| 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 during the three and six months ended June 30, 2024 and 2023. 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 Ginnie Mae 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 Commercial mortgage loans - securitized This product is valued using a discounted cash flow (“DCF”) 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 buyouts The fair value of repurchased loans is based on expected cash proceeds of the liquidation of the underlying properties and expected claim proceeds from 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 Commercial mortgage loans This product is valued using a DCF model with SMM, discount rate, and constant default rate (“CDR”) assumptions. Level 3 Other assets 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 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 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. There were no MSR at June 30, 2024 and the range and weighted average of the unobservable inputs of MSR were not meaningful at December 31, 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 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 valued based on the closing market price of the applicable date of the Condensed Consolidated Statements of Financial Condition. Level 1 June 30, 2024 December 31, 2023 Instrument / Unobservable Inputs Range Weighted Average Range Weighted Average Assets Loans held for investment, subject to HMBS related obligations CPR NM 21.1 % NM 20.1 % Loss frequency NM 4.2 % NM 4.5 % Loss severity 3.5% - 14.4% 3.6 % 3.4% - 12.9% 3.5 % Discount rate NM 5.3 % 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 41.0 % NM 39.8 % Loss frequency 23.1% - 100.0% 49.8 % 23.1% - 100% 51.0 % Loss severity 3.5% - 14.4% 6.4 % 3.4% - 12.8% 6.4 % Discount rate NM 8.9 % NM 8.6 % HECM buyouts - securitized (performing) WAL (in years) NM 7.2 NM 7.4 CPR NM 15.3 % NM 15.1 % Loss severity 3.5% - 14.4% 5.5 % 3.4% - 12.8% 6.9 % Discount rate NM 8.5 % NM 8.2 % Non-agency reverse mortgage loans - securitized WAL (in years) NM 9.8 NM 9.7 LTV 0.0% - 84.8% 45.8 % 0.0% - 79.6% 45.9 % CPR NM 14.8 % NM 14.7 % Loss severity NM 10.0 % NM 10.0 % HPA (4.4)% - 8.9% 3.5 % (9.8)% - 7.6% 3.3 % June 30, 2024 December 31, 2023 Instrument / Unobservable Inputs Range Weighted Average Range Weighted Average Discount rate NM 7.3 % NM 6.9 % Commercial mortgage loans - securitized SMM NM 8.6 % NM 10.7 % Discount rate NM 19.8 % NM 16.5 % Loss rate NM 5.1 % NM 1.0 % Loans held for investment: Inventory buyouts CPR NM 41.6 % NM 41.5 % Loss frequency NM 44.9 % NM 48.2 % Loss severity 3.5% - 14.4% 5.6 % 3.4% - 12.8% 5.1 % Discount rate NM 8.9 % NM 8.6 % Non-agency reverse mortgage loans WAL (in years) NM 11.7 NM 12.1 LTV 4.3% - 71.4% 34.8 % 3.9% - 53.8% 33.8 % CPR NM 14.7 % NM 14.4 % Loss severity NM 10.0 % NM 10.0 % HPA (4.4)% - 8.9% 3.4 % (9.8)% - 7.6% 3.1 % Discount rate NM 7.2 % NM 6.9 % Commercial mortgage loans SMM NM — % NM 73.6 % CDR NM 9.2 % NM 25.6 % Discount rate 9.9% - 21.1% 9.9 % 9.6% - 20.0% 13.2 % Other assets: Retained bonds WAL (in years) 2.3 - 23.0 4.8 2.3 - 23.4 4.9 Discount rate (34.3)% - 12.7% 7.5 % (31.2)% - 12.3% 6.7 % Liabilities HMBS related obligations CPR NM 24.2 % NM 23.8 % Discount rate NM 5.3 % NM 5.0 % Nonrecourse debt: Reverse mortgage loans: Performing/Nonperforming HECM securitizations WAL (in years) 0.4 - 0.5 0.5 NM 0.9 CPR 26.4% - 28.6% 27.6 % 21.5% - 22.3% 21.9 % Discount rate NM 10.6 % NM 10.0 % Securitized non-agency reverse WAL (in years) 0.8 - 11.0 5.0 0.8 - 11.2 4.5 CPR 0.0% - 23.7% 13.8 % 10.6% - 22.3% 14.7 % Discount rate NM 7.3 % NM 7.0 % June 30, 2024 December 31, 2023 Instrument / Unobservable Inputs Range Weighted Average Range Weighted Average Nonrecourse commercial loan financing liability WAL (in months) NM 3.9 NM 1.8 Weighted average SMM NM 19.5 % NM 33.3 % Discount rate NM 9.6 % NM 9.1 % Deferred purchase price liabilities TRA obligation Discount rate NM 39.6 % NM 33.0 % 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): June 30, 2024 Total Fair Value Level 1 Level 2 Level 3 Assets Loans held for investment, subject to HMBS related obligations $ 18,196,092 $ — $ — $ 18,196,092 Loans held for investment, subject to nonrecourse debt: Reverse mortgage loans 8,368,983 — — 8,368,983 Commercial mortgage loans 49,212 — — 49,212 Loans held for investment: Reverse mortgage loans 677,229 — — 677,229 Commercial mortgage loans 497 — — 497 Other assets: Loans held for sale - residential mortgage loans 1,154 — 1,154 — Retained bonds 41,893 — — 41,893 Total assets $ 27,335,060 $ — $ 1,154 $ 27,333,906 Liabilities HMBS related obligations $ 17,980,232 $ — $ — $ 17,980,232 Nonrecourse debt: Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability 8,038,866 — — 8,038,866 Nonrecourse commercial loan financing liability 11,842 — — 11,842 Deferred purchase price liabilities: Deferred purchase price liabilities 1,834 — — 1,834 TRA obligation 3,703 — — 3,703 Warrant liability 116 116 — — Total liabilities $ 26,036,593 $ 116 $ — $ 26,036,477 December 31, 2023 Total Fair Value Level 1 Level 2 Level 3 Assets Loans held for investment, subject to HMBS related obligations $ 17,548,763 $ — $ — $ 17,548,763 Loans held for investment, subject to nonrecourse debt: Reverse mortgage loans 8,138,403 — — 8,138,403 Commercial mortgage loans 133,990 — — 133,990 Loans held for investment: Reverse mortgage loans 574,271 — — 574,271 Commercial mortgage loans 957 — — 957 Other assets: Loans held for sale - residential mortgage loans 4,246 — 4,246 — Retained bonds 44,297 — — 44,297 MSR 6,436 — — 6,436 Loan purchase commitments 630 — 630 — Total assets $ 26,451,993 $ — $ 4,876 $ 26,447,117 Liabilities HMBS related obligations $ 17,353,720 $ — $ — $ 17,353,720 Nonrecourse debt: Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability 7,876,932 — — 7,876,932 Nonrecourse commercial loan financing liability 27,268 — — 27,268 Deferred purchase price liabilities: Deferred purchase price liabilities 4,318 — — 4,318 TRA obligation 4,537 — — 4,537 Warrant liability 1,150 1,150 — — Total liabilities $ 25,267,925 $ 1,150 $ — $ 25,266,775 Level 3 assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (in thousands): Assets Three months ended June 30, 2024 Loans held for investment Loans held for investment, subject to nonrecourse debt MSR Retained bonds Beginning balance $ 18,586,682 $ 8,407,602 $ 783 $ 42,906 Total gain (loss) included in earnings 289,317 162,480 — (171) Purchases, settlements, and transfers: Purchases and additions 682,246 11,714 — — Sales and settlements (535,391) (305,634) (783) (842) Transfers in (out) between categories (149,036) 142,033 — — Ending balance $ 18,873,818 $ 8,418,195 $ — $ 41,893 Liabilities Three months ended June 30, 2024 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 Beginning balance $ (17,827,060) $ (7,883,472) $ (14,424) $ (2,794) $ (4,824) Total gain (loss) included in earnings (206,450) (150,699) (112) 823 1,121 Purchases, settlements, and transfers: Purchases and additions (503,406) (260,018) — — — Settlements 556,684 255,323 2,694 137 — Ending balance $ (17,980,232) $ (8,038,866) $ (11,842) $ (1,834) $ (3,703) Assets Six months ended June 30, 2024 Loans held for investment Loans held for investment, subject to nonrecourse debt MSR Retained bonds Beginning balance $ 18,123,991 $ 8,272,393 $ 6,436 $ 44,297 Total gain (loss) included in earnings 893,799 186,079 (920) (913) Purchases, settlements, and transfers: Purchases and additions 1,366,450 22,236 — — Sales and settlements (1,086,741) (493,853) (5,516) (1,491) Transfers in (out) between categories (423,681) 431,340 — — Ending balance $ 18,873,818 $ 8,418,195 $ — $ 41,893 Liabilities Six months ended June 30, 2024 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 Beginning balance $ (17,353,720) $ (7,876,932) $ (27,268) $ (4,318) $ (4,537) Total gain (loss) included in earnings (694,009) (206,186) 8,751 2,347 834 Purchases, settlements, and transfers: Purchases and additions (971,926) (388,203) — — — Settlements 1,039,423 432,455 6,675 137 — Ending balance $ (17,980,232) $ (8,038,866) $ (11,842) $ (1,834) $ (3,703) Assets Three months ended June 30, 2023 Loans held for investment Loans held for investment, subject to nonrecourse debt Loans held for sale MSR Retained bonds Beginning balance $ 17,360,529 $ 8,374,827 $ 18,743 $ 13,713 $ 47,048 Total gain (loss) included in earnings 159,828 (219,848) (523) 207 (610) Purchases, settlements, and transfers: Purchases and additions 701,918 20,524 — — — Sales and settlements (488,514) (406,433) (9,059) (4,464) (868) Transfers in (out) between categories (165,010) 159,344 1,534 — — Ending balance $ 17,568,751 $ 7,928,414 $ 10,695 $ 9,456 $ 45,570 Liabilities Three months ended June 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 Beginning balance $ (16,407,629) $ (7,955,875) $ (75,689) $ (988) $ (4,522) $ (2,202) Total gain (loss) included in earnings (132,962) 95,135 (388) — 480 1,105 Purchases, settlements, and transfers: Purchases and additions (627,721) (467,262) (4,965) — — — Settlements 502,777 590,473 22,026 988 — — Ending balance $ (16,665,535) $ (7,737,529) $ (59,016) $ — $ (4,042) $ (1,097) Assets Six months ended June 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 404,587 78,788 (1,351) (1,161) 421 — Purchases, settlements, and transfers: Purchases and additions 7,164,192 47,505 40,468 405 — — Sales and settlements (895,456) (739,757) (207,397) (84,884) (1,290) (9,356) Transfers in (out) between categories (1,126,670) 1,087,240 17,114 — — — Ending balance $ 17,568,751 $ 7,928,414 $ 10,695 $ 9,456 $ 45,570 $ — Liabilities Six months ended June 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 Beginning balance $ (10,996,755) $ (7,175,857) $ (106,758) $ (60,562) $ (137) $ (3,781) Total gain (loss) included in earnings (280,413) (142,180) (7) 748 — 2,684 Purchases, settlements, and transfers: Purchases and additions (6,275,762) (1,106,761) (27,565) — (3,905) — Settlements 887,395 687,269 75,314 59,814 — — Ending balance $ (16,665,535) $ (7,737,529) $ (59,016) $ — $ (4,042) $ (1,097) Fair Value Option The Company has elected to measure its loans held for investment, loans held for sale, HMBS related obligations, and nonrecourse debt at fair value under the fair value option . 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 the unpaid principal balance (“UPB”), at June 30, 2024 and December 31, 2023, of financial assets and liabilities for which the Company has elected the fair value option (in thousands): June 30, 2024 Estimated Fair Value Unpaid Principal Balance Assets at fair value under the fair value option Loans held for investment, subject to HMBS related obligations $ 18,196,092 $ 17,320,933 Loans held for investment, subject to nonrecourse debt: Reverse mortgage loans 8,368,983 8,491,733 Commercial mortgage loans 49,212 62,457 Loans held for investment: Reverse mortgage loans 677,229 640,152 Commercial mortgage loans 497 702 Other assets: Loans held for sale - residential mortgage loans 1,154 1,490 Liabilities at fair value under the fair value option HMBS related obligations 17,980,232 17,320,933 Nonrecourse debt: Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability 8,038,866 8,553,050 Nonrecourse commercial loan financing liability 11,842 19,527 December 31, 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 $ 17,548,763 $ 16,875,437 Loans held for investment, subject to nonrecourse debt: Reverse mortgage loans 8,138,403 8,257,750 Commercial mortgage loans 133,990 136,622 Loans held for investment: Reverse mortgage loans 574,271 558,577 Commercial mortgage loans 957 1,044 Other assets: Loans held for sale - residential mortgage loans 4,246 9,247 Liabilities at fair value under the fair value option HMBS related obligations 17,353,720 16,875,437 Nonrecourse debt: Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability 7,876,932 8,429,135 Nonrecourse commercial loan financing liability 27,268 26,661 Fair Value of Other Financial Instruments As of June 30, 2024 and December 31, 2023, 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 the Company’s non-funding credit lines, including a related-party credit line, recorded at the carrying value of $443.0 million and $410.9 million as of June 30, 2024 and December 31, 2023, respectively, and have a fair value of $370.8 million and $345.6 million as of June 30, 2024 and December 31, 2023, 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, 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. |
