Agency MBS - The Company’s investments in agency MBS are classified within Level 2 of the fair value hierarchy. Inputs to fair value measurements of the Company’s investments in agency MBS include price estimates obtained from third-party pricing services. In determining fair value, third-party pricing services use a market approach. The inputs used in the fair value measurements performed by the third-party pricing services are based upon readily observable transactions for securities with similar characteristics (such as issuer/guarantor, coupon rate, stated maturity, and collateral pool characteristics) occurring on the measurement date. The Company makes inquiries of the third-party pricing sources and reviews their documented valuation methodologies to understand the significant inputs and assumptions used to determine prices. The Company reviews the various third-party fair value estimates and performs procedures to validate their reasonableness, including comparison to recent trading activity for similar securities and an overall review for consistency with market conditions observed as of the measurement date.

Credit securities – The Company's investments in commercial MBS are classified within Level 2 of the fair value hierarchy. Inputs to fair value measurements of the Company's investments in commercial MBS include quoted prices for similar assets in recent market transactions and estimates obtained from third-party sources including pricing services and dealers. In determining fair value, third-party pricing sources use a market approach. The inputs used in the fair value measurements performed by third-party pricing sources are based upon observable transactions for securities with similar characteristics. The Company reviews the third-party fair value estimates and performs procedures to validate their reasonableness, including comparisons to recent trading activity observed for similar securities as well as an internally derived discounted future cash flow measurement. The Company’s investments in a non-agency MBS collateralized by a pool of business purpose residential mortgage loans and ABS collateralized by residential solar panel loans are classified within Level 3 of the fair value hierarchy.

To measure the fair value of the Company’s non-agency MBS investment secured by a pool of business purpose residential mortgage loans, the Company uses an income approach by preparing an estimate of the present value of the amount and timing of the cash flows expected to be collected from the security over its expected remaining life. To prepare the estimate of cash flows expected to be collected, the Company uses significant judgment to develop assumptions about the future performance of the pool of business purpose residential mortgage loans that serve as collateral, including loan-level probabilities of default and loss-given-default. As of September 30, 2022 and December 31, 2021, the remaining population of business purpose residential mortgage loans serving as collateral to the Company's non-agency MBS investment represented less than 5% and 10% of the original collateral pool, respectively. Because the repayment of business purpose residential mortgage loans is often largely based on the ability of the borrower to sell the mortgaged property or to convert the property for rental purposes and obtain refinancing in the form of a longer-term loan, relatively high delinquency and default rates are common and expected attributes of this asset class. The following table presents the weighted-average of the significant inputs to the fair value measurement of the Company’s non-agency MBS secured by business purpose residential mortgage loans as of dates indicated:

Inputs to fair value measurements of the Company’s investments in ABS collateralized by residential solar panel loans includes quoted prices obtained from dealers and, when available, observable market information for the same or similar securities. In determining fair value, dealers may use a market approach or an income approach, depending upon the type and level of relevant market information available as of the measurement date. The significant inputs used in the fair value measurements performed by dealers are often unobservable as ABS collateralized by residential solar panel loans trade infrequently. The Company reviews the fair value estimates obtained from dealers and performs procedures to validate their reasonableness, including comparisons to an internally derived discounted future cash flow measurement and, when available, recent trading activity observed for similar securities.

Loans – The Company’s commercial mortgage loan investment is classified within Level 3 of the fair value hierarchy. To measure the fair value of its mortgage loan investment, the Company uses an income approach by preparing an estimate of the present value of the expected future cash flows of the loan over its expected remaining life, discounted at a current market rate. The significant unobservable inputs to the fair value measurement of the Company’s mortgage loan investment are the estimated

probability of default and the discount rate, which is based on current market yields and interest rate spreads for a similar loan. As of September 30, 2022, the estimated probability of default and discount rate for the Company’s mortgage loan investment were 0% and 6.4%, respectively. As of December 31, 2021, the estimated probability of default and discount rate for the Company’s mortgage loan investment were 0% and 5.6%, respectively.

Mortgage loans and secured debt of consolidated VIEs – The Company has elected to apply a fair value measurement practical expedient permitted by GAAP to measure the fair value of the mortgage loans and debt obligations of its consolidated VIEs. The fair value measurement practical expedient is permitted to be applied to consolidated “collateralized financing entities,” which are VIEs for which the financial liabilities of the VIE have contractual recourse solely to the financial assets of the VIE.

As of September 30, 2022 and December 31, 2021, pursuant to the practical expedient, the Company measured the fair value of both the mortgage loans and the debt obligations of its consolidated VIE of business purpose residential mortgage loans based upon the fair value of the mortgage loans of the VIE. As of December 31, 2021, the senior debt obligations of the consolidated VIE had been fully extinguished and only the subordinate debt obligation of the consolidated VIE remained. The business purpose residential mortgage loans and subordinate debt obligation of the consolidated VIE are classified within Level 3 of the fair value hierarchy. To measure the fair value of the business purpose residential mortgage loans of the consolidated VIE as of September 30, 2022 and December 31, 2021, the Company used significant judgment to develop assumptions about the future performance of each business purpose residential mortgage loan, which included determining loan-level probabilities of default and loss-given-default. As of September 30, 2022 and December 31, 2021, the remaining population of business purpose residential mortgage loans represented less than 5% and 10% of the original collateral pool, respectively. Because the repayment of business purpose residential mortgage loans is often largely based on the ability of the borrower to sell the mortgaged property or to convert the property for rental purposes and obtain refinancing in the form of a longer-term loan, relatively high delinquency and default rates are common and expected attributes of this asset class. The following table presents the weighted-average of the significant inputs to the fair value measurement of the business purpose residential mortgage loans of the Company’s consolidated VIE as of the periods indicated:

As of September 30, 2022, the Company measured the fair value of both the residential mortgage loans and the debt obligations of its consolidated VIE of residential mortgage loans based upon the fair value of the debt obligations as the fair value of the debt securities issued by the VIE were more observable to the Company than the fair value of the underlying mortgage loans.

The senior and mezzanine debt obligations of the consolidated VIE of residential mortgage loans are classified within Level 2 of the fair value hierarchy. Inputs to the fair value measurements of the senior and mezzanine debt obligations of the consolidated VIE include quoted prices for similar assets in recent market transactions and estimates obtained from third-party pricing sources, including pricing services and dealers. In determining fair value, third-party pricing sources use a market approach. The inputs used in the fair value measurements performed by third-party pricing sources were based upon observable transactions for securities with similar characteristics.

The residential mortgage loans and the subordinate and excess interest-only debt obligations of the consolidated VIE of residential mortgage loans (held by the Company as investments and eliminated against the associated debt of the VIE in consolidation) are classified within Level 3 of the fair value hierarchy. To measure the fair value of the subordinate and excess interest-only debt obligations of the consolidated VIE of residential mortgage loans, the Company uses an income approach by preparing an estimate of the present value of the amount and timing of the cash flows expected to be collected from each security over its expected remaining life. To prepare the estimate of cash flows expected to be collected, the Company uses significant judgment to develop assumptions about the future performance of the pool of residential mortgage loans that serve as collateral, including assumptions about the timing and amount of credit losses and prepayments. The significant unobservable inputs to the fair value measurement include the estimated rate of prepayment, rate of default and loss-given-default for the underlying pool of mortgage loans as well as the discount rate, which represents a market participant’s current required rate of return for a similar instrument. The following table presents the weighted-average of the significant inputs to the fair value measurement of the subordinate and excess interest-only debt obligations of its consolidated VIE of residential mortgage loans as of September 30, 2022:

MSR financing receivables – The Company’s MSR financing receivables are classified within Level 3 of the fair value hierarchy. The Company uses a nationally recognized, independent third-party mortgage analytics and valuation firm to estimate the fair value of the underlying MSRs from which the Company’s MSR financing receivables primarily derive their value. The third-party valuation firm estimates the fair value of the underlying MSRs using a discounted cash flow analysis using their proprietary prepayment models and market analysis. The Company corroborates the third-party valuation firm’s estimate of the fair value of the underlying MSRs and evaluates the estimate for reasonableness. The significant unobservable inputs to the fair value measurement of the underlying MSRs include the following:

Pursuant to the Company’s MSR financing receivable arrangements, upon the consummation of three-year performance periods ending December 31, 2023 and April 1, 2024, the Company’s mortgage servicing counterparty is entitled to an incentive fee payment equal to a percentage of the total return of the underlying MSRs in excess of a hurdle rate of return. Accordingly, the fair value of the Company’s MSR financing receivables reflects the present value of any expected incentive fee payment that would be owed to its counterparty. The present value of the expected incentive fee payment is estimated based upon the timing and amount of capital contributions from (and cash distributions to) the Company to (from) its mortgage servicing counterparty to date as well as the future expected cash flows from the MSR financing receivables over the remaining performance periods, which is derived from the current fair value of the underlying reference MSRs. As of September 30, 2022 and December 31, 2021, the present value of the expected incentive fee payment reflected in fair value of the Company’s MSR financing receivables was $13,057 and $3,820, respectively.

Exchange-traded derivative instruments - Exchange-traded derivative instruments, which include U.S. Treasury note futures, Eurodollar futures, interest rate swap futures, and options on futures, are classified within Level 1 of the fair value hierarchy as they are measured using quoted prices for identical instruments in liquid markets.

Interest rate swaps - Interest rate swaps are classified within Level 2 of the fair value hierarchy. The fair values of the Company’s centrally cleared interest rate swaps are measured using the daily valuations reported by the clearinghouse through which the instrument was cleared. In performing its end-of-day valuations, the clearinghouse constructs forward interest rate curves (for example, three-month LIBOR or SOFR forward rates) from its specific observations of that day’s trading activity. The clearinghouse uses the applicable forward interest rate curve to develop a market-based forecast of future remaining contractually required cash flows for each interest rate swap. Each market-based cash flow forecast is then discounted using the SOFR curve (sourced from the Federal Reserve Bank of New York) to determine a net present value amount which represents the instrument’s fair value.

Forward-settling purchases and sales of TBA securities – Forward-settling purchases and sales of TBA securities are classified within Level 2 of the fair value hierarchy. The fair value of each forward-settling TBA contract is measured using price estimates obtained from a third-party pricing service, which are based upon readily observable transaction prices occurring on the measurement date for forward-settling contracts to buy or sell TBA securities with the same guarantor, contractual maturity, and coupon rate for delivery on the same forward settlement date as the commitment under measurement.

Long-term unsecured debt - As of September 30, 2022 and December 31, 2021, the carrying value of the Company’s long-term unsecured debt was $86,302 and $85,994, respectively, net of unamortized debt issuance costs, and consists of Senior Notes and trust preferred debt issued by the Company. The Company’s estimate of the fair value of long-term unsecured debt is $79,670 and $84,821 as of September 30, 2022 and December 31, 2021, respectively. The Company’s Senior Notes, which are publicly traded on the New York Stock Exchange, are classified within Level 1 of the fair value hierarchy. Trust preferred debt is classified within Level 2 of the fair value hierarchy as the fair value is estimated based on the quoted prices of the Company’s publicly traded Senior Notes.

Long-term debt secured by single-family properties – As of September 30, 2022 and December 31, 2021, the carrying value of the Company’s long-term debt secured by single-family properties was $56,801 and $39,178, respectively, net of unamortized debt issuance costs. As of September 30, 2022 and December 31, 2021, the Company’s estimate of the fair value of its long-term debt secured by single-family properties was $49,438 and $38,562, respectively. The Company’s long-term debt secured by single-family properties is classified within Level 3 of the fair value hierarchy.

Investments in equity securities of publicly-traded companies – As of September 30, 2022 and December 31, 2021, the Company had investments in equity securities of publicly-traded companies at fair value of $352 and $5,267, respectively, which is included in the line item “other assets” in the accompanying consolidated balance sheets. Investments in publicly traded stock are classified within Level 1 of the fair value hierarchy as their fair value is measured based on unadjusted quoted prices in active exchange markets for identical assets.

Investments in equity securities of non-public companies and investment funds – As of September 30, 2022 and December 31, 2021, the Company had investments in equity securities of non-public companies and investment funds measured at fair value of $5,248 and $7,388, respectively, which are included in the line item “other assets” in the accompanying consolidated balance sheets.

Investments in equity securities of non-public companies and investment funds are classified within Level 3 of the fair value hierarchy. The fair values of the Company’s investments in equity securities of non-public companies and investment funds are not readily determinable. Accordingly, the Company estimates fair value by estimating the enterprise value of the investee which it then allocates to the investee’s securities in the order of their preference relative to one another. To estimate the enterprise value of the investee, the Company uses traditional valuation methodologies based on income and market approaches, including the consideration of recent investments in, or tender offers for, the equity securities of the investee, a discounted cash flow analysis and a comparable guideline public company valuation. The primary unobservable inputs used in estimating the fair value of an equity security of a non-public company include (i) a stock price to net asset multiple for similar public companies that is applied to the entity’s net assets, (ii) a discount factor for lack of marketability and control, and (iii) a cost of equity discount rate, used to discount to present value the equity cash flows available for distribution and the terminal value of the entity. As of September 30, 2022, the stock price to net asset multiple for similar public companies, the discount factor for lack of marketability and control, and the cost of equity discount rate used as inputs were 97 percent, 15 percent, and 16 percent, respectively. As of December 31, 2021, the stock price to net asset multiple for similar public companies, the discount factor for lack of marketability and control, and the cost of equity discount rate used as inputs were 95 percent, 15 percent, and 16 percent, respectively. For its investments in investment funds, the Company estimates fair value based upon the investee’s net asset value per share.

Financial assets and liabilities for which carrying value approximates fair value - Cash and cash equivalents, restricted cash, deposits, receivables, repurchase agreements, payables, and other assets (aside from those previously discussed) and liabilities are generally reflected in the consolidated balance sheets at their cost, which, due to the short-term nature of these instruments and their limited inherent credit risk, approximates fair value.

The following tables set forth financial instruments measured at fair value by level within the fair value hierarchy as of September 30, 2022 and December 31, 2021. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.


	September 30, 2022
	Total		Level 1		Level 2		Level 3
Financial assets:
Agency MBS	$	445,122	$	—	$	445,122	$	—
MSR financing receivables		164,585		—		—		164,585
Loans		29,375		—		—		29,375
Credit securities		115,783		—		108,330		7,453
Mortgage loans of consolidated VIEs		203,456		—		—		203,456
Derivative assets		4,422		—		4,422		—
Other assets		5,600		352		—		5,248
Financial liabilities:
Secured debt of consolidated VIEs		182,336		—		172,012		10,324
Derivative liabilities		139		—		139		—


	December 31, 2021
	Total		Level 1		Level 2		Level 3
Financial assets:
Agency MBS	$	483,927	$	—	$	483,927	$	—
MSR financing receivables		125,018		—		—		125,018
Loans		29,697		—		—		29,697
Credit securities		26,222		—		—		26,222
Mortgage loans of consolidated VIE		7,442		—		—		7,442
Derivative assets		250		20		230		—
Other assets		12,655		5,267		—		7,388
Financial liabilities:
Secured debt of consolidated VIE		508		—		—		508
Derivative liabilities		228		—		228		—

The table below sets forth an attribution of the change in the fair value of the Company’s Level 3 financial assets that are measured at fair value on a recurring basis for the periods indicated:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Beginning balance	$	393,501		$	206,729		$	195,767		$	166,428
Net (loss) gain included in "Investment and derivative gain (loss), net"		(13,199	)		4,504			(11,583	)		9,639
Additions from consolidation of VIEs		—			—			276,594			—
Transfers to real estate owned by consolidated VIE		(78	)		—			(277	)		—
Purchases		40,474			35,601			61,693			128,614
Sales		—			—			(12,406	)		(1,662	)
Payments, net		(14,671	)		(68,810	)		(110,052	)		(128,350	)
Accretion (amortization) of discount (premium), net		4,090			2,411			10,381			5,766
Ending balance	$	410,117		$	180,435		$	410,117		$	180,435
Net unrealized (losses) gains included in earnings for the period for Level 3 assets still held at the reporting date	$	(13,199	)	$	4,504		$	(10,552	)	$	9,719

The table below sets forth an attribution of the change in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis for the periods indicated:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2022			2021		2022			2021
Beginning balance	$	11,521		$	640	$	508		$	576
Net (gain) loss included in "Investment and derivative gain (loss), net"		(808	)		9		(2,140	)		(1	)
Additions from consolidation of VIEs		—			—		14,278			—
Payments, net		(374	)		3		(2,170	)		3
(Amortization) accretion of (premium) discount, net		(15	)		—		(152	)		74
Ending balance	$	10,324		$	652	$	10,324		$	652
Net unrealized (gains) losses included in earnings for the period for Level 3 liabilities still held at the reporting date	$	(808	)	$	9	$	(2,140	)	$	(1	)