Quarterly report pursuant to Section 13 or 15(d)

Fair Value

v3.24.3
Fair Value
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
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. 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 were no transfers into or out of Level 3 within the fair value hierarchy during the three and nine months ended September 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 weighted average remaining life (“WAL”), 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)
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
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 WAL, CPR, loss severity, and discount rate assumptions.
 Level 3
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
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
Non-agency reverse mortgage loans 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
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
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
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
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
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 September 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

September 30, 2024 December 31, 2023
Instrument / Unobservable Inputs Range Weighted Average Range Weighted Average
Assets
Loans held for investment, subject to HMBS related obligations
WAL (in years) NM 3.3 NM 3.4
CPR NM 20.2  % NM 20.1  %
Loss frequency NM 4.6  % NM 4.5  %
Loss severity
3.5% - 15.0%
 3.5  %
3.4% - 12.9%
3.5  %
Discount rate NM 4.6  % NM 5.0  %
Average draw rate NM 1.1  % NM 1.1  %
Loans held for investment, subject to nonrecourse debt:
Non-agency reverse mortgage loans - securitized
WAL (in years) NM 9.8 NM 9.7
LTV
0.0% - 97.2%
 46.5  %
0.0% - 79.6%
 45.9  %
CPR NM 15.0  % NM 14.7  %
Loss severity NM 10.0  % NM 10.0  %
HPA
(5.2)% - 8.6%
 3.6  %
(9.8)% - 7.6%
 3.3  %
Discount rate NM 6.5  % NM 6.9  %
HECM buyouts - securitized (performing)
WAL (in years) NM 7.1 NM 7.4
CPR NM 15.4  % NM 15.1  %
Loss severity
3.5% - 15.0%
 5.6  %
3.4% - 12.8%
 6.9  %
Discount rate NM 7.4  % NM 8.2  %
HECM buyouts - securitized (nonperforming)
CPR NM 40.8  % NM 39.8  %
Loss frequency
23.1% - 100.0%
 48.0  %
23.1% - 100.0%
 51.0  %
Loss severity
3.5% - 15.0%
 6.2  %
3.4% - 12.8%
 6.4  %
Discount rate NM 7.8  % NM 8.6  %
Commercial mortgage loans - securitized
SMM NM 8.3  % NM 10.7  %
September 30, 2024 December 31, 2023
Instrument / Unobservable Inputs Range Weighted Average Range Weighted Average
Discount rate NM 19.5  % NM 16.5  %
Loss rate NM 8.1  % NM 1.0  %
Loans held for investment:
Non-agency reverse mortgage loans
WAL (in years) NM 9.2 NM 12.1
LTV
0.6% - 68.1%
 35.6  %
3.9% - 53.8%
 33.8  %
CPR NM 17.5  % NM 14.4  %
Loss severity NM 10.0  % NM 10.0  %
HPA
(5.2)% - 7.8%
 3.4  %
(9.8)% - 7.6%
 3.1  %
Discount rate NM 6.5  % NM 6.9  %
Inventory buyouts
CPR NM 41.4  % NM 41.5  %
Loss frequency NM 43.5  % NM 48.2  %
Loss severity
3.5% - 15.0%
 5.6  %
3.4% - 12.8%
 5.1  %
Discount rate NM 7.8  % NM 8.6  %
Commercial mortgage loans
SMM NM —  % NM 73.6  %
CDR NM 9.2  % NM 25.6  %
Discount rate
8.7% - 12.4%
 8.7  %
9.6% - 20.0%
 13.2  %
Other assets:
Retained bonds
WAL (in years)
2.2 - 22.8
 4.8
2.3 - 23.4
 4.9
Discount rate
(1.4)% - 13.0%
 6.8  %
(31.2)% - 12.3%
 6.7  %
Liabilities
HMBS related obligations
CPR NM 23.6  % NM 23.8  %
Discount rate NM 4.5  % NM 5.0  %
Nonrecourse debt:
Reverse mortgage loans:
Securitized non-agency reverse
WAL (in years)
0.1 - 11.0
 3.2
0.8 - 11.2
 4.5
CPR
11.6% - 64.5%
17.4  %
10.6% - 22.3%
 14.7  %
Discount rate NM 6.3  % NM 7.0  %
Performing/Nonperforming HECM securitizations
WAL (in years) NM 0.2 NM 0.9
CPR
34.7% - 35.2%
 35.0  %
21.5% - 22.3%
 21.9  %
Discount rate NM 9.9  % NM 10.0  %
Nonrecourse commercial loan financing liability
WAL (in months) NM 3.7 NM 1.8
Weighted average SMM NM 18.5  % NM 33.3  %
Discount rate NM 8.4  % NM 9.1  %
September 30, 2024 December 31, 2023
Instrument / Unobservable Inputs Range Weighted Average Range Weighted Average
Deferred purchase price liabilities
TRA obligation
Discount rate NM 34.8  % 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):
September 30, 2024
Total Fair Value Level 1 Level 2 Level 3
Assets
Loans held for investment, subject to HMBS related obligations $ 18,521,337  $ —  $ —  $ 18,521,337 
Loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans 9,063,459  —  —  9,063,459 
Commercial mortgage loans 33,910  —  —  33,910 
Loans held for investment:
Reverse mortgage loans 702,858  —  —  702,858 
Commercial mortgage loans 498  —  —  498 
Other assets:
Retained bonds 42,777  —  —  42,777 
Loans held for sale - residential mortgage loans 1,151  —  1,151  — 
Total assets $ 28,365,990  $ —  $ 1,151  $ 28,364,839 
Liabilities
HMBS related obligations $ 18,292,043  $ —  $ —  $ 18,292,043 
Nonrecourse debt:
Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability 8,528,429  —  —  8,528,429 
Nonrecourse commercial loan financing liability 8,690  —  —  8,690 
Deferred purchase price liabilities:
Deferred purchase price liabilities 5,501  —  —  5,501 
TRA obligation 3,934  —  —  3,934 
Total liabilities $ 26,838,597  $ —  $ —  $ 26,838,597 
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:
Retained bonds 44,297  —  —  44,297 
Loans held for sale - residential mortgage loans 4,246  —  4,246  — 
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 September 30, 2024 Loans held for investment Loans held for investment, subject to nonrecourse debt Retained bonds
Beginning balance $ 18,873,818  $ 8,418,195  $ 41,893 
Total gain included in earnings 487,239  483,014  1,976 
Purchases, settlements, and transfers:
Purchases and additions 718,300  8,844  — 
Sales and settlements (494,834) (177,675) (1,092)
Transfers in (out) between categories (359,830) 364,991  — 
Ending balance $ 19,224,693  $ 9,097,369  $ 42,777 

Liabilities
Three months ended September 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 $ (17,980,232) $ (8,038,866) $ (11,842) $ (1,834) $ (3,703)
Total loss included in earnings (409,485) (249,488) (2,413) (3,667) (231)
Purchases, settlements, and transfers:
Purchases and additions (485,434) (425,667) —  —  — 
Settlements 583,108  185,592  5,565  —  — 
Ending balance $ (18,292,043) $ (8,528,429) $ (8,690) $ (5,501) $ (3,934)
Assets
Nine months ended September 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 1,381,038  669,093  (920) 1,063 
Purchases, settlements, and transfers:
Purchases and additions 2,084,750  31,080  —  — 
Sales and settlements (1,581,575) (671,528) (5,516) (2,583)
Transfers in (out) between categories (783,511) 796,331  —  — 
Ending balance $ 19,224,693  $ 9,097,369  $ —  $ 42,777 

Liabilities
Nine months ended September 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 (1,103,494) (455,674) 6,338  (1,320) 603 
Purchases, settlements, and transfers:
Purchases and additions (1,457,360) (813,870) —  —  — 
Settlements 1,622,531  618,047  12,240  137  — 
Ending balance $ (18,292,043) $ (8,528,429) $ (8,690) $ (5,501) $ (3,934)
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)

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 September 30, 2024 and December 31, 2023, of financial assets and liabilities for which the Company has elected the fair value option (in thousands):
September 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 $ 18,521,337  $ 17,493,824 
Loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans 9,063,459  8,783,102 
Commercial mortgage loans 33,910  43,653 
Loans held for investment:
Reverse mortgage loans 702,858  648,344 
Commercial mortgage loans 498  702 
Other assets:
Loans held for sale - residential mortgage loans 1,151  1,487 
Liabilities at fair value under the fair value option
HMBS related obligations 18,292,043  17,493,824 
Nonrecourse debt:
Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability 8,528,429  8,847,008 
Nonrecourse commercial loan financing liability 8,690  14,075 
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 September 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 7.875% Senior Notes due 2025 (the “2025 Unsecured Notes”) and related-party credit lines, recorded at the carrying value of $435.7 million and $410.9 million as of September 30, 2024 and December 31, 2023, respectively, and have a fair value of $376.8 million and $345.6 million as of September 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. Refer to Note 21 - Subsequent Events for additional information on the 2025 Unsecured Notes. 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.