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Fair Value Measurements (Tables)
 3 Months Ended
Mar. 31, 2020
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 and fair value of the financial instruments carried with fair value option as of March 31, 2020 and December 31, 2019, respectively:
 
March 31, 2020
 
December 31, 2019
 
(dollars in thousands)
 
Unpaid
Principal/
Notional
Fair Value
 
Unpaid
Principal/
Notional
Fair Value
Assets:
 
 
 
 
 
Non-agency RMBS
 
 
 
 
 
Subordinated
610,205

359,343

 
580,761

422,826

Interest-only
6,931,077

225,998

 
7,458,653

288,899

Agency RMBS
 
 
 
 
 
Pass-through
—

—

 
6,080,549

6,362,628

Interest-only
1,484,016

105,644

 
1,539,941

127,667

Agency CMBS
 
 
 
 
 
Project loans
1,779,044

1,991,823

 
1,753,755

1,889,923

Interest-only
1,764,487

46,189

 
1,817,246

49,025

Loans held for investment, at fair value
13,594,580

13,306,818

 
13,924,291

14,292,815

Liabilities:
 

 

 
 
 
Securitized debt at fair value, collateralized by loans held for investment
8,521,651

7,864,196

 
8,184,369

8,179,608


The table below shows the impact of change in fair value on each of the financial instruments carried with fair value option in statement of operations as of March 31, 2020 and March 31, 2019, respectively:

 
Quarter ended
Quarter ended
 
March 31, 2020
March 31, 2019
 
(dollars in thousands)
 
Gain/(Loss) on Change in Fair Value
Assets:
 
 
Non-agency RMBS
 
 
Senior
—

227

Subordinated
(80,803
)
1,319

Interest-only
(48,823
)
24,136

Agency RMBS
 
 
Pass-through
(151,056
)
52,011

Interest-only
(17,665
)
2,327

Agency CMBS
 
 
Project loans
75,662

41,162

Interest-only
1,143

1,914

Loans held for investment, at fair value
(681,515
)
106,545

Liabilities:
 

 
Securitized debt at fair value, collateralized by loans held for investment
642,171

(28,829
)
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 March 31, 2020 and December 31, 2019 are presented below.

 
March 31, 2020
 
(dollars in thousands)  
 
Level 1
Level 2
Level 3
Counterparty and Cash Collateral, netting
Total
Assets:
 

 

 

 

 

Non-Agency RMBS, at fair value
$
—

$
135,118

$
2,039,282

$
—

$
2,174,400

Agency RMBS, at fair value
—

105,644

—

—

105,644

Agency CMBS, at fair value
—

2,832,716

—

—

2,832,716

Loans held for investment, at fair value
—

—

13,306,818

—

13,306,818

Derivatives
—

—

—

—

—

 
 
 
 
 
 
Liabilities:
 

 

 

 

 

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

—

7,864,196

—

7,864,196

Derivatives
—

—

—

—

—


 
December 31, 2019
 
(dollars in thousands)
 
Level 1
Level 2
Level 3
Counterparty and Cash Collateral, netting
Total
Assets:
 
 
 
 
 
Non-Agency RMBS, at fair value
$
—

$
—

2,614,408

$
—

$
2,614,408

Agency RMBS, at fair value
—

6,490,293

—

—

6,490,293

Agency CMBS, at fair value
—

2,850,717

—

—

2,850,717

Loans held for investment, at fair value
—

—

14,292,815

—

14,292,815

Derivatives
3,611

1,092

—

(1,092
)
3,611

 
 
 
 
 
 
Liabilities:
 

 

 

 

 

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

—

8,179,608

—

8,179,608

Derivatives
—

205,703

—

(205,703
)
—
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 financial instruments classified as Level 3 at March 31, 2020 and December 31, 2019.
Fair Value Reconciliation, Level 3

For the Quarter Ended
 
March 31, 2020

(dollars in thousands)
 
Non-Agency RMBS
Loans held for investment
Securitized Debt
Beginning balance Level 3
$
2,614,408

$
14,292,815

$
8,179,608

Transfers in to Level 3
—

—

—

Transfers out of Level 3
(135,118
)
—

—

Purchases of assets/ issuance of debt
19,512

183,566

731,008

Principal payments
(67,518
)
(461,594
)
(386,362
)
Sales and Settlements
(33,797
)
(171
)
—

Net accretion (amortization)
10,499

(26,284
)
(17,893
)
Gains (losses) included in net income
 
 
 
Provision for credit losses
(6,314
)
—

—

Realized gains (losses) on sales and settlements
1,256

—

—

Net unrealized gains (losses) included in income
(129,627
)
(681,514
)
(642,165
)
Gains (losses) included in other comprehensive income
 
 
 
   Total unrealized gains (losses) for the period
(234,019
)
—

—

Ending balance Level 3
$
2,039,282

$
13,306,818

$
7,864,196


Fair Value Reconciliation, Level 3
 
For the Year Ended
 
December 31, 2019
 
(dollars in thousands)
 
Non-Agency RMBS
Loans held for investment
Securitized Debt
Beginning balance Level 3
$
2,486,130

$
12,572,581

$
8,455,376

Transfers in to Level 3
—

—

—

Transfers out of Level 3
—

—

—

Purchases of assets/ issuance of debt
497,848

5,086,491

1,487,286

Principal payments
(415,518
)
(1,717,745
)
(1,530,818
)
Sales and Settlements
(38,605
)
(1,812,760
)
(314,454
)
Net accretion (amortization)
95,562

(77,491
)
(26,758
)
Gains (losses) included in net income
 

 

 

Other than temporary credit impairment losses
(4,853
)
—

—

Realized gains (losses) on sales and settlements
(1,088
)
1,590

(9,925
)
Net unrealized gains (losses) included in income
28,577

240,149

118,901

Gains (losses) included in other comprehensive income
 
 
 
   Total unrealized gains (losses) for the period
(33,645
)
—

—

Ending balance Level 3
$
2,614,408

$
14,292,815

$
8,179,608
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 Level 3 Non-Agency RMBS held for investment at fair value as of March 31, 2020 and December 31, 2019 follows. The weighted average discount rates were based on fair value. Previously issued financial statement filings were based on amortized cost. We believe fair value provides an improved presentation of weighted average discount rates.

March 31, 2020

Significant Inputs
  
Discount Rate
Prepay Rate
CDR
Loss Severity
  
Range
Weighted Average
Range
Weighted Average
Range
Weighted Average
Range
Weighted Average
Non-Agency RMBS
 
 
 
 
 
 
 
 
Senior
4% -9%
5.7%
2%-25%
6.5%
0%-10%
1.8%
27%-80%
46.4%
Subordinated
0% -13%
7.2%
3%-35%
8.4%
0%-6%
1.3%
10%-60%
38.1%
Interest-only
10% -100%
12.9%
4%-30%
22.7%
0%-2%
0.6%
0%-83%
37.0%
 
December 31, 2019
 
Significant Inputs
  
Discount Rate
Prepay Rate
CDR
Loss Severity
  
Range
Weighted Average
Range
Weighted Average
Range
Weighted Average
Range
Weighted Average
Non-Agency RMBS
 
 
 
 
 
 
 
 
Senior
3% -8%
3.8%
6% -20%
9.4%
0% -9%
1.8%
26% -82%
42.0%
Subordinated
0% -13%
5.3%
6% -35%
9.6%
0% -6%
1.3%
27% -55%
36.7%
Interest-only
0% -100%
11.4%
6% -43%
18.5%
0% -6%
1.0%
26% -83%
35.3%

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 March 31, 2020 and December 31, 2019 follows:
 
March 31, 2020
 
Significant Inputs
 
Discount Rate
Prepay Rate
CDR
Loss Severity
 
Range
Weighted Average
Range
Weighted Average
Range
Weighted Average
Range
Weighted Average
Securitized debt at fair value, collateralized by loans held for investment
0% -35%
5.2%
5%-25%
8.8%
0%-3%
1.5%
30%-75%
61.1%


 
December 31, 2019
 
Significant Inputs
 
Discount Rate
Prepay Rate
CDR
Loss Severity
 
Range
Weighted Average
Range
Weighted Average
Range
Weighted Average
Range
Weighted Average
Securitized debt at fair value, collateralized by loans held for investment
0% -10%
3.3%
6% - 20%
9.1%
0% - 3%
1.4%
30% - 75%
59.9%
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 March 31, 2020 and December 31, 2019.
 
March 31, 2020
 
(dollars in thousands)
 
Level in Fair Value Hierarchy
Carrying Amount
Fair Value
Repurchase agreements
2
7,146,996

7,162,204

Securitized debt, collateralized by Non-Agency RMBS
3
128,683

101,553


 
December 31, 2019
 
(dollars in thousands)
 
Level in Fair Value Hierarchy
Carrying Amount
Fair Value
Repurchase agreements
2
13,427,545

13,450,193

Securitized debt, collateralized by Non-Agency RMBS
3
133,557

117,552
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 primarily by seasoned subprime mortgages at fair value as of March 31, 2020 and December 31, 2019 follows:
 
 
 
 
 
March 31, 2020
 
December 31, 2019
Factor:
 
 
 
Coupon
 
 
 
Base Rate
5.5%
 
4.3%
Actual
6.4%
 
6.6%
 
 
 
 
FICO
 
 
 
Base Rate
637
 
636
Actual
628
 
624
 
 
 
 
Loan-to-value (LTV)
 
 
 
Base Rate
89%
 
86%
Actual
87%
 
88%
 
 
 
 
Loan Characteristics:
 
 
 
Occupancy
 
 
 
Owner Occupied
89%
 
89%
Investor
2%
 
2%
Secondary
9%
 
9%
Property Type
 
 
 
Single family
85%
 
85%
Manufactured housing
3%
 
4%
Multi-family/mixed use/other
12%
 
11%