FAIR VALUE (Tables)

12 Months Ended

Dec. 31, 2018

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis


	At
	December 31,		Fair Value Measurements
(in thousands)	2018		Level 1		Level 2		Level 3
Assets:
Investments in debt securities	$	97,190	$	─	$	─	$	97,190
Derivative instruments		5,797		─		4,667		1,130


	At
	December 31,		Fair Value Measurements
(in thousands)	2017		Level 1		Level 2		Level 3
Assets:
Investments in debt securities	$	143,604	$	─	$	─	$	143,604
Derivative instruments		6,865		─		4,518		2,347

Liabilities:
Derivative instruments	$	319	$	─	$	273	$	46

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

Changes in the fair value of assets and liabilities that are measured at fair value on a recurring basis and that are categorized as Level 3 within the fair value hierarchy are attributed in the following table to identified activities that occurred during the year ended December 31, 2018:


	Investments
	in Debt		Derivative		Derivative
(in thousands)	Securities		Assets		Liabilities
Balance, January 1, 2018	$	143,604	$	2,347	$	(46)
Net (losses) gains included in earnings		(6)		854		(41)
Net change in AOCI (1)		(16,249)		─		─
Impact from deconsolidation (2)		17,998		─		─
Impact from sales/redemptions		(47,488)		─		─
Impact from settlements (3)		(669)		(2,071)		87
Balance, December 31, 2018	$	97,190	$	1,130	$	─

⁽¹⁾

This amount includes the reclassification into the Consolidated Statements of Operations of $21.9 million of net fair value gains related to bonds that were sold or redeemed during this reporting period. This decline was partially offset by $5.6 million of net unrealized gains recognized during this reporting period.

⁽²⁾

This amount reflects the recognition of bond investments that were no longer eliminated for reporting purposes in the first quarter of 2018 due to the derecognition of corresponding consolidated property partnerships.

⁽³⁾

This impact considers the effect of principal payments received and amortization of cost basis adjustments.

The following table provides information about the amount of realized and unrealized (losses) gains that were reported in the Company’s Consolidated Statements of Operations for the year ended December 31, 2018 related to activity presented in the preceding table:


	Net gains on		Net gains on
(in thousands)	bonds (1)		derivatives (2)
Change in unrealized (losses) gains related to assets and liabilities held at December 31, 2018	$	(6)	$	911
Change in unrealized losses related to assets and liabilities held at January 1, 2018, but settled during 2018		─		(98)
Additional realized gains recognized		21,875		2,342
Total net gains reported in earnings	$	21,869	$	3,155

⁽¹⁾

Amounts are classified as “Impairments” and “Net gains on bonds” in the Company’s Consolidated Statements of Operations.

⁽²⁾

Amounts are classified as “Net gains on derivatives” in the Company’s Consolidated Statements of Operations.


	Investments
	in Debt		Loans Held for		Derivative		Derivative
(in thousands)	Securities		Investment		Assets		Liabilities
Balance, January 1, 2017	$	155,981	$	3,835	$	2,327	$	(372)
Net (losses) gains included in earnings		(5,265)		(5,335)		20		326
Net change in AOCI (1)		3,461		─		─		─
Impact from purchases		─		14,028		─		─
Impact from loan originations		─		1,500		─		─
Impact from sales/redemptions		(6,784)		(14,028)		─		─
Impact from settlements (2)		(3,789)		─		─		─
Balance, December 31, 2017	$	143,604	$	─	$	2,347	$	(46)

⁽¹⁾

This amount represents $4.2 million of net unrealized holding gains recognized during the period, an amount of which was partially offset by the reclassification into the Consolidated Statements of Operations of $0.1 million of realized bond gains related to a bond that was other-than-temporarily impaired and $0.6 million of fair value gains related to bonds that were sold or redeemed during this reporting period.

⁽²⁾

This impact considers the effect of principal payments received and amortization of cost basis adjustments.

The following table provides information about the amount of realized and unrealized (losses) gains that were reported in the Company’s Consolidated Statements of Operations for the year ended December 31, 2017 related to activity presented in the preceding table:


			Equity in
	Net losses on		losses from		Net losses on		Net gains on
(in thousands)	bonds (1)		LTPPs		loans (2)		derivatives (3)
Change in unrealized (losses) gains related to assets and liabilities held at December 31, 2017	$	(945)	$	(4,320)	$	─	$	346
Change in unrealized losses related to assets and liabilities held at January 1, 2017, but settled during 2017		─		─		(5,335)		─
Additional realized gains recognized		620		─		805		2,909
Total net (losses) gains reported in earnings	$	(325)	$	(4,320)	$	(4,530)	$	3,255

⁽¹⁾

Amounts are classified as “Impairments” and “Net gains on bonds” in the Company’s Consolidated Statements of Operations.

⁽²⁾

Amounts are classified as “Net gains (losses) on loans” in the Company’s Consolidated Statements of Operations.

⁽³⁾

Amounts are classified as “Net gains on derivatives” in the Company’s Consolidated Statements of Operations.

Fair Value Measurements By Level 3 Valuation Technique

Fair Value Measurement at December 31, 2018

Significant

Valuation

Unobservable

Weighted

(dollars in thousands)

Fair Value

Techniques

Inputs (1)

Range (1)

Average (2)

Recurring Fair Value Measurements:

Investments in debt securities:

Multifamily tax-exempt bonds

Performing

48,221

Discounted cash flow

Market yield

4.4 - 6.8

4.8

Non-performing

12,882

Discounted cash flow

Market yield

8.2

N/A

Capitalization rate

7.0

N/A

Valuation technique
weighting factors:

• Net operating
income ("NOI")
annual growth rate
(10% weighting factor)

0.5

N/A

• Contract price
(90% weighting
factor)

13,500

N/A

Subordinated cash flow

11,114

Discounted cash flow

Market yield

7.4 - 7.6

7.5

Capitalization rate

6.2 - 6.5

6.4

NOI annual growth rate

0.6 - 0.7

0.7

Infrastructure bond

24,973

Discounted cash flow

Market yield

7.2

N/A

Derivative instruments:

Total return swaps

1,130

Discounted cash flow

Market yield

4.7 - 4.8

4.8

⁽¹⁾

Unobservable inputs reflect information that is not based upon independent sources that are readily available. These inputs are based upon assumptions and internally generated data made by the Company, which may include significant judgment that has been developed based upon available information from third-party sources or dealers about what a market participant would use in valuing the asset.

⁽²⁾

Weighted-averages are calculated using outstanding UPB for cash instruments, such as loans and securities, and notional amounts for derivative instruments.


	Fair Value Measurement at December 31, 2017
			Significant	Significant
			Valuation	Unobservable				Weighted
(dollars in thousands)	Fair Value		Techniques	Inputs (1)	Range (1)			Average (2)
Recurring Fair Value Measurements:
Investments in debt securities:
Multifamily tax-exempt bonds
Performing	$	90,963	Discounted cash flow	Market yield		4.3 - 6.7	%		5.0	%
Non-performing		8,033	Discounted cash flow	Market yield		7.5			7.5
				Capitalization rate		6.4			6.4
				NOI annual growth rate		(1.2)			(1.2)
Subordinated cash flow		12,573	Discounted cash flow	Market yield		6.7 - 7.0			6.8
				Capitalization rate		5.8 - 6.1			5.9
				NOI annual growth rate		0.6 - 0.9			0.8
Infrastructure bonds		21,824	Discounted cash flow	Market yield		7.1 - 9.2			8.0
				Cash flow probability - future incremental tax revenue growth		80			80
				Cash flow probability - no future incremental tax revenue growth		20			20
Other bonds		10,211	Discounted cash flow	Market yield		4.2			4.2
Derivative instruments:
Total return swaps		2,301	Discounted cash flow	Market yield		4.1 - 5.3			5.0

⁽¹⁾

⁽²⁾

Weighted-averages are calculated using outstanding UPB for cash instruments, such as loans and securities, and notional amounts for derivative instruments.

Fair Value, by Balance Sheet Grouping

December 31, 2018

Carrying

Fair Value

(in thousands)

Amount

Level 1

Level 2

Level 3

Assets:

Cash and cash equivalents

28,243

─

Restricted cash

5,635

─

Loans held for investment

67,299

─

66,339

Liabilities:

Notes payable and other debt - bond related

39,255

─

39,289

Notes payable and other debt - non-bond related

12,210

─

11,479

Subordinated debt issued by MFH

97,722

─

46,778

December 31, 2017

Carrying

Fair Value

(in thousands)

Amount

Level 1

Level 2

Level 3

Assets:

Cash and cash equivalents

35,693

─

Restricted cash

21,271

─

Restricted cash related to CFVs

23,495

─

Asset management fee receivable from TC Fund I

116

─

116

Loans held for investment

736

─

1,754

Loans held for investment related to CFVs

─

497

Liabilities:

Notes payable and other debt - bond related

83,838

─

83,879

Notes payable and other debt - non-bond related

25,592

─

26,014

Notes payable and other debt - CFVs related

6,712

─

Subordinated debt issued by MFH

99,997

─

43,256