Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2017

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Fair Value, Option, Quantitative Disclosures

The table below shows the unpaid principal, fair value and impact of change in fair value on each of the financial instruments carried with fair value option as of December 31, 2017 and 2016, respectively:



	December 31, 2017
	(dollars in thousands)
	Unpaid Principal/ Notional	Fair Value		Quarter to Date Gain/(Loss) on Change in Fair Value			Year to Date Gain/(Loss) on Change in Fair Value
Assets:
Non-agency RMBS
Subordinated	N/A	$	13,993	$	(545	)	$	1,246
Senior, interest-only	4,862,461	210,850		3,156			(13,290		)
Subordinated, interest-only	201,378	7,826		1,836			2,311
Agency MBS
Residential Pass-through	577,522	602,829		(2,359		)	(4,816		)
Commercial Pass-through	564,379	570,105		(546		)	(2,398		)
Interest-only	3,021,840	104,367		(367		)	465
Loans held for investment, at fair value	13,525,820	13,678,263		(65,643		)	206,181
Liabilities:
Securitized debt at fair value, collateralized by loans held for investment	9,395,854	9,388,657		16,831			(78,289		)



	December 31, 2016
	(dollars in thousands)
	Unpaid Principal/ Notional	Fair Value		Quarter to Date Gain/(Loss) on Change in Fair Value			Year to Date Gain/(Loss) on Change in Fair Value
Assets:
Non-agency RMBS
Subordinated	N/A	$	18,602	$	(1,983	)	$	5,568
Senior, interest-only	5,648,339	253,539		(26,844		)	(4,512		)
Subordinated, interest-only	266,927	12,024		(1,169		)	2,118
Agency MBS
Interest-only	3,356,491	144,800		(920		)	(490		)
Loans held for investment, at fair value	8,868,783	8,753,653		32,991			146,635
Liabilities:
Securitized debt at fair value, collateralized by loans held for investment	7,059,265	6,941,097		(22,738		)	(89,767		)

Fair Value, Financial Assets and Liabilities Carried at Fair Value on a Recurring Basis

The Company’s financial assets and liabilities carried at fair value on a recurring basis, including the level in the fair value hierarchy, at December 31, 2017 and December 31, 2016 are presented below.



	December 31, 2017
	(dollars in thousands)
	Level 1		Level 2			Level 3			Counterparty and Cash Collateral, netting			Total
Assets:
Non-Agency RMBS, at fair value	$	—	$	—		$	2,851,316		$	—		$	2,851,316
Agency MBS, at fair value	—		4,364,828			—			—			4,364,828
Loans held for investment, at fair value	—		—			13,678,263			—			13,678,263
Derivatives	3,553		46,978			—			(1,617		)	48,914

Liabilities:
Securitized debt at fair value, collateralized by loans held for investment	—		—			(9,388,657		)	—			(9,388,657		)
Derivatives	—		(1,937		)	—			1,617			(320		)



	December 31, 2016
	(dollars in thousands)
	Level 1		Level 2			Level 3		Counterparty and Cash Collateral, netting			Total
Assets:
Non-Agency RMBS, at fair value	$	—	$	—		3,330,063		$	—		$	3,330,063
Agency MBS, at fair value	—		4,167,754			—		—			4,167,754
Loans held for investment, at fair value	—		—			8,753,653		—			8,753,653
Derivatives	1,785		22,327			—		(14,435		)	9,677

Liabilities:
Securitized debt at fair value, collateralized by loans held for investment	—		—			(6,941,097	)	—			(6,941,097		)
Derivatives	—		(17,225		)	—		14,875			(2,350		)

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

The table below provides a summary of the changes in the fair value of securities classified as Level 3 at December 31, 2017 and December 31, 2016.



Fair Value Reconciliation, Level 3
	For the Year Ended, December 31, 2017
	(dollars in thousands)
	Non-Agency RMBS			Loans held for investment			Securitized Debt
Beginning balance Level 3 assets	$	3,330,063		$	8,753,653		$	(6,941,097	)
Transfers in to Level 3 assets	6,112			—			—
Transfers out of Level 3 assets	—			—			—
Purchases	78,400			6,539,765			(5,173,430		)
Principal payments	(568,339		)	(1,788,409		)	1,787,368
Sales and Settlements	(68,162		)	2,876			1,056,765
Accretion (amortization) of purchase discounts	120,119			(35,803		)	(4,701		)
Gains (losses) included in net income
Other than temporary credit impairment losses	(59,881		)	—			—
Realized gains (losses) on sales and settlements	12,031			—			(35,273		)
Net unrealized gains (losses) included in income	(9,733		)	206,181			(78,289		)
Gains (losses) included in other comprehensive income
Total unrealized gains (losses) for the period	10,706			—			—
Ending balance Level 3 assets	$	2,851,316		$	13,678,263		$	(9,388,657	)



Fair Value Reconciliation, Level 3
	For the Year Ended, December 31, 2016
	(dollars in thousands)
	Non-Agency RMBS			Loans held for investment			Securitized Debt
Beginning balance Level 3 assets	$	3,675,841		$	4,768,416		$	(3,720,496	)
Transfers in to Level 3 assets	—			—			—
Transfers out of Level 3 assets	—			—			—
Purchases	257,914			4,897,370			(4,797,255		)
Principal payments	(532,696		)	(1,022,414		)	1,059,854
Sales and Settlements	(149,938		)	5,007			608,816
Accretion (amortization) of purchase discounts	120,638			(41,363		)	(2,128		)
Gains (losses) included in net income
Other than temporary credit impairment losses	(57,986		)	—			—
Realized gains (losses) on sales and settlements	13,761			—			(122		)
Net unrealized gains (losses) included in income	3,173			146,637			(89,766		)
Gains (losses) included in other comprehensive income
Total unrealized gains (losses) for the period	(644		)	—			—
Ending balance Level 3 assets	$	3,330,063		$	8,753,653		$	(6,941,097	)

Fair Value Measurements, Significant Unobservable Inputs, Liabilities

A summary of the significant inputs used to estimate the fair value of securitized debt at fair value, collateralized by loans held for investment, as of December 31, 2017 and December 31, 2016 follows:



		December 31, 2017				December 31, 2016
		Significant Inputs				Significant Inputs
	Weighted Average Discount Rate	CPR Range	CDR Range	Loss Severity Range	Weighted Average Discount Rate	CPR Range	CDR Range	Loss Severity Range
Securitized debt at fair value, collateralized by loans held for investment	4.1%	6% - 15%	0% - 6%	35% - 60%	4.4%	1% - 35%	0% - 30%	35% - 65%

Fair Value, by Balance Sheet Grouping

The following table presents the carrying value and fair value, as described above, of the Company’s financial instruments not carried at fair value on a recurring basis at December 31, 2017 and December 31, 2016.



	December 31, 2017
	(dollars in thousands)
	Level in Fair Value Hierarchy	Carrying Amount	Fair Value
Repurchase agreements	2	7,250,452	7,269,193
Securitized debt, collateralized by Non-Agency RMBS	3	205,780	192,259



	December 31, 2016
	(dollars in thousands)
	Level in Fair Value Hierarchy	Carrying Amount	Fair Value
Repurchase agreements	2	5,600,903	5,619,385
Securitized debt, collateralized by Non-Agency RMBS	3	334,124	324,261

Non-agency MBS

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Fair Value Measurements, Significant Unobservable Inputs, Assets

A summary of the significant inputs used to estimate the fair value of Non-Agency RMBS held for investment at fair value as of December 31, 2017 and December 31, 2016 follows:



	December 31, 2017				December 31, 2016
	Significant Inputs				Significant Inputs
	Weighted Average Discount Rate	CPR	CDR	Loss Severity	Weighted Average Discount Rate	CPR	CDR	Loss Severity
	Weighted Average Discount Rate	Range			Weighted Average Discount Rate	Range
Non-Agency RMBS
Senior	4.4%	1% -45%	0% -55%	35% -89%	5.4%	1% -35%	0% -22%	35% -95%
Senior interest-only	11.2%	3% -25%	0% -50%	35% -95%	12.5%	3% -30%	0% -22%	35% -95%
Subordinated	5.8%	1% -20%	0% -33%	35% -69%	6.2%	1% -25%	0% -18%	0% -79%
Subordinated interest-only	12.0%	6% -22%	0% -9%	35% -63%	13.2%	6% -15%	0% -11%	35% -76%

Loans Held for Investment at Fair Value

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Fair Value Measurements, Significant Unobservable Inputs, Assets

A summary of the significant inputs used to estimate the fair value of Loans held for investment collateralized by seasoned subprime mortgages at fair value as of December 31, 2017 and December 31, 2016 follows:




	December 31, 2017	December 31, 2016
Factor:
Coupon
Base Rate	4.8%	5.2%
Actual	6.9%	7.1%

FICO
Base Rate	636	632
Actual	627	621

Loan-to-value (LTV)
Base Rate	89%	87%
Actual	88%	88%

Loan Characteristics:
Occupancy
Owner Occupied	95%	97%
Investor	1%	2%
Secondary	4%	1%
Property Type
Single family	87%	86%
Manufactured housing	4%	6%
Multi-family/mixed use/other	9%	8%

- Definition

Tabular disclosure of the application of the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected, provide the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (b) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (c) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) for loans and other receivables held as assets, the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk; (c) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk, the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk; and (3) certain other disclosures as required or determined to be provided.

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