Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk results from fluctuations in interest rates. We are exposed to interest rate risk through borrowings under our revolving credit facilities, consisting of the Credit Facility and the MIF Mortgage Repurchase Facility which permitted borrowings of up to $950.0 million at December 31, 2024, subject to availability constraints. Additionally, M/I Financial is exposed to interest rate risk associated with its mortgage loan origination services.
Interest Rate Lock Commitments: Interest rate lock commitments (“IRLCs”) are extended to certain homebuying customers who have applied for a mortgage loan and meet certain defined credit and underwriting criteria. Typically, the IRLCs will have a duration of less than six months; however, in certain markets, the duration could extend to twelve months.
Some IRLCs are committed to a specific third-party investor through the use of whole loan delivery commitments matching the exact terms of the IRLC loan. Uncommitted IRLCs are considered derivative instruments and are fair value adjusted, with the resulting gain or loss recorded in current earnings.
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Forward Sales of Mortgage-Backed Securities: Forward sales of mortgage-backed securities (“FMBSs”) are used to protect uncommitted IRLC loans against the risk of changes in interest rates between the lock date and the funding date. FMBSs related to uncommitted IRLCs are classified and accounted for as non-designated derivative instruments and are recorded at fair value, with gains and losses recorded in current earnings.
Mortgage Loans Held for Sale : Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property. During the period between when a loan is closed and when it is sold to an investor, the interest rate risk is covered through the use of a whole loan contract or by FMBSs. The FMBSs are classified and accounted for as non-designated derivative instruments, with gains and losses recorded in current earnings.
The table below shows the notional amounts of our financial instruments at December 31, 2024 and 2023:
December 31,
Description of Financial Instrument (in thousands) 2024 2023
Uncommitted IRLCs $ 215,696 $ 174,274
FMBSs related to uncommitted IRLCs 228,000 174,000
Whole loan contracts and related mortgage loans held for sale 17,667 10,398
FMBSs related to mortgage loans held for sale 252,000 152,000
Mortgage loans held for sale covered by FMBSs 276,140 160,547
The table below shows the measurement of assets and liabilities at December 31, 2024 and 2023:
December 31,
Description of Financial Instrument (in thousands) 2024 2023
Mortgage loans held for sale $ 283,540 $ 176,329
Forward sales of mortgage-backed securities 2,946 (7,220)
Interest rate lock commitments 532 3,617
Whole loan contracts (864) (335)
Total $ 286,154 $ 172,391
The following table sets forth the amount of gain (loss) recognized on assets and liabilities for the years ended December 31, 2024, 2023 and 2022:
Year Ended December 31,
Description (in thousands) 2024 2023 2022
Mortgage loans held for sale $ (6,746) $ 6,739 $ 407
Forward sales of mortgage-backed securities 10,166 (4,215) (7,482)
Interest rate lock commitments (3,085) 2,829 1,282
Whole loan contracts (529) 43 (323)
Total gain (loss) recognized
$ (194) $ 5,396 $ (6,116)
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The following table provides the expected future cash flows and current fair values of borrowings under our credit facilities and mortgage loan origination services that are subject to market risk as interest rates fluctuate, as of December 31, 2024. Because the MIF Mortgage Repurchase Facility is effectively secured by certain mortgage loans held for sale which are typically sold within 30 to 45 days, its outstanding balance is included in the most current period presented. The interest rates for our variable rate debt represent the weighted average interest rates in effect at December 31, 2024. For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flow. Conversely, for variable-rate debt, changes in interest rates generally do not affect the fair market value of the debt instrument but do affect our earnings and cash flow. We do not have the obligation to prepay fixed-rate debt prior to maturity, and, as a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed-rate debt until we are required or elect to refinance it.
Expected Cash Flows by Period Fair Value
(Dollars in thousands) 2025 2026 2027 2028 2029 Thereafter Total 12/31/2024
ASSETS:
Mortgage loans held for sale:
Fixed rate $291,040 — — — — — $291,040 $283,540
Weighted average interest rate 5.74% — — — — — 5.74%
LIABILITIES:
Long-term debt — fixed rate — — — $400,000 $— $300,000 $700,000 $651,250
Weighted average interest rate — — — 2.83% —% 1.69% 4.52%
Short-term debt — variable rate $286,159 — — — — — $286,159 $286,159
Weighted average interest rate 6.19% — — — — — 6.19%
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