Mortgage Servicing Rights

3 Months Ended

Mar. 31, 2026

MORTGAGE SERVICING RIGHTS

Mortgage servicing rights are recognized on the condensed consolidated balance sheets when loans are sold and the associated servicing rights are retained. The Company's MSRs are measured at fair value, which is determined using a valuation model that calculates the present value of estimated future net servicing cash flows. The model includes estimates of prepayment speeds, discount rates, costs to service, float earnings, contractual servicing fee income, and ancillary income and late fees, among others. These estimates are supported by market and economic data collected from various external sources.

The unpaid principal balance of mortgage loans serviced for others approximated $229.5 billion and $240.8 billion at March 31, 2026 and December 31, 2025, respectively. Conforming conventional loans serviced by the Company have previously been sold to Fannie Mae and Freddie Mac on a non-recourse basis, whereby credit losses are generally the responsibility of Fannie Mae and Freddie Mac, and not the Company. Loans serviced for Ginnie Mae are insured by the FHA, guaranteed by the VA, or insured by other applicable government programs. While the above guarantees and insurance are the responsibility of those parties, the Company is still subject to potential losses related to its servicing of these loans. Those estimated losses are incorporated into the valuation of MSRs.

The following table summarizes changes in the MSR assets for the three months ended March 31, 2026 and 2025 (in thousands):


	For the three months ended March 31,
		2026		2025
Fair value, beginning of period		$	4,073,781	$	3,969,881
Capitalization of MSRs		1,101,017		735,571
MSR and excess servicing sales		(604,323)		(1,010,124)
Changes in fair value:
Due to changes in valuation inputs and assumptions		247,897		(250,821)
Due to collection/realization of cash flows and other		(226,517)		(123,050)

Fair value, end of period		$	4,591,855	$	3,321,457

The following is a summary of the components of the total change in fair value of MSRs as reported in the condensed consolidated statements of operations (in thousands):


	For the three months ended March 31,
		2026		2025
Changes in fair value:
Due to changes in valuation inputs and assumptions, net		$	247,897	$	(250,821)
Due to collection/realization of cash flows and other		(226,517)		(123,050)
Net reserves and transaction costs on sales of servicing rights		(31,715)		(14,714)
Changes in fair value of mortgage servicing rights		$	(10,335)	$	(388,585)

During the three months ended March 31, 2026 and 2025, the Company sold MSRs on loans with an aggregate UPB of approximately $39.7 billion and $53.5 billion, respectively, for proceeds of approximately $604.0 million and $825.9 million, respectively. There were no excess servicing cash flow sales during the three months ended March 31, 2026. During the three months ended March 31, 2025, the Company sold excess servicing cash flows on certain agency loans with a total UPB of approximately $19.9 billion for proceeds of approximately $184.6 million. In connection with these sales, the Company recorded approximately $31.7 million and $14.7 million, respectively, for estimated reserves and transaction costs, which is reflected as part of the change in fair value of MSRs in the condensed consolidated statements of operations.

The following table summarizes the loan servicing income recognized during the three months ended March 31, 2026 and 2025 (in thousands):


	For the three months ended March 31,
		2026		2025
Contractual servicing fees		$	207,924	$	186,232
Late, ancillary and other fees		5,455		4,285
Loan servicing income		$	213,379	$	190,517

The key unobservable inputs used in determining the fair value of the Company’s MSRs were as follows at March 31, 2026 and 2025:


	March 31, 2026							December 31, 2025
	Range					Weighted Average		Range					Weighted Average
Discount rates	7.6	%	—	12.5	%	9.1	%	7.8	%	—	13.7	%	9.4	%
Annual prepayment speeds	6.6	%	—	17.6	%	9.0	%	5.4	%	—	22.1	%	10.3	%
Cost of servicing	$74		—	$150		$86		$74		—	$149		$87

The hypothetical effect of adverse changes in these key assumptions would result in a decrease in fair values as follows at March 31, 2026 and December 31, 2025 (in thousands):


	March 31, 2026		December 31, 2025
Discount rate:
+ 10% adverse change – effect on value	$	(175,285)	$	(149,409)
+ 20% adverse change – effect on value	(336,520)		(286,410)
Prepayment speeds:
+ 10% adverse change – effect on value	$	(173,417)	$	(168,559)
+ 20% adverse change – effect on value	(333,954)		(323,246)
Cost of servicing:
+ 10% adverse change – effect on value	$	(26,047)	$	(25,173)
+ 20% adverse change – effect on value	(51,415)		(49,316)

These sensitivities are hypothetical and should be used with caution. As the table demonstrates, the Company’s methodology for estimating the fair value of MSRs is highly sensitive to changes in assumptions. For example, actual prepayment experience may differ, and any difference may have a material effect on MSR fair value. Changes in fair value resulting from changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the table above, the effect of a variation in a particular assumption of the fair value of the MSRs is calculated without changing any other assumption; in reality, changes in one factor may be associated with changes in another (for example, decreases in market interest rates may indicate higher prepayments; however, this may be partially offset by lower prepayments due to other factors such as a borrower’s diminished opportunity to refinance, or lower discount rates as investors may accept lower returns in a lower interest rate environment), which may magnify or counteract the sensitivities. Thus, any measurement of MSR fair value is limited by the conditions existing and assumptions made as of a particular point in time. Those assumptions may not be appropriate if they are applied to a different point in time.

- Definition

The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows.

+ References

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UWM Holdings Corp 10-Q