| 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 or determinable 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 other than Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell 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: March 31, 2021 Level 1 Level 2 Level 3 Total (in thousands) Assets: Short-term investments $ 24,850 $ — $ — $ 24,850 Loans held for sale at fair value — 8,183,724 5,202,065 13,385,789 Derivative assets: Interest rate lock commitments — — 362,923 362,923 Forward purchase contracts — 14,318 — 14,318 Forward sales contracts — 333,198 — 333,198 MBS put options — 99,670 — 99,670 Swaption purchase contracts — 50,973 — 50,973 Put options on interest rate futures purchase contracts 27,133 — — 27,133 Call options on interest rate futures purchase contracts 1,539 — — 1,539 Total derivative assets before netting 28,672 498,159 362,923 889,754 Netting — — — (358,902) Total derivative assets 28,672 498,159 362,923 530,852 Mortgage servicing rights at fair value — — 3,268,910 3,268,910 Investment in PennyMac Mortgage Investment Trust 1,470 — — 1,470 $ 54,992 $ 8,681,883 $ 8,833,898 $ 17,211,871 Liabilities: Derivative liabilities: Interest rate lock commitments $ — $ — $ 24,983 $ 24,983 Forward purchase contracts — 192,793 — 192,793 Forward sales contracts — 32,729 — 32,729 MBS put options — 34,873 — 34,873 Put options on interest rate futures sale contracts 15,881 — — 15,881 Call options on interest rate futures sale contracts 1,061 — — 1,061 Total derivative liabilities before netting 16,942 260,395 24,983 302,320 Netting — — — (233,763) Total derivative liabilities 16,942 260,395 24,983 68,557 Mortgage servicing liabilities at fair value — — 46,026 46,026 $ 16,942 $ 260,395 $ 71,009 $ 114,583 December 31, 2020 Level 1 Level 2 Level 3 Total (in thousands) Assets: Short-term investments $ 15,217 $ — $ — $ 15,217 Loans held for sale at fair value — 6,941,231 4,675,169 11,616,400 Derivative assets: Interest rate lock commitments — — 679,961 679,961 Forward purchase contracts — 133,267 — 133,267 Forward sales contracts — 1,451 — 1,451 MBS put options — 14,302 — 14,302 Swaption purchase contracts — 11,939 — 11,939 Put options on interest rate futures purchase contracts 5,520 — — 5,520 Call options on interest rate futures purchase contracts 1,391 — — 1,391 Total derivative assets before netting 6,911 160,959 679,961 847,831 Netting — — — (136,593) Total derivative assets 6,911 160,959 679,961 711,238 Mortgage servicing rights at fair value — — 2,581,174 2,581,174 Investment in PennyMac Mortgage Investment Trust 1,105 — — 1,105 $ 23,233 $ 7,102,190 $ 7,936,304 $ 14,925,134 Liabilities: Excess servicing spread financing payable to PennyMac Mortgage Investment Trust at fair value $ — $ — $ 131,750 $ 131,750 Derivative liabilities: Interest rate lock commitments — — 2,935 2,935 Forward purchase contracts — 1,276 — 1,276 Forward sales contracts — 251,149 — 251,149 Total derivative liabilities before netting — 252,425 2,935 255,360 Netting — — — (212,722) Total derivative liabilities — 252,425 2,935 42,638 Mortgage servicing liabilities at fair value — — 45,324 45,324 $ — $ 252,425 $ 180,009 $ 219,712 As shown above, all or a portion of the Company’s loans held for sale, Interest Rate Lock Commitments (“IRLCs”), MSRs, ESS 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 March 31, 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 4,156,681 477,933 — 4,634,614 Capitalization of interest and advances 90,165 — — 90,165 Sales and repayments (928,901) — — (928,901) Mortgage servicing rights resulting from loan sales — — 470,533 470,533 Changes in fair value included in income arising from: Changes in instrument-specific credit risk 48,154 — — 48,154 Other factors — (179,613) 217,203 37,590 48,154 (179,613) 217,203 85,744 Transfers from Level 3 to Level 2 (2,839,121) — — (2,839,121) Transfers to real estate acquired in settlement of loans (82) — — (82) Transfers to loans held for sale — (637,406) — (637,406) Balance, March 31, 2021 $ 5,202,065 $ 337,940 $ 3,268,910 $ 8,808,915 Changes in fair value recognized during the quarter relating to assets still held at March 31, 2021 $ 104,132 $ 337,940 $ 217,203 $ 659,275 (1) For the purpose of this table, the IRLC asset and liability positions are shown net. Quarter ended March 31, 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 Repayments (134,624) — (134,624) Mortgage servicing liabilities resulting from loan sales — 6,962 6,962 Changes in fair value included in income 1,037 (6,260) (5,223) Balance, March 31, 2021 $ — $ 46,026 $ 46,026 Changes in fair value recognized during the quarter relating to liabilities still outstanding at March 31, 2021 $ — $ (6,260) $ (6,260) Quarter ended March 31, 2020 Net interest Repurchase Mortgage Loans held rate lock agreement servicing Assets for sale commitments (1) derivatives rights Total (in thousands) Balance, March 31, 2019 $ 383,878 $ 136,650 $ 8,187 $ 2,926,790 $ 3,455,505 Purchases and issuances, net 1,641,231 341,980 — 25,760 2,008,971 Capitalization of interest and advances 18,027 — — — 18,027 Sales and repayments (738,928) — — — (738,928) Mortgage servicing rights resulting from loan sales — — — 282,315 282,315 Changes in fair value included in income arising from: Changes in instrument-specific credit risk (7,523) — — — (7,523) Other factors — 199,918 — (1,041,168) (841,250) (7,523) 199,918 — (1,041,168) (848,773) Transfers from Level 3 to Level 2 (489,407) — — — (489,407) Transfers to real estate acquired in settlement of loans (691) — — — (691) Transfers to loans held for sale — (363,354) — — (363,354) Balance, March 31, 2020 $ 806,587 $ 315,194 $ 8,187 $ 2,193,697 $ 3,323,665 Changes in fair value recognized during the quarter relating to assets still held at March 31, 2020 $ (11,856) $ 315,194 $ — $ (1,041,168) $ (737,830) (1) For the purpose of this table, the IRLC asset and liability positions are shown net. Quarter ended March 31, 2020 Excess servicing Mortgage spread servicing Liabilities financing liabilities Total (in thousands) Balance, March 31, 2019 $ 178,586 $ 29,140 $ 207,726 Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust 379 — 379 Accrual of interest 1,974 — 1,974 Repayments (9,308) — (9,308) Mortgage servicing liabilities resulting from loan sales — 6,576 6,576 Changes in fair value included in income (14,522) (5,955) (20,477) Balance, March 31, 2020 $ 157,109 $ 29,761 $ 186,870 Changes in fair value recognized during the quarter relating to liabilities still outstanding at March 31, 2020 $ (14,522) $ (5,955) $ (20,477) The Company had transfers among the fair value levels arising from transfers of IRLCs to loans held for sale at fair value upon purchase or funding of the respective loans and from the return to salability in the active secondary market of certain loans held for sale. 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 March 31, 2021 2020 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 $ 650,119 $ — $ 650,119 $ 398,718 $ — $ 398,718 Mortgage servicing rights — 217,203 217,203 — (1,041,168) (1,041,168) $ 650,119 $ 217,203 $ 867,322 $ 398,718 $ (1,041,168) $ (642,450) Liabilities: Excess servicing spread financing payable to PennyMac Mortgage Investment Trust $ — $ (1,037) $ (1,037) $ — $ 14,522 $ 14,522 Mortgage servicing liabilities — 6,260 6,260 — 5,955 5,955 $ — $ 5,223 $ 5,223 $ — $ 20,477 $ 20,477 Following are the fair value and related principal amounts due upon maturity of loans held for sale: March 31, 2021 December 31, 2020 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 $ 13,013,597 $ 12,580,255 $ 433,342 $ 11,304,308 $ 10,743,814 $ 560,494 90 days or more delinquent: Not in foreclosure 340,185 344,853 (4,668) 275,419 280,595 (5,176) In foreclosure 32,007 33,908 (1,901) 36,673 39,529 (2,856) $ 13,385,789 $ 12,959,016 $ 426,773 $ 11,616,400 $ 11,063,938 $ 552,462 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) March 31, 2021 $ — $ — $ 2,568 $ 2,568 December 31, 2020 $ — $ — $ 1,450 $ 1,450 The following table summarizes the (losses) gains recognized on assets when they were remeasured at fair value on a nonrecurring basis: Quarter ended March 31, 2021 2020 (in thousands) Real estate acquired in settlement of loans $ (412) $ (3,980) Fair Value of Financial Instruments Carried at Amortized Cost The Company’s Assets purchased from PennyMac Mortgage Investment Trust under agreements to resell Assets sold under agreements to repurchase Mortgage loan participation purchase and sale agreements Obligations under capital lease, Notes payable secured by mortgage servicing assets Unsecured senior notes These assets and 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 assets and liabilities other than the 2018-GTI Term Notes and 2018-GT2 Term Notes included in Notes payable secured by mortgage servicing assets Unsecured senior notes The Company estimates the fair value of the Notes payable secured by mortgage servicing assets Unsecured senior notes March 31, 2021 December 31, 2020 Fair value Carrying value Fair value Carrying value (in thousands) Notes payable secured by mortgage servicing assets $ 1,296,344 $ 1,296,285 $ 1,268,304 $ 1,295,840 Unsecured senior notes $ 1,290,250 $ 1,288,198 $ 685,750 $ 645,820 Valuation Governance Most of the Company’s financial assets, and all of its MSRs, ESS, derivative liabilities 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 derivative liabilities and all of its MSRs, ESS, 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 the responsibility for estimating the fair value of these items to specialized staff and subjects the valuation process to significant senior management oversight. The Company’s Financial Analysis and Valuation group (the “FAV group”) is the Company’s specialized staff responsible for estimating the fair values of “Level 3” fair value assets and liabilities other than IRLCs. With respect to the non-IRLC “Level 3” valuations, the FAV group reports to the Company’s senior management valuation committee, which oversees the valuations. The FAV group 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 to the Company’s senior management valuation committee. The Company’s senior management valuation committee includes the Company’s chief financial, investment, operating and risk officers as well as other senior members of the Company’s finance, capital markets and risk management staffs. The FAV group is responsible for reporting to the Company’s senior management valuation committee on the changes in the valuation of the non-IRLC “Level 3” fair value assets and liabilities, including major factors affecting the valuation and any changes in model methods and inputs. To assess the reasonableness of its valuations, the FAV group presents an analysis of the effect on the valuation of changes to the significant inputs to the models. The Company has assigned responsibility for developing the fair values of IRLCs to its Capital Markets Risk Management staff. The fair values developed by the Capital Markets Risk Management staff are reviewed by the Company’s Capital Markets Operations group. 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 price or quoted market price or market price equivalent. 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: ● Government guaranteed or insured loans purchased by the Company from Ginnie Mae guaranteed pools in its loan servicing portfolio. The Company’s right to purchase government guaranteed or insured loans arises as the result of the loan being at least three months delinquent on the date of repurchase 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 repurchased loans may be resold to investors and thereafter may be repurchased to the extent eligible for resale into a new Ginnie Mae guaranteed security. Such eligibility occurs when the repurchased loans become current either through the borrower’s reperformance or through completion of a modification of the loan’s terms or after six months of timely payments following the completion of certain types of payment deferral programs. ● 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. 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 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: March 31, 2021 December 31, 2020 Fair value (in thousands) $ 5,202,065 $ 4,675,169 Key inputs (1): Discount rate: Range 2.6% – 9.2% 2.8% – 9.2% Weighted average 2.6% 2.8% Twelve-month projected housing price index change: Range 3.9% – 4.9% 2.7% – 3.5% Weighted average 4.4% 3.0% Voluntary prepayment/resale speed (2): Range 0.3% – 29.5% 0.4% – 31.3% Weighted average 21.2% 21.9% Total prepayment speed (3): Range 0.3% – 40.2% 0.5% – 42.9% Weighted average 28.1% 29.2% (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 default rates. 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 Derivative Financial Instruments Interest Rate Lock Commitments The Company categorizes IRLCs as “Level 3” fair value assets or liabilities. The Company estimates the fair value 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 loan 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 MSR component of the Company’s estimate of the fair value of the mortgage loans it has committed to 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 measurement. 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 Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs: March 31, 2021 December 31, 2020 Fair value (in thousands) $ 337,940 $ 677,026 Key inputs Pull-through rate: Range 8.0% – 100% 10.1% – 100% Weighted average 85.5% 82.7% Mortgage servicing rights value expressed as: Servicing fee multiple: Range (10.0) – 6.4 0.7 – 5.3 Weighted average 4.1 3.6 Percentage of loan commitment amount Range (2.1)% – 3.2% 0.1% – 2.6% Weighted average 1.3% 1.2% (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 value of hedging derivatives are included in Net gains on loans held for sale at fair value, Net loan servicing fees – Hedging results . 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 pricing spread (discount rate), prepayment rates, 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 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 March 31, 2021 2020 (Amount recognized and unpaid principal balance of underlying loans in thousands) MSR and pool characteristics: Amount recognized $ 470,533 $ 282,315 Unpaid principal balance of underlying loans $ 34,943,254 $ 18,330,384 Weighted average servicing fee rate (in basis points) 34 40 Key inputs (1): Pricing spread (2): Range 8.0% – 16.9% 6.8% – 15.6% Weighted average 9.6% 8.2% Annual total prepayment speed (3): Range 6.2% – 12.9% 9.1% – 49.8% Weighted average 7.8% 14.5% Equivalent average life (in years): Range 4.1 – 9.0 1.5 – 7.8 Weighted average 8.5 5.9 Per-loan annual cost of servicing: Range $81 – $117 $77 – $100 Weighted average $104 $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 provided for informational purposes. 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: March 31, 2021 December 31, 2020 (Fair value, unpaid principal balance of underlying loans and effect on fair value amounts in thousands) Fair value $ 3,268,910 $ 2,581,174 Pool characteristics: Unpaid principal balance of underlying loans $ 244,367,930 $ 238,410,809 Weighted average note interest rate 3.5% 3.6% Weighted average servicing fee rate (in basis points) 34 35 Key inputs (1): Pricing spread (2): Range 6.8% – 16.8% 8.0% – 17.6% Weighted average 9.2% 10.1% Effect on fair value of: 5% adverse change ($58,358) ($46,356) 10% adverse change ($114,643) ($90,936) 20% adverse change ($221,392) ($175,137) Annual total prepayment speed (3): Range 7.2% – 31.1% 10.1% – 32.9% Weighted average 9.8% 13.7% Equivalent average life (in years): Range 2.9 – 8.4 2.3 – 7.7 Weighted average 7.2 6.0 Effect on fair value of: 5% adverse change ($64,416) ($66,536) 10% adverse change ($126,698) ($130,253) 20% adverse change ($245,247) ($249,843) Annual per-loan cost of servicing: Range $79 – $118 $79 – $117 Weighted average $108 $107 Effect on fair value of: 5% adverse change ($30,559) ($25,482) 10% adverse change ($61,117) ($50,964) 20% adverse change ($122,235) ($101,929) (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 provided for informational purposes. The preceding 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 by management to account for changing circumstances. For these reasons, the preceding estimates should not be viewed as earnings forecasts. Excess Servicing Spread Financing at Fair Value ESS is categorized as a “Level 3” fair value liability. Because ESS is a claim to a portion of the cash flows from MSRs, the fair value measurement of the ESS is similar to that of MSRs. The Company uses the same discounted cash flow approach to measuring the ESS as it uses to measure MSRs except that certain inputs relating to the cost to service the mortgage loans underlying the MSRs and certain ancillary income are not included as these cash flows do not accrue to the holder of the ESS. The key inputs used in the estimation of ESS fair value include pricing spread (discount rate) and prepayment speed. Significant changes to either of those inputs in isolation could result in a significant change in the fair value of ESS. Changes in these key inputs are not directly related. ESS is generally subject to fair value increases when mortgage interest rates increase. Increasing mortgage interest rates normally discourage mortgage refinancing activity. Decreased refinancing activity increases the life of the mortgage loans underlying the ESS, thereby increasing the fair value of this financing. Changes in the fair value of ESS are included in Net loan servicing fees—Change in fair value of excess servicing spread payable to PennyMac Mortgage Investment Trust. Following are the key inputs used in determining the fair value of ESS financing: December 31, 2020 Fair value (in thousands) $ 131,750 Pool characteristics: Unpaid principal balance of underlying loans (in thousands) $ 15,833,050 Average servicing fee rate (in basis points) 34 Average excess servicing spread (in basis points) 19 Key inputs (1): Pricing spread (2): Range 4.9% – 5.3% Weighted average 5.1% Annual total prepayment speed (3): Range 9.6% – 18.3% Weighted average 11.7% Equivalent average life (in years): Range 2.3 – 6.6 Weighted average 5.8 (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 provided for informational purposes. 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 (discount rate), prepayment rates, and the annual per-loan cost to service 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 Following are the key inputs used in determining the fair value of MSLs: March 31, December 31, 2021 2020 Fair value (in thousands) $ 46,026 $ 45,324 Pool characteristics: Unpaid principal balance of underlying loans (in thousands) $ 3,173,793 $ 2,857,492 Servicing fee rate (in basis points) 25 25 Key inputs: Pricing spread (1) 7.9% 7.6% Annual total prepayment |
