7.7%
Effect on fair value of (3):
5% adverse change	($80,798)	($59,577)
10% adverse change	($159,312)	($117,352)
20% adverse change	($309,839)	($227,791)
Per-loan annual cost of servicing:
Range	$80 – $149	$79 – $197
Weighted average	$106	$108
Effect on fair value of (3):
5% adverse change	($38,133)	($32,979)
10% adverse change	($76,265)	($65,958)
20% adverse change	($152,531)	($131,916)

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

(2)	Annual total prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.

(3)

These sensitivity analyses are limited in that they were performed as of a particular date; only contemplate the movements in the indicated inputs; do not incorporate changes to other inputs; are subject to the accuracy of the models and inputs used; and do not incorporate other factors that would affect the Company’s overall financial performance in such events, including operational adjustments made to account for changing circumstances. For these reasons, the estimates should not be viewed as earnings forecasts.

(4)

Effective January 1, 2022, the Company applies a pricing spread to the Treasury yield curve for purposes of discounting cash flows relating to MSRs. Through December 31, 2021, the Company applied its pricing spread to the United States Dollar LIBOR/swap curve. The change in reference interest rate from the LIBOR/swap curve to the Treasury yield curve did not have a significant effect on the Company’s fair value measurement of MSRs.

Mortgage servicing liabilities

Fair Value

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


		September 30,		December 31,
		2022		2021
Fair value (in thousands)	$	2,214	$	2,816
Pool characteristics:
Unpaid principal balance of underlying loans (in thousands)	$	35,143	$	60,593
Servicing fee rate (in basis points)		25		25
Key inputs (1):
Annual total prepayment speed (2)		17.5%		19.8%
Equivalent average life (in years)		4.8		4.1
Pricing spread (3)		7.7%		6.9%
Per-loan annual cost of servicing	$	1,208	$	1,406

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

(2)	Annual total prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.

(3)

Effective January 1, 2022, the Company applies a pricing spread to the Treasury yield curve for purposes of discounting cash flows relating to MSLs. Through December 31, 2021, the Company applied its pricing spread to the United States Dollar London LIBOR/swap curve. The change in reference interest rate from the LIBOR/swap curve to the Treasury yield curve did not have a significant effect on the Company’s fair value measurement of MSLs.

Interest rate lock commitments

Fair Value

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



	September 30, 2022		December 31, 2021
Fair value (in thousands) (1)	$	(56,203)	$	322,193
Key inputs (2):
Pull-through rate:
Range		7.9% – 100%		8.0% – 100%
Weighted average		79.5%		78.4%
Mortgage servicing rights fair value expressed as:
Servicing fee multiple:
Range		(3.3) – 7.5		(8.5) – 6.7
Weighted average		4.4		3.8
Percentage of loan commitment amount
Range		(0.6)% – 3.8%		(1.6)% – 3.6%
Weighted average		2.0%		1.5%

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

(2)	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



	September 30, 2022		December 31, 2021
Fair value (in thousands)	$	344,636	$	1,128,876
Key inputs (1):
Discount rate:
Range		3.3% – 10.2%		2.2% – 9.2%
Weighted average		3.6%		2.3%
Twelve-month projected housing price index change:
Range		(0.1)% – 0.1%		6.1% – 6.5%
Weighted average		0.0%		6.2%
Voluntary prepayment/resale speed (2):
Range		4.7% – 27.6%		0.4% – 30.3%
Weighted average		24.4%		22.0%
Total prepayment/resale speed (3):
Range		4.8% – 37.4%		0.4% – 39.3%
Weighted average		31.9%		28.2%

(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/resale speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayment/resale speeds.