Quarterly report pursuant to Section 13 or 15(d)

Fair Value

v3.22.2.2
Fair Value
 9 Months Ended
Sep. 30, 2022
Fair Value Disclosures [Abstract]  
Fair Value
4. 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 for the Successor three and nine months ended September 30, 2022, six months ended September 30, 2021, or for the Predecessor three months ended March 31, 2021.
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.
Loans Held for Investment, Subject to HMBS Related Obligations, at Fair Value
HECM loans securitized into Ginnie Mae HMBS are not actively traded in open markets with readily observable market prices.
The Company values HECM loans securitized into Ginnie Mae HMBS utilizing a present value methodology that discounts estimated projected cash flows over the life of the loan portfolio using prepayment, loss frequency and severity, borrower mortality, borrower draw, and discount rate assumptions management believes a market participant would use in estimating fair value.
Changes to any of these assumptions could result in significantly different valuation results. The Company classifies reverse mortgage loans held for investment as Level 3 assets within the GAAP hierarchy, as they are dependent on unobservable inputs.
The following table presents the weighted average significant unobservable assumptions used in the fair value measurement of loans held for investment, subject to HMBS related obligations, for the periods indicated:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Conditional repayment rate NM 23.2  % NM 20.8  %
Loss frequency NM 3.9  % NM 4.5  %
Loss severity
2.4% - 9.5%
 2.6  %
3.1% - 7.7%
 3.3  %
Discount rate NM 5.2  % NM 2.4  %
Average draw rate NM 1.1  % NM 1.1  %

The Company aggregates loan portfolios based upon the underlying securitization trust and values these loans using these aggregated pools. The range of inputs provided above are based upon the range of inputs utilized for each securitization trust.
Loans Held for Investment, Subject to Nonrecourse Debt, at Fair Value
Reverse Mortgage Loans
Reverse mortgage loans held for investment, subject to nonrecourse debt, at fair value, include HECM loans previously purchased out of Ginnie Mae HMBS pools and non FHA-insured jumbo reverse mortgages, which have been subsequently securitized and serve as collateral for the issued debt. These loans are not traded in active and open markets with readily observable market prices. The Company classifies reverse mortgage loans held for investment, subject to nonrecourse debt as Level 3 assets within the GAAP hierarchy.
The Company values nonperforming securitized HECM buyouts, performing securitized HECM buyouts, and securitized non-agency reverse mortgage loans utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio.
The Company aggregates loan portfolios based upon the underlying securitization trust and values these loans using these aggregated pools. The range of inputs provided are based upon the range of inputs utilized for each securitization trust.
HECM Buyouts - Securitized (Nonperforming)
The following table presents the weighted average significant unobservable assumptions used in the fair value measurement of nonperforming securitized HECM buyouts for the periods indicated:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Conditional repayment rate
 NM 39.5  % NM 41.2  %
Loss frequency
23.1% - 100.0%
 50.6  %
25.0% - 100%
 59.5  %
Loss severity
2.4% - 9.5%
 4.4  %
3.1% - 7.7%
 4.3  %
Discount rate
 NM 8.6  % NM 4.1  %

HECM Buyouts - Securitized (Performing)
The following table presents the weighted average significant unobservable assumptions used in the fair value measurement of performing securitized HECM buyouts for the periods indicated:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Weighted average remaining life (in years) NM 8.3  NM 9.0
Conditional repayment rate NM 15.1  % NM 13.3  %
Loss severity
2.4% - 9.5%
 4.9  %
3.1% - 7.7%
 7.7  %
Discount rate NM 8.2  % NM 3.7  %

Non-Agency Reverse Mortgage - Securitized
The following table presents the significant unobservable assumptions used in the fair value measurements of securitized non-agency reverse mortgage loans for the periods indicated:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Weighted average remaining life (in years) NM 9.4  NM 7.5
Loan to value
0.0% - 73.0%
 42.6  %
0.1% - 64.7%
 43.4  %
Conditional repayment rate NM 15.0  % NM 18.6  %
Loss severity NM 10.0  % NM 10.0  %
Home price appreciation
(6.8)% - 6.3%
 3.8  %
(4.6)% - 14%
 4.7  %
Discount rate NM 7.2  % NM 3.6  %

Commercial Mortgage Loans
Fix & Flip - Securitized
The securitized Fix & Flip loans are short-term loans for individual real estate investors, with terms ranging from 3 - 39 months. This product is valued using a discounted cash flow ("DCF") model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.
The Company utilized the following weighted average assumptions in estimating the fair value of securitized Fix & Flip mortgage loans for the periods indicated:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Prepayment rate (SMM) NM 10.5  % NM 14.1  %
Discount rate NM 10.2  % NM 5.7  %
Loss rate
NM
 0.5  %
0.3% - 69.0%
 0.6  %

The Company aggregates loan portfolios based upon the underlying securitization trust and values these loans using these aggregated pools. The range of inputs provided above are based upon the range of inputs utilized for each securitization trust.
Loans Held for Investment, at Fair Value
Reverse Mortgage Loans
Reverse mortgage loans held for investment, at fair value, consists of originated or purchased HECM and non-agency reverse mortgage loans not yet securitized, unsecuritized tails, and certain HECMs purchased out of Ginnie Mae HMBS ("Inventory Buyouts") that the Company intends for future securitization transfers.
Originated or purchased HECM loans held for investment are valued predominantly by utilizing forward HMBS prices for similar pool characteristics and based on observable market data. These amounts are further adjusted to include future cash flows that would be earned for servicing the HECM loan over the life of the asset.
Unsecuritized tails consists of performing and nonperforming repurchased loans. The fair value of performing unsecuritized tails are valued at current pricing levels for similar Ginnie Mae HMBS. The fair value of nonperforming unsecuritized tails is based on expected claim proceeds from the U.S Department of Housing and Urban Development ("HUD") upon assignment of the loans.
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 loss frequency and loss severity. 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.
The Company classifies reverse mortgage loans held for investment, at fair value as Level 3 assets within the GAAP hierarchy.
Inventory Buyouts
The Company values Inventory Buyouts utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio.
The following table presents the weighted average significant unobservable assumptions used in the fair value measurement of Inventory Buyouts classified as loans held for investment, at fair value for the periods indicated:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Conditional repayment rate
 NM 44.6  % NM 43.2  %
Loss frequency NM 54.3  % NM 59.4  %
 Loss severity
2.4% - 9.5%
 5.9  %
3.1% - 7.7%
 3.8  %
Discount rate
 NM 8.6  % NM 4.1  %

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 following table presents the weighted average significant unobservable assumptions used in the fair value measurement of non-agency reverse mortgage loans classified as loans held for investment, at fair value for the periods indicated:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Weighted average remaining life (in years) NM 11.7  NM 9.2
Loan to value
0.1% - 64.7%
 43.6  %
0.2% - 68.7%
 47.8  %
Conditional repayment rate
 NM 13.6  % NM 14.8  %
Loss severity NM 10.0  % NM 10.0  %
Home price appreciation
(6.8)% - 6.3%
 3.6  %
(4.6)%-14.0%
 4.4  %
Discount rate
 NM 7.1  % NM 3.6  %

Commercial Mortgage Loans
Fix & Flip
The Fix & Flip loans are short-term loans for individual real estate investors, with terms ranging from 9 - 31 months. This product is valued using a DCF model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.
The Company utilized the following weighted average assumptions in estimating the fair value of Fix & Flip loans for the periods indicated:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Prepayment rate (SMM) NM 14.0  % NM 11.9  %
Discount rate
10.2% - 14.8%
 10.3  %
5.7% - 10.0%
 5.9  %
Loss rate NM 0.3  % NM 0.4  %

Agricultural Loans
The agricultural loans are government-insured loans made to farmers to fund their inputs and operating expenses for the upcoming growing season with terms ranging from 14 - 24 months. The product is valued using a DCF model. The Company classifies these loans as Level 3 assets within the GAAP hierarchy.
The Company utilized the following assumptions in estimating the fair value of agricultural loans for the periods indicated:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Discount rate NM 9.3  % NM 4.8  %
Prepayment rate (SMM)  NM 17.6  %
9.0% - 100.0%
 22.1  %
Default rate (CDR)
0.0% - 1.0%
 0.9  %
0.0% - 0.7%
 0.9  %
Loans Held for Sale, at Fair Value
Residential and Commercial Mortgage Loans
Mortgage loans held for sale include residential and commercial mortgage loans originated by the Company and held until sold to secondary market investors.
Residential Mortgage Loans
The Company originates or purchases mortgage loans in the U.S. that it intends to sell to FNMA, FHLMC, and Ginnie Mae (collectively “the Agencies”). Additionally, the Company originates or purchases mortgage loans in the U.S. that it intends to sell into the secondary markets via whole loan sales. Mortgage loans held for sale are typically pooled and sold into certain exit markets, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate, and credit quality. In addition, the Company may originate loans that do not meet specific underwriting criteria and are not eligible to be sold to the Agencies. Two valuation methodologies are used to determine the fair value of mortgage loans held for sale. The methodology used depends on the exit market as described below:
Loans valued using observable market prices for identical or similar assets – 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. The Company classifies these valuations as Level 2 assets within the GAAP hierarchy. During periods of illiquidity of the mortgage marketplace, it may be necessary to look for alternative sources of value, including the whole loan purchase market for similar loans, and place more reliance on the valuations using internal models. Due to limited sales activity and periodically unobservable prices in certain of the Company’s markets, certain mortgage loans held for sale portfolios may transfer from Level 2 to Level 3 in future periods.
Loans valued using internal models – To the extent observable market prices are not available, the Company will determine the fair value of mortgage loans held for sale using a collateral based valuation model, which approximates expected cash proceeds on liquidation. For loans where bid prices or commitment prices are unavailable, these valuation models estimate the exit price the Company expects to receive in the loan’s principal market and are based on a combination of recent appraisal values, adjusted for certain loss factors. The Company classifies these loans as Level 3 assets within the GAAP hierarchy.
Commercial Mortgage Loans
The Company primarily originates two separate commercial loan products that it classifies as held for sale: Single Rental Loan ("SRL") and Portfolio Lending.
SRL
The SRL product is designed for small/individual real estate investors looking to purchase and then rent out a single property. This product is valued using a DCF model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.
The Company utilized the following weighted average assumptions in estimating the fair value of SRL mortgage loans held for sale for the periods indicated:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Prepayment rate (CPR)
18.1% - 25.0%
 18.8  %
1.0% - 17.1%
 14.2  %
Discount rate NM 7.9  % NM 3.3  %
Default rate (CDR) NM 1.0  %
1.0% - 57.2%
 2.2  %

Portfolio Lending
The Portfolio Lending product is designed for larger investors with multiple properties. Specifically, these loans are useful for consolidating multiple rental property mortgages into a single loan. These loans have fixed coupons, with 5 and 10-year balloon structures, as well as a 30-year structure. This product is valued using a DCF model. The Company classifies these mortgage loans as Level 3 assets within the GAAP hierarchy.
The Company utilized the following weighted average assumptions in estimating the fair value of Portfolio Lending mortgage loans held for sale for the periods indicated:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Prepayment rate (CPR)
0.0% - 20.1%
 14.3  %
0.0% - 14.5%
 8.7  %
Discount rate NM 7.9  % NM 3.9  %
Default rate (CDR) NM 1.0  %
1.0% - 54.0%
 3.2  %

MSRs
As of September 30, 2022 and December 31, 2021, the Company valued MSRs internally. The significant assumptions utilized to determine fair value are projected prepayments using the Public Securities Association Standard Prepayment Model, discount rates, and projected servicing costs that vary based on the loan type and delinquency. The Company classifies these valuations as Level 3 assets within the GAAP hierarchy since they are dependent on unobservable inputs.
Fair value is derived through a DCF analysis and calculated using a computer pricing model. This computer valuation is based on the objective characteristics of the portfolio (loan amount, note rate, etc.) and commonly used industry assumptions (Prepayment speed assumptions ("PSA"), discount rate, etc.). The assumptions taken into account by the pricing model are those which many active purchasers of servicing employ in their evaluations of portfolios for sale in the secondary market. The unique characteristics of the secondary servicing market often dictate adjustments to parameters over short periods of time.
Fair value is defined as the estimated price at which the servicing rights would change hands in the marketplace between a willing buyer and seller. The valuation assumes that neither party would be under any compulsion to buy or sell and that each has reasonably complete and accurate knowledge of all relevant aspects of the offered servicing. The fair values represented in this analysis have been derived under the assumptions that sufficient time would be available to market the portfolio.
The following tables summarize certain information regarding the servicing portfolio of retained MSRs for the periods indicated:
September 30, 2022 December 31, 2021
Capitalization servicing rate 1.2  % 1.1  %
Capitalization servicing multiple 4.8 4.4
Weighted average servicing fee (in basis points) 26 25

The Company utilized the following weighted average assumptions in estimating the fair value of MSRs:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Weighted average prepayment speed (CPR)
0.9% - 7.9%
 5.8  %
0.0% - 12.8%
 8.3  %
Discount rate  NM 11.7  % NM 8.5  %

The following table summarizes the estimated change in the fair value of MSRs from adverse changes in the significant assumptions (in thousands):
September 30, 2022
Weighted Average Prepayment Speed Discount Rate
Impact on fair value of 10% adverse change $ (2,397) $ (4,402)
Impact on fair value of 20% adverse change $ (4,666) $ (8,461)

These sensitivities are hypothetical and should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value
may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.
Investments, at Fair Value
The Company invests in the equity of other companies in the form of common stock, preferred stock, or other in-substance equity interests. To the extent market prices are not observable, the Company engages third party valuation experts to assist in determining the fair value of these investments. The values are determined utilizing a market approach which estimates fair value based on what other participants in the market have paid for reasonably similar assets that have been sold within a reasonable period from the valuation date. The Company classifies these valuations as Level 3 in the fair value disclosures.
Derivative Assets and Liabilities
Some of the derivatives held by the Company are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract, therefore, these contracts are classified as Level 1 in the fair value hierarchy. The Company executes derivative contracts, including forward MBS commitments, To Be Announced Securities ("TBAs"), interest rate swaps, futures contracts, and loan purchase commitments ("LPCs") as part of its overall risk management strategy related to its mortgage, reverse mortgage, and commercial loan portfolios. The value of the LPCs is estimated using current market prices for HMBS and are considered Level 2 in the fair value hierarchy. TBAs are valued based on forward dealer marks from the Company's approved counterparties and are considered Level 2 in the fair value hierarchy. The value of interest rate swaps and futures contracts is based on the exchange price or dealer market prices. The Company classifies interest rate swaps as Level 2 in the fair value hierarchy. The Company classifies futures contracts as Level 1 in the fair value hierarchy. The value of the forward MBS is based on forward prices with dealers in such securities or internally-developed third party models utilizing observable market inputs. The Company classifies forward MBS as Level 2 in the fair value hierarchy.
In addition, the Company enters into Interest Rate Lock Commitments ("IRLCs") with prospective borrowers. Commitments to fund residential mortgage loans with potential borrowers are a binding agreement to lend funds at a specified interest rate within a specified period of time. The fair value of IRLCs is derived from the fair value of similar mortgage loans or bonds, which is based on observable market data. Changes to the fair value of IRLCs are recognized based on changes in interest rates, changes in the probability that the commitment will be exercised (pull through factor), and the passage of time. The expected net future cash flows related to the associated servicing of the loan are included in the fair value measurement of IRLCs. The Company adjusts the outstanding IRLCs with prospective borrowers based on an expectation that it will be exercised and the loan will be funded. Given the unobservable nature of the pull through factor, IRLCs are classified as Level 3 in the fair value hierarchy. The pull through factor is considered to be a significant unobservable assumption.
HMBS Related Obligations, at Fair Value
The HMBS related obligation valuation considers the obligation to pass FHA insured cash flows through to the beneficial interest holders (repayment of secured borrowing) of the HMBS securities and the servicer and issuer obligations of the Company.
The valuation of the obligation to repay the secured borrowing is estimated using Level 3 unobservable market inputs. 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.
The Company’s valuation considers 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 weighted average remaining life, borrower repayment rates, and discount rates.
The following table presents the weighted average significant unobservable inputs used in the fair value measurement of HMBS related obligations for the periods indicated:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Conditional repayment rate
 NM 23.2  % NM 20.8  %
Discount rate
 NM 5.2  % NM 2.3  %

Nonrecourse Debt, at Fair Value
Reverse Mortgage Loans
Outstanding notes issued that are securitized by nonrecourse debt are paid using the cash flows from the underlying reverse mortgage loans, which serve as collateral for the debt. The fair value of nonrecourse debt is estimated using Level 3 unobservable market inputs. 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 borrower repayment rates and discount rates.
The Company’s valuation considers assumptions that it believes a market participant would consider in valuing the liability, including, but not limited to, assumptions for prepayment and discount rates. The following table presents the weighted average significant unobservable assumptions used in the fair value measurements of nonrecourse debt for the periods indicated:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Performing/Nonperforming HECM securitizations
Weighted average remaining life (in years)
1.8 - 1.9
 1.9 
0.2 - 0.8
 0.5
Conditional repayment rate
18.7% - 22.8%
 21.0  %
30.8% - 54.4%
 43.5  %
Discount rate
 NM 8.2  % NM 2.3  %
Securitized Non-Agency Reverse
Weighted average remaining life (in years)
0.5 - 11.2
 6.7 
1.0 - 2.3
 1.6
Conditional repayment rate
11.9% - 31.6%
 16.9  %
18.4% - 35.9%
 28.2  %
Discount rate
 NM 7.1  % NM 2.2  %

Commercial Mortgage Loans
Outstanding nonrecourse notes issued that are securitized by loans held for investment, subject to nonrecourse debt, are paid using the cash flows from the underlying mortgage loans. The fair value of nonrecourse debt is estimated using Level 3 unobservable market inputs. The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability.
The Company's valuation considers assumptions that it believes a market participant would consider in valuing the liability, including, but not limited to, assumptions for prepayment 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. The following table presents the significant unobservable assumptions used in the fair value measurements of nonrecourse debt for the periods indicated:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Weighted average remaining life (in months) NM 5.1 NM 4.0
Weighted average prepayment speed (SMM) NM 13.7  % NM 14.0  %
Discount rate
 NM 7.6  % NM 3.1  %

Deferred Purchase Price Liabilities
Deferred purchase price liabilities are measured using a present value of future payments which considers various assumptions, including future loan origination volumes, projected earnings and discount rates. The significant unobservable assumption is the discount rate. As of September 30, 2022 and December 31, 2021, the Company utilized a discount rate of 8% and 35%, respectively, to value the deferred purchase price liabilities. As this value is largely based on unobservable inputs, the Company classifies this liability as Level 3 in the fair value hierarchy.
Tax Receivable Agreements ("TRA") Obligation
The fair value of the TRA obligation resulting from the exchanges at the Business Combination Closing Date 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, an assumed weighted average state and local income tax rate, and a 30.2% and 13.5% discount rate at September 30, 2022 and December 31, 2021, respectively, applied to future payments under the Tax Receivable Agreements. The Company classifies the TRA obligation as Level 3 in the fair value hierarchy.
Nonrecourse MSR Financing Liability
The Company has sold to certain third parties the right to receive all excess servicing and ancillary fees related to identified MSRs in exchange for an upfront payment equal to the entire purchase price of the identified MSRs.
The Company has elected to account for the servicing liability using the fair value option. Consistent with the underlying MSRs, fair value is derived through a DCF analysis and calculated using a computer pricing model. This computer valuation is based on the objective characteristics of the portfolio (loan amount, note rate, etc.) and commonly used industry assumptions (PSAs, etc.). The assumptions taken into account by the pricing model are those which many active purchasers of servicing rights employ in their evaluations of portfolios for sale in the secondary market. The unique characteristics of the secondary servicing market often dictate adjustments to parameters over short periods of time.
Subjective factors are also considered in the derivation of fair values, including levels of supply and demand for servicing, interest rate trends, and perception of risk not incorporated into prepayment assumptions.
The Company classifies the valuations of the nonrecourse MSR financing liability as Level 3 in the fair value disclosures.
The Company utilized the following weighted average assumptions in estimating the fair value of the outstanding nonrecourse MSR financing liability:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Weighted average prepayment speed (CPR)
1.3% - 6.4%
 4.7  %
2.0% - 11.0%
 7.7  %
Discount rate
12.6%
12.6  %
8.1% - 10.1%
 9.1  %
Weighted average delinquency rate  NM 1.7  % NM 1.3  %

Retained Bonds, at Fair Value
The retained bonds, at fair value, represents the U.S. Risk Retention Certificates, a 5% eligible vertical interest in the Company's unconsolidated VIEs: HAWT 2021-INV1, HAWT 2021-INV2, and HAWT 2021-INV3. The beneficial interests retained consist of an interest in each class of securities issued by the Trust. Because of the nature of the
valuation inputs and due to the lack of observable market prices or data the Company classifies retained bonds as Level 3 assets within the GAAP hierarchy. Quarterly, management obtains third party valuations to assess the reasonableness of the fair value calculations provided by the internal valuation model. The following table presents the weighted average significant unobservable assumptions used in the fair value measurement of retained bonds for the period indicated:
September 30, 2022 December 31, 2021
Unobservable Assumptions Range Weighted Average Range Weighted Average
Weighted average remaining life (in years)
2.4 - 24.3
 4.9
2.6 - 25.0
 5.1
Discount rate
(16.6)% - 12.2%
 7.1  %
1.9% - 8.2%
 2.7  %
Warrants
The Company has determined that the FoA warrants are subject to treatment as a liability. The warrants issued are exercisable for shares of Class A Common Stock of FoA at an exercise price of $11.50 per share. 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. Accordingly, the warrants are classified as Level 1 financial instruments.
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, 2022
Total Fair Value Level 1 Level 2 Level 3
Assets
Loans held for investment, subject to HMBS related obligations $ 10,916,551  $ —  $ —  $ 10,916,551 
Loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans 6,285,773  —  —  6,285,773 
Fix & flip mortgage loans 455,618  —  —  455,618 
Loans held for investment:
Reverse mortgage loans 1,126,483  —  —  1,126,483 
Fix & flip mortgage loans 137,367  —  —  137,367 
Agricultural loans 43,563  —  —  43,563 
Loans held for sale:
Residential mortgage loans 629,877  —  600,439  29,438 
SRL 147,872  —  —  147,872 
Portfolio 81,901  —  —  81,901 
MSRs 103,069  —  —  103,069 
Derivative assets:
IRLCs and LPCs 3,678  —  4  3,674 
Forward MBS and TBAs 32,254  —  32,254  — 
Interest rate swaps and futures contracts 53,967  53,967  —  — 
Other assets:
Investments 1,000  —  —  1,000 
Retained bonds 43,206  —  —  43,206 
Total assets $ 20,062,179  $ 53,967  $ 632,697  $ 19,375,515 
Liabilities
HMBS related obligations $ 10,784,841  $ —  $ —  $ 10,784,841 
Nonrecourse debt:
Nonrecourse debt in consolidated VIE trusts 6,525,382  —  —  6,525,382 
Nonrecourse commercial loan financing liability 160,344  —  —  160,344 
Nonrecourse MSR financing liability 59,800  —  —  59,800 
Deferred purchase price liabilities:
Deferred purchase price liabilities 4,852  —  —  4,852 
TRA obligation 4,855  —  —  4,855 
Derivative liabilities:
IRLCs and LPCs 13,740  —  —  13,740 
Forward MBS and TBAs 97  —  97  — 
Warrant liability 1,867  1,867  —  — 
Total liabilities $ 17,555,778  $ 1,867  $ 97  $ 17,553,814 
December 31, 2021
Total Fair Value Level 1 Level 2 Level 3
Assets
Loans held for investment, subject to HMBS related obligations $ 10,556,054  $ —  $ —  $ 10,556,054 
Loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans 5,823,301  —  —  5,823,301 
Fix & flip mortgage loans 394,893  —  —  394,893 
Loans held for investment:
Reverse mortgage loans 940,604  —  —  940,604 
Fix & flip mortgage loans 62,933  —  —  62,933 
Agricultural loans 27,791  —  —  27,791 
Loans held for sale:
Residential mortgage loans 1,902,952  —  1,885,627  17,325 
SRL 98,852  —  —  98,852 
Portfolio 50,574  —  —  50,574 
MSRs 427,942  —  —  427,942 
Derivative assets:
IRLCs and LPCs 24,786  —  1,564  23,222 
Forward MBS and TBAs 1,250  —  1,250  — 
Interest rate swaps and futures contracts 22,834  22,834  —  — 
Other assets:
Investments 6,000  —  —  6,000 
Retained bonds 55,614  —  —  55,614 
Total assets $ 20,396,380  $ 22,834  $ 1,888,441  $ 18,485,105 
Liabilities
HMBS related obligations $ 10,422,358  $ —  $ —  $ 10,422,358 
Nonrecourse debt:
Nonrecourse debt in consolidated VIE trusts 5,857,069  —  —  5,857,069 
Nonrecourse commercial loan financing liability 111,738  —  —  111,738 
Nonrecourse MSR financing liability 142,435  —  —  142,435 
Deferred purchase price liabilities:
Deferred purchase price liabilities 12,852  —  —  12,852 
TRA obligation 29,380  —  —  29,380 
Derivative liabilities:
Forward MBS and TBAs 1,685  —  1,685  — 
Interest rate swaps and futures contracts 24,993  24,993  —  — 
Warrant liability 5,497  5,497  —  — 
Total liabilities $ 16,608,007  $ 30,490  $ 1,685  $ 16,575,832 
Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3, in thousands):
Successor
Assets
Three months ended September 30, 2022 Loans held for investment Loans held for investment, subject to nonrecourse debt Loans held for sale Derivative assets MSRs Retained bonds Investments
Beginning balance $ 11,940,851  $ 6,600,762  $ 270,122  $ 13,997  $ 359,006  $ 46,593  $ 1,000 
Total gain or losses included in earnings (7,558) (265,038) (4,158) (10,323) (9,455) (2,302) — 
Purchases, settlements, and transfers:
Purchases and additions, net 1,482,912  31,359  210,004  —  20,241  —  — 
Sales and settlements (417,114) (376,855) (219,663) —  (266,723) (1,085) — 
Transfers in/(out) between categories
 (775,127) 751,163  2,906  —  —  —  — 
Ending balance $ 12,223,964  $ 6,741,391  $ 259,211  $ 3,674  $ 103,069  $ 43,206  $ 1,000 

Successor
Liabilities
Three months ended September 30, 2022 HMBS related obligations Deferred purchase price liabilities Nonrecourse debt in consolidated VIE trusts Nonrecourse commercial loan financing liability Nonrecourse MSR financing liability TRA Liability
Beginning balance $ (10,745,879) $ (4,852) $ (6,447,238) $ (162,464) $ (142,382) $ (13,925)
Total gains or losses included in earnings 13,421  —  178,700  (2,769) 1,736  9,070 
Purchases, settlements, and transfers:
Purchases and additions, net (547,762) —  (718,656) (24,975) (92) — 
Settlements 495,379  —  461,812  29,864  80,938  — 
Transfers in/(out) between categories
 —  —  —  —  —  — 
Ending balance $ (10,784,841) $ (4,852) $ (6,525,382) $ (160,344) $ (59,800) $ (4,855)

Successor
Assets
Nine months ended September 30, 2022 Loans held for investment Loans held for investment, subject to nonrecourse debt Loans held for sale Derivative assets MSRs Retained bonds Investments
Beginning balance $ 11,587,382  $ 6,218,194  $ 166,750  $ 23,222  $ 427,942  $ 55,614  $ 6,000 
Total gain or losses included in earnings (77,600) (836,632) (15,361) (19,548) 30,242  (8,611) (5,000)
Purchases, settlements, and transfers:
Purchases and additions, net 5,259,357  89,907  1,001,526  —  114,903  —  — 
Sales and settlements (1,701,481) (1,537,044) (902,713) —  (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  $ 259,211  $ 3,674  $ 103,069  $ 43,206  $ 1,000 
Successor
Liabilities
Nine months ended September 30, 2022 HMBS related obligations Deferred purchase price liabilities Nonrecourse debt in consolidated VIE trusts Nonrecourse commercial loan financing liability Nonrecourse MSR financing liability TRA Liability
Beginning balance $ (10,422,358) $ (12,852) $ (5,857,069) $ (111,738) $ (142,435) $ (29,380)
Total gain or losses included in earnings 192,098  —  400,741  (2,581) (14,639) 24,525 
Purchases, settlements, and transfers:
Purchases and additions, net (2,488,497) —  (2,523,213) (142,790) (6,884) — 
Settlements 1,933,916  8,000  1,454,159  96,765  104,158  — 
Transfers in/(out) between categories —  —  —  —  —  — 
Ending balance $ (10,784,841) $ (4,852) $ (6,525,382) $ (160,344) $ (59,800) $ (4,855)

Successor
Assets
Three months ended September 30, 2021 Loans held for investment Loans held for investment, subject to nonrecourse debt Loans held for sale Derivative assets MSRs Retained Bonds Investments
Beginning balance $ 11,541,117  $ 5,424,621  $ 160,888  $ 35,483  $ 290,938  $ 15,671  $ 9,470 
Total gain or losses included in earnings (10,328) 40,355  386  (5,198) (2,031) 839  (3,470)
Purchases, settlements, and transfers:
Purchases and additions, net 1,402,360  27,857  284,650  —  54,543  24,762  — 
Sales and settlements (738,913) (366,177) (250,058) (1,110) (2,501) (22) — 
Transfers in/(out) between categories (769,107) 812,995  (37,059) —  —  —  — 
Ending balance $ 11,425,129  $ 5,939,651  $ 158,807  $ 29,175  $ 340,949  $ 41,250  $ 6,000 

Successor
Liabilities
Three months ended September 30, 2021 HMBS related obligations Derivative liabilities Deferred purchase price liabilities Nonrecourse debt in VIE trusts Nonrecourse MSR financing liability TRA Liability
Beginning balance $ (10,168,224) $ (1,111) $ (11,663) $ (5,360,603) $ (65,129) $ (32,810)
Total gain or losses included in earnings 121,048  275  (237) (45,116) (712) (1,036)
Purchases, settlements, and transfers:
Purchases and additions, net (792,569) —  (275) (464,209) (30,232) (1,296)
Settlements 623,435  836  —  134,918  —  — 
Transfers in/(out) between categories —  —  —  —  —  — 
Ending balance $ (10,216,310) $ —  $ (12,175) $ (5,735,010) $ (96,073) $ (35,142)
Successor
Assets
Six months ended September 30, 2021 Loans held for investment Loans held for investment, subject to nonrecourse debt Loans held for sale Derivative assets MSRs Retained Bonds Investments
Beginning balance $ 11,171,736  $ 5,291,444  $ 135,681  $ 38,574  $ 267,364  $ —  $ 9,470 
Total gain or losses included in earnings 143,362  120,763  2,202  (8,264) (28,567) 1,505  (3,470)
Purchases, settlements, and transfers:
Purchases and additions, net 2,831,336  49,898  541,088  —  104,653  39,840  — 
Sales and settlements (1,354,871) (888,318) (526,014) (1,135) (2,501) (95) — 
Transfers in/(out) between categories
 (1,366,434) 1,365,864  5,850  —  —  —  — 
Ending balance $ 11,425,129  $ 5,939,651  $ 158,807  $ 29,175  $ 340,949  $ 41,250  $ 6,000 

Successor
Liabilities
Six months ended September 30, 2021 HMBS related obligations Derivative liabilities Deferred purchase price liabilities Nonrecourse debt in VIE trusts Nonrecourse MSR financing liability TRA Liability
Beginning balance $ (9,926,132) $ (936) $ (3,214) $ (5,205,892) $ (22,051) $ — 
Total gains or losses included in earnings 76,397  $ 98  (1,997) (77,717) 3,411  (1,896)
Purchases, settlements, and transfers:
Purchases and additions, net (1,587,902) —  (7,275) (1,260,585) (77,433) (33,246)
Settlements 1,221,327  838  311  809,184  —  — 
Ending balance $ (10,216,310) $ —  $ (12,175) $ (5,735,010) $ (96,073) $ (35,142)

Predecessor
Assets
Three months ended March 31, 2021 Loans held for investment Loans held for investment, subject to nonrecourse debt Loans held for sale Derivative assets MSRs Investments
Beginning balance $ 10,659,984  $ 5,396,167  $ 152,854  $ 88,660  $ 180,684  $ 18,934 
Total gain or losses included in earnings 132,499  (37,757) 2,764  (50,040) 20,349  (9,464)
Purchases, settlements, and transfers:
Purchases and additions, net 1,143,109  21,064  175,551  —  74,978  — 
Sales and settlements (534,738) (360,128) (152,579) (46) (8,647) — 
Transfers in/(out) between categories (229,118) 272,098  (42,909) —  —  — 
Ending balance $ 11,171,736  $ 5,291,444  $ 135,681  $ 38,574  $ 267,364  $ 9,470 
Predecessor
Liabilities
Three months ended March 31, 2021 HMBS related obligations Derivative liabilities Deferred purchase price liability Nonrecourse debt in VIE trusts Nonrecourse MSR financing liability
Beginning balance $ (9,788,668) $ (1,084) $ (3,842) $ (5,257,754) $ (14,088)
Total gain or losses included in earnings (41,434) —  (29) (30,770) 390 
Purchases, settlements, and transfers:
Purchases and additions, net (602,172) —  —  (575,668) (8,353)
Settlements 506,142  148  657  658,300  — 
Ending balance $ (9,926,132) $ (936) $ (3,214) $ (5,205,892) $ (22,051)

Fair Value Option
The Company has elected to measure substantially all of its loans held for investment, loans held for sale, HMBS related obligations, and non-recourse debt 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, 2022 and December 31, 2021, of financial assets and liabilities for which the Company has elected the fair value option (in thousands):
September 30, 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 $ 10,916,551  $ 10,609,500 
Loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans 6,285,773  6,501,202 
Commercial mortgage loans 455,618  457,525 
Loans held for investment:
Reverse mortgage loans 1,126,483  1,078,048 
Commercial mortgage loans 180,930  181,001 
Loans held for sale:
Residential mortgage loans 629,877  648,123 
Commercial mortgage loans 229,773  235,789 
Liabilities at fair value under the fair value option
HMBS related obligations 10,784,841  10,587,475 
Nonrecourse debt:
Nonrecourse debt in consolidated VIE trusts 6,525,382  7,114,952 
Nonrecourse MSR financing liability 59,800  59,800 
Nonrecourse commercial loan financing liability 160,344  153,770 
December 31, 2021 Estimated Fair Value Unpaid Principal Balance
Assets at fair value under the fair value option
Loans held for investment, subject to HMBS related obligations $ 10,556,054  $ 9,849,835 
Loans held for investment, subject to nonrecourse debt:
Reverse mortgage loans 5,823,301  5,165,479 
Commercial mortgage loans 394,893  388,788 
Loans held for investment:
Reverse mortgage loans 940,604  815,426 
Commercial mortgage loans 90,724  89,267 
Loans held for sale:
Residential mortgage loans 1,902,952  1,859,788 
Commercial mortgage loans 149,426  145,463 
Liabilities at fair value under the fair value option
HMBS related obligations 10,422,358  9,849,835 
Nonrecourse debt:
Nonrecourse debt in consolidated VIE trusts 5,857,069  5,709,946 
Nonrecourse MSR financing liability 142,435  142,435 
Nonrecourse commercial loan financing liability 111,738  107,744 

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, 2022 For the nine months ended September 30, 2022 For the three months ended September 30, 2021 For the six months ended September 30, 2021 For the three months ended March 31, 2021
Successor Predecessor
Net fair value gains (losses) on loans and related obligations:
Interest income on reverse and commercial loans $ 228,896  $ 582,350  $ 160,683  $ 334,623  $ 160,568 
Change in fair value of loans (486,206) (1,463,351) (119,690) (34,707) (51,346)
Net fair value gains (losses) on loans (257,310) (881,001) 40,993  299,916  109,222 
Interest expense on HMBS and nonrecourse obligations (149,200) (380,446) (107,593) (221,067) (119,201)
Change in fair value of derivatives 64,693  330,200  6,841  (39,637) 43,972 
Change in fair value of related obligations 335,441  936,919  182,268  214,448  42,670 
Net fair value gains (losses) on related obligations 250,934  886,673  81,516  (46,256) (32,559)
Net fair value gains (losses) on loans and related obligations $ (6,376) $ 5,672  $ 122,509  $ 253,660  $ 76,663 

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, 2022 and December 31, 2021, 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 secured high yield debt and related party credit line recorded at the carrying value of $382.8 million and $353.4 million as of September 30, 2022 and December 31, 2021, respectively and have a fair value of $261.2 million and $347.0 million as of September 30, 2022 and December 31, 2021, 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, 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.