v3.25.2
Fair Value
 6 Months Ended
Jun. 30, 2025
Fair Value Disclosures [Abstract]  
Fair Value

Note 7— Fair Value

The Company’s consolidated financial statements include assets and liabilities that are measured at or based on their fair values. Measurement at or based on fair value may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether the Company has elected to carry the item at its fair value as discussed in the following paragraphs.

The Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the inputs used to determine fair value. These levels are:

•
Level 1—Quoted prices in active markets for identical assets or liabilities.
•
Level 2—Prices determined or determinable using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Company.
•
Level 3—Prices determined using significant unobservable inputs. In situations where significant observable inputs are unavailable, unobservable inputs may be used. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances.

As a result of the difficulty in observing certain significant valuation inputs affecting “Level 3” fair value assets and liabilities, the Company is required to make judgments regarding these items’ fair values. Different persons in possession of the same facts may reasonably arrive at different conclusions as to the inputs to be applied in valuing these assets and liabilities and their fair values. Such differences may result in significantly different fair value measurements. Likewise, due to the general illiquidity of some of these assets and liabilities, subsequent transactions may be at values significantly different from those reported.

The Company reclassifies its assets and liabilities between levels of the fair value hierarchy when the significant inputs required to establish fair value at a level of the fair value hierarchy are no longer readily available, requiring the use of lower-level inputs, or when the significant inputs required to establish fair value at a higher level of the hierarchy become available.

Fair Value Accounting Elections

The Company identified all of PMT’s non-cash financial assets and MSRs to be accounted for at fair value. The Company has elected to account for these assets at fair value so such changes in fair value will be reflected in results of operations as they occur and more timely reflect the results of the Company’s performance.

The Company has also identified its Asset-backed financings at fair value and Interest-only security payable at fair value to be accounted for at fair value to reflect the generally offsetting changes in fair value of these borrowings to changes in fair value of the assets at fair value collateralizing these financings. For other borrowings, the Company has determined that historical cost accounting is more appropriate because under this method debt issuance costs are amortized over the term of the debt facility, thereby matching the debt issuance cost to the periods benefiting from the availability of the debt.

Financial Statement Items Measured at Fair Value on a Recurring Basis

Following is a summary of financial statement items that are measured at fair value on a recurring basis:

 

 

June 30, 2025

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

 

$

108,586

 

 

$

—

 

 

$

—

 

 

$

108,586

 

Mortgage-backed securities

 

 

—

 

 

 

3,887,993

 

 

 

79,052

 

 

 

3,967,045

 

Loans acquired for sale

 

 

—

 

 

 

2,609,086

 

 

 

7,165

 

 

 

2,616,251

 

Loans held for investment

 

 

—

 

 

 

4,564,678

 

 

 

1,854

 

 

 

4,566,532

 

Derivative assets:

 

 

 

 

 

 

 

 

 

 

 

 

Call options on interest rate futures purchase contracts

 

 

8,638

 

 

 

—

 

 

 

—

 

 

 

8,638

 

Put options on interest rate futures purchase contracts

 

59

 

 

 

—

 

 

 

—

 

 

 

59

 

Forward purchase contracts

 

 

—

 

 

 

21,510

 

 

 

—

 

 

 

21,510

 

Forward sale contracts

 

 

—

 

 

 

227

 

 

 

—

 

 

 

227

 

Credit risk transfer derivatives

 

 

—

 

 

 

—

 

 

 

31,147

 

 

 

31,147

 

Interest rate lock commitments

 

 

—

 

 

 

—

 

 

 

6,666

 

 

 

6,666

 

Total derivative assets before netting

 

 

8,697

 

 

 

21,737

 

 

 

37,813

 

 

 

68,247

 

Netting

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(16,321

)

Total derivative assets after netting

 

 

8,697

 

 

 

21,737

 

 

 

37,813

 

 

 

51,926

 

Derivative assets with PennyMac Financial Services, Inc

 

 

—

 

 

 

1,038

 

 

 

—

 

 

 

1,038

 

Mortgage servicing rights

 

 

—

 

 

 

—

 

 

 

3,739,106

 

 

 

3,739,106

 

 

$

117,283

 

 

$

11,084,532

 

 

$

3,864,990

 

 

$

15,050,484

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest-only security payable

 

$

—

 

 

$

—

 

 

$

36,553

 

 

$

36,553

 

Asset-backed financings of the variable interest entities

 

 

—

 

 

 

4,176,128

 

 

 

—

 

 

 

4,176,128

 

Derivative and credit risk transfer strip liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Forward purchase contracts

 

 

—

 

 

 

16

 

 

 

—

 

 

 

16

 

Forward sales contracts

 

 

—

 

 

 

75,443

 

 

 

—

 

 

 

75,443

 

Interest rate lock commitments

 

 

—

 

 

 

—

 

 

 

181

 

 

 

181

 

Total derivative liabilities before netting

 

 

—

 

 

 

75,459

 

 

 

181

 

 

 

75,640

 

Netting

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(72,645

)

Total derivative liabilities after netting

 

 

—

 

 

 

75,459

 

 

 

181

 

 

 

2,995

 

Credit risk transfer strips

 

 

—

 

 

 

—

 

 

 

10,479

 

 

 

10,479

 

Total derivative and credit risk transfer strip liabilities

 

 

—

 

 

 

75,459

 

 

 

10,660

 

 

 

13,474

 

 

$

—

 

 

$

4,251,587

 

 

$

47,213

 

 

$

4,226,155

 

 

 

 

 

December 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

 

$

103,198

 

 

$

—

 

 

$

—

 

 

$

103,198

 

Mortgage-backed securities

 

 

—

 

 

 

3,977,446

 

 

 

86,260

 

 

 

4,063,706

 

Loans acquired for sale

 

 

—

 

 

 

2,108,347

 

 

 

7,971

 

 

 

2,116,318

 

Loans held for investment

 

 

—

 

 

 

2,191,709

 

 

 

1,866

 

 

 

2,193,575

 

Derivative assets:

 

 

 

 

 

 

 

 

 

 

 

 

Call options on interest rate futures purchase contracts

 

 

156

 

 

 

—

 

 

 

—

 

 

 

156

 

Put options on interest rate futures purchase contracts

 

 

6,372

 

 

 

—

 

 

 

—

 

 

 

6,372

 

Forward purchase contracts

 

 

—

 

 

 

614

 

 

 

—

 

 

 

614

 

Forward sale contracts

 

 

—

 

 

 

54,056

 

 

 

—

 

 

 

54,056

 

MBS put options

 

 

—

 

 

 

2,114

 

 

 

—

 

 

 

2,114

 

CRT derivatives

 

 

—

 

 

 

—

 

 

 

29,377

 

 

 

29,377

 

Interest rate lock commitments

 

 

—

 

 

 

—

 

 

 

3,562

 

 

 

3,562

 

Total derivative assets before netting

 

 

6,528

 

 

 

56,784

 

 

 

32,939

 

 

 

96,251

 

Netting

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(39,411

)

Total derivative assets after netting

 

 

6,528

 

 

 

56,784

 

 

 

32,939

 

 

 

56,840

 

Mortgage servicing rights

 

 

—

 

 

 

—

 

 

 

3,867,394

 

 

 

3,867,394

 

 

$

109,726

 

 

$

8,334,286

 

 

$

3,996,430

 

 

$

12,401,031

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest-only security payable

 

$

—

 

 

$

—

 

 

$

34,222

 

 

$

34,222

 

Asset-backed financings of the variable interest entities

 

 

—

 

 

 

2,040,375

 

 

 

—

 

 

 

2,040,375

 

Derivative liabilities and credit risk transfer strips:

 

 

 

 

 

 

 

 

 

 

 

 

Forward purchase contracts

 

 

—

 

 

 

6,336

 

 

 

—

 

 

 

6,336

 

Forward sales contracts

 

 

—

 

 

 

1,753

 

 

 

—

 

 

 

1,753

 

Interest rate lock commitments

 

 

—

 

 

 

—

 

 

 

3,118

 

 

 

3,118

 

Total derivative liabilities before netting

 

 

—

 

 

 

8,089

 

 

 

3,118

 

 

 

11,207

 

Netting

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(7,916

)

Total derivative liabilities after netting

 

 

—

 

 

 

8,089

 

 

 

3,118

 

 

 

3,291

 

Credit risk transfer strips

 

 

—

 

 

 

—

 

 

 

4,060

 

 

 

4,060

 

Total derivative and credit risk transfer strip liabilities

 

 

—

 

 

 

8,089

 

 

 

7,178

 

 

 

7,351

 

 

$

—

 

 

$

2,048,464

 

 

$

41,400

 

 

$

2,081,948

 

 

The following is a summary of changes in items measured at fair value on a recurring basis using Level 3 inputs that are significant to the estimation of the fair values of the assets and liabilities at either the beginning or end of the periods presented:

 

 

Quarter ended June 30, 2025

 

Assets (1)

 

Interest-only stripped mortgage-backed securities

 

 

Loans
acquired
for sale

 

 

Loans
 held for investment

 

 

CRT
derivatives

 

 

Interest rate
lock
commitments

 

 

CRT
strips

 

 

Mortgage
servicing
rights

 

 

Total

 

 

 

(in thousands)

 

Balance, March 31, 2025

 

$

81,043

 

 

$

5,451

 

 

$

1,815

 

 

$

28,474

 

 

$

4,619

 

 

$

(15,885

)

 

$

3,770,034

 

 

$

3,875,551

 

Purchases and issuances

 

 

—

 

 

 

3,103

 

 

 

—

 

 

 

—

 

 

 

3,553

 

 

 

—

 

 

 

—

 

 

 

6,656

 

Repayments and sales

 

 

(4,524

)

 

 

(1,540

)

 

 

(20

)

 

 

(2,702

)

 

 

—

 

 

 

(10,068

)

 

 

—

 

 

 

(18,854

)

Accrual of unearned discounts

 

 

2,165

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,165

 

Amounts received pursuant to
   sales of loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

44,030

 

 

 

44,030

 

Changes in fair value included in
   results of operations arising from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in instrument - specific
   credit risk

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other factors

 

 

368

 

 

 

151

 

 

 

59

 

 

 

5,375

 

 

 

4,529

 

 

 

15,474

 

 

 

(75,128

)

 

 

(49,172

)

 

 

368

 

 

 

151

 

 

 

59

 

 

 

5,375

 

 

 

4,529

 

 

 

15,474

 

 

 

(75,128

)

 

 

(49,172

)

Transfers of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments to
   loans acquired for sale (2)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(6,216

)

 

 

—

 

 

 

—

 

 

 

(6,216

)

Mortgage servicing rights relating
   to delinquent loans to Agency

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

170

 

 

 

170

 

Balance, June 30, 2025

 

$

79,052

 

 

$

7,165

 

 

$

1,854

 

 

$

31,147

 

 

$

6,485

 

 

$

(10,479

)

 

$

3,739,106

 

 

$

3,854,330

 

Changes in fair value recognized
  during the quarter relating to
  assets still held at June 30, 2025

 

$

368

 

 

$

(96

)

 

$

58

 

 

$

2,743

 

 

$

6,485

 

 

$

5,524

 

 

$

(75,128

)

 

$

(60,046

)

 

(1)
For the purpose of this table, CRT derivative, interest rate lock commitment (“IRLC”), and CRT strip asset and liability positions are shown net.
(2)
The Company had transfers among the fair value levels arising from transfers of IRLCs to loans acquired for sale upon purchase of the respective loans.

 

 

Liabilities

 

Quarter ended June 30, 2025

 

 

 

(in thousands)

 

Interest-only security payable:

 

 

 

Balance, March 31, 2025

 

$

35,954

 

Changes in fair value included in results of operations arising from:

 

 

 

Changes in instrument - specific credit risk

 

 

—

 

Other factors

 

 

599

 

 

 

599

 

Balance, June 30, 2025

 

$

36,553

 

Changes in fair value recognized during the quarter relating
    to liability outstanding at June 30, 2025

 

$

599

 

 

 

Quarter ended June 30, 2024

 

Assets (1)

 

Interest-only stripped mortgage-backed securities

 

 

Loans
acquired
for sale

 

 

Loans
 held for investment

 

 

CRT
derivatives

 

 

Interest
rate lock
commitments

 

 

CRT
strips

 

 

Mortgage
servicing
rights

 

 

Total

 

 

 

(in thousands)

 

Balance, March 31, 2024

 

$

94,667

 

 

$

5,096

 

 

$

2,034

 

 

$

22,899

 

 

$

4,845

 

 

$

(17,352

)

 

$

3,951,737

 

 

$

4,063,926

 

Purchases and issuances (purchase
   adjustment)

 

 

—

 

 

 

4,013

 

 

 

—

 

 

 

—

 

 

 

4,760

 

 

 

—

 

 

 

(13

)

 

 

8,760

 

Repayments and sales

 

 

(4,984

)

 

 

(1,018

)

 

 

(32

)

 

 

(3,633

)

 

 

—

 

 

 

(11,693

)

 

 

—

 

 

 

(21,360

)

Accrual of unearned discount

 

 

2,390

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,390

 

Amounts received pursuant to
   sales of loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

40,619

 

 

 

40,619

 

Changes in fair value included in
   results of operations arising from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in instrument -
   specific credit risk

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other factors

 

 

(4,232

)

 

 

(97

)

 

 

(4

)

 

 

5,039

 

 

 

(4,147

)

 

 

12,071

 

 

 

(50,556

)

 

 

(41,926

)

 

 

(4,232

)

 

 

(97

)

 

 

(4

)

 

 

5,039

 

 

 

(4,147

)

 

 

12,071

 

 

 

(50,556

)

 

 

(41,926

)

Transfers of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments
   to loans acquired for sale (2)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(3,906

)

 

 

—

 

 

 

—

 

 

 

(3,906

)

Mortgage servicing rights relating
   to delinquent loans to Agency

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

74

 

 

 

74

 

Balance, June 30, 2024

 

$

87,841

 

 

$

7,994

 

 

$

1,998

 

 

$

24,305

 

 

$

1,552

 

 

$

(16,974

)

 

$

3,941,861

 

 

$

4,048,577

 

Changes in fair value recognized
   during the quarter relating to
   assets still held at June 30, 2024

 

$

(4,232

)

 

$

(112

)

 

$

(11

)

 

$

5,039

 

 

$

1,552

 

 

$

378

 

 

$

(50,556

)

 

$

(47,942

)

 

(1)
For the purpose of this table, CRT derivative, IRLC, and CRT strip asset and liability positions are shown net.
(2)
The Company had transfers among the fair value levels arising from transfers of IRLCs to loans acquired for sale upon purchase of the respective loans.

 

Liabilities

 

Quarter ended June 30, 2024

 

 

 

(in thousands)

 

Interest-only security payable:

 

 

 

Balance, March 31, 2024

 

$

32,227

 

Changes in fair value included in income arising from:

 

 

 

Changes in instrument - specific credit risk

 

 

—

 

Other factors

 

 

481

 

 

 

481

 

Balance, June 30, 2024

 

$

32,708

 

Changes in fair value recognized during the quarter relating
    to liability outstanding at June 30, 2024

 

$

481

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2025

 

Assets (1)

 

Interest-only stripped mortgage-backed securities

 

 

Loans
acquired
for sale

 

 

Loans
 held for investment

 

 

CRT
derivatives

 

 

Interest rate
lock
commitments

 

 

CRT
strips

 

 

Mortgage
servicing
rights

 

 

Total

 

 

 

(in thousands)

 

Balance, December 31, 2024

 

$

86,260

 

 

$

7,971

 

 

$

1,866

 

 

$

29,377

 

 

$

444

 

 

$

(4,060

)

 

$

3,867,394

 

 

$

3,989,252

 

Purchases and issuances

 

 

—

 

 

 

3,131

 

 

 

—

 

 

 

—

 

 

 

8,152

 

 

 

—

 

 

 

—

 

 

 

11,283

 

Repayments and sales

 

 

(9,160

)

 

 

(4,218

)

 

 

(40

)

 

 

(5,585

)

 

 

—

 

 

 

(19,845

)

 

 

—

 

 

 

(38,848

)

Accrual of unearned discounts

 

 

4,450

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,450

 

Amounts received pursuant to
   sales of loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

91,039

 

 

 

91,039

 

Changes in fair value included in results
    of operations arising from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in instrument - specific
   credit risk

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other factors

 

 

(2,498

)

 

 

281

 

 

 

28

 

 

 

7,355

 

 

 

11,920

 

 

 

13,426

 

 

 

(219,718

)

 

 

(189,206

)

 

 

(2,498

)

 

 

281

 

 

 

28

 

 

 

7,355

 

 

 

11,920

 

 

 

13,426

 

 

 

(219,718

)

 

 

(189,206

)

Transfers of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments to
   loans acquired for sale (2)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(14,031

)

 

 

—

 

 

 

—

 

 

 

(14,031

)

Mortgage servicing rights relating to
   delinquent loans to Agency

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

391

 

 

 

391

 

Balance, June 30, 2025

 

$

79,052

 

 

$

7,165

 

 

$

1,854

 

 

$

31,147

 

 

$

6,485

 

 

$

(10,479

)

 

$

3,739,106

 

 

$

3,854,330

 

Changes in fair value recognized during
   the period relating to assets still held
   at June 30, 2025

 

$

(2,498

)

 

$

(56

)

 

$

27

 

 

$

1,920

 

 

$

6,485

 

 

$

(6,301

)

 

$

(219,718

)

 

$

(220,141

)

 

(1)
For the purpose of this table, CRT derivative, IRLC, and CRT strip asset and liability positions are shown net.
(2)
The Company had transfers among the fair value levels arising from transfers of IRLCs to loans acquired for sale upon purchase of the respective loans.

 

 

Liabilities

 

Six months ended June 30, 2025

 

 

 

(in thousands)

 

Interest-only security payable:

 

 

 

Balance, December 31, 2024

 

$

34,222

 

Changes in fair value included in results of operations arising from:

 

 

 

Changes in instrument - specific credit risk

 

 

—

 

Other factors

 

 

2,331

 

 

 

2,331

 

Balance, June 30, 2025

 

$

36,553

 

Changes in fair value recognized during the period relating
    to liability outstanding at June 30, 2025

 

$

2,331

 

 

 

 

 

 

Six months ended June 30, 2024

 

Assets (1)

 

Interest-only stripped mortgage-backed securities

 

 

Loans
acquired
for sale

 

 

Loans
 held for investment

 

 

CRT
derivatives

 

 

Interest
rate lock
commitments

 

 

CRT strips

 

 

Mortgage
servicing
rights

 

 

Total

 

 

 

(in thousands)

 

Balance, December 31, 2023

 

$

94,231

 

 

$

6,318

 

 

$

2,131

 

 

$

16,160

 

 

$

7,532

 

 

$

(46,692

)

 

$

3,919,107

 

 

$

3,998,787

 

Purchases and issuances

 

 

—

 

 

 

5,497

 

 

 

—

 

 

 

—

 

 

 

7,871

 

 

 

—

 

 

 

29,428

 

 

 

42,796

 

Repayments and sales

 

 

(10,054

)

 

 

(3,676

)

 

 

(91

)

 

 

(7,084

)

 

 

—

 

 

 

(23,378

)

 

 

—

 

 

 

(44,283

)

Accrual of unearned discount

 

 

4,606

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,606

 

Amounts received pursuant to
   sales of loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

71,868

 

 

 

71,868

 

Changes in fair value included in results
    of operations arising from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in instrument -
   specific credit risk

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other factors

 

 

(942

)

 

 

(145

)

 

 

(42

)

 

 

15,229

 

 

 

(5,002

)

 

 

53,096

 

 

 

(78,758

)

 

 

(16,564

)

 

 

(942

)

 

 

(145

)

 

 

(42

)

 

 

15,229

 

 

 

(5,002

)

 

 

53,096

 

 

 

(78,758

)

 

 

(16,564

)

Transfers of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

Interest rate lock commitments
  to loans acquired for sale (2)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(8,849

)

 

 

—

 

 

 

—

 

 

 

(8,849

)

Mortgage servicing rights relating to
   delinquent loans to Agency

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

216

 

 

 

216

 

Balance, June 30, 2024

 

$

87,841

 

 

$

7,994

 

 

$

1,998

 

 

$

24,305

 

 

$

1,552

 

 

$

(16,974

)

 

$

3,941,861

 

 

$

4,048,577

 

Changes in fair value recognized during
   the period relating to assets still held
   at June 30, 2024

 

$

(942

)

 

$

(199

)

 

$

(52

)

 

$

8,256

 

 

$

1,552

 

 

$

29,718

 

 

$

(78,758

)

 

$

(40,425

)

(1)
For the purpose of this table, CRT derivative, IRLC, and CRT strip asset and liability positions are shown net.
(2)
The Company had transfers among the fair value levels arising from transfers of IRLCs to loans acquired for sale upon purchase of the respective loans.

 

Liabilities

 

Six months ended June 30, 2024

 

 

 

(in thousands)

 

Interest-only security payable:

 

 

 

Balance, December 31, 2023

 

$

32,667

 

Changes in fair value included in income arising from:

 

 

 

Changes in instrument - specific credit risk

 

 

—

 

Other factors

 

 

41

 

 

 

41

 

Balance, June 30, 2024

 

$

32,708

 

Changes in fair value recognized during the period relating
    to liability outstanding at June 30, 2024

 

$

41

 

 

Financial Statement Items Measured at Fair Value under the Fair Value Option

Following are the fair values and related principal amounts due upon maturity of loans accounted for under the fair value option (including loans acquired for sale, loans held in consolidated VIEs, and distressed loans):

 

 

June 30, 2025

 

 

December 31, 2024

 

 

 

Fair value

 

 

Principal
amount due
upon maturity

 

 

Difference

 

 

Fair value

 

 

Principal
amount due
upon maturity

 

 

Difference

 

 

 

(in thousands)

 

Loans acquired for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current through 89 days delinquent

 

$

2,614,499

 

 

$

2,550,108

 

 

$

64,391

 

 

$

2,114,556

 

 

$

2,092,030

 

 

$

22,526

 

90 or more days delinquent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not in foreclosure

 

 

910

 

 

 

941

 

 

 

(31

)

 

 

1,687

 

 

 

2,114

 

 

 

(427

)

In foreclosure

 

 

842

 

 

 

1,002

 

 

 

(160

)

 

 

75

 

 

 

96

 

 

 

(21

)

 

 

1,752

 

 

 

1,943

 

 

 

(191

)

 

 

1,762

 

 

 

2,210

 

 

 

(448

)

 

$

2,616,251

 

 

$

2,552,051

 

 

$

64,200

 

 

$

2,116,318

 

 

$

2,094,240

 

 

$

22,078

 

Loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held in consolidated VIEs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current through 89 days delinquent

 

$

4,563,339

 

 

$

4,646,273

 

 

$

(82,934

)

 

$

2,190,432

 

 

$

2,413,214

 

 

$

(222,782

)

90 or more days delinquent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not in foreclosure

 

 

1,339

 

 

 

1,635

 

 

 

(296

)

 

 

1,277

 

 

 

1,658

 

 

 

(381

)

In foreclosure

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,339

 

 

 

1,635

 

 

 

(296

)

 

 

1,277

 

 

 

1,658

 

 

 

(381

)

 

 

4,564,678

 

 

 

4,647,908

 

 

 

(83,230

)

 

 

2,191,709

 

 

 

2,414,872

 

 

 

(223,163

)

Distressed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current through 89 days delinquent

 

 

423

 

 

 

567

 

 

 

(144

)

 

 

445

 

 

 

595

 

 

 

(150

)

90 or more days delinquent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not in foreclosure

 

 

1,242

 

 

 

3,245

 

 

 

(2,003

)

 

 

1,421

 

 

 

3,796

 

 

 

(2,375

)

In foreclosure

 

 

189

 

 

 

539

 

 

 

(350

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,431

 

 

 

3,784

 

 

 

(2,353

)

 

 

1,421

 

 

 

3,796

 

 

 

(2,375

)

 

 

1,854

 

 

 

4,351

 

 

 

(2,497

)

 

 

1,866

 

 

 

4,391

 

 

 

(2,525

)

 

$

4,566,532

 

 

$

4,652,259

 

 

$

(85,727

)

 

$

2,193,575

 

 

$

2,419,263

 

 

$

(225,688

)

 

Following are the changes in fair value included in current period results of operations by consolidated statement of operations line item for financial statement items accounted for under the fair value option:

 

 

Quarter ended June 30, 2025

 

 

 

Net gains (losses) on investments and financings

 

 

Net gains on loans acquired
for sale

 

 

Net loan
servicing fees

 

 

Net interest
expense

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

14,564

 

 

$

—

 

 

$

—

 

 

$

7,582

 

 

$

22,146

 

Loans acquired for sale

 

 

—

 

 

 

34,080

 

 

 

—

 

 

 

—

 

 

 

34,080

 

Loans held for investment

 

 

13,659

 

 

 

—

 

 

 

—

 

 

 

(3,488

)

 

 

10,171

 

Credit risk transfer strips

 

 

15,474

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

15,474

 

Mortgage servicing rights

 

 

—

 

 

 

—

 

 

 

(75,128

)

 

 

—

 

 

 

(75,128

)

 

$

43,697

 

 

$

34,080

 

 

$

(75,128

)

 

$

4,094

 

 

$

6,743

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-only security payable

 

$

(599

)

 

$

—

 

 

$

—

 

 

$

—

 

 

$

(599

)

Asset-backed financings of VIEs

 

 

(14,793

)

 

 

—

 

 

 

—

 

 

 

505

 

 

 

(14,288

)

 

$

(15,392

)

 

$

—

 

 

$

—

 

 

$

505

 

 

$

(14,887

)

 

 

 

 

Quarter ended June 30, 2024

 

 

 

Net gains (losses) on investments and financings

 

 

Net gains on loans acquired
for sale

 

 

Net loan
servicing fees

 

 

Net interest
expense

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

(34,925

)

 

$

—

 

 

$

—

 

 

$

6,586

 

 

$

(28,339

)

Loans acquired for sale

 

 

—

 

 

 

1,969

 

 

 

—

 

 

 

—

 

 

 

1,969

 

Loans held for investment

 

 

(2,742

)

 

 

—

 

 

 

—

 

 

 

(605

)

 

 

(3,347

)

Credit risk transfer strips

 

 

12,071

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

12,071

 

Mortgage servicing rights

 

 

—

 

 

 

—

 

 

 

(50,556

)

 

 

—

 

 

 

(50,556

)

 

$

(25,596

)

 

$

1,969

 

 

$

(50,556

)

 

$

5,981

 

 

$

(68,202

)

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-only security payable

 

$

(481

)

 

$

—

 

 

$

—

 

 

$

—

 

 

$

(481

)

Asset-backed financings of VIEs

 

 

1,295

 

 

 

—

 

 

 

—

 

 

 

(604

)

 

 

691

 

 

$

814

 

 

$

—

 

 

$

—

 

 

$

(604

)

 

$

210

 

 

 

 

 

Six months ended June 30, 2025

 

 

 

Net gains (losses) on investments and financings

 

 

Net gains on loans acquired
for sale

 

 

Net loan
servicing fees

 

 

Net interest
expense

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

79,419

 

 

$

—

 

 

$

—

 

 

$

17,652

 

 

$

97,071

 

Loans acquired for sale

 

 

—

 

 

 

80,591

 

 

 

—

 

 

 

—

 

 

 

80,591

 

Loans held for investment

 

 

42,340

 

 

 

—

 

 

 

—

 

 

 

(4,175

)

 

 

38,165

 

Credit risk transfer strips

 

 

13,426

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

13,426

 

Mortgage servicing rights

 

 

—

 

 

 

—

 

 

 

(219,718

)

 

 

—

 

 

 

(219,718

)

 

$

135,185

 

 

$

80,591

 

 

$

(219,718

)

 

$

13,477

 

 

$

9,535

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-only security payable

 

$

(2,331

)

 

$

—

 

 

$

—

 

 

$

—

 

 

$

(2,331

)

Asset-backed financings of VIEs

 

 

(44,216

)

 

 

—

 

 

 

—

 

 

 

1,873

 

 

 

(42,343

)

 

$

(46,547

)

 

$

—

 

 

$

—

 

 

$

1,873

 

 

$

(44,674

)

 

 

 

 

 

Six months ended June 30, 2024

 

 

 

Net gains (losses) on investments and financings

 

 

Net gains on loans acquired
for sale

 

 

Net loan
servicing fees

 

 

Net interest
expense

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

(73,123

)

 

$

—

 

 

$

—

 

 

$

9,677

 

 

$

(63,446

)

Loans acquired for sale

 

 

—

 

 

 

1,632

 

 

 

—

 

 

 

—

 

 

 

1,632

 

Loans held for investment

 

 

(4,020

)

 

 

—

 

 

 

—

 

 

 

(2,740

)

 

 

(6,760

)

Credit risk transfer strips

 

 

53,096

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

53,096

 

Mortgage servicing rights

 

 

—

 

 

 

—

 

 

 

(78,758

)

 

 

—

 

 

 

(78,758

)

 

$

(24,047

)

 

$

1,632

 

 

$

(78,758

)

 

$

6,937

 

 

$

(94,236

)

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-only security payable

 

$

(41

)

 

$

—

 

 

$

—

 

 

$

—

 

 

$

(41

)

Asset-backed financings of VIEs

 

 

8,771

 

 

 

—

 

 

 

—

 

 

 

(112

)

 

 

8,659

 

 

$

8,730

 

 

$

—

 

 

$

—

 

 

$

(112

)

 

$

8,618

 

 

 

Financial Statement Item Measured at Fair Value on a Nonrecurring Basis

Following is a summary of the carrying value of assets that were remeasured during the period based on fair value on a nonrecurring basis:

Real estate acquired in settlement of loans

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

June 30, 2025

 

$

—

 

 

$

—

 

 

$

271

 

 

$

271

 

December 31, 2024

 

$

—

 

 

$

—

 

 

$

532

 

 

$

532

 

 

The following table summarizes the fair value changes recognized during the period on assets held at period end that were remeasured at fair value on a nonrecurring basis:

 

 

Quarter ended June 30,

 

 

Six months ended June 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

 

 

(in thousands)

 

Real estate acquired in settlement of loans

 

$

(14

)

 

$

(246

)

 

$

(50

)

 

$

(150

)

The Company remeasures its REO based on fair value when it evaluates the REO properties for impairment. The Company evaluates its REO for impairment with reference to the respective properties’ fair values less costs to sell. REO may be revalued after acquisition due to the Company receiving greater access to the property, the property being held for an extended period or receiving indications that the property’s fair value may not be supported by developing market conditions. Any subsequent change in fair value to a level that is less than or equal to the property’s cost is recognized in Results of real estate acquired in settlement of loans in the Company’s consolidated statements of operations.

Fair Value of Financial Instruments Carried at Amortized Cost

Most of the Company’s borrowings are carried at amortized cost. The Company’s Assets sold under agreements to repurchase, Mortgage loan participation purchase and sale agreements, Notes payable secured by credit risk transfer and mortgage servicing assets and the Exchangeable Notes, defined in Note 15 – Long-Term Debt, are classified as “Level 3” fair value liabilities due to the Company’s reliance on unobservable inputs to estimate these instruments’ fair values. The Company classifies its Unsecured senior notes, as detailed in Note 15 – Long-Term Debt, as “Level 2” fair value liabilities.

The Company has concluded that the fair values of these borrowings other than term notes and term loans included in Notes payable secured by credit risk transfer and mortgage servicing assets and the Unsecured senior notes approximate the agreements’ carrying values due to the borrowing agreements’ variable interest rates and short maturities.

The Company estimates the fair values of the term notes and term loans included in Notes payable secured by credit risk transfer and mortgage servicing assets using indications of fair value provided by nonaffiliate brokers for the term notes, internal estimates of fair value for the term loans, and pricing services for the Unsecured senior notes. The fair values and carrying values of these liabilities are summarized below:

 

 

June 30, 2025

 

 

December 31, 2024

 

Instrument

 

Carrying value

 

 

Fair value

 

 

Carrying value

 

 

Fair value

 

 

 

(in thousands)

 

Notes payable secured by credit risk transfer
    and mortgage servicing assets

 

$

2,666,133

 

 

$

2,685,857

 

 

$

2,929,790

 

 

$

2,944,956

 

Unsecured senior notes

 

$

875,225

 

 

$

894,341

 

 

$

605,860

 

 

$

606,185

 

Valuation Governance

Most of the Company’s assets, its Asset-backed financings of variable interest entities at fair value, Interest-only security payable at fair value and the CRT strips included in Derivative and credit risk transfer strip liabilities at fair value are carried at fair value with changes in fair value recognized in current period results of operations. A substantial portion of these items are “Level 3” fair value assets and liabilities which require the use of unobservable inputs that are significant to the estimation of the fair values of the assets and liabilities. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability and are based on the best information available under the circumstances.

Due to the difficulty in estimating the fair values of “Level 3” fair value assets and liabilities, the Company has assigned responsibility for estimating the fair values of these assets and liabilities to specialized staff within PFSI's capital markets group and subjects the valuation process to significant senior management oversight.

With respect to “Level 3” valuations other than IRLCs, the capital markets valuation staff reports to PFSI’s senior management valuation subcommittee, which oversees the valuations. The capital markets valuation staff monitors the models used for valuation of the Company’s “Level 3” fair value assets and liabilities other than IRLCs, including the models’ performance versus actual results, and reports those results to PFSI’s senior management valuation subcommittee. PFSI’s senior management valuation subcommittee includes the Company’s chief financial and investment officers as well as other senior members of PFSI’s finance, risk management and capital markets staffs.

The capital markets valuation staff is responsible for reporting to PFSI’s senior management valuation subcommittee on the changes in the valuation of the non-IRLC “Level 3” fair value assets and liabilities, including major factors affecting the valuation and any changes in model methods and inputs. To assess the reasonableness of its valuations, the capital markets valuation staff presents an analysis of the effect on the valuation of changes to the significant inputs to the models and, for MSRs, comparisons of its estimates of fair value and key inputs to those procured from nonaffiliate brokers and published surveys.

The fair values of the Company’s IRLCs are developed by PFSI's capital markets risk management staff and are reviewed by its capital markets operations staff.

Valuation Techniques and Inputs

The following is a description of the techniques and inputs used in estimating the fair values of “Level 2” and “Level 3” fair value assets and liabilities:

Mortgage-Backed Securities

The Company’s categorization of its current holdings of MBS is based on whether the respective security is an IO stripped MBS:

•
The Company categorizes its current holdings of MBS other than IO stripped MBS as “Level 2” fair value assets. Fair value of these securities is established based on quoted market prices for the Company’s MBS holdings or similar securities.
•
The Company categorizes its current holdings of IO stripped MBS as “Level 3” fair value assets. The Company uses a discounted cash flow approach to estimate the fair values of its IO stripped MBS.

 

The key inputs used in the estimation of the fair value of IO stripped MBS include pricing spread (a component of discount rate) and prepayment speed. Significant changes to those inputs in isolation may result in significant changes in the IO stripped MBS' fair value measurements. Changes in these key inputs are not directly related.

Following are the key inputs used in determining the fair value of IO stripped MBS:

 

 

 

June 30, 2025

 

 

December 31, 2024

 

Fair value (in thousands)

 

$

79,052

 

 

$

86,260

 

Key inputs (1)

 

 

 

 

 

 

Pricing spread (2)

 

 

 

 

 

 

Range

 

5.9% – 6.5%

 

 

5.9% – 6.5%

 

Weighted average

 

6.5%

 

 

6.5%

 

Annual total prepayment speed (3)

 

 

 

 

 

 

Range

 

10.6% – 11.9%

 

 

9.4% – 10.2%

 

Weighted average

 

10.6%

 

 

9.4%

 

Equivalent life (in years)

 

 

 

 

 

 

Range

 

4.3 – 7.5

 

 

4.6 – 8.0

 

Weighted average

 

7.5

 

 

7.9

 

 

(1)
Weighted-average inputs are based on the UPB of the underlying loans.
(2)
Pricing spread represents a margin that is applied to a reference forward rate to develop periodic discount rates. The Company uses the pricing spread over a derived United States Treasury Securities (“Treasury”) yield curve for the purpose of discounting cash flows relating to IO stripped MBS.
(3)
Prepayment speed is measured using life total Conditional Prepayment Rate (“CPR”). Equivalent life is provided as supplementary information.

Changes in the fair value of MBS are included in Net gains (losses) on investments and financings in the consolidated statements of operations.

Loans

Fair value of loans is estimated based on whether the loans are saleable into active markets:

•
Loans that are saleable into active markets, comprised of most of the Company’s loans acquired for sale and all of the loans held for investment held in VIEs, are categorized as “Level 2” fair value assets:
•
Fair values of loans acquired for sale are established using the loans’ contracted selling prices, quoted market prices or market price equivalents.
•
Fair values of loans held for investment held in VIEs are developed using the quoted indications of fair value of all of the individual securities issued by the securitization trusts. The Company obtains indications of fair value from nonaffiliate brokers based on comparable securities and/or pricing services and validates the brokers’ or pricing services’ indications of fair value using pricing models and inputs the Company believes are similar to the pricing models and inputs used by other market participants. The Company adjusts the fair values received from brokers and/or pricing services to include the fair value of MSRs attributable to the loans included in the VIEs.
•
Loans that are not saleable into active markets, comprised of home equity lines of credit, previously sold loans that the Company repurchased pursuant to the representation and warranties it provided to the purchaser and distressed loans, are categorized as “Level 3” fair value assets:
•
Fair values of loans acquired for sale categorized as “Level 3” assets (home equity lines of credit and previously sold loans repurchased pursuant to representation and warrants) are estimated using a discounted cash flow approach or the loans' contracted selling prices when applicable. Inputs to the discounted cash flow model include current interest rates, payment statuses, property types, discount rates and forecasts of future interest rates, home prices, prepayment speeds, default speeds and loss severities.
•
Fair values of distressed loans are estimated based on the fair values of the real estate collateralizing the loans.

Changes in fair values of loans acquired for sale are included in Net gains on loans acquired for sale in the consolidated statements of operations. Changes in fair values of loans held for investment are included in Net gains (losses) on investments and financings in the consolidated statements of operations.

Derivative and Credit Risk Transfer Strip Assets and Liabilities

CRT Derivatives

The Company categorizes CRT derivatives as “Level 3” fair value assets and liabilities. The fair values of CRT derivatives are based on indications of fair value provided to the Company by nonaffiliate brokers for the certificates representing the beneficial interests in the trusts holding the Deposits securing credit risk transfer arrangements pledged to creditors, the recourse obligations and the IO ownership interests. Together, the recourse obligation and the IO ownership interest comprise the CRT derivative. Fair values of the CRT derivatives are derived by deducting the balances of the Deposits securing credit risk transfer arrangements pledged to creditors from the fair values of the certificates.

The Company assesses the fair values it receives from nonaffiliate brokers using the discounted cash flow approach. The significant unobservable inputs used by the Company in its review and approval of the valuation of CRT derivatives are the discount rates, voluntary and involuntary prepayment speeds and the remaining loss expectations of the reference loans. Changes in fair value of CRT derivatives are included in Net gains (losses) on investments and financings in the consolidated statements of operations.

Following is a quantitative summary of key unobservable inputs used in the Company’s review and approval of broker-provided fair values for CRT derivatives:

 

 

June 30, 2025

 

 

December 31, 2024

 

 

 

(dollars in thousands)

 

Fair value

 

$

31,147

 

 

$

29,377

 

UPB of loans in reference pools

 

$

4,731,905

 

 

$

4,961,644

 

Key inputs (1)

 

 

 

 

 

 

Discount rate

 

 

 

 

 

 

Range

 

8.7% – 18.7%

 

 

9.0% – 11.4%

 

Weighted average

 

8.9%

 

 

9.3%

 

Voluntary prepayment speed (2)

 

 

 

 

 

 

Range

 

6.8% – 8.3%

 

 

7.0% – 7.6%

 

Weighted average

 

7.2%

 

 

7.3%

 

Involuntary prepayment speed (3)

 

 

 

 

 

 

Range

 

0.1% – 0.3%

 

 

0.1% – 0.2%

 

Weighted average

 

0.1%

 

 

0.1%

 

Remaining loss expectation

 

 

 

 

 

 

Range

 

0.0% – 0.1%

 

 

0.0% – 0.2%

 

Weighted average

 

0.1%

 

 

0.1%

 

 

(1)
Weighted average inputs are based on fair value amounts of the CRT arrangements, except for remaining loss expectation which is based on the UPB of the loans in the reference pools.
(2)
Voluntary prepayment speed is measured using life voluntary CPR.
(3)
Involuntary prepayment speed is measured using life involuntary CPR.

Interest Rate Lock Commitments

The Company categorizes IRLCs as “Level 3” fair value assets and liabilities. The Company estimates the fair values of IRLCs based on quoted Agency MBS prices, the probability that the loans will be purchased under the commitments (the “pull-through rate”) and the Company’s estimate of the fair values of the MSRs it expects to receive upon sale of the loans.

The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rates and the estimated MSRs attributed to the mortgage loans subject to the commitments. Significant changes in the pull-through rates or the MSR components of the IRLCs, in isolation, may result in a significant change in the IRLCs’ fair values. The financial effects of changes in these inputs are generally inversely correlated as increasing interest rates have a positive effect on the fair value of the MSR component of an IRLC’s fair value, but also increase the pull-through rate for the loan principal and interest payment cash flow component that has decreased in fair value. Changes in fair value of IRLCs are included in Net gains on loans acquired for sale in the consolidated statements of operations.

Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:

 

 

June 30, 2025

 

 

December 31, 2024

 

Fair value (in thousands) (1)

 

$

6,485

 

 

$

444

 

Committed amount (in thousands)

 

$

936,725

 

 

$

1,166,566

 

Key inputs (2)

 

 

 

 

 

 

Pull-through rate

 

 

 

 

 

 

Range

 

56.7% – 100%

 

 

51.0% – 98.0%

 

Weighted average

 

88.6%

 

 

86.3%

 

MSR fair value expressed as

 

 

 

 

 

 

Servicing fee multiple

 

 

 

 

 

 

Range

 

1.5 – 8.2

 

 

2.6 – 7.8

 

Weighted average

 

5.6

 

 

5.7

 

Percentage of unpaid principal balance

 

 

 

 

 

 

Range

 

0.4% – 2.7%

 

 

0.6% – 2.7%

 

Weighted average

 

1.7%

 

 

1.9%

 

 

(1)
For purposes of this table, IRLC asset and liability positions are shown net.
(2)
Weighted-average inputs are based on the committed amounts.

Hedging Derivatives

Fair values of derivative financial instruments actively traded on exchanges are categorized by the Company as “Level 1” fair value assets and liabilities. Fair values of derivative financial instruments based on observable interest rates, volatilities and prices in the MBS or other markets are categorized by the Company as “Level 2” fair value assets and liabilities. Changes in the fair value of hedging derivatives are included in Net gains (losses) on investments and financings, Net gains on loans acquired for sale or Net loan servicing fees – from nonaffiliates – Mortgage servicing rights hedging results as applicable, in the consolidated statements of operations.

Credit Risk Transfer Strips

The Company categorizes CRT strips as “Level 3” fair value liabilities. The fair values of CRT strips are based on indications of fair value provided to the Company by nonaffiliate brokers for the securities representing the beneficial interests in the trusts holding the Deposits securing credit risk transfer arrangements pledged to creditors, the IO ownership interests and the recourse obligations. Together, the IO ownership interest and the recourse obligation comprise the CRT strip.

Fair values of the CRT strips are derived by deducting the balance of the Deposits securing credit risk transfer arrangements pledged to creditors from the indications of fair value of the securities provided by the nonaffiliate brokers.

The Company assesses the indications of fair value it receives from nonaffiliate brokers using the discounted cash flow approach. The significant unobservable inputs used by the Company in its review and approval of the valuation of the CRT strips are the discount rates, voluntary and involuntary prepayment speeds and the remaining loss expectations of the reference loans. Changes in fair value of CRT strips are included in Net gains (losses) on investments and financings in the consolidated statements of operations.

Following is a quantitative summary of key unobservable inputs used in the Company’s review and approval of the broker-provided fair values used to derive the fair value of the CRT strip liabilities:

 

 

June 30, 2025

 

 

December 31, 2024

 

 

 

(dollars in thousands)

 

Fair value

 

$

10,479

 

 

$

4,060

 

Unpaid principal balance of loans in the reference pools

 

$

15,624,260

 

 

$

16,287,660

 

Key inputs (1)

 

 

 

 

 

 

Discount rate

 

 

 

 

 

 

Range

 

6.1% – 8.8%

 

 

7.1% – 9.1%

 

Weighted average

 

8.4%

 

 

8.8%

 

Voluntary prepayment speed (2)

 

 

 

 

 

 

Range

 

6.9% – 7.5%

 

 

6.9% – 7.5%

 

Weighted average

 

7.0%

 

 

7.0%

 

Involuntary prepayment speed (3)

 

 

 

 

 

 

Range

 

0.1% – 0.3%

 

 

0.1% – 0.3%

 

Weighted average

 

0.1%

 

 

0.1%

 

Remaining loss expectation

 

 

 

 

 

 

Range

 

0.4% – 1.5%

 

 

0.4% – 1.5%

 

Weighted average

 

0.5%

 

 

0.5%

 

 

(1)
Weighted average inputs are based on fair value amounts of the CRT arrangements, except for remaining loss expectation which is based on the UPB of the loans in the reference pools.
(2)
Voluntary prepayment speed is measured using life voluntary CPR.
(3)
Involuntary prepayment speed is measured using life involuntary CPR.

Mortgage Servicing Rights

The Company categorizes MSRs as “Level 3” fair value assets. The fair values of MSRs are derived from the net positive cash flows associated with the servicing agreements. The Company uses a discounted cash flow approach to estimate the fair values of MSRs. The Company receives a servicing fee based on the remaining UPB of the loans subject to the servicing agreements and generally has the right to receive other remuneration including various mortgagor-contracted fees such as late charges and collateral reconveyance charges, and is generally entitled to retain any placement fees earned on certain custodial funds held pending remittance of mortgagor principal, interest, tax and insurance payments.

The key inputs used in the estimation of the fair value of MSRs include the prepayment speeds of the underlying loans, the applicable pricing spreads (a component of the discount rate) and the annual per-loan costs to service the loans, all of which are unobservable. Significant changes to any of those inputs in isolation could result in significant changes in the MSR fair value measurements. Changes in these key inputs are not directly related. Changes in the fair value of MSRs are included in Net loan servicing fees – From nonaffiliates – Change in fair value of mortgage servicing rights in the consolidated statements of operations.

MSRs are generally subject to loss in fair value when prepayment speed expectations and experience increase, when returns required by market participants (pricing spreads) increase, or when annual per-loan cost of servicing increases. Reductions in the fair value of MSRs affect income primarily through recognition of the change in fair value.

Following are the key inputs used in determining the fair value of MSRs at the time of initial recognition:

 

Quarter ended June 30,

 

 

Six months ended June 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

MSRs recognized (in thousands)

 

$

44,030

 

 

$

40,619

 

 

$

91,039

 

 

$

71,868

 

Unpaid principal balance of underlying loans (in thousands)

 

$

2,350,978

 

 

$

2,242,511

 

 

$

4,945,616

 

 

$

4,073,529

 

Weighted average annual servicing fee rate (in basis points)

 

32

 

 

35

 

 

32

 

 

35

 

Key inputs (1)

 

 

 

 

 

 

 

 

 

 

 

 

Prepayment speed (2)

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

9.4% – 15.5%

 

 

10.8% – 17.8%

 

 

9.4% – 15.5%

 

 

10.8% – 17.8%

 

Weighted average

 

9.6%

 

 

11.5%

 

 

9.7%

 

 

12.4%

 

Equivalent average life (in years)

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

3.8 – 8.2

 

 

3.4 – 7.2

 

 

3.7 – 8.2

 

 

3.4 – 7.2

 

Weighted average

 

8.1

 

 

7.1

 

 

8.0

 

 

6.8

 

Pricing spread (3)

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

5.2% – 7.3%

 

 

5.9% – 8.1%

 

 

5.2% – 7.3%

 

 

5.5% – 8.5%

 

Weighted average

 

5.3%

 

 

6.0%

 

 

5.4%

 

 

5.8%

 

Annual per-loan cost of servicing

 

 

 

 

 

 

 

 

 

 

 

 

Range

 

$69 – $87

 

 

$69 – $87

 

 

$68 – $87

 

 

$69 – $87

 

Weighted average

 

$69

 

 

$69

 

 

$69

 

 

$70

 

 

(1)
Weighted average inputs are based on UPB of the underlying loans.
(2)
Prepayment speed is measured using life total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.
(3)
The Company uses the pricing spread over a derived Treasury yield curve for the purpose of discounting cash flows relating to MSRs.

Following is a quantitative summary of key inputs used in the valuation of MSRs as of the dates presented, and the effect on the fair value from adverse changes in those inputs:

 

 

 

June 30, 2025

 

 

December 31, 2024

 

Fair value (in thousands)

 

$

3,739,106

 

 

$

3,867,394

 

Unpaid principal balance of underlying loans (in thousands)

 

$

221,632,326

 

 

$

226,237,613

 

Weighted average annual servicing fee rate (in basis points)

 

27

 

 

27

 

Weighted average note interest rate

 

3.9%

 

 

3.8%

 

Key inputs (1)

 

 

 

 

 

 

Prepayment speed (2)

 

 

 

 

 

 

Range

 

7.1% – 18.5%

 

 

6.5% – 17.7%

 

Weighted average

 

7.3%

 

 

6.7%

 

Equivalent average life (in years)

 

 

 

 

 

 

Range

 

2.3 – 8.7

 

 

2.4 – 8.9

 

Weighted average

 

8.3

 

 

8.6

 

Effect on fair value (in thousands) of (3):

 

 

 

 

 

 

5% adverse change

 

$(54,493)

 

 

$(51,798)

 

10% adverse change

 

$(107,260)

 

 

$(102,010)

 

20% adverse change

 

$(207,940)

 

 

$(197,970)

 

Pricing spread (4)

 

 

 

 

 

 

Range

 

5.4% – 8.1%

 

 

5.4% – 8.1%

 

Weighted average

 

5.4%

 

 

5.4%

 

Effect on fair value (in thousands) of (3):

 

 

 

 

 

 

5% adverse change

 

$(46,780)

 

 

$(47,568)

 

10% adverse change

 

$(92,450)

 

 

$(94,018)

 

20% adverse change

 

$(180,597)

 

 

$(183,710)

 

Annual per-loan cost of servicing

 

 

 

 

 

 

Range

 

$69 – $89

 

 

$69 – $89

 

Weighted average

 

$69

 

 

$69

 

Effect on fair value (in thousands) of (3):

 

 

 

 

 

 

5% adverse change

 

$(16,355)

 

 

$(16,645)

 

10% adverse change

 

$(32,710)

 

 

$(33,291)

 

20% adverse change

 

$(65,421)

 

 

$(66,582)

 

 

 

(1)
Weighted-average inputs are based on the UPB of the underlying loans.
(2)
Prepayment speed is measured using life total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.
(3)
These sensitivity analyses are limited in that they were performed as of a particular date; only account for the estimated effect of the movements in the indicated inputs; do not incorporate changes in those inputs in relation to other inputs; are subject to the accuracy of the models and inputs used; and do not incorporate other factors that would affect the Company’s overall financial performance in such events, including operational adjustments to account for changing circumstances. For these reasons, these analyses should not be viewed as earnings forecasts.
(4)
The Company uses a pricing spread over a derived Treasury yield curve for the purpose of discounting cash flows relating to MSRs.

Real Estate Acquired in Settlement of Loans

REO is measured based on its fair value on a nonrecurring basis and is categorized as a “Level 3” fair value asset. Fair value of REO is established by using a current estimate of fair value from either a broker’s price opinion, a full appraisal, or the price given in a pending contract of sale.

REO fair values are reviewed by PLS staff appraisers when the Company obtains multiple indications of fair value and there is a significant difference between the indications of fair value. PLS staff appraisers will attempt to resolve the difference between the indications of fair value. In circumstances where the staff appraisers are not able to generate adequate data to support a fair value conclusion, the staff appraisers obtain an additional appraisal to determine fair value. Recognized changes in the fair value of REO are included in Results of real estate acquired in settlement of loans in the consolidated statements of operations.