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Fair Value Measurements (Tables)
 6 Months Ended
Jun. 30, 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 June 30, 2020 and December 31, 2019, respectively:
 
June 30, 2020
 
December 31, 2019
 
(dollars in thousands)
 
Unpaid
Principal/
Notional
Fair Value
 
Unpaid
Principal/
Notional
Fair Value
Assets:
 
 
 
 
 
Non-agency RMBS
 
 
 
 
 
Subordinated
609,672

352,402

 
580,761

422,826

Interest-only
6,380,154

319,701

 
7,458,653

288,899

Agency RMBS
 
 
 
 
 
Pass-through
—

—

 
6,080,549

6,362,628

Interest-only
1,425,919

107,263

 
1,539,941

127,667

Agency CMBS
 
 
 
 
 
Project loans
1,777,609

2,002,571

 
1,753,755

1,889,923

Interest-only
1,690,539

40,015

 
1,817,246

49,025

Loans held for investment, at fair value
13,129,822

13,036,833

 
13,924,291

14,292,815

Liabilities:
 

 

 
 
 
Securitized debt at fair value, collateralized by loans held for investment
8,747,000

8,530,111

 
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 June 30, 2020 and June 30, 2019, respectively:

 
For the Quarter Ended
For the Six Months Ended
 
June 30, 2020
June 30, 2019
June 30, 2020
June 30, 2019
 
(dollars in thousands)
(dollars in thousands)
 
Gain/(Loss) on Change in Fair Value
Gain/(Loss) on Change in Fair Value
Assets:
 
 
 
 
Non-agency RMBS
 
 
 
 
Senior
—

392

—

620

Subordinated
(7,157
)
5,780

(87,960
)
7,099

Interest-only
105,772

12,455

56,946

36,591

Agency RMBS
 
 
 
 
Pass-through
—

55,585

(151,056
)
107,597

Interest-only
6,187

(4,515
)
(11,478
)
(2,188
)
Agency CMBS
 
 
 
 
Project loans
12,348

84,286

88,011

125,448

Interest-only
484

390

1,627

2,304

Loans held for investment, at fair value
185,842

119,839

(495,673
)
226,384

Liabilities:
 

 
 
 
Securitized debt at fair value, collateralized by loans held for investment
(475,397
)
(83,464
)
166,774

(112,294
)
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, 2020 and December 31, 2019 are presented below.

 
June 30, 2020
 
(dollars in thousands)  
 
Level 1
Level 2
Level 3
Counterparty and Cash Collateral, netting
Total
Assets:
 

 

 

 

 

Non-Agency RMBS, at fair value
$
—

$
—

$
2,184,170

$
—

$
2,184,170

Agency RMBS, at fair value
—

107,263

—

—

107,263

Agency CMBS, at fair value
—

2,612,344

—

—

2,612,344

Loans held for investment, at fair value
—

—

13,036,833

—

13,036,833

Derivatives
—

—

—

—

—

 
 
 
 
 
 
Liabilities:
 

 

 

 

 

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

—

8,530,111

—

8,530,111

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 June 30, 2020 and December 31, 2019.
Fair Value Reconciliation, Level 3

For the Six Months Ended
 
June 30, 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 into Level 3
135,118

—

—

Transfers out of Level 3
(135,118
)
—

—

Purchases of assets/ issuance of debt
19,512

177,857

1,462,493

Principal payments
(124,351
)
(895,764
)
(773,422
)
Sales and Settlements
(141,912
)
6,662

(146,663
)
Net accretion (amortization)
20,667

(49,064
)
(24,677
)
Gains (losses) included in net income
 
 
 
(Increase) decrease in provision for credit losses
(1,817
)
—

—

Realized gains (losses) on sales and settlements
15,096

—

(459
)
Net unrealized gains (losses) included in income
(31,013
)
(495,673
)
(166,769
)
Gains (losses) included in other comprehensive income
 
 
 
   Total unrealized gains (losses) for the period
(186,420
)
—

—

Ending balance Level 3
$
2,184,170

$
13,036,833

$
8,530,111


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 into 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 June 30, 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.

June 30, 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
3%-10%
4.2%
1%-23%
7.4%
0%-8%
2.0%
27%-81%
45.3%
Subordinated
4%-13%
7.5%
2%-35%
9.4%
0%-5%
1.4%
10%-58%
37.2%
Interest-only
0%-100%
10.1%
5%-45%
21.7%
0%-10%
1.3%
0%-85%
36.1%
 
December 31, 2019
 
Significant Inputs
  
Discount Rate
Prepay Rate
CDR
Loss Severity
  
Range
Weighted Average
Range
Weighted Average
Range
Weighted Average
Range
Weighted Average
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 June 30, 2020 and December 31, 2019 follows:
 
June 30, 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%-10%
3.5%
5%-20%
8.6%
0%-3%
1.5%
30%-75%
60.2%


 
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 June 30, 2020 and December 31, 2019.
 
June 30, 2020
 
(dollars in thousands)
 
Level in Fair Value Hierarchy
Carrying Amount
Fair Value
Secured financing agreements (1)
2
5,944,201

6,012,236

Securitized debt, collateralized by Non-Agency RMBS
3
124,414

103,506

Long Term Debt
2
71,600

105,440

(1) The fair value of secured financing agreements includes one secured financing agreement with a non-detachable Warrant.
 
December 31, 2019
 
(dollars in thousands)
 
Level in Fair Value Hierarchy
Carrying Amount
Fair Value
Secured financing 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 June 30, 2020 and December 31, 2019 follows:
 
 
 
 
 
June 30, 2020
 
December 31, 2019
Factor:
 
 
 
Coupon
 
 
 
Base Rate
4.6%
 
4.3%
Actual
6.4%
 
6.6%
 
 
 
 
FICO
 
 
 
Base Rate
638
 
636
Actual
629
 
624
 
 
 
 
Loan-to-value (LTV)
 
 
 
Base Rate
90%
 
86%
Actual
86%
 
88%
 
 
 
 
Loan Characteristics:
 
 
 
Occupancy
 
 
 
Owner Occupied
88%
 
89%
Investor
2%
 
2%
Secondary
10%
 
9%
Property Type
 
 
 
Single family
85%
 
85%
Manufactured housing
3%
 
4%
Multi-family/mixed use/other
12%
 
11%