Annual report pursuant to Section 13 and 15(d)

Fair Value

v3.24.0.1
Fair Value
 12 Months Ended
Dec. 31, 2023
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. 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 were no transfers within the hierarchy during the years ended December 31, 2023 and 2022. Refer to Note 2 - Summary of Significant Accounting Policies for additional information on our accounting policies related to assets and liabilities that are measured at fair value.
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 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 discounted cash flow (“DCF”) model with SMM, discount rate, 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
Commercial mortgage 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
LPCs, forward MBS, and 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 or 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 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
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 Consolidated Statements of Financial Condition. Refer to Note 3 - Acquisitions for additional information.
 Level 3
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 Consolidated Statements of Financial Condition.
 Level 1




December 31, 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 20.1  % NM 21.9  %
Loss frequency NM 4.5  % NM 4.1  %
Loss severity
3.4% - 12.9%
 3.5  %
2.4% - 12.1%
2.7  %
December 31, 2023 December 31, 2022
Instrument / Unobservable Inputs Range Weighted Average Range Weighted Average
Discount rate NM 5.0  % 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 39.8  % NM 39.2  %
Loss frequency
23.1% - 100.0%
 51.0  %
23.1% - 100%
 51.7  %
Loss severity
3.4% - 12.8%
 6.4  %
2.4% - 12.1%
 5.2  %
Discount rate NM 8.6  % NM 8.7  %
HECM buyouts - securitized (performing)
WAL (in years) NM 7.4 NM 8.0
CPR NM 15.1  % NM 15.2  %
Loss severity
3.4% - 12.8%
 6.9  %
2.4% - 12.1%
 4.8  %
Discount rate NM 8.2  % NM 8.2  %
Non-agency reverse mortgage loans - securitized
WAL (in years) NM 9.7 NM 9.7
LTV
0.0% - 79.6%
 45.9  %
0.0% - 74.7%
 43.1  %
CPR NM 14.7  % NM 14.3  %
Loss severity NM 10.0  % NM 10.0  %
HPA
(9.8)% - 7.6%
 3.3  %
(10.1)% - 7.3%
 3.8  %
Discount rate NM 6.9  % NM 7.1  %
Commercial mortgage loans - securitized
SMM NM 10.7  % NM 11.2  %
Discount rate NM 16.5  % NM 17.5  %
Loss rate NM 1.0  % NM 0.5  %
Loans held for investment:
Inventory buyouts
CPR NM 41.5  % NM 41.3  %
Loss frequency NM 48.2  % NM 47.6  %
Loss severity
3.4% - 12.8%
 5.1  %
2.4% - 12.1%
 5.6  %
Discount rate NM 8.6  % NM 8.7  %
Non-agency reverse mortgage loans
WAL (in years) NM 12.1 NM 12.0
LTV
3.9% - 53.8%
 33.8  %
0.1% - 67.9%
 36.4  %
CPR NM 14.4  % NM 13.8  %
Loss severity NM 10.0  % NM 10.0  %
HPA
(9.8)% - 7.6%
 3.1  %
(10.1)% - 7.3%
 3.6  %
Discount rate NM 6.9  % NM 7.1  %
Commercial mortgage loans
SMM NM 73.6  % NM 9.6  %
CDR NM 25.6  % NM 1.0  %
Discount rate
9.6% - 20.0%
 13.2  %
9.7% - 25.8%
 16.4  %
December 31, 2023 December 31, 2022
Instrument / Unobservable Inputs Range Weighted Average Range Weighted Average
Loans held for sale:
Commercial mortgage loans
CPR N/A N/A NM 19.2  %
Discount rate N/A N/A
8.3% - 10.9%
 9.4  %
CDR N/A N/A NM 1.0  %
Mortgage Servicing Rights
Weighted average CPR
NM
NM
1.0% - 8.5%
 6.4  %
Discount rate NM NM NM 10.1  %
Other assets:
Retained bonds
WAL (in years)
2.3 - 23.4
 4.9
2.4 - 24.1
 4.9
Discount rate
(31.2)% - 12.3%
 6.7  %
(16.8)% - 12.2%
 6.9  %
Liabilities
HMBS related obligations
CPR NM 23.8  % NM 21.8  %
Discount rate NM 5.0  % NM 5.0  %
Nonrecourse debt:
Reverse mortgage loans:
Performing/Nonperforming HECM securitizations
WAL (in years) NM 0.9
1.5 - 1.6
 1.6
CPR
21.5% - 22.3%
 21.9  %
19.9% - 22.2%
 21.1  %
Discount rate NM 10.0  % NM 8.6  %
Securitized non-agency reverse
WAL (in years)
0.8 - 11.2
 4.5
0.2 - 11.7
 6.4
CPR
10.6% - 22.3%
14.7  %
8.3% - 46.1%
 16.5  %
Discount rate NM 7.0  % NM 7.2  %
Nonrecourse commercial loan financing liability
WAL (in months) NM 1.8 NM 4.3
Weighted average SMM NM 33.3  % NM 15.3  %
Discount rate NM 9.1  % 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 33.0  % NM 48.3  %
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):
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 
Loans held for sale:
Residential mortgage loans 4,246  —  4,246  — 
MSR 6,436  —  —  6,436 
Other assets:
Retained bonds 44,297  —  —  44,297 
LPCs 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 
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 
Commercial mortgage loans 136,274  —  —  136,274 
Loans held for sale:
Residential mortgage loans 12,123  —  12,123  — 
Commercial mortgage loans 161,861  —  —  161,861 
MSR 95,096  —  —  95,096 
Derivative assets:
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
Year ended December 31, 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 1,003,208  506,993  (2,253) (2,582) 847  — 
Purchases, settlements, and transfers:
Purchases and additions 8,640,881  76,031  40,468  405  —  — 
Sales and settlements (1,927,773) (1,349,682) (218,238) (86,483) (2,989) (9,356)
Transfers in (out) between categories (1,614,423) 1,584,413  18,162  —  —  — 
Ending balance $ 18,123,991  $ 8,272,393  $ —  $ 6,436  $ 44,297  $ — 

Liabilities
Year ended December 31, 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 (785,928) (431,248) 860  748  69  (756)
Purchases, settlements, and transfers:
Purchases and additions (7,495,167) (1,701,349) (27,565) —  (4,385) — 
Settlements 1,924,130  1,431,522  106,195  59,814  135  — 
Ending balance $ (17,353,720) $ (7,876,932) $ (27,268) $ —  $ (4,318) $ (4,537)
Assets
Year ended December 31, 2022 Loans held for investment Loans held for investment, subject to nonrecourse debt Loans held for sale MSR Retained bonds Purchase commitments Investments
Beginning balance $ 11,587,382  $ 6,218,194  $ 149,426  $ 427,942  $ 55,614  $ —  $ 6,000 
Total gain (loss) included in earnings 190,714  (744,123) (15,213) 22,989  (8,668) 9,356  (6,000)
Purchases, settlements, and transfers:
Purchases and additions 6,165,003  117,010  1,119,578  122,362  —  —  — 
Sales and settlements (2,178,245) (1,847,648) (1,103,492) (478,197) (507) —  — 
Transfers in (out) between categories (3,742,756) 3,711,205  11,562  —  —  —  — 
Ending balance $ 12,022,098  $ 7,454,638  $ 161,861  $ 95,096  $ 46,439  $ 9,356  $ — 
Liabilities
Year ended December 31, 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 (29,015) 316,963  2,527  (8,162) 25,599 
Purchases, settlements, and transfers:
Purchases and additions (2,870,650) (3,202,519) (205,746) (14,196) — 
Settlements 2,325,268  1,566,768  208,199  104,231  — 
Ending balance $ (10,996,755) $ (7,175,857) $ (106,758) $ (60,562) $ (3,781)

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. 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 December 31, 2023 and December 31, 2022, of financial assets and liabilities for which the Company has elected the fair value option (in thousands):
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 
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 
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 on loans and related obligations
Provided in the table below is a summary of the components of net fair value gains on loans and related obligations (in thousands):
For the year ended December 31, 2023 For the year ended December 31, 2022
Net origination gains $ 121,646  $ 283,808 
Interest income on mortgage loans 1,617,954  890,857 
Interest expense on HMBS and nonrecourse obligations (1,273,159) (600,689)
Servicing related income, net(1)
25,583  11,599 
Fair value changes from model amortization(2)
(228,391) (127,576)
Net fair value gains from portfolio activity 141,987  174,191 
Net fair value gains (losses) from changes in market inputs or model assumptions 58,696  (368,510)
Net fair value gains on loans and related obligations $ 322,329  $ 89,489 
(1) Servicing related income, net, is comprised of premiums realized on the securitization of reverse mortgage tails and miscellaneous contractual servicing fees, net of guarantee fees paid.
(2) Fair value changes from portfolio runoff and realization of modeled income and expenses.

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 related obligations and nonrecourse debt.
Fair Value of Other Financial Instruments
As of December 31, 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 $410.9 million and $399.4 million as of December 31, 2023 and December 31, 2022, respectively, and have a fair value of
$345.6 million and $231.9 million as of December 31, 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, 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.