| INDEMNIFIED AND REPURCHASED LOANS |
NOTE 5—INDEMNIFIED AND REPURCHASED LOANS The Company has repurchased, agreed to repurchase and indemnify, or expects to repurchase from the GSEs $193.3 million of loans that were previously originated for the GSEs’ programs as of June 30, 2026, against which the Company has recognized $54.3 million of aggregate valuation adjustments through allowance for loan losses and impairments (as seen in the tables below). In the first quarter of 2026 the Company repurchased a $4.6 million loan. In the second quarter of 2026, the Company agreed to repurchase a $3.1 million loan. Subsequent to June 30, 2026, the Company repurchased the aforementioned $3.1 million loan. In addition, the $4.6 million loan repurchased in the first quarter paid off with minimal loss. Finally, the Company executed its disposition strategy for a $34.8 million loan, included in Other assets (as described below), which resulted in liquidation proceeds approximating the $22.5 million carrying value as of June 30, 2026. The net impact of these subsequent events reduced the outstanding UPB of indemnified and repurchased loans to $153.8 million and reduced the outstanding valuation adjustments against the aggregate portfolio to $41.7 million. A summary of the Company’s indemnified and repurchased loans and their location on the Condensed Consolidated Balance Sheets as of June 30, 2026 and December 31, 2025 follows: | | | | | | Other Assets and Other Liabilities Related to Indemnified and Repurchased Loans (in thousands) | June 30, 2026 | | December 31, 2025 | Other Assets | | | | | | Indemnified loans | $ | 91,439 | | $ | 46,253 | Repurchased loans | | 44,678 | | | 36,926 | Allowance for loan losses | | (39,635) | | | (5,410) | Loans held for investment, net - indemnified and repurchased loans | $ | 96,482 | | $ | 77,769 | | | | | | | Other assets, gross (1)(2)(3) | $ | 50,380 | | $ | 50,380 | Impairment(2)(3) | | (14,702) | | | (11,500) | Other assets, net(3) | $ | 35,678 | | $ | 38,880 | Total other assets | $ | 132,160 | | $ | 116,649 | | | | | | | Other Liabilities | | | | | | Secured borrowings | $ | 133,055 | | $ | 83,402 | Indemnification reserves (4) | | 7,961 | | | 23,920 | Total other liabilities | $ | 141,016 | | $ | 107,322 |
| (1) | Comprised of Other real estate owned (“OREO”) and an Other asset as described in NOTE 2 of the Company’s 2025 Form 10-K. | |
| (2) | The OREO asset and the other asset, net were held for sale as of June 30, 2026. Upon reclassification from held for use to held for sale in the first quarter of 2026, the Company recorded an impairment charge of $1.5 million as seen in the table below. The fair value for both the OREO asset and the other asset, net was determined by appraisal. OREO and other asset, net are presented as components of Other assets on the Condensed Consolidated Balance Sheets. | |
| (3) | These real estate assets were held for sale as of June 30, 2026 and held for use as of December 31, 2025. | |
| (4) | NOTE 2 in the 2025 Form 10-K contains information about the nature of these reserves. | |
| | | | | | Maximum Expected Future Payments (in thousands) | June 30, 2026 | | December 31, 2025 | Secured borrowings | $ | 133,055 | | $ | 83,402 | Collateral for secured borrowings (1) | | (50,578) | | | (22,668) | Total | $ | 82,477 | | $ | 60,734 |
| (1) | The Company has funded this balance with corporate cash into an escrow account held by the GSE to collateralize the secured borrowing. The collateral is included in Receivables, net on the Condensed Consolidated Balance Sheets. | |
Activity related to the allowance for loan losses related to indemnified and repurchased loans for the three and six months ended June 30, 2026 and 2025 follows. The allowance for loan losses for other loans held for investment is insignificant. | | | | | | | | | | | | | As of and for the three months ended | | As of and for the six months ended | Roll Forward of Allowance for Loan Losses
(in thousands) | June 30, 2026 | | June 30, 2025 | | June 30, 2026 | | June 30, 2025 | Beginning balance | $ | 29,077 | | $ | 4,060 | | $ | 5,410 | | $ | 4,060 | Provision (benefit) for loan losses | | 10,558 | | | 500 | | | 13,058 | | | 500 | Transfers from purchased credit deteriorated initial allowance | | — | | | — | | | 21,167 | | | — | Write-offs | | — | | | — | | | — | | | — | Ending balance | $ | 39,635 | | $ | 4,560 | | $ | 39,635 | | $ | 4,560 |
In addition to the provision for credit losses related to the indemnified and repurchased loan portfolio, the Company also incurs costs related to operating the indemnified and repurchased loans and other assets. A summary of losses and expenses related to indemnified and repurchased loans for the three and six months ended June 30, 2026 and 2025 follows: | | | | | | | | | | | | | For the three months ended | | For the six months ended | Impact of Indemnified and Repurchased Loans (in thousands) | June 30, 2026 | | June 30, 2025 | | June 30, 2026 | | June 30, 2025 | Initial loan repurchase costs | $ | — | | $ | — | | $ | 797 | | $ | 322 | Indemnified and repurchased loan operating costs | | 5,220 | | | 683 | | | 7,534 | | | 1,218 | Expected principal losses on loan repurchase ("loan repurchase losses") | | 1,664 | | | — | | | 8,614 | | | — | Indemnified and repurchased loan expenses | $ | 6,884 | | $ | 683 | | $ | 16,945 | | $ | 1,540 | | | | | | | | | | | | | Other Activity Related to Indemnified and Repurchased Loans | | | | | | | | | | | | Provision (benefit) for loan losses(1) | | 10,558 | | | 500 | | | 13,058 | | | 500 | Provision (benefit) for risk sharing obligations (1)(2) | | 5,752 | | | — | | | 5,752 | | | — | Other operating expenses (3) | | — | | | — | | | 1,538 | | | — | Other interest income (4) | | (467) | | | — | | | (1,541) | | | — | Total net expense impact of indemnified and repurchased loans | $ | 22,727 | | $ | 1,183 | | $ | 35,752 | | $ | 2,040 |
| (1) | Included as a component of Provision (benefit) for credit losses in the Condensed Consolidated Statements of Income. | |
| (2) | Impact on Provision (benefit) for risk-sharing obligations resulting from modified loss sharing in lieu of repurchase on $15.9 million of defaulted loans. | |
| (3) | Includes impairment charges related to the OREO asset that was previously repurchased and included as a component of Other operating expenses in the Condensed Consolidated Statements of Income. | |
| (4) | Included as a component of Placement fees and other interest income in the Condensed Consolidated Statements of Income. | |
Substantially all of the indemnified and repurchased loans above are on non-accrual status. A summary of these loans as of June 30, 2026 and December 31, 2025 follows: | | | | | | Non-accrual loans (in thousands) | June 30, 2026 | | December 31, 2025 | Loans held for investment UPB | $ | 139,903 | | $ | 48,630 | Cost basis and fair value adjustments, net | | (7,108) | | | 1,331 | Allowance for loan losses | | (39,635) | | | (5,410) | Non-accrual loans, net | $ | 93,160 | | $ | 44,551 |
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