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Fair Value Measurements

9 Months Ended

Sep. 30, 2022

13. 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).

There have been no significant changes to the valuation techniques and inputs used by the Company in estimating fair values of Level 2 and Level 3 assets and liabilities as disclosed in the Company’s Annual Reports on Form 10-K for the year ended December 31, 2021.

The following tables present 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:


	September 30, 2022
			Recurring Fair Value Measurements
Fair Value - Recurring Basis	Total Fair Value		Level 1		Level 2		Level 3
Assets
Mortgage loans held for sale	$	1,581	$	—	$	1,581	$	—
Mortgage servicing rights	6,408		—		—		6,408
Equity investments	48		3		—		45
Derivative financial instruments
IRLCs	21		—		—		21
LPCs	1		—		—		1
Forward MBS trades	74		—		74		—

Liabilities
Derivative financial instruments
IRLCs	8		—		—		8
LPCs	5		—		—		5
Forward MBS trades	19		—		19		—
Treasury futures	62		—		62		—
Mortgage servicing rights financing	20		—		—		20
Excess spread financing	519		—		—		519


	December 31, 2021
			Recurring Fair Value Measurements
Fair Value - Recurring Basis	Total Fair Value		Level 1		Level 2		Level 3
Assets
Mortgage loans held for sale	$	4,381	$	—	$	4,381	$	—
Mortgage servicing rights	4,223		—		—		4,223
Equity investments	63		9		—		54
Derivative financial instruments
IRLCs	134		—		—		134
Forward MBS trades	7		—		7		—
LPCs	3		—		—		3

Liabilities
Derivative financial instruments
Forward MBS trades	8		—		8		—
LPCs	2		—		—		2
Swap futures	6		—		6		—
Mortgage servicing rights financing	10		—		—		10
Excess spread financing	768		—		—		768

The tables below present a reconciliation for all of the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis:


	Nine Months Ended September 30, 2022
	Assets						Liabilities
Fair Value - Level 3 Assets and Liabilities	Mortgage servicing rights		Equity investments		IRLCs		Excess spread financing		Mortgage servicing rights financing
Balance - beginning of period	$	4,223	$	54	$	134	$	768	$	10
Changes in fair value included in earnings	719		(9)		(113)		124		10
Purchases	1,256		—		—		—		—
Issuances	481		—		—		—		—
Sales	(293)		—		—		—		—
Repayments	—		—		—		(293)		—
Settlements	—		—		—		(80)		—
Other changes	22		—		—		—		—
Balance - end of period	$	6,408	$	45	$	21	$	519	$	20


	Nine Months Ended September 30, 2021
	Assets						Liabilities
Fair Value - Level 3 Assets and Liabilities	Mortgage servicing rights		Equity investments		IRLCs		Excess spread financing		Mortgage servicing rights financing
Balance - beginning of period	$	2,703	$	—	$	414	$	934	$	33
Changes in fair value included in earnings	(296)		—		(247)		6		(13)
Purchases	438		50		—		—		—
Issuances	790		—		—		—		—
Sales	(13)		—		—		—		—

Settlements	—		—		—		(118)		—
Other changes	44		—		—		—		—
Balance - end of period	$	3,666	$	50	$	167	$	822	$	20

No transfers were made in or out of Level 3 fair value assets and liabilities for the Company during the nine months ended September 30, 2022 and 2021.

The table below presents the quantitative information for significant unobservable inputs used in the fair value measurement of Level 3 assets and liabilities.


	September 30, 2022									December 31, 2021
	Range						Weighted Average			Range						Weighted Average
Level 3 Inputs	Min			Max						Min			Max
MSR(1)
Discount rate	10.4		%	13.7		%	11.4		%	9.5		%	13.7		%	10.9		%
Prepayment speed	6.6		%	13.3		%	7.4		%	11.7		%	16.4		%	13.0		%
Cost to service per loan(2)	$	59		$	128		$	78		$	59		$	168		$	77
Average life(3)							8.0 years									5.8 years

IRLCs
Value of servicing (reflected as a percentage of loan commitment)	(0.3)		%	4.4		%	2.1		%	(0.7)		%	2.4		%	1.4		%

Excess spread financing(1)
Discount rate	10.0		%	13.8		%	11.3		%	9.5		%	13.8		%	11.2		%
Prepayment speed	6.6		%	13.5		%	9.5		%	12.8		%	15.2		%	13.4		%
Average life(3)							6.6 years									5.4 years

Mortgage servicing rights financing
Advance financing and counterparty fee rates	5.0		%	8.7		%	7.3		%	4.5		%	7.9		%	6.5		%
Annual advance recovery rates	16.9		%	22.9		%	18.5		%	19.2		%	23.0		%	21.3		%

(1)The inputs are weighted by investor.

(2)Presented in whole dollar amounts.

(3)Average life is included for informational purposes.

The tables below present a summary of the estimated carrying amount and fair value of the Company’s financial instruments not carried at fair value:


	September 30, 2022
	Carrying Amount		Fair Value
Financial Instruments			Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	530	$	530	$	—	$	—
Restricted cash	148		148		—		—
Advances and other receivables, net	831		—		—		831

Loans subject to repurchase from Ginnie Mae	1,575		—		1,575		—
Financial liabilities
Unsecured senior notes, net	2,673		2,085		—		—
Advance and warehouse facilities, net	3,070		—		3,076		—
Liability for loans subject to repurchase from Ginnie Mae	1,575		—		1,575		—


	December 31, 2021
	Carrying Amount		Fair Value
Financial Instruments			Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	895	$	895	$	—	$	—
Restricted cash	146		146		—		—
Advances and other receivables, net	1,228		—		—		1,228
Loans subject to repurchase from Ginnie Mae	1,496		—		1,496		—
Financial liabilities
Unsecured senior notes, net	2,670		2,737		—		—
Advance and warehouse facilities, net	4,997		—		5,009		—
Liability for loans subject to repurchase from Ginnie Mae	1,496		—		1,496		—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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