Fair Value

9 Months Ended

Sep. 30, 2023

Fair Value.

Fair Value

Note 6—Fair Value

Most of the Company’s assets and certain of its liabilities are measured at or based on their fair values. The Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the significant inputs used to determine fair value. These levels are:

● Level 1—Quoted prices in active markets for identical assets or liabilities.

● Level 2—Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Company.

● Level 3— Prices determined using significant unobservable inputs. In situations where observable inputs are unavailable, unobservable inputs may be used. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances.

As a result of the difficulty in observing certain significant valuation inputs affecting “Level 3” fair value assets and liabilities, the Company is required to make judgments regarding these items’ fair values. Different persons in possession of the same facts may reasonably arrive at different conclusions as to the inputs to be applied in valuing these assets and liabilities and their fair values. Such differences may result in significantly different fair value measurements. Likewise, due to the general illiquidity of some of these assets and liabilities, subsequent transactions may be at values significantly different from those reported.

Fair Value Accounting Elections

The Company identified its MSRs, its mortgage servicing liabilities (“MSLs”) and all of its non-cash financial assets to be accounted for at fair value so changes in fair value will be reflected in income as they occur and more timely reflect the results of the Company’s performance.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Following is a summary of assets and liabilities that are measured at fair value on a recurring basis:

	September 30, 2023
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investment	$	5,553	$	—	$	—	$	5,553
Loans held for sale at fair value		—		4,787,472		399,184		5,186,656
Derivative assets:
Interest rate lock commitments		—		—		42,385		42,385
Forward purchase contracts		—		7,227		—		7,227
Forward sales contracts		—		115,778		—		115,778
MBS put options		—		4,408		—		4,408
Put options on interest rate futures purchase contracts		36,391		—		—		36,391
Call options on interest rate futures purchase contracts		2,324		—		—		2,324
Total derivative assets before netting		38,715		127,413		42,385		208,513
Netting		—		—		—		(105,147)
Total derivative assets		38,715		127,413		42,385		103,366
Mortgage servicing rights at fair value		—		—		7,084,356		7,084,356
Investment in PennyMac Mortgage Investment Trust		930		—		—		930
	$	45,198	$	4,914,885	$	7,525,925	$	12,380,861
Liabilities:
Derivative liabilities:
Interest rate lock commitments	$	—	$	—	$	21,611	$	21,611
Forward purchase contracts		—		41,538		—		41,538
Forward sales contracts		—		14,808		—		14,808
MBS put options		—		4,301		—		4,301
Put options on interest rate futures sales contracts		4,945		—		—		4,945
Total derivative liabilities before netting		4,945		60,647		21,611		87,203
Netting		—		—		—		(46,003)
Total derivative liabilities		4,945		60,647		21,611		41,200
Mortgage servicing liabilities at fair value		—		—		1,818		1,818
	$	4,945	$	60,647	$	23,429	$	43,018

	December 31, 2022
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investment	$	12,194	$	—	$	—	$	12,194
Loans held for sale at fair value		—		3,163,528		345,772		3,509,300
Derivative assets:
Interest rate lock commitments		—		—		36,728		36,728
Forward purchase contracts		—		2,433		—		2,433
Forward sales contracts		—		80,754		—		80,754
MBS put options		—		6,057		—		6,057
Put options on interest rate futures purchase contracts		29,203		—		—		29,203
Call options on interest rate futures purchase contracts		2,820		—		—		2,820
Total derivative assets before netting		32,023		89,244		36,728		157,995
Netting		—		—		—		(58,992)
Total derivative assets		32,023		89,244		36,728		99,003
Mortgage servicing rights at fair value		—		—		5,953,621		5,953,621
Investment in PennyMac Mortgage Investment Trust		929		—		—		929
	$	45,146	$	3,252,772	$	6,336,121	$	9,575,047
Liabilities:
Derivative liabilities:
Interest rate lock commitments	$	—	$	—	$	10,884	$	10,884
Forward purchase contracts		—		48,670		—		48,670
Forward sales contracts		—		20,684		—		20,684
Put options on interest rate futures sales contracts		3,008		—		—		3,008
Total derivative liabilities before netting		3,008		69,354		10,884		83,246
Netting		—		—		—		(61,534)
Total derivative liabilities		3,008		69,354		10,884		21,712
Mortgage servicing liabilities at fair value		—		—		2,096		2,096
	$	3,008	$	69,354	$	12,980	$	23,808

As shown above, certain of the Company’s loans held for sale, Interest Rate Lock Commitments (“IRLCs”), MSRs and MSLs are measured using Level 3 fair value inputs. Following are roll forwards of assets and liabilities measured at fair value using “Level 3” inputs at either the beginning or the end of the period presented:

	Quarter ended September 30, 2023
			Net interest		Mortgage
	Loans held		rate lock		servicing
Assets	for sale		commitments (1)		rights		Total
	(in thousands)
Balance, June 30, 2023	$	392,758	$	30,636	$	6,510,585	$	6,933,979
Purchases and issuances, net		681,022		46,991		—		728,013
Capitalization of interest and servicing advances		10,770		—		—		10,770
Sales and repayments		(202,892)		—		(73)		(202,965)
Mortgage servicing rights resulting from loan sales		—		—		450,936		450,936
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		15,520		—		—		15,520
Other factors		(1,831)		(32,161)		220,974		186,982
		13,689		(32,161)		220,974		202,502
Transfers from Level 3 to Level 2		(496,019)		—		—		(496,019)
Transfers to real estate acquired in settlement of loans		(144)		—		—		(144)
Transfers to loans held for sale		—		(24,692)		—		(24,692)
Exchange of mortgage servicing spread for interest-only stripped securities		—		—		(98,066)		(98,066)
Balance, September 30, 2023	$	399,184	$	20,774	$	7,084,356	$	7,504,314
Changes in fair value recognized during the quarter relating to assets still held at September 30, 2023	$	6,519	$	20,774	$	220,974	$	248,267

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

	Quarter ended
Liabilities	September 30, 2023
	(in thousands)
Mortgage servicing liabilities:
Balance, June 30, 2023	$	1,940
Changes in fair value included in income		(122)
Balance, September 30, 2023	$	1,818
Changes in fair value recognized during the quarter relating to liabilities still outstanding at September 30, 2023	$	(122)

	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 servicing 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.

Liabilities	Quarter ended 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)

	Nine months ended September 30, 2023
			Net interest		Mortgage
	Loans held		rate lock		servicing
Assets	for sale		commitments (1)		rights		Total
	(in thousands)
Balance, December 31, 2022	$	345,772	$	25,844	$	5,953,621	$	6,325,237
Purchases and issuances, net		1,733,158		177,377		—		1,910,535
Capitalization of interest and servicing advances		31,608		—		—		31,608
Sales and repayments		(472,039)		—		(305)		(472,344)
Mortgage servicing rights resulting from loan sales		—		—		1,299,992		1,299,992
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		36,014		—		—		36,014
Other factors		(1,967)		18,559		(70,886)		(54,294)
		34,047		18,559		(70,886)		(18,280)
Transfers from Level 3 to Level 2		(1,272,912)		—		—		(1,272,912)
Transfers to real estate acquired in settlement of loans		(450)		—		—		(450)
Transfers to loans held for sale		—		(201,006)		—		(201,006)
Exchange of mortgage servicing spread for interest-only stripped securities		—		—		(98,066)		(98,066)
Balance, September 30, 2023	$	399,184	$	20,774	$	7,084,356	$	7,504,314
Changes in fair value recognized during the period relating to assets still held at September 30, 2023	$	10,465	$	20,774	$	(70,886)	$	(39,647)

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

	Nine months ended
Liabilities	September 30, 2023
	(in thousands)
Mortgage servicing liabilities:
Balance, December 31, 2022	$	2,096
Changes in fair value included in income		(278)
Balance, September 30, 2023	$	1,818
Changes in fair value recognized during the period relating to liabilities still outstanding at September 30, 2023	$	(278)

	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 servicing 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)

The Company had transfers among the fair value levels arising from the return to salability in the active secondary market of certain loans held for sale and from transfers of IRLCs to loans held for sale at fair value upon purchase or funding.

Assets and Liabilities Measured at Fair Value under the Fair Value Option

Net changes in fair values included in income for assets and liabilities carried at fair value as a result of management’s election of the fair value option by income statement line item are summarized below:

	Quarter ended September 30,
	2023						2022
	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	$	762	$	—	$	762	$	(69,358)	$	—	$	(69,358)
Mortgage servicing rights		—		220,974		220,974		—		95,288		95,288
	$	762	$	220,974	$	221,736	$	(69,358)	$	95,288	$	25,930
Liabilities:
Mortgage servicing liabilities	$	—	$	122	$	122	$	—	$	123	$	123

	Nine months ended September 30,
	2023						2022
	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	$	187,462	$	—	$	187,462	$	(273,701)	$	—	$	(273,701)
Mortgage servicing rights		—		(70,886)		(70,886)		—		419,822		419,822
	$	187,462	$	(70,886)	$	116,576	$	(273,701)	$	419,822	$	146,121
Liabilities:
Mortgage servicing liabilities	$	—	$	278	$	278	$	—	$	602	$	602

Following are the fair value and related principal amounts due upon maturity of loans held for sale:

	September 30, 2023						December 31, 2022
			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	$	5,142,606	$	5,118,234	$	24,372	$	3,450,578	$	3,428,052	$	22,526
90 days or more delinquent:
Not in foreclosure		38,422		44,694		(6,272)		47,252		53,351		(6,099)
In foreclosure		5,628		18,938		(13,310)		11,470		16,811		(5,341)
	$	5,186,656	$	5,181,866	$	4,790	$	3,509,300	$	3,498,214	$	11,086

Assets Measured at Fair Value on a Nonrecurring Basis

Following is a summary of assets that were measured at fair value on a nonrecurring basis:

Real estate acquired in settlement of loans	Level 1		Level 2		Level 3		Total
	(in thousands)
September 30, 2023	$	—	$	—	$	3,178	$	3,178
December 31, 2022	$	—	$	—	$	1,850	$	1,850

The following table summarizes the losses recognized on assets when they were remeasured at fair value on a nonrecurring basis:

	Quarter ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
	(in thousands)
Real estate acquired in settlement of loans	$	(494)	$	(131)	$	(791)	$	(838)

Fair Value of Financial Instruments Carried at Amortized Cost

The Company’s Assets sold under agreements to repurchase, Mortgage loan participation purchase and sale agreements, Notes payable secured by mortgage servicing assets, Unsecured senior notes and Obligations under capital lease are carried at amortized cost.

These liabilities are classified as “Level 3” fair value items due to the Company’s reliance on unobservable inputs to estimate their fair values. The Company has concluded that the fair values of these liabilities other than term notes and term loans included in Notes payable secured by mortgage servicing assets and the Unsecured senior notes approximate their carrying values due to their short terms and/or variable interest rates.

The Company estimates the fair value of the term notes, term loans and the Unsecured senior notes using indications of fair value provided by non-affiliate brokers, pricing services and internal estimates of fair value. The fair value and carrying value of these liabilities are summarized below:

	September 30, 2023				December 31, 2022
	Fair value		Carrying value		Fair value		Carrying value
	(in thousands)
Term notes and term loans	$	2,479,425	$	2,474,515	$	1,677,476	$	1,794,475
Unsecured senior notes	$	1,553,962	$	1,782,689	$	1,550,750	$	1,779,920

Valuation Governance

Most of the Company’s financial assets, and all of its derivatives, MSRs and MSLs, are carried at fair value with changes in fair value recognized in current period income. Certain of the Company’s financial assets and derivatives and all of its MSRs and MSLs are “Level 3” fair value assets and liabilities which require use of unobservable inputs that are significant to the estimation of the items’ fair values. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability, and are based on the best information available under the circumstances.

Due to the difficulty in estimating the fair values of “Level 3” fair value assets and liabilities, the Company has assigned responsibility for estimating the fair values of these assets and liabilities to specialized staff within its capital markets group and subjects the valuation process to significant senior management oversight.

With respect to “Level 3” valuations other than IRLCs, the capital markets valuation staff group reports to the Company’s senior management valuation committee, which oversees the valuations. Capital markets valuation staff monitors the models used for valuation of the Company’s “Level 3” fair value assets and liabilities, including the models’ performance versus actual results, and reports those results as well as changes in the valuation of the non-IRLC “Level 3” fair value assets and liabilities, including major factors affecting the valuations and any changes in model methods and inputs, to PFSI’s senior management valuation committee. The Company’s senior management valuation committee includes the Company’s chief financial, risk, and capital markets officers as well as other senior members of the Company’s finance, capital markets and risk management staffs.

To assess the reasonableness of its valuations, the capital markets valuation staff presents an analysis of the effect on the valuations of changes to the significant inputs to the models and, for MSRs, comparisons of its estimates of fair value of key inputs to those procured from nonaffiliated brokers and published surveys.

The fair value of the Company’s IRLCs is developed by its capital markets risk management staff and is reviewed by its capital markets operations staff.

Valuation Techniques and Inputs

Following is a description of the techniques and inputs used in estimating the fair values of “Level 2” and “Level 3” fair value assets and liabilities:

Loans Held for Sale

Most of the Company’s loans held for sale at fair value are saleable into active markets and are therefore categorized as “Level 2” fair value assets. The fair values of “Level 2” fair value loans are determined using their contracted selling prices or quoted market prices or market price equivalents.

Certain of the Company’s loans held for sale are not saleable into active markets and are therefore categorized as “Level 3” fair value assets. Loans held for sale categorized as “Level 3” fair value assets include:

● Early buy out (“EBO”) loans. EBO loans are government guaranteed or insured loans purchased by the Company from Ginnie Mae guaranteed securities in its loan servicing portfolio. The Company’s right to purchase a government guaranteed or insured loan arises as the result of the loan being at least three months delinquent on the date of purchase by the Company and provides an alternative to the Company’s obligation to continue advancing principal and interest at the coupon rate of the related Ginnie Mae security. Such a loan may be resold to an investor and thereafter may be repurchased to the extent it becomes eligible for resale into a new Ginnie Mae guaranteed security.

A loan becomes eligible for resale into a new Ginnie Mae security when the loan becomes current either through completion of a modification of the loan’s terms or after three months of timely payments following either the completion of certain types of payment deferral programs or borrower reperformance and when the issuance date of the new security is at least 120 days after the date the loan was last delinquent.

● Loans with identified defects. Loans that are not saleable into active markets due to identification of a defect by the Company or to the repurchase by the Company of a loan with an identified defect.

● Closed-end second lien mortgage loans. At present, there is no active market with observable inputs that are significant to the estimation of fair value of the closed-end lien second mortgage loans the Company produces.

The Company uses a discounted cash flow model to estimate the fair value of its “Level 3” fair value loans held for sale. The significant unobservable inputs used in the fair value measurement of the Company’s “Level 3” fair value loans held for sale are discount rates, home price projections, voluntary prepayment/resale and total prepayment/resale speeds. Significant changes in any of those inputs in isolation could result in a significant change to the loans’ fair value measurement. Increases in home price projections are generally accompanied by an increase in voluntary prepayment speeds.

Following is a quantitative summary of key “Level 3” fair value inputs used in the valuation of loans held for sale:

	September 30, 2023		December 31, 2022
Fair value (in thousands)	$	399,184	$	345,772
Key inputs (1):
Discount rate:
Range		7.9% – 10.2%		5.5% – 10.2%
Weighted average		7.9%		5.7%
Twelve-month projected housing price index change:
Range		0.2% – 0.3%		(1.9)% – (1.7)%
Weighted average		0.2%		(1.8)%
Voluntary prepayment/resale speed (2):
Range		4.0% – 43.0%		4.7% – 25.6%
Weighted average		28.0%		21.6%
Total prepayment/resale speed (3):
Range		4.1% – 55.4%		4.8% – 36.1%
Weighted average		35.2%		29.4%

(1) Weighted average inputs are based on the fair values of the “Level 3” fair value 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.

Changes in fair value of loans held for sale attributable to changes in the loan’s instrument-specific credit risk are measured with reference to the change in the respective loan’s delinquency status and performance history at period end from the later of the beginning of the period or acquisition date. Changes in fair value of loans held for sale are included in Net gains on loans held for sale at fair value in the Company’s consolidated statements of income.

Derivative Financial Instruments

Interest Rate Lock Commitments

The Company categorizes IRLCs as “Level 3” fair value assets or liabilities. The Company estimates the fair values of IRLCs based on quoted Agency MBS prices, its estimate of the fair value of the MSRs it expects to receive in the sale of the loans and the probability that the loans will be funded or purchased (the “pull-through rate”).

The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rate and the estimated fair values of MSRs attributable to the mortgage loans it has committed to originate or purchase. Significant changes in the pull-through rate or the MSR component of the IRLCs, in isolation, could result in significant changes in the IRLCs’ fair value measurements. The financial effects of changes in these inputs are generally inversely correlated as increasing interest rates have a positive effect on the fair value of the MSR component of IRLC fair value, but increase the pull-through rate for the loan principal and interest payment cash flow component, which has decreased in fair value. Changes in fair value of IRLCs are included in Net gains on loans held for sale at fair value in the Company’s consolidated statements of income.

Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:

	September 30, 2023		December 31, 2022
Fair value (in thousands) (1)	$	20,774	$	25,844
Committed amount	$	7,527,726	$	7,009,119
Key inputs (2):
Pull-through rate:
Range		14.7% – 100%		10.3% – 100%
Weighted average		86.9%		82.8%
Mortgage servicing rights fair value expressed as:
Servicing fee multiple:
Range		1.1 – 8.2		(1.3) – 7.7
Weighted average		5.0		4.3
Percentage of loan commitment amount:
Range		0.3% – 4.5%		(0.2)% – 3.8%
Weighted average		2.1%		2.0%

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

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

Hedging Derivatives

Fair values of derivative financial instruments actively traded on exchanges are categorized by the Company as “Level 1” fair value assets and liabilities; fair values of derivative financial instruments based on observable interest rates, volatilities and prices in the MBS or other markets are categorized by the Company as “Level 2” fair value assets and liabilities.

Changes in the fair values of hedging derivatives are included in Net gains on loans held for sale at fair value, or Net loan servicing fees – Mortgage servicing rights hedging results, as applicable, in the Company’s consolidated statements of income.

Mortgage Servicing Rights

MSRs are categorized as “Level 3” fair value assets. The Company uses a discounted cash flow approach to estimate the fair value of MSRs. The key inputs used in the estimation of the fair value of MSRs include the applicable prepayment rate (prepayment speed), pricing spread (discount rate), and annual per-loan cost to service the underlying loans, all of which are unobservable. Significant changes to any of those inputs in isolation could result in a significant change in the MSR fair value measurement. Changes in these key inputs are not directly related. Changes in the fair

value of MSRs are included in Net loan servicing fees—Change in fair value of mortgage servicing rights and mortgage servicing liabilities in the Company’s consolidated statements of income.

Following are the key inputs used in determining the fair value of MSRs received by the Company when it retains the obligation to service the mortgage loans it sells:

	Quarter ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
	(Amount recognized and unpaid principal balance of underlying loans in thousands)
MSR and pool characteristics:
Amount recognized	$	450,936	$	345,077	$	1,299,992	$	1,359,632
Unpaid principal balance of underlying loans	$	21,861,437	$	16,003,556	$	60,549,919	$	65,956,748
Weighted average servicing fee rate (in basis points)		42		49		47		44
Key inputs (1):
Annual total prepayment speed (2):
Range		7.5% – 20.4%		6.8% – 19.1%		7.5% – 23.2%		5.7% – 23.4%
Weighted average		10.3%		11.1%		10.9%		9.0%
Equivalent average life (in years):
Range		3.6 – 9.4		4.0 – 8.1		3.0 – 9.4		3.7 – 9.2
Weighted average		7.7		7.4		7.6		8.1
Pricing spread (3):
Range		5.5% – 12.6%		5.5% – 11.4%		5.5% – 12.6%		5.5% – 16.1%
Weighted average		6.1%		8.1%		7.0%		7.8%
Per-loan annual cost of servicing:
Range		$68 – $127		$79 – $116		$68 – $127		$79 – $177
Weighted average		$97		$105		$99		$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. 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.

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, 2023	December 31, 2022
	(Fair value, unpaid principal balance of underlying
	loans and effect on fair value amounts in thousands)
Fair value	$ 7,084,356	$ 5,953,621
Pool characteristics:
Unpaid principal balance of underlying loans	$ 351,269,905	$ 314,567,639
Weighted average note interest rate	3.9%	3.4%
Weighted average servicing fee rate (in basis points)	38	36
Key inputs (1):
Annual total prepayment speed (2):
Range	5.4% – 16.4%	5.0% – 17.7%
Weighted average	6.7%	7.5%
Equivalent average life (in years):
Range	3.2 – 9.4	3.7 – 9.3
Weighted average	8.8	8.4
Effect on fair value of (3):
5% adverse change	($89,373)	($77,346)
10% adverse change	($176,093)	($152,192)
20% adverse change	($342,038)	($294,872)
Pricing spread (4):
Range	5.6% – 12.6%	4.9% – 14.3%
Weighted average	6.5%	6.5%
Effect on fair value of (3):
5% adverse change	($96,272)	($81,021)
10% adverse change	($189,990)	($159,863)
20% adverse change	($370,130)	($311,329)
Per-loan annual cost of servicing:
Range	$68 – $135	$68 – $144
Weighted average	$107	$109
Effect on fair value of (3):
5% adverse change	($43,810)	($41,263)
10% adverse change	($87,619)	($82,527)
20% adverse change	($175,238)	($165,053)

(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, these analyses should not be viewed as earnings forecasts.

(4) The Company applies a pricing spread to the Treasury yield curve for purposes of discounting cash flows relating to MSRs.

Mortgage Servicing Liabilities

MSLs are categorized as “Level 3” fair value liabilities. The Company uses a discounted cash flow approach to estimate the fair value of MSLs. The key inputs used in the estimation of the fair value of MSLs include the applicable pricing spread, annual total prepayment speed, and the per-loan annual cost of servicing the underlying loans. Changes in the fair value of MSLs are included in Net servicing fees—Change in fair value of mortgage servicing rights and mortgage servicing liabilities in the Company’s consolidated statements of income.

Following are the key inputs used in determining the fair value of MSLs:

		September 30,		December 31,
		2023		2022
Fair value (in thousands)	$	1,818	$	2,096
Pool characteristics:
Unpaid principal balance of underlying loans (in thousands)	$	27,010	$	33,157
Servicing fee rate (in basis points)		25		25
Key inputs (1):
Pricing spread (2)		8.4%		7.8%
Annual total prepayment speed (3)		15.9%		17.2%
Equivalent average life (in years)		5.2		4.9
Per-loan annual cost of servicing	$	1,040	$	1,177

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

(2) The Company applies a pricing spread to the Treasury yield curve for purposes of discounting cash flows relating to MSLs.

(3) 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.