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Fair Value Measurements
 9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
16. Fair Value Measurements
Fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a three-tiered fair value hierarchy has been established based on the level of observable inputs used in the measurement of fair value (e.g., Level 1 representing quoted prices for identical assets or liabilities in an active market; Level 2 representing values using observable inputs other than quoted prices included within Level 1; and Level 3 representing estimated values based on significant unobservable inputs).
The following describes the methods and assumptions used by the Company in estimating fair values:
Cash and Cash Equivalents, Restricted Cash (Level 1) – The carrying amount reported in the consolidated balance sheets approximates fair value.
Mortgage Loans Held for Sale (Level 2) – The Company originates mortgage loans in the U.S. that it intends to sell into Fannie Mae, Freddie Mac and Ginnie Mae (collectively, the "Agencies") MBS. Additionally, the Company holds mortgage loans that it intends to sell into the secondary markets via whole loan sales or securitizations. The Company measures newly originated prime residential mortgage loans held for sale at fair value.
Mortgage loans held for sale are typically pooled together and sold into certain exit markets, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate and credit quality. Mortgage loans held for sale are valued on a recurring basis using a market approach by utilizing either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, the Company classifies these valuations as Level 2 in the fair value disclosures.

The Company may acquire mortgage loans held for sale from various securitization trusts for which it acts as servicer through the exercise of various clean-up call options as permitted through the respective pooling and servicing agreements. The Company has elected to account for these loans at the lower of cost or market. The Company classifies these valuations as Level 2 in the fair value disclosures.

The Company may also purchase loans out of a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. The Company has elected to carry these loans at fair value. See Note 7, Mortgage Loans Held for Sale and Investment, for more information.
Mortgage Loans Held for Investment (Level 3) – Mortgage loans held for investment primarily consist of nonconforming or subprime mortgage loans that were transferred in 2009 from mortgage loans held for sale at fair value and which the Company intends to hold these loans to their maturities. The Company determines the fair value of loans held for investment, on a recurring basis, based on various underlying attributes such as market participants' views, loan delinquency, recent observable loan pricing and sales for similar loans, individual loan characteristics and internal market evaluation. These internal market evaluations require the use of judgment by the Company and can have a significant impact on the determination of the loan’s fair value. As these fair values are derived from internally developed valuation models, using observable inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 7, Mortgage Loans Held for Sale and Investment, for more information.
Mortgage Servicing Rights – Fair Value (Level 3) – The Company estimates the fair value of its forward MSRs on a recurring basis using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, discount rates, ancillary revenues and costs to service. These assumptions are generated and applied based on collateral stratifications including product type, remittance type, geography, delinquency and coupon dispersion. These assumptions require the use of judgment by the Company and can have a significant impact on the fair value of the MSRs. Quarterly, management obtains third-party valuations to assess the reasonableness of the fair value calculations provided by the internal cash flow model. Because of the nature of the valuation inputs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 4, Mortgage Servicing Rights and Related Liabilities, for more information.
Advances and Other Receivables, Net (Level 3) - Advances and other receivables, net are valued at their net realizable value after taking into consideration the reserves. Advances have no stated maturity. Their net realizable value approximates fair value as the net present value based on discounted cash flow is not materially different from the net realizable value.
Reverse Mortgage Interests, Net (Level 3) – The Company’s reverse mortgage interests are primarily comprised of HECM loans that are insured by FHA and guaranteed by Ginnie Mae upon securitization. Fair value for active reverse mortgage loans is estimated based on pricing of the recent securitizations with similar attributes and characteristics, such as collateral values and prepayment speeds and adjusted as necessary for differences. The recent timing of these transactions allows the pricing to consider the current interest rate risk exposures. The fair value of inactive reverse mortgage loans is established based upon a discounted par value of the loan derived from the Company’s historical loss factors experience on foreclosed loans.
Derivative Financial Instruments (Level 2) – The Company enters into a variety of derivative financial instruments as part of its hedging strategy and measures these instruments at fair value on a recurring basis in the consolidated balance sheets. The majority of these derivatives are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract; therefore, these contracts are classified as Level 2. In addition, the Company enters into IRLCs and LPCs with prospective borrowers and other loan originators. These commitments are carried at fair value based on the fair value of underlying mortgage loans which are based on observable market data. The Company adjusts the outstanding IRLCs with prospective borrowers based on an expectation that it will be exercised and the loan will be funded. IRLCs and LPCs are recorded in derivative financial instruments in the consolidated balance sheets. These commitments are classified as Level 2 in the fair value disclosures, as the valuations are based on market observable inputs. The Company has entered into Eurodollar futures contracts as part of its hedging strategy. The futures contracts are measured at fair value on a recurring basis and classified as Level 2 in the fair value disclosures as the valuation is based on market observable data. See Note 9, Derivative Financial Instrument, for more information.
Advance Facilities and Warehouse Facilities (Level 2) – As the underlying warehouse and advance finance facilities bear interest at a rate that is periodically adjusted based on a market index, the carrying amount reported on the consolidated balance sheets approximates fair value. See Note 10, Indebtedness, for more information.
Unsecured Senior Notes (Level 1) – The fair value of unsecured senior notes, which are carried at amortized cost, is based on quoted market prices and is considered Level 1 from the market observable inputs used to determine fair value. See Note 10, Indebtedness, for more information.
Nonrecourse Debt – Legacy Assets (Level 3) – The Company estimates fair value based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. These prices are derived from a combination of internally developed valuation models and quoted market prices, and are classified as Level 3. See Note 10, Indebtedness, for more information.
Excess Spread Financing (Level 3) – The Company estimates fair value on a recurring basis based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, average life, recapture rates and discount rate. As these prices are derived from a combination of internally developed valuation models and quoted market prices based on the value of the underlying MSRs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 4, Mortgage Servicing Rights and Related Liabilities, for more information.
Mortgage Servicing Rights Financing Liability (Level 3) - The Company estimates fair value on a recurring basis based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being advance financing rates and annual advance recovery rates. As these assumptions are derived from internally developed valuation models based on the value of the underlying MSRs, the Company classifies these valuations as Level 3 in the fair value disclosures. See Note 4, Mortgage Servicing Rights and Related Liabilities, for more information.
Participating Interest Financing (Level 2) – The Company estimates the fair value using a market approach by utilizing the fair value of securities backed by similar participating interests in reverse mortgage loans. The Company classifies these valuations as Level 2 in the fair value disclosures. See Note 4, Mortgage Servicing Rights and Related Liabilities, and Note 10, Indebtedness, for more information.
HECM Securitizations (Level 3) – The Company estimates fair value of the nonrecourse debt related to HECM securitization based on the present value of future expected discounted cash flows with the discount rate approximating that of similar financial instruments. As the prices are derived from both internal models and other observable inputs, the Company classifies this as Level 3 in the fair value disclosures. See Note 10, Indebtedness for more information.
The following table presents the estimated carrying amount and fair value of the Company's financial instruments and other assets and liabilities measured at fair value on a recurring basis.
 
Successor
 
September 30, 2018
 
 
 
Recurring Fair Value Measurements
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Mortgage loans held for sale(1)
$
1,681.1

 
$
—

 
$
1,681.1

 
$
—

Mortgage loans held for investment(1)
121.6

 
 
 
—

 
121.6

Mortgage servicing rights(1)
3,485.4

 
—

 
—

 
3,485.4

Derivative financial instruments
 
 
 
 
 
 
 
IRLCs
57.8

 
—

 
57.8

 
—

Forward MBS trades
12.2

 
—

 
12.2

 
—

LPCs
1.7

 
—

 
1.7

 
—

Eurodollar futures(2)
—

 
—

 
—

 
—

Treasury futures(2)
—

 
—

 
—

 
—

Total assets
$
5,359.8

 
$
—

 
$
1,752.8

 
$
3,607.0

Liabilities
 
 
 
 
 
 
 
Derivative financial instruments
 
 
 
 
 
 
 
IRLCs(2)
$
—

 
$
—

 
$
—

 
$
—

Forward MBS trades
0.5

 
—

 
0.5

 
—

LPCs
1.5

 
—

 
1.5

 
—

Eurodollar futures(2)
—

 
—

 
—

 
—

Treasury futures(2)
0.1

 
—

 
0.1

 
—

Mortgage servicing rights financing
26.3

 
—

 
—

 
26.3

Excess spread financing
1,096.5

 
—

 
—

 
1,096.5

Total liabilities
$
1,124.9

 
$
—

 
$
2.1

 
$
1,122.8


(1) Based on the nature and risks of the underlying assets and liabilities, the fair value is presented for the aggregate account.
(2) Fair values of the underlying assets and liabilities are less than $0.1 for the specified dates.
 
Predecessor
 
December 31, 2017
 
 
 
Recurring Fair Value Measurements
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Mortgage loans held for sale(1)
$
1,890.8

 
$
—

 
$
1,890.8

 
$
—

Mortgage servicing rights(1)
2,937.4

 
—

 
—

 
2,937.4

Derivative financial instruments
 
 
 
 
 
 
 
IRLCs
59.3

 
—

 
59.3

 
—

Forward MBS trades
2.4

 
—

 
2.4

 
—

LPCs
0.9

 
—

 
0.9

 
—

Eurodollar futures(2)
—

 
—

 
—

 
—

Treasury futures
1.9

 
—

 
1.9

 
—

Total assets
$
4,892.7

 
$
—

 
$
1,955.3

 
$
2,937.4

Liabilities
 
 
 
 
 
 
 
Derivative financial instruments
 
 
 
 
 
 
 
Forward MBS trades
$
2.8

 
$
—

 
$
2.8

 
$
—

LPCs
0.6

 
—

 
0.6

 
—

Eurodollar futures(2)
—

 
—

 
—

 
—

Treasury futures
1.4

 
—

 
1.4

 
—

Mortgage servicing rights financing
9.5

 
—

 
—

 
9.5

Excess spread financing
996.5

 
—

 
—

 
996.5

Total liabilities
$
1,010.8

 
$
—

 
$
4.8

 
$
1,006.0


(1) Based on the nature and risks of the underlying assets and liabilities, the fair value is presented for the aggregate account.
(2) Fair values of the underlying assets and liabilities are less than $0.1 for the specified dates.

The table below presents a reconciliation for all of the Company's Level 3 assets and liabilities measured at fair value on a recurring basis.
 
Successor
 
Assets
 
Liabilities
 
Mortgage servicing rights
 
Excess spread financing
 
Mortgage servicing rights financing
For the Period August 1 to September 30, 2018
 
 
 
 
 
Balance - beginning of period
$
3,413

 
$
1,039

 
$
26

Total gains or losses included in earnings
20

 
26

 
—

Purchases, issuances, sales, repayments and settlements
 
 
 
 
 
Purchases
72

 
—

 
—

Issuances
43

 
84

 
—

Sales
(63
)
 
—

 
—

Repayments
—

 
(21
)
 
—

Settlements
—

 
(31
)
 
—

Balance - end of period
$
3,485

 
$
1,097

 
$
26

 
Predecessor
 
Assets
 
Liabilities
 
Mortgage servicing rights
 
Excess spread financing
 
Mortgage servicing rights financing
For the Period January 1 to July 31, 2018
 
 
 
 
 
Balance - beginning of period
$
2,937

 
$
996

 
$
10

Total gains or losses included in earnings
166

 
81

 
16

Purchases, issuances, sales, repayments and settlements
 
 
 
 
 
Purchases
144

 
—

 
—

Issuances
162

 
70

 
—

Sales
4

 
—

 
—

Repayments
—

 
(3
)
 
 
Settlements
—

 
(105
)
 
—

Balance - end of period
$
3,413

 
$
1,039

 
$
26

 
Predecessor
 
Assets
 
Liabilities
 
Mortgage servicing rights
 
Excess spread financing
 
Mortgage servicing rights financing
Nine Months Ended September 30, 2017
 
 
 
 
 
Balance - beginning of period
$
3,160

 
$
1,214

 
$
27

Total gains or losses included in earnings
(361
)
 
—

 
(7
)
Purchases, issuances, sales, repayments and settlements
 
 
 
 
 
Purchases
30

 
—

 
—

Issuances
151

 
—

 
—

Sales
(24
)
 
—

 
—

Repayments
—

 
(9
)
 
—

Settlements
—

 
(159
)
 
—

Balance - end of period
$
2,956

 
$
1,046

 
$
20



No transfers were made into or out of Level 3 fair value assets and liabilities for the two months ended September 30, 2018, seven months ended July 31, 2018 and nine months ended September 30, 2017.
The table below presents a summary of the estimated carrying amount and fair value of the Company's financial instruments.
 
Successor
 
September 30, 2018
 
Carrying
Amount
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Financial assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
198

 
$
198

 
$
—

 
$
—

Restricted cash
332

 
332

 
—

 
—

Advances and other receivables, net
1,174

 
—

 
—

 
1,174

Reverse mortgage interests, net
8,886

 
—

 
—

 
8,980

Mortgage loans held for sale
1,681

 
—

 
1,681

 
—

Mortgage loans held for investment, net
122

 
—

 
—

 
122

Derivative financial instruments
72

 
—

 
72

 
—

Financial liabilities
 
 
 
 
 
 
 
Unsecured senior notes
2,457

 
2,583

 
—

 
—

Advance facilities
596

 
—

 
596

 
—

Warehouse facilities
2,888

 
—

 
2,888

 
—

Mortgage servicing rights financing liability
26

 
—

 
—

 
26

Excess spread financing
1,097

 
—

 
—

 
1,097

Derivative financial instruments
2

 
—

 
2

 
—

Participating interest financing
6,103

 
—

 
6,101

 
—

HECM Securitization (HMBS)
 
 
 
 
 
 
 
Trust 2017-1
151

 
—

 
—

 
176

Trust 2017-2
258

 
—

 
—

 
283

Trust 2018-1
329

 
—

 
—

 
318

Trust 2018-2
292

 
—

 
—

 
271

Nonrecourse debt - legacy assets
32

 
—

 
—

 
31

 
 
 
 
 
 
 
 
 
Predecessor
 
December 31, 2017
 
Carrying
Amount
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Financial assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
215

 
$
215

 
$
—

 
$
—

Restricted cash
360

 
360

 
—

 
—

Advances and other receivables, net
1,706

 
—

 
—

 
1,706

Reverse mortgage interests, net
9,984

 
—

 
—

 
10,164

Mortgage loans held for sale
1,891

 
—

 
1,891

 
—

Mortgage loans held for investment, net
139

 
—

 
—

 
139

Derivative financial instruments
65

 
—

 
65

 
—

Financial liabilities
 
 
 
 
 
 
 
Unsecured senior notes
1,874

 
1,912

 
—

 
—

Advance facilities
855

 
—

 
855

 
—

Warehouse facilities
3,285

 
—

 
3,286

 
—

Mortgage servicing rights financing liability
10

 
—

 
—

 
10

Excess spread financing
996

 
—

 
—

 
996

Derivative financial instruments
5

 
—

 
5

 
—

Participating interest financing
7,167

 
—

 
7,353

 
—

HECM Securitization (HMBS)
 
 
 
 
 
 
 
Trust 2016-2
94

 
—

 
—

 
112

Trust 2016-3
138

 
—

 
—

 
155

Trust 2017-1
213

 
—

 
—

 
225

Trust 2017-2
365

 
—

 
—

 
371

Nonrecourse debt - legacy assets
37

 
—

 
—

 
36