| Fair Value | 6. Fair Value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based on the assumptions market participants would use when pricing an asset or liability and follows a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. All aspects of nonperformance risk, including the Company’s own credit standing, are considered when measuring the fair value of a liability. Following is a description of the three levels of the fair value hierarchy: Level 1 Inputs: Quoted prices for identical instruments in active markets. Level 2 Inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 Inputs: Instruments with unobservable inputs that are significant to the fair value measurement. The Company classifies assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There wer e no transfers within the hierarchy for the three and nine months ended September 30, 2023 or 2022 . Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and the details of the valuation models, key inputs to those models and significant assumptions utilized. Within the assumption tables presented, not meaningful ("NM") refers to a range of inputs that is too broad to provide meaningful information to the user or to an input that has no range and consists of a single data point. Instrument Valuation techniques Classification of Fair Value Hierarchy Assets Loans held for investment, subject to HMBS related obligations (1) HECM loans - securitized into Government National Mortgage Association ("Ginnie Mae" or "GNMA") HMBS These loans are valued utilizing a present value methodology that discounts estimated projected cash flows over the life of the loan portfolio using conditional prepayment rate ("CPR"), loss frequency, loss severity, borrower draw, and discount rate assumptions. Level 3 Loans held for investment, subject to nonrecourse debt (1) HECM buyouts - securitized (nonperforming) These loans are valued utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio using CPR, loss frequency, loss severity, and discount rate assumptions. Level 3 HECM buyouts - securitized (performing) These loans are valued utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio using weighted average remaining life ("WAL"), CPR, loss severity, and discount rate assumptions. Level 3 Non-agency reverse mortgage loans - securitized These loans are valued utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio using WAL, loan to value ("LTV"), CPR, loss severity, home price appreciation ("HPA"), and discount rate assumptions. Level 3 Fix & flip mortgage loans - securitized This product is valued using a discounted cash flow model utilizing a single monthly mortality prepayment rate ("SMM"), discount rate, and loss rate assumptions. Level 3 (1) The Company aggregates loan portfolios based on the underlying securitization trust and values these loans using these aggregated pools. The range of inputs provided is based on the range of inputs utilized for each securitization trust. Loans held for investment Inventory buy-outs The fair value of repurchased loans is based on expected cash proceeds of the liquidation of the underlying properties and expected claim proceeds from the Department of Housing and Urban Development ("HUD"). The primary assumptions utilized in valuing nonperforming repurchased loans include CPR, loss frequency, loss severity, and discount rate. Termination proceeds are adjusted for expected loss frequencies and severities to arrive at net proceeds that will be provided upon final resolution, including assignments to FHA. Historical experience is utilized to estimate the loss rates resulting from scenarios where FHA insurance proceeds are not expected to cover all principal and interest outstanding and, as servicer, the Company is exposed to losses upon resolution of the loan. Level 3 Non-agency reverse mortgage loans The fair value of non-agency reverse mortgage loans is based on values for investments with similar investment grade ratings and the value the Company would expect to receive if the whole loans were sold to an investor. The Company values non-agency reverse mortgage loans utilizing a present value methodology that discounts estimated projected cash flows over the life of the loan portfolio. The primary assumptions utilized in valuing the loans include WAL, LTV, CPR, loss severity, HPA, and discount rate. Level 3 Fix & flip mortgage loans This product is valued using a discounted cash flow ("DCF") model with SMM, discount rate, and loss rate assumptions. Level 3 Agricultural loans The product is valued using a DCF model with discount rate, SMM, and constant default rate ("CDR") assumptions. Level 3 Loans held for sale Residential mortgage loans This includes all mortgage loans that can be sold to the agencies, which are valued predominantly by published forward agency prices. This will also include all non-agency loans where recently negotiated market prices for the loan pool exist with a counterparty (which approximates fair value), or quoted market prices for similar loans are available. Level 2 Single Rental Loan ("SRL") This product is valued using a DCF model utilizing CPR, discount rate, and CDR assumptions. Level 3 Portfolio loans This product is valued using a DCF model utilizing CPR, discount rate, and CDR assumptions. Level 3 Mortgage Servicing Rights MSR The Company valued MSR internally through a DCF analysis and calculated using a pricing model. This pricing model is based on the objective characteristics of the portfolio (loan amount, note rate, etc.) and commonly used industry assumptions such as discount rate and weighted average CPR. Level 3 Derivative assets/liabilities Loan purchase commitments ("LPCs"), forward mortgage-backed securities ("MBS") and To Be Announced Securities ("TBAs") LPCs are valued based on current market prices for HMBS. Forward MBS and TBAs are valued using forward dealer marks from the Company's approved counterparties, forward prices with dealers in such securities, or internally-developed third-party models utilizing observable market inputs. Level 2 Interest rate swaps and futures contracts This product is valued using quoted market prices. Level 1 Other assets Retained bonds Management obtains third-party valuations to assess the reasonableness of the fair value calculations provided by the internal valuation model. The primary assumptions utilized include WAL and discount rate. Level 3 Purchase commitments - reverse mortgage loans Purchase commitments are valued based on the value of the underlying loan. These loans are valued based on an expected margin on sale of 3.00% as of December 31, 2022. There were not any reverse mortgage loan purchase commitments as of September 30, 2023. Level 3 Liabilities HMBS related obligations HMBS related obligations The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability. The estimated fair value of the HMBS related obligations also includes the consideration required by a market participant to transfer the HECM and HMBS servicing obligations, including exposure resulting from shortfalls in FHA insurance proceeds as well as assumptions that it believes a market participant would consider in valuing the liability, including, but not limited to, assumptions for repayment, costs to transfer servicing obligations, shortfalls in FHA insurance proceeds, and discount rates. The significant unobservable inputs used in the measurement include CPR and discount rates. Level 3 Nonrecourse debt Nonrecourse reverse mortgage loan financing liability The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability. The significant unobservable inputs used in the measurement include WAL, CPR, and discount rates. Level 3 Nonrecourse commercial loan financing liability The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability. The primary assumptions utilized include WAL, weighted average SMM, and discount rates. The Company estimates prepayment speeds giving consideration that the Company may in the future transfer additional loans to the trust, subject to the availability of funds provided for within the trust. Level 3 Nonrecourse MSR financing liability Consistent with the underlying MSR, fair value is derived through a DCF analysis and calculated using a pricing model. This pricing model is based on the objective characteristics of the portfolio (loan amount, note rate, etc.) and commonly used industry assumptions including weighted average CPR and discount rate. Level 3 Deferred purchase price liabilities Deferred purchase price liabilities These liabilities are measured based on the estimated amount of indemnified claims associated with the AAG Transaction and the closing market price of the Company's publicly traded stock on the applicable date of the Condensed Consolidated Statements of Financial Condition. Refer to Note 3 - Acquisitions for additional information. Level 3 Tax Receivable Agreements ("TRA") obligation The fair value is derived through the use of a DCF model. The significant unobservable assumptions used in the DCF include the ability to utilize tax attributes based on current tax forecasts, a constant U.S. federal income tax rate, and a discount rate. Level 3 Warrant liability Warrants The warrants are publicly traded and are valued based on the closing market price of the applicable date of the Condensed Consolidated Statements of Financial Condition. Level 1 Sale commitment liability Sale commitments - home improvement loans Sale commitments are valued based on the committed sale price multiplied by the home improvement loan pipeline adjusted for the estimated loan funding probability ("pull-through factor"). There were not any home improvement loan sale commitments as of December 31, 2022. Level 3 September 30, 2023 December 31, 2022 Instrument / Unobservable Inputs Range Weighted Average Range Weighted Average Assets Loans held for investment, subject to HMBS related obligations CPR NM 21.1 % NM 21.9 % Loss frequency NM 4.1 % NM 4.1 % Loss severity 2.4% - 12.3% 2.5 % 2.4% - 12.1% 2.7 % Discount rate NM 5.7 % NM 5.0 % Average draw rate NM 1.1 % NM 1.1 % Loans held for investment, subject to nonrecourse debt: HECM buyouts - securitized (nonperforming) CPR NM 38.6 % NM 39.2 % Loss frequency 23.1% - 100.0% 50.5 % 23.1% - 100% 51.7 % Loss severity 2.4% - 12.3% 5.5 % 2.4% - 12.1% 5.2 % Discount rate NM 9.5 % NM 8.7 % September 30, 2023 December 31, 2022 Instrument / Unobservable Inputs Range Weighted Average Range Weighted Average HECM buyouts - securitized (performing) WAL (in years) NM 7.5 NM 8.0 CPR NM 15.4 % NM 15.2 % Loss severity 2.4% - 12.3% 5.9 % 2.4% - 12.1% 4.8 % Discount rate NM 9.0 % NM 8.2 % Non-agency reverse mortgage loans - securitized WAL (in years) NM 10.0 NM 9.7 LTV 0.0% - 78.6% 46.0 % 0.0% - 74.7% 43.1 % CPR NM 14.6 % NM 14.3 % Loss severity NM 10.0 % NM 10.0 % HPA (9.0)% - 8.2% 3.3 % (10.1)% - 7.3% 3.8 % Discount rate NM 7.7 % NM 7.1 % Fix & flip mortgage loans - securitized SMM NM 11.0 % NM 11.2 % Discount rate NM 16.7 % NM 17.5 % Loss rate NM 1.2 % NM 0.5 % Loans held for investment: Inventory buy-outs CPR NM 40.5 % NM 41.3 % Loss frequency NM 49.0 % NM 47.6 % Loss severity 2.4% - 12.3% 3.9 % 2.4% - 12.1% 5.6 % Discount rate NM 9.5 % NM 8.7 % Non-agency reverse mortgage loans WAL (in years) NM 11.7 NM 12.0 LTV 5.2% - 58.0% 32.3 % 0.1% - 67.9% 36.4 % CPR NM 14.7 % NM 13.8 % Loss severity NM 10.0 % NM 10.0 % HPA (9.0)% - 8.2% 3.2 % (10.1)% - 7.3% 3.6 % Discount rate NM 7.7 % NM 7.1 % Fix & flip mortgage loans SMM NM 14.4 % NM 9.5 % Discount rate 13.9% - 21.6% 18.2 % 16.3% - 25.8% 16.6 % Loss rate NM 7.1 % NM 0.2 % Agricultural loans Discount rate NM 10.2 % NM 9.7 % SMM NM 100.0 % 11.0% - 100.0% 11.8 % CDR NM 0.9 % 0.0% - 1.0% 0.9 % Loans held for sale: SRL CPR 20.4% - 25.0% 21.9 % 18.5% - 25.0% 19.7 % Discount rate NM 10.3 % NM 8.3 % CDR NM 1.0 % NM 1.0 % September 30, 2023 December 31, 2022 Instrument / Unobservable Inputs Range Weighted Average Range Weighted Average Portfolio loans CPR NM 0.0 % 0.0% - 24.3% 18.4 % Discount rate NM 10.7 % NM 10.9 % CDR NM 1.0 % NM 1.0 % Mortgage Servicing Rights Weighted average CPR 2.3% - 12.5% 7.7 % 1.0% - 8.5% 6.4 % Discount rate NM 13.5 % NM 10.1 % Other assets: Retained bonds WAL (in years) 2.1 - 23.6 3.9 2.4 - 24.1 4.9 Discount rate (34.9)% - 16.2% 7.9 % (16.8)% - 12.2% 6.9 % Liabilities HMBS related obligations CPR NM 24.6 % NM 21.8 % Discount rate NM 5.7 % NM 5.0 % Nonrecourse debt: Reverse mortgage loans: Performing/Nonperforming HECM securitizations WAL (in years) 1.0 - 1.1 1.0 1.5 - 1.6 1.6 CPR 18.3% - 19.8% 19.1 % 19.9% - 22.2% 21.1 % Discount rate NM 10.3 % NM 8.6 % Securitized non-agency reverse WAL (in years) 0.2 - 11.3 7.2 0.2 - 11.7 6.4 CPR 10.3% - 49.2% 15.7 % 8.3% - 46.1% 16.5 % Discount rate NM 7.8 % NM 7.2 % Nonrecourse commercial loan financing liability WAL (in months) NM 2.7 NM 4.3 Weighted average SMM NM 26.2 % NM 15.3 % Discount rate NM 9.2 % NM 14.5 % Nonrecourse MSR financing liability Weighted average CPR N/A N/A 0.8% - 9.2% 5.1 % Discount rate N/A N/A 10.0% - 12.0% 10.2 % Deferred purchase price liabilities TRA obligation Discount rate NM 29.9 % NM 48.3 % Sale commitment liability Pull-through factor NM 86 % N/A N/A Fair Value of Assets and Liabilities The following table provides a summary of the recognized assets and liabilities that are measured at fair value on a recurring basis (in thousands): September 30, 2023 Total Fair Value Level 1 Level 2 Level 3 Assets Loans held for investment, subject to HMBS related obligations $ 17,185,552 $ — $ — $ 17,185,552 Loans held for investment, subject to nonrecourse debt: Reverse mortgage loans 7,727,659 — — 7,727,659 Commercial mortgage loans 185,100 — — 185,100 Loans held for investment: Reverse mortgage loans 463,125 — — 463,125 Fix & flip mortgage loans 3,491 — — 3,491 Agricultural loans 703 — — 703 Loans held for sale: Residential mortgage loans 20,564 — 20,564 — SRL 3,008 — — 3,008 Portfolio 384 — — 384 MSR 7,944 — — 7,944 Other assets: Retained bonds 42,851 — — 42,851 LPCs 477 — 477 — Total assets $ 25,640,858 $ — $ 21,041 $ 25,619,817 Liabilities HMBS related obligations $ 16,978,168 $ — $ — $ 16,978,168 Nonrecourse debt: Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability 7,780,197 — — 7,780,197 Nonrecourse commercial loan financing liability 32,373 — — 32,373 Deferred purchase price liabilities: Deferred purchase price liabilities 4,663 — — 4,663 TRA obligation 1,005 — — 1,005 Warrant liability 1,438 1,438 — — Sale commitments - home improvement loans 1,095 — — 1,095 Total liabilities $ 24,798,939 $ 1,438 $ — $ 24,797,501 December 31, 2022 Total Fair Value Level 1 Level 2 Level 3 Assets Loans held for investment, subject to HMBS related obligations $ 11,114,100 $ — $ — $ 11,114,100 Loans held for investment, subject to nonrecourse debt: Reverse mortgage loans 7,065,477 — — 7,065,477 Commercial mortgage loans 389,161 — — 389,161 Loans held for investment: Reverse mortgage loans 771,724 — — 771,724 Fix & flip mortgage loans 127,469 — — 127,469 Agricultural loans 8,805 — — 8,805 Loans held for sale: Residential mortgage loans 12,123 — 12,123 — SRL 69,187 — — 69,187 Portfolio 43,272 — — 43,272 Fix & flip mortgage loans 49,402 49,402 MSR 95,096 — — 95,096 Derivative assets: Interest rate lock commitments, LPCs, forward MBS, and TBAs 907 — 907 — Interest rate swaps and futures contracts 771 771 — — Other assets: Purchase commitments - reverse mortgage loans 9,356 — — 9,356 Retained bonds 46,439 — — 46,439 Total assets $ 19,803,289 $ 771 $ 13,030 $ 19,789,488 Liabilities HMBS related obligations $ 10,996,755 $ — $ — $ 10,996,755 Nonrecourse debt: Nonrecourse debt in consolidated VIE trusts 7,175,857 — — 7,175,857 Nonrecourse commercial loan financing liability 106,758 — — 106,758 Nonrecourse MSR financing liability 60,562 — — 60,562 Deferred purchase price liabilities: Deferred purchase price liabilities 137 — — 137 TRA obligation 3,781 — — 3,781 Derivative liabilities: Interest rate swaps and futures contracts 385 385 — — Warrant liability 1,117 1,117 — — Total liabilities $ 18,345,352 $ 1,502 $ — $ 18,343,850 Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3, in thousands): Assets Three months ended September 30, 2023 Loans held for investment Loans held for investment, subject to nonrecourse debt Loans held for sale MSR Retained bonds Beginning balance $ 17,568,751 $ 7,928,414 $ 10,695 $ 9,456 $ 45,570 Total gain (loss) included in earnings 245,104 (66,140) 1,146 87 (1,778) Purchases, settlements, and transfers: Purchases and additions 758,193 16,045 — — — Sales and settlements (546,046) (344,162) (8,450) (1,599) (941) Transfers in (out) between categories (373,131) 378,602 1 — Ending balance $ 17,652,871 $ 7,912,759 $ 3,392 $ 7,944 $ 42,851 Liabilities Three months ended September 30, 2023 HMBS related obligations Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability Nonrecourse commercial loan financing liability Deferred purchase price liabilities TRA obligation Sale commitments Beginning balance $ (16,665,535) $ (7,737,529) $ (59,016) $ (4,042) $ (1,097) $ — Total gain (loss) included in earnings (226,421) (7,301) 28 (621) 92 (1,095) Purchases, settlements, and transfers: Purchases and additions (632,568) (448,394) — — — Settlements 546,356 413,027 26,615 — — — Ending balance $ (16,978,168) $ (7,780,197) $ (32,373) $ (4,663) $ (1,005) $ (1,095) Assets Nine months ended September 30, 2023 Loans held for investment Loans held for investment, subject to nonrecourse debt Loans held for sale MSR Retained bonds Purchase commitments Beginning balance $ 12,022,098 $ 7,454,638 $ 161,861 $ 95,096 $ 46,439 $ 9,356 Total gain (loss) included in earnings 649,691 12,648 (205) (1,074) (1,357) — Purchases, settlements, and transfers: Purchases and additions 7,922,385 63,550 40,468 405 — — Sales and settlements (1,441,502) (1,083,919) (215,847) (86,483) (2,231) (9,356) Transfers in (out) between categories (1,499,801) 1,465,842 17,115 — — — Ending balance $ 17,652,871 $ 7,912,759 $ 3,392 $ 7,944 $ 42,851 $ — Liabilities Nine months ended September 30, 2023 HMBS related obligations Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability Nonrecourse commercial loan financing liability Nonrecourse MSR financing liability Deferred purchase price liabilities TRA obligation Sale commitments Beginning balance $ (10,996,755) $ (7,175,857) $ (106,758) $ (60,562) $ (137) $ (3,781) $ — Total gain (loss) included in earnings (506,834) (149,481) 21 748 (621) 2,776 (1,095) Purchases, settlements, and transfers: Purchases and additions (6,908,330) (1,555,155) (27,565) — (3,905) — — Settlements 1,433,751 1,100,296 101,929 59,814 — — — Ending balance $ (16,978,168) $ (7,780,197) $ (32,373) $ — $ (4,663) $ (1,005) $ (1,095) Assets Three months ended September 30, 2022 Loans held for investment Loans held for investment, subject to nonrecourse debt Loans held for sale MSR Retained bonds Investments Beginning balance $ 11,940,851 $ 6,600,762 $ 233,249 $ 359,006 $ 46,593 $ 1,000 Total gain (loss) included in earnings (7,558) (265,038) (159) (9,455) (2,302) — Purchases, settlements, and transfers: Purchases and additions 1,482,912 31,359 191,250 20,241 — — Sales and settlements (417,114) (376,855) (197,473) (266,723) (1,085) — Transfers in (out) between categories (775,127) 751,163 2,906 — — — Ending balance $ 12,223,964 $ 6,741,391 $ 229,773 $ 103,069 $ 43,206 $ 1,000 Liabilities Three months ended September 30, 2022 HMBS related obligations Nonrecourse debt in consolidated VIE trusts Nonrecourse commercial loan financing liability Nonrecourse MSR financing liability TRA obligation Beginning balance $ (10,745,879) $ (6,447,238) $ (162,464) $ (142,382) $ (13,925) Total gain (loss) included in earnings 13,421 178,700 (2,769) 1,736 9,070 Purchases, settlements, and transfers: Purchases and additions (547,762) (718,656) (24,975) (92) — Settlements 495,379 461,812 29,864 80,938 — Ending balance $ (10,784,841) $ (6,525,382) $ (160,344) $ (59,800) $ (4,855) Assets Nine months ended September 30, 2022 Loans held for investment Loans held for investment, subject to nonrecourse debt Loans held for sale MSR Retained bonds Investments Beginning balance $ 11,587,382 $ 6,218,194 $ 149,426 $ 427,942 $ 55,614 $ 6,000 Total gain (loss) included in earnings (77,600) (836,632) (9,979) 30,242 (8,611) (5,000) Purchases, settlements, and transfers: Purchases and additions 5,259,357 89,907 932,011 114,903 — — Sales and settlements (1,701,481) (1,537,044) (850,694) (470,018) (3,797) — Transfers in (out) between categories (2,843,694) 2,806,966 9,009 — — — Ending balance $ 12,223,964 $ 6,741,391 $ 229,773 $ 103,069 $ 43,206 $ 1,000 Liabilities Nine months ended September 30, 2022 HMBS related obligations Nonrecourse debt in consolidated VIE trusts Nonrecourse commercial loan financing liability Nonrecourse MSR financing liability TRA obligation Beginning balance $ (10,422,358) $ (5,857,069) $ (111,738) $ (142,435) $ (29,380) Total gain (loss) included in earnings 192,098 400,741 (2,581) (14,639) 24,525 Purchases, settlements, and transfers: Purchases and additions (2,488,497) (2,523,213) (142,790) (6,884) — Settlements 1,933,916 1,454,159 96,765 104,158 — Ending balance $ (10,784,841) $ (6,525,382) $ (160,344) $ (59,800) $ (4,855) Fair Value Option The Company has elected to measure its loans held for investment, loans held for sale, HMBS related obligations, nonrecourse debt, and purchase and sale commitments at fair value under the fair value option provided for by ASC 825-10, Financial Instruments-Overall. The Company elected to apply the provisions of the fair value option to these assets and liabilities in order to align financial reporting presentation with the Company's operational and risk management strategies. Presented in the tables below are the fair value and UPB, at September 30, 2023 and December 31, 2022, of financial assets and liabilities for which the Company has elected the fair value option (in thousands): September 30, 2023 Estimated Fair Value Unpaid Principal Balance Assets at fair value under the fair value option Loans held for investment, subject to HMBS related obligations $ 17,185,552 $ 16,522,369 Loans held for investment, subject to nonrecourse debt: Reverse mortgage loans 7,727,659 8,200,222 Commercial mortgage loans 185,100 191,111 Loans held for investment: Reverse mortgage loans 463,125 487,710 Commercial mortgage loans 4,194 4,513 Loans held for sale: Residential mortgage loans 20,564 28,051 Commercial mortgage loans 3,392 3,772 Liabilities at fair value under the fair value option HMBS related obligations 16,978,168 16,522,369 Nonrecourse debt: Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability 7,780,197 8,550,740 Nonrecourse commercial loan financing liability 32,373 30,927 Other liabilities: Sale commitments - home improvement loans 1,095 1,095 December 31, 2022 Estimated Fair Value Unpaid Principal Balance Assets at fair value under the fair value option Loans held for investment, subject to HMBS related obligations $ 11,114,100 $ 10,719,000 Loans held for investment, subject to nonrecourse debt: Reverse mortgage loans 7,065,477 7,240,125 Commercial mortgage loans 389,161 405,970 Loans held for investment: Reverse mortgage loans 771,724 724,800 Commercial mortgage loans 136,274 143,373 Loans held for sale: Residential mortgage loans 12,123 15,529 Commercial mortgage loans 161,861 173,112 Other assets: Purchase commitments - reverse mortgage loans 9,356 9,356 Liabilities at fair value under the fair value option HMBS related obligations 10,996,755 10,719,000 Nonrecourse debt: Nonrecourse debt in consolidated VIE trusts 7,175,857 7,819,992 Nonrecourse commercial loan financing liability 106,758 105,291 Nonrecourse MSR financing liability 60,562 60,562 Net fair value gains (losses) on loans and related obligations Provided in the table below is a summary of the components of net fair value gains (losses) on loans and related obligations (in thousands): For the three months ended September 30, 2023 For the three months ended September 30, 2022 For the nine months ended September 30, 2023 For the nine months ended September 30, 2022 Interest income on reverse and commercial loans $ 426,259 $ 228,896 $ 1,125,227 $ 582,350 Change in fair value of loans (209,737) (471,173) (337,775) (1,436,908) Net fair value gains (losses) on loans 216,522 (242,277) 787,452 (854,558) Interest expense on HMBS and nonrecourse obligations (357,003) (168,101) (915,532) (417,670) Change in fair value of derivatives (291) 64,693 (4,136) 330,200 Change in fair value of related obligations 87,637 335,441 162,342 936,919 Net fair value gains (losses) on related obligations (269,657) 232,033 (757,326) 849,449 Net fair value gains (losses) on loans and related obligations $ (53,135) $ (10,244) $ 30,126 $ (5,109) As the cash flows on the underlying mortgage loans will be utilized to settle the outstanding obligations, the Company's own credit risk would not impact the fair value on the outstanding HMBS liabilities and nonrecourse debt. Fair Value of Other Financial Instruments As of September 30, 2023 and December 31, 2022, all financial instruments were either recorded at fair value or the carrying value approximated fair value with the exception of notes payable, net . Notes payable, net, includes our senior unsecured high-yield debt and related-party credit line recorded at the carrying value of $411.1 million and $399.4 million as of September 30, 2023 and December 31, 2022, respectively, and have a fair value of $359.1 million and $231.9 million as of September 30, 2023 and December 31, 2022, respectively. The fair value for notes payable, net, was determined using quoted market prices adjusted for accrued interest, which is considered to be a Level 2 input. For other financial instruments that were not recorded at fair value, such as cash and cash equivalents including restricted cash, servicer advances, promissory notes receivable, and other financing lines of credit, the carrying value approximates fair value due to the short-term nature of such instruments. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 3 inputs, with the exception of cash and cash equivalents, including restricted cash, which are Level 1 inputs. |
