| Fair Value |
Note 7—Fair Value Most of the Company’s assets and certain of its liabilities are measured at or based on their fair values. 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 significant inputs used to determine the fair values. The fair value level assigned to an asset or liability is based on the lowest level of input that is significant to its fair value measurement. These levels are: | ● | Level 1—Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2—Prices determined 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 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 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 inputs required to establish fair value at a higher level of the hierarchy become available. Fair Value Accounting Elections The Company identified its MSRs, its mortgage servicing liabilities (“MSLs”) and all of its non-cash financial assets to be accounted for at fair value so changes in fair value will be reflected in income as they occur and more timely reflect the results of the Company’s performance. Assets and Liabilities Measured at Fair Value on a Recurring Basis Following is a summary of assets and liabilities that are measured at fair value on a recurring basis: | | | | | | | | | | | | | | | March 31, 2026 | | | Level 1 | | Level 2 | | Level 3 | | Total | | | | (in thousands) | Assets: | | | | | | | | | | | | | Short-term investment | | $ | 434,220 | | $ | — | | $ | — | | $ | 434,220 | Principal-only stripped mortgage-backed securities | | | — | | | 659,235 | | | — | | | 659,235 | Loans held for sale | | | — | | | 9,525,538 | | | 428,957 | | | 9,954,495 | Derivative assets from non-affiliates: | | | | | | | | | | | | | Interest rate lock commitments | | | — | | | — | | | 138,031 | | | 138,031 | Forward purchase contracts | | | — | | | 24,588 | | | — | | | 24,588 | Forward sales contracts | | | — | | | 165,645 | | | — | | | 165,645 | MBS put options | | | — | | | 4,840 | | | — | | | 4,840 | Total return swap | | | — | | | 119 | | | — | | | 119 | Put options on interest rate futures purchase contracts | | | 41,688 | | | — | | | — | | | 41,688 | Call options on interest rate futures purchase contracts | | | 9,414 | | | — | | | — | | | 9,414 | Total derivative assets before netting | | | 51,102 | | | 195,192 | | | 138,031 | | | 384,325 | Netting | | | — | | | — | | | — | | | (107,616) | Total derivative assets from non-affiliates | | | 51,102 | | | 195,192 | | | 138,031 | | | 276,709 | Derivative assets from PennyMac Mortgage Investment Trust: | | | | | | | | | | | | | Interest rate lock commitments | | | — | | | — | | | 5,886 | | | 5,886 | Forward sales contracts | | | — | | | 15 | | | — | | | 15 | Total before netting | | | — | | | 15 | | | 5,886 | | | 5,901 | Netting | | | — | | | — | | | — | | | (15) | Total derivative assets from
PennyMac Mortgage Investment Trust | | | — | | | 15 | | | 5,886 | | | 5,886 | Mortgage servicing rights | | | — | | | — | | | 10,149,036 | | | 10,149,036 | Investment in PennyMac Mortgage Investment Trust | | | 875 | | | — | | | — | | | 875 | | | $ | 486,197 | | $ | 10,379,980 | | $ | 10,721,910 | | $ | 21,480,456 | Liabilities: | | | | | | | | | | | | | Derivative liabilities to non-affiliates: | | | | | | | | | | | | | Interest rate lock commitments | | $ | — | | $ | — | | $ | 35,368 | | $ | 35,368 | Forward purchase contracts | | | — | | | 67,863 | | | — | | | 67,863 | Forward sales contracts | | | — | | | 42,663 | | | — | | | 42,663 | Total derivative liabilities before netting | | | — | | | 110,526 | | | 35,368 | | | 145,894 | Netting | | | — | | | — | | | — | | | (79,065) | Total derivative liabilities to non-affiliates | | | — | | | 110,526 | | | 35,368 | | | 66,829 | Derivative liabilities to
PennyMac Mortgage Investment Trust: | | | | | | | | | | | | | Interest rate lock commitments | | | — | | | — | | | 2,613 | | | 2,613 | Forward sales contracts | | | — | | | 1,225 | | | — | | | 1,225 | Total derivative liabilities to
PennyMac Mortgage Investment Trust before netting | | | — | | | 1,225 | | | 2,613 | | | 3,838 | Netting | | | — | | | — | | | — | | | (15) | Total derivative liabilities to
PennyMac Mortgage Investment Trust | | | — | | | 1,225 | | | 2,613 | | | 3,823 | Mortgage servicing liabilities | | | — | | | — | | | 1,568 | | | 1,568 | | | $ | — | | $ | 111,751 | | $ | 39,549 | | $ | 72,220 |
| | | | | | | | | | | | | | | December 31, 2025 | | | Level 1 | | Level 2 | | Level 3 | | Total | | | | (in thousands) | Assets: | | | | | | | | | | | | | Short-term investment | | $ | 410,037 | | $ | — | | $ | — | | $ | 410,037 | Principal-only stripped mortgage-backed securities | | | — | | | 722,528 | | | — | | | 722,528 | Loans held for sale | | | — | | | 8,815,699 | | | 307,711 | | | 9,123,410 | Derivative assets from non-affiliates: | | | | | | | | | | | | | Interest rate lock commitments | | | — | | | — | | | 131,536 | | | 131,536 | Forward purchase contracts | | | — | | | 49,499 | | | — | | | 49,499 | Forward sales contracts | | | — | | | 16,399 | | | — | | | 16,399 | Total return swap | | | — | | | 8 | | | — | | | 8 | Put options on interest rate futures purchase contracts | | | 22,769 | | | — | | | — | | | 22,769 | Call options on interest rate futures purchase contracts | | | 2,086 | | | — | | | — | | | 2,086 | Total derivative assets before netting | | | 24,855 | | | 65,906 | | | 131,536 | | | 222,297 | Netting | | | — | | | — | | | — | | | (36,779) | Total derivative assets from non-affiliates | | | 24,855 | | | 65,906 | | | 131,536 | | | 185,518 | Derivative assets from PennyMac Mortgage Investment Trust: | | | | | | | | | | | | | Interest rate lock commitments | | | — | | | — | | | 2,257 | | | 2,257 | Forward sales contracts | | | — | | | 142 | | | — | | | 142 | Total before netting | | | — | | | 142 | | | 2,257 | | | 2,399 | Netting | | | — | | | — | | | — | | | (142) | Total derivative assets from
PennyMac Mortgage Investment Trust | | | — | | | 142 | | | 2,257 | | | 2,257 | Mortgage servicing rights | | | — | | | — | | | 9,598,941 | | | 9,598,941 | Investment in PennyMac Mortgage Investment Trust | | | 941 | | | — | | | — | | | 941 | | | $ | 435,833 | | $ | 9,604,275 | | $ | 10,040,445 | | $ | 20,043,632 | Liabilities: | | | | | | | | | | | | | Derivative liabilities to non-affiliates: | | | | | | | | | | | | | Interest rate lock commitments | | $ | — | | $ | — | | $ | 4,260 | | $ | 4,260 | Forward purchase contracts | | | — | | | 2,845 | | | — | | | 2,845 | Forward sales contracts | | | — | | | 47,692 | | | — | | | 47,692 | Total derivative liabilities before netting | | | — | | | 50,537 | | | 4,260 | | | 54,797 | Netting | | | — | | | — | | | — | | | (45,238) | Total derivative liabilities to non-affiliates | | | — | | | 50,537 | | | 4,260 | | | 9,559 | Derivative liabilities to
PennyMac Mortgage Investment Trust: | | | | | | | | | | | | | Interest rate lock commitments | | | — | | | — | | | 4,605 | | | 4,605 | Forward sales contracts | | | — | | | 1,784 | | | — | | | 1,784 | Total derivative liabilities to
PennyMac Mortgage Investment Trust before netting | | | — | | | 1,784 | | | 4,605 | | | 6,389 | Netting | | | — | | | — | | | — | | | (142) | Total derivative liabilities to
PennyMac Mortgage Investment Trust | | | — | | | 1,784 | | | 4,605 | | | 6,247 | Mortgage servicing liabilities | | | — | | | — | | | 1,572 | | | 1,572 | | | $ | — | | $ | 52,321 | | $ | 10,437 | | $ | 17,378 | | | | | | | | | | | | | |
As shown above, certain of the Company’s loans held for sale, interest rate lock commitments (“IRLCs”), MSRs and MSLs are measured using Level 3 fair value inputs. Following are roll forwards of assets and liabilities measured at fair value using “Level 3” inputs at either the beginning or the end of the period presented: | | | | | | | | | | | | | | | | | | Quarter ended March 31, 2026 | | | | | Interest rate lock | | Interest rate lock | | Mortgage | | | | | | Loans held | | commitments to | | commitments to | | servicing | | | | Assets | | for sale | | non-affiliates, net (1) | | PMT, net (1) | | rights | | Total | | | | (in thousands) | Balance, December 31, 2025 | | $ | 307,711 | | $ | 127,276 | | $ | (2,348) | | $ | 9,598,941 | | $ | 10,031,580 | Purchases and issuances, net | | | 947,556 | | | 254,337 | | | (5,270) | | | — | | | 1,196,623 | Capitalization of interest and servicing advances | | | 17,502 | | | — | | | — | | | — | | | 17,502 | Sales, sales adjustments and repayments | | | (342,604) | | | — | | | — | | | 2,506 | | | (340,098) | Mortgage servicing rights resulting from loan sales | | | — | | | — | | | — | | | 719,586 | | | 719,586 | Changes in fair value included in income arising from: | | | | | | | | | | | | | | | | Changes in instrument-specific credit risk | | | 22,201 | | | — | | | — | | | — | | | 22,201 | Other factors | | | 2,580 | | | 19,347 | | | 3,936 | | | (171,997) | | | (146,134) | | | | 24,781 | | | 19,347 | | | 3,936 | | | (171,997) | | | (123,933) | Transfers: | | | | | | | | | | | | | | | | From Level 3 to Level 2 | | | (525,141) | | | — | | | — | | | — | | | (525,141) | To real estate acquired in settlement of loans | | | (848) | | | — | | | — | | | — | | | (848) | To loans held for sale | | | — | | | (298,297) | | | 6,955 | | | — | | | (291,342) | Balance, March 31, 2026 | | $ | 428,957 | | $ | 102,663 | | $ | 3,273 | | $ | 10,149,036 | | $ | 10,683,929 | Changes in fair value recognized during the quarter relating to assets still held at March 31, 2026 | | $ | 12,402 | | $ | 102,663 | | $ | 3,273 | | $ | (171,997) | | $ | (53,659) |
| (1) | For the purpose of this table, the IRLC asset and liability positions are shown net. |
| | | | | | Quarter ended | Liabilities | | March 31, 2026 | | | (in thousands) | Mortgage servicing liabilities: | | | | Balance, December 31, 2025 | | $ | 1,572 | Changes in fair value included in income | | | (4) | Balance, March 31, 2026 | | $ | 1,568 | Changes in fair value recognized during the quarter relating to liabilities still outstanding at March 31, 2026 | | $ | (4) | | | | |
| | | | | | | | | | | | | | | Quarter ended March 31, 2025 | | | | | Interest | | Mortgage | | | | | | Loans held | | rate lock | | servicing | | | | Assets | | for sale | | commitments, net (1) | | rights | | | Total | | | | (in thousands) | Balance, December 31, 2024 | | $ | 434,053 | | $ | 33,565 | | $ | 8,744,528 | | $ | 9,212,146 | Purchases and issuances, net | | | 1,383,885 | | | 182,543 | | | — | | | 1,566,428 | Capitalization of interest and servicing advances | | | 10,632 | | | — | | | — | | | 10,632 | Sales and repayments | | | (514,646) | | | — | | | — | | | (514,646) | Mortgage servicing rights resulting from loan sales | | | — | | | — | | | 650,349 | | | 650,349 | Changes in fair value included in income arising from: | | | | | | | | | | | | | Changes in instrument-specific credit risk | | | 1,986 | | | — | | | — | | | 1,986 | Other factors | | | 36,948 | | | 116,113 | | | (430,988) | | | (277,927) | | | | 38,934 | | | 116,113 | | | (430,988) | | | (275,941) | Transfers: | | | | | | | | | | | | — | From Level 3 to Level 2 | | | (911,237) | | | — | | | — | | | (911,237) | To loans held for sale | | | — | | | (222,279) | | | — | | | (222,279) | Balance, March 31, 2025 | | $ | 441,621 | | $ | 109,942 | | $ | 8,963,889 | | $ | 9,515,452 | Changes in fair value recognized during the quarter relating to assets still held at March 31, 2025 | | $ | 23,715 | | $ | 109,942 | | $ | (430,988) | | $ | (297,331) |
| (1) | For the purpose of this table, the IRLC asset and liability positions are shown net. |
| | | | Liabilities | | Quarter ended March 31, 2025 | | | (in thousands) | Mortgage servicing liabilities: | | | | Balance, December 31, 2024 | | $ | 1,683 | Changes in fair value included in income | | | (32) | Balance, March 31, 2025 | | $ | 1,651 | Changes in fair value recognized during the quarter relating to liabilities still outstanding at March 31, 2025 | | $ | (32) |
Assets and Liabilities Measured at Fair Value under the Fair Value Option Net changes in fair values included in income for assets and liabilities carried at fair value, as a result of management’s election of the fair value option, by income statement line item, are summarized below: | | | | | | | | | | | | | | | | | | | | | | | | | Quarter ended March 31, | | | | 2026 | | 2025 | | | | Net gains on | | Net | | | | | | Net gains on | | Net | | | | | | loans held | | loan | | Net | | | | loans held | | loan | | | | | | for sale at | | servicing | | interest | | | | for sale at | | servicing | | | | | | fair value | | fees | | expense | | Total | | fair value | | fees | | Total | | | | | (in thousands) | | Assets: | | | | | | | | | | | | | | | | | | | | | | | Principal-only stripped mortgage-backed securities | | $ | — | | $ | (39) | | $ | (5,185) | | $ | (5,224) | | $ | — | | $ | 18,134 | | $ | 18,134 | | Loans held for sale | | | 252,324 | | | — | | | — | | | 252,324 | | | 292,143 | | | — | | | 292,143 | | Mortgage servicing rights | | | — | | | (171,997) | | | — | | | (171,997) | | | — | | | (430,988) | | | (430,988) | | | | $ | 252,324 | | $ | (172,036) | | $ | (5,185) | | $ | 75,103 | | $ | 292,143 | | $ | (412,854) | | $ | (120,711) | | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | Mortgage servicing liabilities | | $ | — | | $ | 4 | | $ | — | | $ | 4 | | $ | — | | $ | 32 | | $ | 32 | |
Following are the fair value and related principal amounts due upon maturity of loans held for sale: | | | | | | | | | | | | | | | | | | | | | March 31, 2026 | | December 31, 2025 | | | | | Principal | | | | | | Principal | | | | | | | amount | | | | | | amount | | | | | Fair | | due upon | | | | Fair | | due upon | | | Loans held for sale | | value | | maturity | | Difference | | value | | maturity | | Difference | | | | (in thousands) | Current through 89 days delinquent | | $ | 9,904,215 | | $ | 9,755,026 | | $ | 149,189 | | $ | 9,080,781 | | $ | 8,874,884 | | $ | 205,897 | 90 days or more delinquent: | | | | | | | | | | | | | | | | | | | Not in foreclosure | | | 35,749 | | | 38,436 | | | (2,687) | | | 32,364 | | | 35,669 | | | (3,305) | In foreclosure | | | 14,531 | | | 28,024 | | | (13,493) | | | 10,265 | | | 19,924 | | | (9,659) | | | $ | 9,954,495 | | $ | 9,821,486 | | $ | 133,009 | | $ | 9,123,410 | | $ | 8,930,477 | | $ | 192,933 | | | | | | | | | | | | | | | | | | | |
Assets Measured at Fair Value on a Nonrecurring Basis Following is a summary of assets that were remeasured based on fair value on a nonrecurring basis: | | | | | | | | | | | | | Real estate acquired in settlement of loans | | Level 1 | | Level 2 | | Level 3 | | Total | | | | (in thousands) | March 31, 2026 | | $ | — | | $ | — | | $ | 26,736 | | $ | 26,736 | December 31, 2025 | | $ | — | | $ | — | | $ | 8,731 | | $ | 8,731 |
The following table summarizes the losses recognized on assets when they were remeasured based on fair value on a nonrecurring basis: | | | | | | | | | Quarter ended March 31, | | | 2026 | | 2025 | | | | (in thousands) | Real estate acquired in settlement of loans | | $ | (3,609) | | $ | (562) |
Fair Value of Financial Instruments Carried at Amortized Cost The Company’s Assets sold under agreements to repurchase, Mortgage loan participation purchase and sale agreements, Notes payable secured by mortgage servicing assets and Unsecured senior notes are carried at amortized cost. These liabilities are classified as “Level 3” fair value items due to the Company’s reliance on unobservable inputs to estimate their fair values. The Company has concluded that the fair values of these liabilities other than the Notes payable secured by mortgage servicing assets and the Unsecured senior notes approximate their carrying values due to their short terms and/or variable interest rates. The Company estimates the fair value of the term notes and term loans included in Notes payable secured by mortgage servicing assets and the Unsecured senior notes using indications of fair value provided by non-affiliate brokers, pricing services and internal estimates of fair value. The fair value and carrying value of these liabilities are summarized below: | | | | | | | | | | | | | | | March 31, 2026 | | December 31, 2025 | | | Fair value | | Carrying value | | Fair value | | Carrying value | | | | (in thousands) | Term notes and term loans | | $ | 1,334,166 | | $ | 1,326,325 | | $ | 1,334,248 | | $ | 1,326,021 | Unsecured senior notes | | $ | 4,748,252 | | $ | 4,834,396 | | $ | 5,075,675 | | $ | 4,831,742 |
Valuation Governance Most of the Company’s financial assets, and all of its derivatives, MSRs, and MSLs are carried at fair value with changes in fair value recognized in current period income. Certain of the Company’s financial assets and derivatives and all of its MSRs and MSLs are “Level 3” fair value assets and liabilities which require use of unobservable inputs that are significant to the estimation of the items’ fair values. 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 its 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 the Company’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, including the models’ performance versus actual results, and reports those results as well as changes in the valuation of the non-IRLC “Level 3” fair value assets and liabilities, including major factors affecting the valuations and any changes in model methods and inputs, to the Company’s senior management valuation subcommittee. The Company’s senior management valuation subcommittee includes the Company’s chief financial, credit, investment and capital markets officers as well as other senior members of the Company’s finance, risk management and capital markets staffs. To assess the reasonableness of its valuations, the capital markets valuation staff presents an analysis of the effect on the valuations 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 non-affiliate brokers and published surveys. The fair value of the Company’s IRLCs is developed by its capital markets risk management staff and is reviewed by its capital markets operations staff. Valuation Techniques and Inputs 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: Principal-Only Stripped Mortgage-Backed Securities The Company categorizes principal-only stripped MBS as “Level 2” fair value financial instruments. Fair values of these securities are established based on quoted market prices for these or similar securities. Loans Held for Sale Most of the Company’s loans held for sale at fair value are saleable into active markets and are therefore categorized as “Level 2” fair value assets. The fair values of “Level 2” fair value loans are determined using their contracted selling prices or quoted market prices or market price equivalents. Certain of the Company’s loans held for sale are not saleable into active markets and are therefore categorized as “Level 3” fair value assets. Loans held for sale categorized as “Level 3” fair value assets include: | ● | Closed-end second lien mortgage loans. At present, there is no active market with significant observable inputs to the estimation of fair value of the closed-end second lien mortgage loans the Company produces. |
| ● | Early buy out loans. Early buy out loans are government guaranteed or insured loans purchased by the Company from Ginnie Mae guaranteed securities in its loan servicing portfolio. The Company’s right to purchase a government guaranteed or insured loan from a Ginnie Mae security arises as the result of the loan being at least three months delinquent on the date of purchase by the Company and provides an alternative to the Company’s obligation to continue advancing principal and interest at the coupon rate of the related Ginnie Mae security. Such a loan may be resold to an investor and thereafter may be repurchased to the extent it becomes eligible for resale into a new Ginnie Mae guaranteed security. |
A loan becomes eligible for resale into a new Ginnie Mae guaranteed security when the loan becomes current either through completion of a modification of the loan’s terms or after three months of timely payments following either the completion of a payment deferral program or borrower reperformance and when the issuance date of the new security is at least 120 days after the date the loan was last delinquent. | ● | Loans with identified defects. Loans that are not saleable into active markets due to identification of a defect by the Company or to the repurchase by the Company of a loan with an identified defect. |
The Company uses a discounted cash flow model to estimate the fair value of its “Level 3” fair value loans held for sale. The significant unobservable inputs used in the fair value measurement of the Company’s “Level 3” fair value loans held for sale are discount rates, home price projections, voluntary prepayment/resale and total prepayment/resale speeds. Significant changes in any of those inputs in isolation could result in a significant change to the loans’ fair value measurement. Increases in home price projections are generally accompanied by an increase in voluntary prepayment speeds. Following is a quantitative summary of key “Level 3” fair value inputs used in the valuation of loans held for sale: | | | | | | | | | | | | | | | March 31, 2026 | | December 31, 2025 | Fair value (in thousands) | | $ | 428,957 | | $ | 307,711 | Key inputs (1): | | | | | | | Discount rate: | | | | | | | Range | | | 5.7% – 9.3% | | | 5.6% – 9.3% | Weighted average | | | 6.5% | | | 6.3% | Twelve-month projected housing price index change: | | | | | | | Range | | | 1.1% – 1.6% | | | 0.8% – 1.3% | Weighted average | | | 1.3% | | | 1.0% | Voluntary prepayment/resale speed (2): | | | | | | | Range | | | 6.8% – 22.2% | | | 6.9% – 22.7% | Weighted average | | | 16.8% | | | 18.9% | Total prepayment/resale speed (3): | | | | | | | Range | | | 6.9% – 40.5% | | | 7.0% – 37.5% | Weighted average | | | 22.2% | | | 24.1% |
| (1) | Weighted average inputs are based on the fair values of the “Level 3” fair value loans. |
| (2) | Voluntary prepayment/resale speed is measured using life voluntary Conditional Prepayment Rate (“CPR”). |
| (3) | Total prepayment/resale speed is measured using life total CPR, which includes both voluntary and involuntary prepayment/resale speeds. |
Changes in fair value of loans held for sale attributable to changes in a loan’s instrument-specific credit risk are measured with reference to the change in the respective loan’s delinquency status and performance history at period end from the later of the beginning of the period or acquisition date. Changes in fair value of loans held for sale are included in Net gains on loans held for sale at fair value in the Company’s consolidated statements of income. Derivative Financial Instruments Interest Rate Lock Commitments The Company categorizes IRLCs as “Level 3” fair value assets or liabilities. The Company estimates the fair values of IRLCs based on quoted Agency MBS prices, the probability that the loans will be funded or purchased (the “pull-through rate”) and its estimate of the fair value of the MSRs it expects to receive in the sale of the loans. The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rate and the estimated fair values of MSRs attributable to the mortgage loans it has committed to originate or purchase. Significant changes in the pull-through rate or the MSR components of the IRLCs, in isolation, could result in significant changes in the IRLCs’ fair value measurements. 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 IRLC fair value, but increase the pull-through rate for the loan principal and interest payment cash flow component, which has decreased in fair value. Changes in fair value of IRLCs are included in Net gains on loans held for sale at fair value in the Company’s consolidated statements of income. Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs: | | | | | | | | | | | | | | | | March 31, 2026 | | December 31, 2025 | Fair value (in thousands) (1) | | $ | 105,936 | | $ | 127,276 | Committed amount (in thousands) | | $ | 16,241,426 | | $ | 13,474,638 | Key inputs (2): | | | | | | | Pull-through rate: | | | | | | | Range | | | 16.0% – 100% | | | 14.1% – 100% | Weighted average | | | 81.6% | | | 81.0% | Mortgage servicing rights fair value expressed as: | | | | | | | Servicing fee multiple: | | | | | | | Range | | | 1.0 – 8.7 | | | 1.0 – 8.7 | Weighted average | | | 5.5 | | | 5.4 | Percentage of loan commitment amount: | | | | | | | Range | | | 0.3% – 4.4% | | | 0.3% – 4.6% | Weighted average | | | 1.9% | | | 2.2% |
| (1) | Amounts include IRLCs with non-affiliates and with PMT. For purpose 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 values of hedging derivatives are included in Net gains on loans held for sale at fair value, or Net loan servicing fees – Mortgage servicing rights hedging results, as applicable, in the Company’s consolidated statements of income. Mortgage Servicing Rights MSRs are categorized as “Level 3” fair value assets. The Company uses a discounted cash flow approach to estimate the fair value of MSRs. Beginning in the third quarter of 2025, the Company enhanced its discounted cash flow approach to estimate the period-end fair value of its MSRs with the adoption of an Option-Adjusted Spread (“OAS”) model. The OAS model allows the Company to account for the likelihood of interest rates moving along different paths as economic conditions change in its assessment of the fair value of MSRs as opposed to a single assumed rate path. The key inputs used in the estimation of the fair value of MSRs include the applicable prepayment rate (prepayment speed), OAS or pricing spread (the OAS and pricing spread are components of the discount rate), and annual per-loan cost to service the underlying loans, all of which are unobservable. Significant changes to any of those inputs in isolation could result in a significant change in the MSR fair value measurement. Changes in these key inputs are not directly related. Changes in the fair value of MSRs are included in Net loan servicing fees—Change in fair value of mortgage servicing rights and mortgage servicing liabilities in the Company’s consolidated statements of income. Following are the key inputs used in determining the fair value of MSRs received by the Company when it retains the obligation to service the mortgage loans it sells: | | | | | | | | | Quarter ended March 31, | | | 2026 | | 2025 | | | | (Amount recognized and unpaid principal balance of underlying loans in thousands) | MSR and underlying loan characteristics: | | | | | | | Amount recognized | | $ | 719,586 | | $ | 650,349 | Unpaid principal balance | | $ | 32,477,245 | | $ | 27,664,977 | Weighted average servicing fee rate (in basis points) | | | 41 | | | 43 | Key inputs (1): | | | | | | | Annual total prepayment speed (2): | | | | | | | Range | | | 6.4% – 16.0% | | | 6.6% – 15.0% | Weighted average | | | 8.2% | | | 8.8% | Equivalent average life (in years): | | | | | | | Range | | | 3.7 – 10.3 | | | 3.8 – 10.2 | Weighted average | | | 8.9 | | | 8.7 | Pricing spread (3): | | | | | | | Range | | | 4.9% – 12.6% | | | 4.9% – 12.6% | Weighted average | | | 5.7% | | | 5.5% | Per-loan annual cost of servicing: | | | | | | | Range | | | $70 – $128 | | | $70 – $127 | Weighted average | | | $99 | | | $101 |
| (1) | Weighted average inputs are based on the UPB of the underlying loans. |
| (2) | Annual total prepayment speed is measured using life total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information. |
| (3) | Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. The Company applies a pricing spread to a derived United State Treasury Securities (“Treasury”) yield curve for purposes of discounting cash flows relating to its initial recognition of MSRs. |
Following is a quantitative summary of key inputs used in the valuation of the Company’s MSRs at period end and the effect on the fair value from adverse changes in those inputs: | | | | | | | March 31, 2026 | | December 31, 2025 | | | | (Fair value, unpaid principal balance of underlying | | | loans and effect on fair value amounts in thousands) | Fair value | | $ 10,149,036 | | $ 9,598,941 | Underlying loan characteristics: | | | | | Unpaid principal balance | | $ 473,980,146 | | $ 462,020,147 | Weighted average note interest rate | | 5.1% | | 4.7% | Weighted average servicing fee rate (in basis points) | | 39 | | 39 | Key inputs (1): | | | | | Annual total prepayment speed (2): | | | | | Range | | 5.0% – 25.7% | | 6.0% – 22.7% | Weighted average | | 8.3% | | 9.0% | Equivalent average life (in years): | | | | | Range | | 2.5 – 9.7 | | 2.5 – 9.0 | Weighted average | | 8.7 | | 8.0 | Effect on fair value of (3): | | | | | 5% adverse change | | ($137,759) | | ($168,856) | 10% adverse change | | ($271,449) | | ($331,359) | 20% adverse change | | ($527,347) | | ($638,689) | Option-adjusted spread (4): | | | | | Range | | 2.0% – 13.2% | | 2.6% – 13.2% | Weighted average | | 4.6% | | 4.7% | Effect on fair value of (3): | | | | | 5% adverse change | | ($101,516) | | ($95,530) | 10% adverse change | | ($200,579) | | ($189,008) | 20% adverse change | | ($391,692) | | ($370,059) | Per-loan annual cost of servicing: | | | | | Range | | $70 – $128 | | $70 – $127 | Weighted average | | $108 | | $106 | Effect on fair value of (3): | | | | | 5% adverse change | | ($54,079) | | ($50,531) | 10% adverse change | | ($108,157) | | ($101,061) | 20% adverse change | | ($216,314) | | ($202,122) |
| (1) | Weighted average inputs are based on the UPB of the underlying loans. |
| (2) | Annual total 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 contemplate the movements in the indicated inputs; do not incorporate changes 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 made to account for changing circumstances. For these reasons, these analyses should not be viewed as projections of the effect of shock events or as earnings forecasts |
| (4) | The OAS is a margin that is applied to a reference interest rate’s projected curve to develop periodic discount rates. The Company applies an OAS to multiple simulated paths of a derived Treasury yield curve for purposes of discounting cash flows relating to period-end MSRs. |
Mortgage Servicing Liabilities MSLs are categorized as “Level 3” fair value liabilities. The Company uses a discounted cash flow approach to estimate the fair value of MSLs. The key inputs used in the estimation of the fair value of MSLs include the applicable annual total prepayment speed, OAS, and the per-loan annual cost of servicing the underlying loans. Beginning in the third quarter of 2025, the Company enhanced its period-end discounted cash flow valuation of MSLs by utilizing an OAS model, which utilizes an OAS rather than a pricing spread. Changes in the fair value of MSLs are included in Net servicing fees—Change in fair value of mortgage servicing rights and mortgage servicing liabilities in the consolidated statements of income. Following are the key inputs used in estimating the fair value of MSLs: | | | | | | | | | | March 31, | | | December 31, | | | | 2026 | | | 2025 | Fair value (in thousands) | | $ | 1,568 | | $ | 1,572 | Underlying loan characteristics: | | | | | | | Unpaid principal balance of underlying loans (in thousands) | | $ | 15,219 | | $ | 15,298 | Servicing fee rate (in basis points) | | | 25 | | | 25 | Key inputs (1): | | | | | | | Annual total prepayment speed (2) | | | 14.3% | | | 14.2% | Equivalent average life (in years) | | | 5.5 | | | 5.5 | Option-adjusted spread (3) | | | 9.1% | | | 9.1% | Per-loan annual cost of servicing | | $ | 861 | | $ | 853 |
| (1) | Weighted average inputs are based on UPB of the underlying mortgage loans. |
| (2) | Annual total 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 OAS is a margin that is applied to a reference interest rate’s projected curve to develop periodic discount rates. The Company applies an OAS to multiple simulated paths of a derived Treasury yield curve for purposes of discounting cash flows relating to MSLs. |
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