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Fair Value Measurements (Tables)
 6 Months Ended
Jun. 30, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Schedule of unpaid principal, fair value and impact of change in fair value
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 June 30, 2018 and December 31, 2017 respectively:
 
June 30, 2018
 
(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

$
12,918

 
$
(42
)
$
(440
)
Senior, interest-only
5,282,885

252,324

 
3,464

1,511

Subordinated, interest-only
206,557

10,482

 
335

746

Agency MBS
 
 
 
 
 
Residential Pass-through
3,010,558

3,075,138

 
3,081

(9,270
)
Commercial Pass-through
1,004,493

984,591

 
(12,534
)
(32,948
)
Interest-only
3,010,512

102,901

 
46

(127
)
Loans held for investment, at fair value
13,083,186

13,246,521

 
(20,082
)
21,513

Liabilities:
 

 

 
 

 

Securitized debt at fair value, collateralized by loans held for investment
9,388,837

9,340,368

 
7,369

15,118


 
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
)
Schedule of 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 June 30, 2018 and December 31, 2017 are presented below.

 
June 30, 2018
 
(dollars in thousands)  
 
Level 1
Level 2
Level 3
Counterparty and Cash Collateral, netting
Total
Assets:
 

 

 

 

 

Non-Agency RMBS, at fair value
$
—

$
—

$
2,593,422

$
—

$
2,593,422

Agency MBS, at fair value
—

6,989,329

—

—

6,989,329

Loans held for investment, at fair value
—

—

13,246,521

—

13,246,521

Derivatives
2,949

168,532

—

(42,140
)
129,341

 
 
 
 
 
 
Liabilities:
 

 

 

 

 

Securitized debt at fair value, collateralized by loans held for investment
—

—

9,340,368

—

9,340,368

Derivatives
—

16,730

—

(16,730
)
—


 
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
Summary of the changes in the fair value of securities classified as Level 3
The table below provides a summary of the changes in the fair value of securities classified as Level 3 at June 30, 2018 and December 31, 2017.
Fair Value Reconciliation, Level 3

For the Six Months Ended, June 30, 2018

(dollars in thousands)
 
Non-Agency RMBS
Loans held for investment
Securitized Debt
Beginning balance Level 3 assets
$
2,851,316

$
13,678,263

$
9,388,657

Transfers in to Level 3 assets
—

—

—

Transfers out of Level 3 assets
—

—

—

Purchases of assets/ issuance of debt
92,017

924,283

1,170,009

Principal payments
(327,923
)
(944,146
)
(894,694
)
Sales and Settlements
(32,379
)
(389,798
)
(293,460
)
Accretion (amortization) of purchase discounts
53,895

(43,594
)
(4,969
)
Gains (losses) included in net income
 
 
 
Other than temporary credit impairment losses
(10,289
)
—

—

Realized gains (losses) on sales and settlements
2,244

—

(10,057
)
Net unrealized gains (losses) included in income
1,815

21,513

(15,118
)
Gains (losses) included in other comprehensive income
 
 
 
   Total unrealized gains (losses) for the period
(37,274
)
—

—

Ending balance Level 3 assets
$
2,593,422

$
13,246,521

$
9,340,368


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 of assets/ issuance of debt
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
A summary of the significant inputs used to estimate the fair value of securitized debt at fair value, collateralized by loans held for investment
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 June 30, 2018 and December 31, 2017 follows:
 
 
June 30, 2018

 
December 31, 2017
 
 
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
4.4%
6% - 15%
0% - 8%
35% - 60%

4.1%
6% - 15%
0% - 6%
35% - 60%
Schedule of carrying value and fair value of financial instruments not carried at fair value on a recurring basis
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 June 30, 2018 and December 31, 2017.
 
June 30, 2018
 
(dollars in thousands)
 
Level in Fair Value Hierarchy
Carrying Amount
Fair Value
Repurchase agreements
2
9,127,048

9,151,213

Securitized debt, collateralized by Non-Agency RMBS
3
179,742

161,707


 
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
Non-agency MBS  
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
A summary of the significant inputs used to estimate the fair value of securitized debt at fair value, collateralized by loans held for investment
A summary of the significant inputs used to estimate the fair value of Non-Agency RMBS held for investment at fair value as of June 30, 2018 and December 31, 2017 follows:


June 30, 2018

December 31, 2017

Significant Inputs

Significant Inputs
  
Weighted Average Discount Rate
CPR
CDR
Loss Severity

Weighted Average Discount Rate
CPR
CDR
Loss Severity
  
Range

Range
Non-Agency RMBS
 
 
 
 

 
 
 
 
Senior
4.6%
2% -22%
0% -52%
35% -95%

4.4%
1% -45%
0% -55%
35% -89%
Senior interest-only
10.0%
4% -31%
0% -59%
35% -95%

11.2%
3% -25%
0% -50%
35% -95%
Subordinated
5.4%
1% -23%
0% -45%
10% -71%

5.8%
1% -20%
0% -33%
35% -69%
Subordinated interest-only
10.4%
4% -25%
0% -15%
35% -58%

12.0%
6% -22%
0% -9%
35% -63%
Loans Held for Investment at Fair Value  
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
A summary of the significant inputs used to estimate the fair value of securitized debt at fair value, collateralized by loans held for investment
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 June 30, 2018 and December 31, 2017 follows:
 
 
 
 
 
June 30, 2018
 
December 31, 2017
Factor:
 
 
 
Coupon
 
 
 
Base Rate
5.0%
 
4.8%
Actual
6.9%
 
6.9%
 
 
 
 
FICO
 
 
 
Base Rate
636
 
636
Actual
627
 
627
 
 
 
 
Loan-to-value (LTV)
 
 
 
Base Rate
88%
 
89%
Actual
88%
 
88%
 
 
 
 
Loan Characteristics:
 
 
 
Occupancy
 
 
 
Owner Occupied
93%
 
95%
Investor
1%
 
1%
Secondary
6%
 
4%
Property Type
 
 
 
Single family
87%
 
87%
Manufactured housing
4%
 
4%
Multi-family/mixed use/other
9%
 
9%