Finance of America Companies Inc.FOA
Finance of America Companies Inc. Fair Value Disclosure
6. Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based on the assumptions market participants would use when pricing an asset or liability and follows a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
All aspects of nonperformance risk, including the Company’s own credit standing, are considered when measuring the fair value of a liability.
Following is a description of the three levels of the fair value hierarchy:
Level 1 Inputs: Quoted prices for identical instruments in active markets.
Level 2 Inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs: Instruments with unobservable inputs that are significant to the fair value measurement.
The Company classifies assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers into or out of Level 3 within the fair value hierarchy during the years ended December 31, 2024 and 2023.
Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and the details of the valuation models, key inputs to those models, and significant assumptions utilized. Within the assumption tables presented, not meaningful (“NM”) refers to a range of inputs that is too broad to provide meaningful information to the user or to an input that has no range and consists of a single data point. Weighted averages are calculated by weighting each input by the relative outstanding balance of the related financial instrument.
| Instrument | Valuation Techniques | Classification of Fair Value Hierarchy | |||||||||
| Assets | |||||||||||
Loans held for investment, subject to HMBS related obligations(1) | |||||||||||
| HECM loans - securitized into Ginnie Mae HMBS | These loans are valued utilizing a present value methodology that discounts estimated projected cash flows over the life of the loan portfolio using weighted average remaining life (“WAL”), conditional prepayment rate (“CPR”), loss frequency, loss severity, borrower draw, and discount rate assumptions. | Level 3 | |||||||||
Loans held for investment, subject to nonrecourse debt(1) | |||||||||||
| Non-agency reverse mortgage loans - securitized | These loans are valued utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio using WAL, loan-to-value (“LTV”), CPR, loss severity, home price appreciation (“HPA”), and discount rate assumptions. | Level 3 | |||||||||
| HECM buyouts - securitized (performing) | These loans are valued utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio using WAL, CPR, loss severity, and discount rate assumptions. | Level 3 | |||||||||
| HECM buyouts - securitized (nonperforming) | These loans are valued utilizing a present value methodology that discounts estimated projected cash flows over the life of the portfolio using WAL, CPR, loss frequency, loss severity, and discount rate assumptions. | Level 3 | |||||||||
| Commercial mortgage loans - securitized | This product is valued using a DCF model utilizing a single monthly mortality prepayment rate (“SMM”), discount rate, and loss rate assumptions. | Level 3 | |||||||||
(1) The Company aggregates loan portfolios based on the underlying securitization trust and values these loans using these aggregated pools. The range of inputs provided is based on the range of inputs utilized for each securitization trust. | |||||||||||
| Loans held for investment | |||||||||||
| Non-agency reverse mortgage loans | The Company values non-agency reverse mortgage loans utilizing a present value methodology that discounts estimated projected cash flows over the life of the loan portfolio. The primary assumptions utilized in valuing the loans include WAL, LTV, CPR, loss severity, HPA, and discount rate. | Level 3 | |||||||||
| HECM buyouts (nonperforming) | The fair value of repurchased loans is based on expected cash proceeds of the liquidation of the underlying properties and expected claim proceeds from HUD. The primary assumptions utilized in valuing nonperforming repurchased loans include WAL, CPR, loss frequency, loss severity, and discount rate. Termination proceeds are adjusted for expected loss frequencies and severities to arrive at net proceeds that will be provided upon final resolution, including assignments to the FHA. Historical experience is utilized to estimate the loss rates resulting from scenarios where FHA insurance proceeds are not expected to cover all principal and interest outstanding and, as servicer, the Company is exposed to losses upon resolution of the loan. | Level 3 | |||||||||
| Commercial mortgage loans | This product is valued using a DCF model with SMM, discount rate, and constant default rate (“CDR”) assumptions. | Level 3 | |||||||||
| Other assets | |||||||||||
| Retained bonds | Management obtains third-party valuations to assess the reasonableness of the fair value calculations provided by the internal valuation model. The primary assumptions utilized include WAL and discount rate. | Level 3 | |||||||||
| Loans held for sale - residential mortgage loans | This includes all mortgage loans that can be sold to the agencies, which are valued predominantly by published forward agency prices. This will also include all non-agency loans where recently negotiated market prices for the loan pool exist with a counterparty (which approximates fair value), or quoted market prices for similar loans are available. | Level 2 | |||||||||
| MSR | The Company valued MSR internally through a DCF analysis and calculated using a pricing model. This pricing model was based on the objective characteristics of the portfolio (loan amount, note rate, etc.) and commonly used industry assumptions such as discount rate and weighted average CPR. There were no MSR at December 31, 2024 and the range and weighted average of the unobservable inputs of MSR were not meaningful at December 31, 2023. | Level 3 | |||||||||
| Liabilities | |||||||||||
| HMBS related obligations | |||||||||||
| HMBS related obligations | The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability. The estimated fair value of the HMBS related obligations also includes the consideration required by a market participant to transfer the HECM and HMBS servicing obligations, including exposure resulting from shortfalls in FHA insurance proceeds as well as assumptions that it believes a market participant would consider in valuing the liability, including, but not limited to, assumptions for repayment, costs to transfer servicing obligations, shortfalls in FHA insurance proceeds, and discount rates. The significant unobservable inputs used in the measurement include WAL, CPR, and discount rates. | Level 3 | |||||||||
| Nonrecourse debt | |||||||||||
| Nonrecourse reverse mortgage loan financing liability | The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability. The significant unobservable inputs used in the measurement include WAL, CPR, and discount rates. | Level 3 | |||||||||
| Nonrecourse commercial loan financing liability | The estimated fair value is based on the net present value of projected cash flows over the estimated life of the liability. The primary assumptions utilized include weighted average SMM and discount rates. The Company estimates prepayment speeds giving consideration that the Company may in the future transfer additional loans to the trust, subject to the availability of funds provided for within the trust. | Level 3 | |||||||||
| Deferred purchase price liabilities | |||||||||||
| Deferred purchase price liabilities | These liabilities are measured based on the estimated amount of indemnified claims associated with the AAG Transaction and the closing market price of the Company’s publicly-traded stock on the applicable date of the Consolidated Statements of Financial Condition. Refer to Note 3 - Acquisitions for additional information. | Level 3 | |||||||||
| TRA obligation | The fair value is derived through the use of a DCF model. The significant unobservable assumptions used in the DCF include the ability to utilize tax attributes based on current tax forecasts, a constant U.S. federal income tax rate, and a discount rate. | Level 3 | |||||||||
| December 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||
| Instrument / Unobservable Inputs | Range | Weighted Average | Range | Weighted Average | |||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||
| Loans held for investment, subject to HMBS related obligations | |||||||||||||||||||||||||||||
| WAL (in years) | NM | 3.0 | NM | 3.4 | |||||||||||||||||||||||||
| CPR | NM | 21.6 | % | NM | 20.1 | % | |||||||||||||||||||||||
| Loss frequency | NM | 4.4 | % | NM | 4.5 | % | |||||||||||||||||||||||
| Loss severity | 3.4% - 15.9% | 3.5 | % | 3.4% - 12.9% | 3.5 | % | |||||||||||||||||||||||
| Discount rate | NM | 5.3 | % | NM | 5.0 | % | |||||||||||||||||||||||
| Average draw rate | NM | 1.1 | % | NM | 1.1 | % | |||||||||||||||||||||||
| Loans held for investment, subject to nonrecourse debt: | |||||||||||||||||||||||||||||
| Non-agency reverse mortgage loans - securitized | |||||||||||||||||||||||||||||
| WAL (in years) | NM | 10.1 | NM | 9.7 | |||||||||||||||||||||||||
| LTV | 0.0% - 98.0% | 47.2 | % | 0.0% - 79.6% | 45.9 | % | |||||||||||||||||||||||
| CPR | NM | 14.8 | % | NM | 14.7 | % | |||||||||||||||||||||||
| Loss severity | NM | 10.0 | % | NM | 10.0 | % | |||||||||||||||||||||||
| HPA | (5.6)% - 8.3% | 3.6 | % | (9.8)% - 7.6% | 3.3 | % | |||||||||||||||||||||||
| Discount rate | NM | 7.0 | % | NM | 6.9 | % | |||||||||||||||||||||||
| HECM buyouts - securitized (performing) | |||||||||||||||||||||||||||||
| WAL (in years) | NM | 7.1 | NM | 7.4 | |||||||||||||||||||||||||
| CPR | NM | 15.1 | % | NM | 15.1 | % | |||||||||||||||||||||||
| Loss severity | 3.4% - 15.9% | 4.7 | % | 3.4% - 12.8% | 6.9 | % | |||||||||||||||||||||||
| Discount rate | NM | 8.0 | % | NM | 8.2 | % | |||||||||||||||||||||||
| HECM buyouts - securitized (nonperforming) | |||||||||||||||||||||||||||||
| WAL (in years) | NM | 1.5 | NM | 1.6 | |||||||||||||||||||||||||
| CPR | NM | 40.0 | % | NM | 39.8 | % | |||||||||||||||||||||||
| Loss frequency | 23.1% - 100.0% | 45.6 | % | 23.1% - 100.0% | 51.0 | % | |||||||||||||||||||||||
| Loss severity | 3.4% - 15.9% | 5.2 | % | 3.4% - 12.8% | 6.4 | % | |||||||||||||||||||||||
| Discount rate | NM | 8.0 | % | NM | 8.6 | % | |||||||||||||||||||||||
| December 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||
| Instrument / Unobservable Inputs | Range | Weighted Average | Range | Weighted Average | |||||||||||||||||||||||||
| Commercial mortgage loans - securitized | |||||||||||||||||||||||||||||
| SMM | NM | 8.2 | % | NM | 10.7 | % | |||||||||||||||||||||||
| Discount rate | NM | 20.7 | % | NM | 16.5 | % | |||||||||||||||||||||||
| Loss rate | NM | 7.5 | % | NM | 1.0 | % | |||||||||||||||||||||||
| Loans held for investment: | |||||||||||||||||||||||||||||
| Non-agency reverse mortgage loans | |||||||||||||||||||||||||||||
| WAL (in years) | NM | 10.5 | NM | 12.1 | |||||||||||||||||||||||||
| LTV | 5.9% - 70.6% | 35.1 | % | 3.9% - 53.8% | 33.8 | % | |||||||||||||||||||||||
| CPR | NM | 16.2 | % | NM | 14.4 | % | |||||||||||||||||||||||
| Loss severity | NM | 10.0 | % | NM | 10.0 | % | |||||||||||||||||||||||
| HPA | (5.6)% - 8.3% | 3.5 | % | (9.8)% - 7.6% | 3.1 | % | |||||||||||||||||||||||
| Discount rate | NM | 7.1 | % | NM | 6.9 | % | |||||||||||||||||||||||
| HECM buyouts (nonperforming) | |||||||||||||||||||||||||||||
| WAL (in years) | NM | 1.5 | NM | 1.5 | |||||||||||||||||||||||||
| CPR | NM | 43.8 | % | NM | 41.5 | % | |||||||||||||||||||||||
| Loss frequency | NM | 47.9 | % | NM | 48.2 | % | |||||||||||||||||||||||
| Loss severity | 3.4% - 15.9% | 10.5 | % | 3.4% - 12.8% | 5.1 | % | |||||||||||||||||||||||
| Discount rate | NM | 8.0 | % | NM | 8.6 | % | |||||||||||||||||||||||
| Commercial mortgage loans | |||||||||||||||||||||||||||||
| SMM | NM | NM | NM | 73.6 | % | ||||||||||||||||||||||||
| CDR | NM | NM | NM | 25.6 | % | ||||||||||||||||||||||||
| Discount rate | NM | NM | 9.6% - 20.0% | 13.2 | % | ||||||||||||||||||||||||
| Other assets: | |||||||||||||||||||||||||||||
| Retained bonds | |||||||||||||||||||||||||||||
| WAL (in years) | NM | 3.5 | 2.3 - 23.4 | 4.9 | |||||||||||||||||||||||||
| Discount rate | (1.3)% - 15.3% | 7.3 | % | (31.2)% - 12.3% | 6.7 | % | |||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||
| HMBS related obligations | |||||||||||||||||||||||||||||
| WAL (in years) | NM | 3.8 | NM | 4.1 | |||||||||||||||||||||||||
| CPR | NM | 24.8 | % | NM | 23.8 | % | |||||||||||||||||||||||
| Discount rate | NM | 5.2 | % | NM | 5.0 | % | |||||||||||||||||||||||
| Nonrecourse debt: | |||||||||||||||||||||||||||||
| Reverse mortgage loans: | |||||||||||||||||||||||||||||
| Securitized non-agency reverse | |||||||||||||||||||||||||||||
| WAL (in years) | 0.1 - 10.9 | 3.7 | 0.8 - 11.2 | 4.5 | |||||||||||||||||||||||||
| CPR | NM | 17.3 | % | 10.6% - 22.3% | 14.7 | % | |||||||||||||||||||||||
| Discount rate | NM | 6.7 | % | NM | 7.0 | % | |||||||||||||||||||||||
| Performing/Nonperforming HECM securitizations | |||||||||||||||||||||||||||||
| WAL (in years) | NM | 1.0 | NM | 0.9 | |||||||||||||||||||||||||
| CPR | NM | 18.6 | % | 21.5% - 22.3% | 21.9 | % | |||||||||||||||||||||||
| Discount rate | NM | 7.5 | % | NM | 10.0 | % | |||||||||||||||||||||||
| December 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||
| Instrument / Unobservable Inputs | Range | Weighted Average | Range | Weighted Average | |||||||||||||||||||||||||
| Nonrecourse commercial loan financing liability | |||||||||||||||||||||||||||||
| Weighted average SMM | NM | 65.4 | % | NM | 33.3 | % | |||||||||||||||||||||||
| Discount rate | NM | 8.6 | % | NM | 9.1 | % | |||||||||||||||||||||||
| Deferred purchase price liabilities | |||||||||||||||||||||||||||||
| TRA obligation | |||||||||||||||||||||||||||||
| Discount rate | NM | 28.1 | % | NM | 33.0 | % | |||||||||||||||||||||||
Fair Value of Assets and Liabilities
The following table provides a summary of the recognized assets and liabilities that are measured at fair value on a recurring basis (in thousands):
| December 31, 2024 | |||||||||||||||||||||||
| Total Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Loans held for investment, subject to HMBS related obligations | $ | 18,669,962 | $ | — | $ | — | $ | 18,669,962 | |||||||||||||||
| Loans held for investment, subject to nonrecourse debt: | |||||||||||||||||||||||
| Reverse mortgage loans | 9,268,866 | — | — | 9,268,866 | |||||||||||||||||||
| Commercial mortgage loans | 19,537 | — | — | 19,537 | |||||||||||||||||||
| Loans held for investment: | |||||||||||||||||||||||
| Reverse mortgage loans | 519,948 | — | — | 519,948 | |||||||||||||||||||
| Commercial mortgage loans | 155 | — | — | 155 | |||||||||||||||||||
| Other assets: | |||||||||||||||||||||||
| Retained bonds | 40,407 | — | — | 40,407 | |||||||||||||||||||
| Loans held for sale - residential mortgage loans | 3,454 | — | 3,454 | — | |||||||||||||||||||
| Total assets | $ | 28,522,329 | $ | — | $ | 3,454 | $ | 28,518,875 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| HMBS related obligations | $ | 18,444,370 | $ | — | $ | — | $ | 18,444,370 | |||||||||||||||
| Nonrecourse debt: | |||||||||||||||||||||||
| Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability | 8,950,445 | — | — | 8,950,445 | |||||||||||||||||||
| Nonrecourse commercial loan financing liability | 3,623 | — | — | 3,623 | |||||||||||||||||||
| Deferred purchase price liabilities: | |||||||||||||||||||||||
| Deferred purchase price liabilities | 13,370 | — | — | 13,370 | |||||||||||||||||||
| TRA obligation | 3,314 | — | — | 3,314 | |||||||||||||||||||
| Total liabilities | $ | 27,415,122 | $ | — | $ | — | $ | 27,415,122 | |||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||
| Total Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Loans held for investment, subject to HMBS related obligations | $ | 17,548,763 | $ | — | $ | — | $ | 17,548,763 | |||||||||||||||
| Loans held for investment, subject to nonrecourse debt: | |||||||||||||||||||||||
| Reverse mortgage loans | 8,138,403 | — | — | 8,138,403 | |||||||||||||||||||
| Commercial mortgage loans | 133,990 | — | — | 133,990 | |||||||||||||||||||
| Loans held for investment: | |||||||||||||||||||||||
| Reverse mortgage loans | 574,271 | — | — | 574,271 | |||||||||||||||||||
| Commercial mortgage loans | 957 | — | — | 957 | |||||||||||||||||||
| Other assets: | |||||||||||||||||||||||
| Retained bonds | 44,297 | — | — | 44,297 | |||||||||||||||||||
| Loans held for sale - residential mortgage loans | 4,246 | — | 4,246 | — | |||||||||||||||||||
| MSR | 6,436 | — | — | 6,436 | |||||||||||||||||||
| Loan purchase commitments | 630 | — | 630 | — | |||||||||||||||||||
| Total assets | $ | 26,451,993 | $ | — | $ | 4,876 | $ | 26,447,117 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| HMBS related obligations | $ | 17,353,720 | $ | — | $ | — | $ | 17,353,720 | |||||||||||||||
| Nonrecourse debt: | |||||||||||||||||||||||
| Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability | 7,876,932 | — | — | 7,876,932 | |||||||||||||||||||
| Nonrecourse commercial loan financing liability | 27,268 | — | — | 27,268 | |||||||||||||||||||
| Deferred purchase price liabilities: | |||||||||||||||||||||||
| Deferred purchase price liabilities | 4,318 | — | — | 4,318 | |||||||||||||||||||
| TRA obligation | 4,537 | — | — | 4,537 | |||||||||||||||||||
| Warrant liability | 1,150 | 1,150 | — | — | |||||||||||||||||||
| Total liabilities | $ | 25,267,925 | $ | 1,150 | $ | — | $ | 25,266,775 | |||||||||||||||
Level 3 assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
| Assets | |||||||||||||||||||||||
| Year ended December 31, 2024 | Loans held for investment | Loans held for investment, subject to nonrecourse debt | MSR | Retained bonds | |||||||||||||||||||
| Beginning balance | $ | 18,123,991 | $ | 8,272,393 | $ | 6,436 | $ | 44,297 | |||||||||||||||
| Total gain (loss) included in earnings | 1,592,998 | 573,140 | (920) | (684) | |||||||||||||||||||
| Purchases, settlements, and transfers: | |||||||||||||||||||||||
| Purchases and additions | 2,894,673 | 41,134 | — | — | |||||||||||||||||||
| Sales and settlements | (2,120,036) | (922,355) | (5,516) | (3,206) | |||||||||||||||||||
| Transfers in (out) between categories | (1,301,561) | 1,324,091 | — | — | |||||||||||||||||||
| Ending balance | $ | 19,190,065 | $ | 9,288,403 | $ | — | $ | 40,407 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||
| Year ended December 31, 2024 | HMBS related obligations | Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability | Nonrecourse commercial loan financing liability | Deferred purchase price liabilities | TRA obligation | ||||||||||||||||||||||||
| Beginning balance | $ | (17,353,720) | $ | (7,876,932) | $ | (27,268) | $ | (4,318) | $ | (4,537) | |||||||||||||||||||
| Total gain (loss) included in earnings | (1,340,956) | (428,840) | 10,245 | (9,189) | 1,223 | ||||||||||||||||||||||||
| Purchases, settlements, and transfers: | |||||||||||||||||||||||||||||
| Purchases and additions | (2,003,170) | (1,462,646) | — | — | — | ||||||||||||||||||||||||
| Settlements | 2,253,476 | 817,973 | 13,400 | 137 | — | ||||||||||||||||||||||||
| Ending balance | $ | (18,444,370) | $ | (8,950,445) | $ | (3,623) | $ | (13,370) | $ | (3,314) | |||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Year ended December 31, 2023 | Loans held for investment | Loans held for investment, subject to nonrecourse debt | Loans held for sale | MSR | Retained bonds | Purchase commitments | |||||||||||||||||||||||||||||
| Beginning balance | $ | 12,022,098 | $ | 7,454,638 | $ | 161,861 | $ | 95,096 | $ | 46,439 | $ | 9,356 | |||||||||||||||||||||||
| Total gain (loss) included in earnings | 1,003,208 | 506,993 | (2,253) | (2,582) | 847 | — | |||||||||||||||||||||||||||||
| Purchases, settlements, and transfers: | |||||||||||||||||||||||||||||||||||
| Purchases and additions | 8,640,881 | 76,031 | 40,468 | 405 | — | — | |||||||||||||||||||||||||||||
| Sales and settlements | (1,927,773) | (1,349,682) | (218,238) | (86,483) | (2,989) | (9,356) | |||||||||||||||||||||||||||||
| Transfers in (out) between categories | (1,614,423) | 1,584,413 | 18,162 | — | — | — | |||||||||||||||||||||||||||||
| Ending balance | $ | 18,123,991 | $ | 8,272,393 | $ | — | $ | 6,436 | $ | 44,297 | $ | — | |||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||
| Year ended December 31, 2023 | HMBS related obligations | Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability | Nonrecourse commercial loan financing liability | Nonrecourse MSR financing liability | Deferred purchase price liabilities | TRA obligation | |||||||||||||||||||||||||||||
| Beginning balance | $ | (10,996,755) | $ | (7,175,857) | $ | (106,758) | $ | (60,562) | $ | (137) | $ | (3,781) | |||||||||||||||||||||||
| Total gain (loss) included in earnings | (785,928) | (431,248) | 860 | 748 | 69 | (756) | |||||||||||||||||||||||||||||
| Purchases, settlements, and transfers: | |||||||||||||||||||||||||||||||||||
| Purchases and additions | (7,495,167) | (1,701,349) | (27,565) | — | (4,385) | — | |||||||||||||||||||||||||||||
| Settlements | 1,924,130 | 1,431,522 | 106,195 | 59,814 | 135 | — | |||||||||||||||||||||||||||||
| Ending balance | $ | (17,353,720) | $ | (7,876,932) | $ | (27,268) | $ | — | $ | (4,318) | $ | (4,537) | |||||||||||||||||||||||
Fair Value Option
The Company has elected to measure its loans held for investment, loans held for sale, HMBS related obligations, and nonrecourse debt at fair value under the fair value option. The Company elected to apply the provisions of the fair value option to these assets and liabilities in order to align financial reporting presentation with the Company’s operational and risk management strategies. Presented in the tables below are the fair value and the UPB, at December 31, 2024 and December 31, 2023, of financial assets and liabilities for which the Company has elected the fair value option (in thousands):
| December 31, 2024 | Estimated Fair Value | Unpaid Principal Balance | ||||||||||||
| Assets at fair value under the fair value option | ||||||||||||||
| Loans held for investment, subject to HMBS related obligations | $ | 18,669,962 | $ | 17,652,495 | ||||||||||
| Loans held for investment, subject to nonrecourse debt: | ||||||||||||||
| Reverse mortgage loans | 9,268,866 | 9,186,447 | ||||||||||||
| Commercial mortgage loans | 19,537 | 32,250 | ||||||||||||
| Loans held for investment: | ||||||||||||||
| Reverse mortgage loans | 519,948 | 503,727 | ||||||||||||
| Commercial mortgage loans | 155 | 222 | ||||||||||||
| Other assets: | ||||||||||||||
| Loans held for sale - residential mortgage loans | 3,454 | 4,331 | ||||||||||||
| Liabilities at fair value under the fair value option | ||||||||||||||
| HMBS related obligations | 18,444,370 | 17,652,495 | ||||||||||||
| Nonrecourse debt: | ||||||||||||||
| Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability | 8,950,445 | 9,351,132 | ||||||||||||
| Nonrecourse commercial loan financing liability | 3,623 | 12,787 | ||||||||||||
| December 31, 2023 | Estimated Fair Value | Unpaid Principal Balance | ||||||||||||
| Assets at fair value under the fair value option | ||||||||||||||
| Loans held for investment, subject to HMBS related obligations | $ | 17,548,763 | $ | 16,875,437 | ||||||||||
| Loans held for investment, subject to nonrecourse debt: | ||||||||||||||
| Reverse mortgage loans | 8,138,403 | 8,257,750 | ||||||||||||
| Commercial mortgage loans | 133,990 | 136,622 | ||||||||||||
| Loans held for investment: | ||||||||||||||
| Reverse mortgage loans | 574,271 | 558,577 | ||||||||||||
| Commercial mortgage loans | 957 | 1,044 | ||||||||||||
| Other assets: | ||||||||||||||
| Loans held for sale - residential mortgage loans | 4,246 | 9,247 | ||||||||||||
| Liabilities at fair value under the fair value option | ||||||||||||||
| HMBS related obligations | 17,353,720 | 16,875,437 | ||||||||||||
| Nonrecourse debt: | ||||||||||||||
| Nonrecourse debt in consolidated VIE trusts and reverse loan financing liability | 7,876,932 | 8,429,135 | ||||||||||||
| Nonrecourse commercial loan financing liability | 27,268 | 26,661 | ||||||||||||
Fair Value of Other Financial Instruments
As of December 31, 2024 and December 31, 2023, all financial instruments were either recorded at fair value or the carrying value approximated fair value with the exception of notes payable, net. Notes payable, net, includes our senior notes and working capital promissory notes, recorded at the carrying value of $374.5 million and $410.9 million as of December 31, 2024 and December 31, 2023, respectively, and have a fair value of $467.9 million and $345.6 million as of December 31, 2024 and December 31, 2023, respectively. The senior secured notes and the exchangeable senior secured notes have a fair value of $185.6 million and $191.1 million as of December 31, 2024, respectively. The fair value for notes payable, net, was determined using quoted market prices adjusted for accrued interest, which is considered to be a Level 2 input. Refer to Note 17 - Notes Payable, Net, for additional information.
For other financial instruments that were not recorded at fair value, such as cash and cash equivalents including restricted cash, promissory notes receivable, and other financing lines of credit, the carrying value approximates fair value due to the short-term nature of such instruments. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 3 inputs, with the exception of cash and cash equivalents, including restricted cash, which are Level 1 inputs.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2024 | Mar 14, 2025 | Showing above |
| 2023 | Mar 15, 2024 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.