| 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 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. The Company has also identified its ESS financing to be accounted for at fair value as a means of hedging the related MSRs’ fair value risk. 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: June 30, 2022 Level 1 Level 2 Level 3 Total (in thousands) Assets: Short-term investment $ 4,961 $ — $ — $ 4,961 Loans held for sale at fair value — 3,083,257 503,553 3,586,810 Derivative assets: Interest rate lock commitments — — 70,685 70,685 Forward purchase contracts — 61,855 — 61,855 Forward sales contracts — 24,499 — 24,499 MBS put options — 7,868 — 7,868 Put options on interest rate futures purchase contracts 11,844 — — 11,844 Call options on interest rate futures purchase contracts 13,709 — — 13,709 Total derivative assets before netting 25,553 94,222 70,685 190,460 Netting — — — (86,559) Total derivative assets 25,553 94,222 70,685 103,901 Mortgage servicing rights at fair value — — 5,217,167 5,217,167 Investment in PennyMac Mortgage Investment Trust 1,037 — — 1,037 $ 31,551 $ 3,177,479 $ 5,791,405 $ 8,913,876 Liabilities: Derivative liabilities: Interest rate lock commitments $ — $ — $ 5,534 $ 5,534 Forward purchase contracts — 13,005 — 13,005 Forward sales contracts — 89,488 — 89,488 Total derivative liabilities before netting — 102,493 5,534 108,027 Netting — — — (65,325) Total derivative liabilities — 102,493 5,534 42,702 Mortgage servicing liabilities at fair value — — 2,337 2,337 $ — $ 102,493 $ 7,871 $ 45,039 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 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 June 30, 2022 Net interest Mortgage Loans held rate lock servicing Assets for sale commitments (1) rights Total (in thousands) Balance, March 31, 2022 $ 776,590 $ 37,899 $ 4,707,039 $ 5,521,528 Purchases and issuances, net 598,948 145,980 — 744,928 Capitalization of interest and advances 15,608 — — 15,608 Sales and repayments (129,896) — — (129,896) Mortgage servicing rights resulting from loan sales — — 398,253 398,253 Changes in fair value included in income arising from: Changes in instrument-specific credit risk (24,394) — — (24,394) Other factors (8,922) (167,106) 111,875 (64,153) (33,316) (167,106) 111,875 (88,547) Transfers from Level 3 to Level 2 (723,995) — — (723,995) Transfers to real estate acquired in settlement of loans (386) — — (386) Transfers to loans held for sale — 48,378 — 48,378 Balance, June 30, 2022 $ 503,553 $ 65,151 $ 5,217,167 $ 5,785,871 Changes in fair value recognized during the quarter relating to assets still held at June 30, 2022 $ (18,079) $ 65,151 $ 111,875 $ 158,947 (1) For the purpose of this table, the IRLC asset and liability positions are shown net. Quarter ended Liabilities June 30, 2022 (in thousands) Mortgage servicing liabilities: Balance, March 31, 2022 $ 2,564 Changes in fair value included in income (227) Balance, June 30, 2022 $ 2,337 Changes in fair value recognized during the quarter relating to liabilities still outstanding at June 30, 2022 $ (227) Quarter ended June 30, 2021 Net interest Mortgage Loans held rate lock servicing Assets for sale commitments (1) rights Total (in thousands) Balance, March 31, 2021 $ 5,202,065 $ 337,940 $ 3,268,910 $ 8,808,915 Purchases and issuances, net 6,828,094 351,934 — 7,180,028 Capitalization of interest and advances 60,439 — — 60,439 Sales and repayments (3,866,340) — — (3,866,340) Mortgage servicing rights resulting from loan sales — — 483,362 483,362 Changes in fair value included in income arising from: Changes in instrument-specific credit risk 179,792 — — 179,792 Other factors — 332,435 (339,624) (7,189) 179,792 332,435 (339,624) 172,603 Transfers from Level 3 to Level 2 (4,585,789) — — (4,585,789) Transfers to loans held for sale — (678,699) — (678,699) Balance, June 30, 2021 $ 3,818,261 $ 343,610 $ 3,412,648 $ 7,574,519 Changes in fair value recognized during the quarter relating to assets still held at June 30, 2021 $ 74,184 $ 343,610 $ (339,624) $ 78,170 (1) For the purpose of this table, the IRLC asset and liability positions are shown net. Quarter ended Liabilities June 30, 2021 (in thousands) Mortgage servicing liabilities: Balance, March 31, 2021 $ 46,026 Mortgage servicing liabilities resulting from loan sales 57,421 Changes in fair value included in income (3,356) Balance, June 30, 2021 $ 100,091 Changes in fair value recognized during the quarter relating to liabilities still outstanding at June 30, 2021 $ (3,356) Six months ended June 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 2,733,726 307,289 — 3,041,015 Capitalization of interest and advances 47,719 — — 47,719 Sales and repayments (1,264,888) — — (1,264,888) Mortgage servicing rights resulting from loan sales — — 1,014,555 1,014,555 Changes in fair value included in income arising from: Changes in instrument-specific credit risk (30,210) — — (30,210) Other factors (21,318) (566,483) 324,534 (263,267) (51,528) (566,483) 324,534 (293,477) Transfers from Level 3 to Level 2 (2,089,966) — — (2,089,966) Transfers to real estate acquired in settlement of loans (386) — — (386) Transfers to loans held for sale — 2,152 — 2,152 Balance, June 30, 2022 $ 503,553 $ 65,151 $ 5,217,167 $ 5,785,871 Changes in fair value recognized during the period relating to assets still held at June 30, 2022 $ (28,700) $ 65,151 $ 324,534 $ 360,985 (1) For the purpose of this table, the IRLC asset and liability positions are shown net. Six months ended Liabilities June 30, 2022 (in thousands) Mortgage servicing liabilities: Balance, December 31, 2021 $ 2,816 Changes in fair value included in income (479) Balance, June 30, 2022 $ 2,337 Changes in fair value recognized during the period relating to liabilities still outstanding at June 30, 2022 $ (479) Six months ended June 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 11,056,535 829,867 — 11,886,402 Capitalization of interest and advances 78,844 — — 78,844 Sales and repayments (4,795,241) — — (4,795,241) Mortgage servicing rights resulting from loan sales — — 953,895 953,895 Changes in fair value included in income arising from: Changes in instrument-specific credit risk 227,946 — — 227,946 Other factors — 152,822 (122,421) 30,401 227,946 152,822 (122,421) 258,347 Transfers from Level 3 to Level 2 (7,424,910) — — (7,424,910) Transfers to real estate acquired in settlement of loans (82) — — (82) Transfers of interest rate lock commitments to loans held for sale — (1,316,105) — (1,316,105) Balance, June 30, 2021 $ 3,818,261 $ 343,610 $ 3,412,648 $ 7,574,519 Changes in fair value recognized during the period relating to assets still held at June 30, 2021 $ 135,823 $ 343,610 $ (122,421) $ 357,012 (1) For the purpose of this table, the IRLC asset and liability positions are shown net. Six months ended June 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 — 64,383 64,383 Changes in fair value included in income 1,037 (9,616) (8,579) Repayments (134,624) — (134,624) Balance, June 30, 2021 $ — $ 100,091 $ 100,091 Changes in fair value recognized during the period relating to liabilities still outstanding at June 30, 2021 $ — $ (9,616) $ (9,616) 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 June 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 $ (96,365) $ — $ (96,365) $ 761,841 $ — $ 761,841 Mortgage servicing rights — 111,875 111,875 — (339,624) (339,624) $ (96,365) $ 111,875 $ 15,510 $ 761,841 $ (339,624) $ 422,217 Liabilities: Mortgage servicing liabilities $ — $ 227 $ 227 $ — $ 3,356 $ 3,356 Six months ended June 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 $ (204,343) $ — $ (204,343) $ 1,411,960 $ — $ 1,411,960 Mortgage servicing rights — 324,534 324,534 — (122,421) (122,421) $ (204,343) $ 324,534 $ 120,191 $ 1,411,960 $ (122,421) $ 1,289,539 Liabilities: Excess servicing spread financing payable to PennyMac Mortgage Investment Trust $ — $ — $ — $ — $ (1,037) $ (1,037) Mortgage servicing liabilities — 479 479 — 9,616 9,616 $ — $ 479 $ 479 $ — $ 8,579 $ 8,579 Following are the fair value and related principal amounts due upon maturity of loans held for sale: June 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 $ 3,513,307 $ 3,494,822 $ 18,485 $ 9,577,398 $ 9,263,242 $ 314,156 90 days or more delinquent: Not in foreclosure 63,177 65,812 (2,635) 153,162 153,875 (713) In foreclosure 10,326 15,078 (4,752) 11,923 13,649 (1,726) $ 3,586,810 $ 3,575,712 $ 11,098 $ 9,742,483 $ 9,430,766 $ 311,717 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) June 30, 2022 $ — $ — $ 1,666 $ 1,666 December 31, 2021 $ — $ — $ 2,588 $ 2,588 The following table summarizes the (losses) gains recognized on assets when they were remeasured at fair value on a nonrecurring basis: Quarter ended June 30, Six months ended June 30, 2022 2021 2022 2021 (in thousands) Real estate acquired in settlement of loans $ (326) $ (434) $ (740) $ (743) 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 Obligations under capital lease, Notes payable secured by mortgage servicing assets Unsecured senior notes 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 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 June 30, 2022 December 31, 2021 Fair value Carrying value Fair value Carrying value (in thousands) Notes payable secured by mortgage servicing assets $ 1,746,784 $ 1,793,260 $ 1,302,640 $ 1,297,622 Unsecured senior notes $ 1,416,500 $ 1,778,055 $ 1,790,375 $ 1,776,219 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 derivatives 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 responsibility for estimating the fair value of these assets and liabilities 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 responsible for estimating the fair values of “Level 3” fair value assets and liabilities other than IRLCs and maintaining its valuation policies and procedures. ● The Company’s Capital Markets Risk Management staff develops the fair value of the Company’s IRLCs which is reviewed by its Capital Markets Operations group. 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 and credit 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. 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 securities 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 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 loans may be resold to investors and thereafter may be repurchased to the extent they become eligible for resale into a new Ginnie Mae guaranteed security. Loans become eligible for resale into a new Ginnie Mae security when the loans become current either through completion of a modification of the loan’s terms or after six 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 210 days after the date the loan was last delinquent. ● 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: June 30, 2022 December 31, 2021 Fair value (in thousands) $ 503,553 $ 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 2.2% – 2.6% 6.1% – 6.5% Weighted average 2.4% 6.2% Voluntary prepayment/resale speed (2): Range 4.7% – 28.6% 0.4% – 30.3% Weighted average 24.6% 22.0% Total prepayment speed (3): Range 4.8% – 37.4% 0.4% – 39.3% Weighted average 31.2% 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 speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayment and resale 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 estimated fair value of MSRs attributable to the mortgage loans it has committed to purchase and the pull-through rate. 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: June 30, 2022 December 31, 2021 Fair value (in thousands) (1) $ 65,151 $ 322,193 Key inputs Pull-through rate: Range 7.9% – 100% 8.0% – 100% Weighted average 84.3% 78.4% Mortgage servicing rights fair value expressed as: Servicing fee multiple: Range (3.2) – 7.0 (8.5) – 6.7 Weighted average 4.1 3.8 Percentage of loan commitment amount Range (0.6)% – 3.8% (1.6)% – 3.6% Weighted average 1.8% 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. 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 – Mortgage servicing rights 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 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 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 June 30, Six months ended June 30, 2022 2021 2022 2021 (Amount recognized and unpaid principal balance of underlying loans in thousands) MSR and pool characteristics: Amount recognized $ 398,253 $ 483,362 $ 1,014,555 $ 953,895 Unpaid principal balance of underlying loans $ 19,377,222 $ 36,830,098 $ 49,953,192 $ 71,773,352 Weighted average servicing fee rate (in basis points) 42 33 43 33 Key inputs (1): Annual total prepayment speed (2): Range 5.7% – 19.3% 6.7% – 17.7% 5.7% – 23.4% 6.2% – 16.7% Weighted average 8.4% 8.5% 8.3% 8.1% Equivalent average life (in years): Range 4.3 – 9.2 4.0 – 8.8 3.7 – 9.2 4.1 – 9.0 Weighted average 8.5 8.1 8.4 8.3 Pricing spread (3): Range 5.7% – 11.7% 6.0% – 16.9% 5.7% – 16.1% 6.0% – 16.9% Weighted average 8.2% 8.9% 7.7% 9.2% Per-loan annual cost of servicing: Range $80 – $146 $80 – $117 $80 – $176 $81 – $117 Weighted average $103 $104 $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 to the Treasury did not have a significant effect on the Company’s fair value measurement of 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: June 30, 2022 December 31, 2021 (Fair value, unpaid principal balance of underlying loans and effect on fair value amounts in thousands) Fair value $ 5,217,167 $ 3,878,078 Pool characteristics: Unpaid principal balance of underlying loans $ 297,269,682 $ 278,324,780 Weighted average note interest rate 3.2% 3.2% Weighted average servicing fee rate (in basis points) 35 34 Key inputs (1): Annual total prepayment speed (2): Range 5.5% – 19.0% 7.9% – 26.7% Weighted average 8.2% 10.7% Equivalent average life (in years): Range 2.0 – 9.2 3.1 – 7.7 Weighted average 8.0 6.8 Effect on fair value of (3): 5% adverse change ($79,424) ($80,109) 10% adverse change ($156,226) ($157,252) 20% adverse change ($302,462) ($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 ($76,013) ($59,577) 10% adverse change ($149,848) ($117,352) 20% adverse change ($291,326) ($227,791) Per-loan annual cost of servicing: Range $79 – $156 $79 – $197 Weighted average $106 $108 Effect on fair value of (3): 5% adverse change ($37,615) ($32,979) 10% adverse change ($75,231) ($65,958) 20% adverse change ($150,461) ($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 i |
