| 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 $208.0 million of loans that were previously originated for the GSEs’ programs as of September 30, 2026, against which the Company has recognized $81.5 million of aggregate valuation adjustments and impairments (as seen in the tables below). For the nine months ended September 30, 2026, the Company agreed to repurchase or repurchased $20.8 million of loans. In the third quarter of 2026, the Company made the decision to accelerate its disposition strategy for all Indemnified and Repurchased Loans, and as a result, the Company reclassified these loans from loans held for investment to loans held for sale (“LHFS”), reversed the related allowance for loan losses (refer to the “Roll Forward of Allowance for Loan Losses” table below for additional details), and remeasured loans to the lower of amortized cost or fair value, with any resulting adjustment reflected through a valuation allowance. The Company disposed of the collateral underlying a previously indemnified $34.8 million loan, included in Other assets (as described below), which resulted in liquidation proceeds of $21.9 million. The disposition proceeds plus $14.4 million of previously funded collateral (non-cash) were used to pay down the secured borrowing. The carrying value of the asset was $22.5 million as of June 30, 2026. Additionally, a $4.6 million loan repurchased in the first quarter paid off during the third quarter of 2026 with minimal loss. The net impact of these transactions reduced the outstanding UPB of indemnified and repurchased loans to $164.8 million as of September 30, 2026. Subsequent to September 30, 2026, the Company executed its disposition strategy for the OREO asset (as described below), which resulted in net sales proceeds of approximately $8.3 million. A summary of the Company’s indemnified and repurchased loans and their location on the Condensed Consolidated Balance Sheets as of September 30, 2026 and December 31, 2025 follows: | | | | | | Other Assets and Other Liabilities Related to Indemnified and Repurchased Loans (in thousands) | September 30, 2026 | | December 31, 2025 | Other Assets | | | | | | Indemnified loans | $ | 91,861 | | $ | 46,253 | Repurchased loans | | 53,092 | | | 36,926 | Valuation allowance(1) | | (76,849) | | | (5,410) | Loans held for sale - indemnified and repurchased loans(1) | $ | 68,104 | | $ | 77,769 | | | | | | | Other assets, gross(2)(3)(4) | $ | 13,469 | | $ | 50,380 | Impairment(3)(4) | | (4,700) | | | (11,500) | Other assets, net(4) | $ | 8,769 | | $ | 38,880 | Total other assets – Loans and OREO held for sale | $ | 76,873 | | $ | 116,649 | | | | | | | Other Liabilities | | | | | | Secured borrowings | $ | 108,278 | | $ | 83,402 | Indemnification reserves(5) | | 7,961 | | | 23,920 | Total other liabilities | $ | 116,239 | | $ | 107,322 |
| (1) | The valuation allowance presented as of December 31, 2025 represents the Allowance for loan losses related to these loans as of that date, as they were previously classified as loans held for investment. | |
| (2) | Comprised of Other real estate owned (“OREO”) and an Other asset as of December 31, 2025 and only OREO as of September 30, 2026 as described in NOTE 2 of the Company’s 2025 Form 10-K. The fair value for the OREO asset was determined based on a contractual sales price. OREO and other asset, net are presented as components of Other assets on the Condensed Consolidated Balance Sheets. | |
| (3) | The OREO asset was held for sale as of September 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. The Company recorded an additional impairment charge of $4.3 million in the third quarter of 2026. These impairment charges can be seen in the table below. | |
| (4) | These real estate assets were held for sale as of September 30, 2026 and held for use as of December 31, 2025. | |
| (5) | NOTE 2 in the 2025 Form 10-K contains information about the nature of these reserves. | |
| | | | | | Maximum Expected Future Payments (in thousands) | September 30, 2026 | | December 31, 2025 | Secured borrowings | $ | 108,278 | | $ | 83,402 | Collateral for secured borrowings(1) | | (37,718) | | | (22,668) | Total | $ | 70,560 | | $ | 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 nine months ended September 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 nine months ended | Roll Forward of Allowance for Loan Losses
(in thousands) | September 30, 2026 | | September 30, 2025 | | September 30, 2026 | | September 30, 2025 | Beginning balance | $ | 39,635 | | $ | 4,560 | | $ | 5,410 | | $ | 4,060 | Provision (benefit) for loan losses(1) | | (18,468) | | | — | | | (5,410) | | | 500 | Transfers in from purchased credit deteriorated ("PCD") initial allowance | | — | | | — | | | 21,167 | | | — | PCD initial allowance transferred to LHFS valuation allowance | | (21,167) | | | — | | | (21,167) | | | — | Write-offs | | — | | | — | | | — | | | — | Ending balance | $ | — | | $ | 4,560 | | $ | — | | $ | 4,560 |
| (1) | Presented as a component of Provision (benefit) for credit losses on the Condensed Consolidated Statements of Income. | |
Activity related to the valuation adjustments and impairments for Loans held for sale for the three and nine months ended September 30, 2026 and 2025 follows. | | | | | | | | | | | | | As of and for the three months ended | | As of and for the nine months ended | Roll Forward of Valuation Allowance
(in thousands) | September 30, 2026 | | September 30, 2025 | | September 30, 2026 | | September 30, 2025 | Beginning balance | $ | — | | $ | — | | $ | — | | $ | — | Fair value adjustments(1)(2) | | 37,514 | | | — | | | 37,514 | | | — | Transfers from Allowance for Loan Losses(1)(2)(4) | | 18,468 | | | — | | | 18,468 | | | — | Transfers of PCD initial allowance(3) | | 21,167 | | | — | | | 21,167 | | | — | Valuation adjustments released upon disposition(1)(2) | | (300) | | | — | | | (300) | | | — | Ending balance | $ | 76,849 | | $ | — | | $ | 76,849 | | $ | — |
| (1) | Presented as a component of Indemnified and repurchased loan expenses, net on the Condensed Consolidated Statements of Income. | |
| (2) | Presented as a component of “Fair value adjustments” in the “Impact of Indemnified and Repurchased Loans” table below. | |
| (3) | Portion of Allowance for loan losses/Valuation Allowance originally recognized as Loan repurchase losses (defined below). | |
| (4) | Previously recognized as “Provision (benefit) for loan losses”. | |
In addition to the fair value adjustments and impairments 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 nine months ended September 30, 2026 and 2025 follows: | | | | | | | | | | | | | For the three months ended | | For the nine months ended | Impact of Indemnified and Repurchased Loans (in thousands) | September 30, 2026 | | September 30, 2025 | | September 30, 2026 | | September 30, 2025 | Initial loan repurchase costs | $ | 235 | | $ | — | | $ | 1,032 | | $ | 322 | Indemnified and repurchased loan operating costs | | 6,585 | | | 3,526 | | | 14,119 | | | 4,744 | Expected principal losses on loan repurchase ("loan repurchase losses") | | 570 | | | — | | | 9,184 | | | — | Fair value adjustments | | 55,682 | | | — | | | 55,682 | | | — | Indemnified and repurchased loan expenses, net | $ | 63,072 | | $ | 3,526 | | $ | 80,017 | | $ | 5,066 | | | | | | | | | | | | | Other Activity Related to Indemnified and Repurchased Loans | | | | | | | | | | | | Provision (benefit) for loan losses(1) | | (18,468) | | | — | | | (5,410) | | | 500 | Provision (benefit) for risk sharing obligations(1)(2) | | 7,851 | | | — | | | 13,603 | | | — | Other operating expenses(3) | | 4,349 | | | — | | | 5,887 | | | — | Other interest income(4) | | (463) | | | — | | | (2,005) | | | — | Total net expense impact of indemnified and repurchased loans | $ | 56,341 | | $ | 3,526 | | $ | 92,092 | | $ | 5,566 |
| (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 $86.6 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. | |
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