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, the MIF Mortgage Repurchase Facility and the MIF Master Repurchase facility which permitted borrowings of up to $1.2 billion at December 31, 2025, 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.
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, 2025 and 2024:
December 31,
Description of Financial Instrument (in thousands) 2025 2024
Uncommitted IRLCs $ 300,595 $ 215,696
FMBSs related to uncommitted IRLCs 335,000 228,000
Whole loan contracts and related mortgage loans held for sale 15,044 17,667
FMBSs related to mortgage loans held for sale 290,000 252,000
Mortgage loans held for sale covered by FMBSs 302,790 276,140
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The table below shows the measurement of assets and liabilities at December 31, 2025 and 2024:
December 31,
Description of Financial Instrument (in thousands) 2025 2024
Mortgage loans held for sale $ 309,100 $ 283,540
Forward sales of mortgage-backed securities (635) 2,946
Interest rate lock commitments 3,661 532
Whole loan contracts (817) (864)
Total $ 311,309 $ 286,154
The following table sets forth the amount of gain (loss) recognized on assets and liabilities for the years ended December 31, 2025, 2024 and 2023:
Year Ended December 31,
Description (in thousands) 2025 2024 2023
Mortgage loans held for sale $ 4,906 $ (6,746) $ 6,739
Forward sales of mortgage-backed securities (3,581) 10,166 (4,215)
Interest rate lock commitments 3,129 (3,085) 2,829
Whole loan contracts 47 (529) 43
Total gain (loss) recognized
$ 4,501 $ (194) $ 5,396
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, 2025. 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, 2025. 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) 2026 2027 2028 2029 2030 Thereafter Total 12/31/2025
ASSETS:
Mortgage loans held for sale:
Fixed rate $314,112 — — — — — $314,112 $309,100
Weighted average interest rate 5.23% — — — — — 5.23%
LIABILITIES:
Long-term debt — fixed rate — — $400,000 $— $300,000 $— $700,000 $685,625
Weighted average interest rate — — 2.83% —% 1.69% —% 4.52%
Short-term debt — variable rate $276,856 — — — — — $276,856 $276,856
Weighted average interest rate 5.46% — — — — — 5.46%
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