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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2021

Schedule of Unpaid Principal, Fair Value and Impact of Changes in Fair Value on Financial Instruments

The table below shows the unpaid principal and fair value of the financial instruments carried at fair value with changes in fair value reflected in earnings under the fair value option election as of September 30, 2021 and December 31, 2020, respectively:


	September 30, 2021		December 31, 2020
	(dollars in thousands)
	Unpaid Principal/ Notional	Fair Value	Unpaid Principal/ Notional	Fair Value
Assets:
Non-Agency RMBS

Subordinated	654,814	494,170	632,335	416,745
Interest-only	4,225,195	187,218	5,628,240	262,259
Agency RMBS

Interest-only	1,067,557	65,889	1,262,963	90,738
Agency CMBS
Project loans	746,123	841,519	1,413,719	1,592,473
Interest-only	2,351,641	135,825	1,326,665	25,885
Loans held for investment, at fair value	11,664,695	12,533,864	12,640,195	13,112,129
Liabilities:
Securitized debt at fair value, collateralized by Loans held for investment	7,894,993	7,947,644	8,705,200	8,711,677

The table below shows the impact of change in fair value on each of the financial instruments carried at fair value with changes in fair value reflected in earnings under the fair value option election in statement of operations as of September 30, 2021 and 2020, respectively:


	For the Quarter Ended		For the Nine Months Ended
		September 30, 2021	September 30, 2020	September 30, 2021	September 30, 2020
	(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		—	—	—	—
Subordinated		23,228	31,328	56,638	(56,632)
Interest-only		630	(12,626)	(26,941)	44,320
Agency RMBS
Pass-through		—	—	—	(151,056)
Interest-only		(7,134)	(824)	(12,460)	(12,302)
Agency CMBS
Project loans		(17,129)	(42,942)	(72,013)	45,069
Interest-only		(463)	2,788	1,777	4,415
Loans held for investment, at fair value		248,244	371,423	348,971	(124,250)
Liabilities:
Securitized debt at fair value, collateralized by Loans held for investment		(7,852)	(88,381)	249,671	78,394

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 September 30, 2021 and December 31, 2020 are presented below.


	September 30, 2021
	(dollars in thousands)
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral, netting		Total
Assets:
Non-Agency RMBS, at fair value	$	—	$	—	$	1,890,030	$	—	$	1,890,030
Agency RMBS, at fair value	—		65,889		—		—		65,889
Agency CMBS, at fair value	—		1,062,131		—		—		1,062,131
Loans held for investment, at fair value	—		307,004		12,226,860		—		12,533,864


Liabilities:
Securitized debt at fair value, collateralized by Loans held for investment	—		—		7,947,644		—		7,947,644


	December 31, 2020
	(dollars in thousands)
	Level 1		Level 2		Level 3	Counterparty and Cash Collateral, netting		Total
Assets:
Non-Agency RMBS, at fair value	$	—	$	—	2,150,714	$	—	$	2,150,714
Agency RMBS, at fair value	—		90,738		—	—		90,738
Agency CMBS, at fair value	—		1,740,368		—	—		1,740,368
Loans held for investment, at fair value	—		—		13,112,129	—		13,112,129


Liabilities:
Securitized debt at fair value, collateralized by Loans held for investment	—		—		8,711,677	—		8,711,677

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 September 30, 2021 and December 31, 2020.


Fair Value Reconciliation, Level 3
	For the Nine Months Ended
	September 30, 2021
	(dollars in thousands)
	Non-Agency RMBS		Loans held for investment		Securitized Debt
Beginning balance Level 3	$	2,150,714	$	13,112,129	$	8,711,677
Transfers into Level 3	—		—		—
Transfers out of Level 3	—		(272,198)		—
Purchases of assets/ issuance of debt	34,656		2,692,043		5,060,056
Principal payments	(239,347)		(1,901,004)		(1,676,193)
Sales and Settlements	(47,674)		(1,678,140)		(4,169,819)
Net accretion (amortization)	46,095		(75,057)		11,706
Gains (losses) included in net income
(Increase) decrease in provision for credit losses	58		—		—
Realized gains (losses) on sales and settlements	32,807		—		259,883
Net unrealized gains (losses) included in income	29,697		349,087		(249,666)
Gains (losses) included in other comprehensive income
Total unrealized gains (losses) for the period	(116,976)		—		—
Ending balance Level 3	$	1,890,030	$	12,226,860	$	7,947,644


Fair Value Reconciliation, Level 3
	For the Year Ended
	December 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 into Level 3	135,118		—		—
Transfers out of Level 3	(135,118)		—		—

Purchases of assets/ issuance of debt	54,811		1,860,998		3,043,252
Principal payments	(261,738)		(1,966,590)		(1,751,903)
Sales and Settlements	(166,786)		(1,053,943)		(783,880)
Net accretion (amortization)	39,246		(85,794)		(22,546)
Gains (losses) included in net income
Other than temporary credit impairment losses	(180)		—		—
Realized gains (losses) on sales and settlements	12,571		—		(1,031)
Net unrealized gains (losses) included in income	(9,030)		64,643		48,177
Gains (losses) included in other comprehensive income
Total unrealized gains (losses) for the period	(132,588)		—		—
Ending balance Level 3	$	2,150,714	$	13,112,129	$	8,711,677

Summary of Unobservable Inputs Assumptions - Non-Agency RMBS 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 September 30, 2021 and December 31, 2020 follows. The weighted average discount rates are based on fair value.


	September 30, 2021
	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	1%-8%	3.6%	1%-30%	12.0%	0%-7%	1.9%	26%-68%	37.8%
Subordinated	1%-10%	5.5%	6%-50%	17.4%	0%-6%	1.1%	10%-49%	39.6%
Interest-only	0%-100%	10.3%	6%-65%	25.9%	0%-10%	1.3%	0%-86%	30.7%


	December 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	2% -10%	3.3%	1% -25%	9.5%	1% -10%	2.0%	26% -82%	41.5%
Subordinated	2% -10%	6.1%	2% -42%	13.6%	0% -6%	1.3%	10% -77%	39.8%
Interest-only	0% -100%	10.2%	6% -47%	26.3%	0% -8%	1.4%	0% -79%	33.6%

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 September 30, 2021 and December 31, 2020 follows:

September 30, 2021

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

1%-7%

2.1%

6%-45%

15.5%

0%-11%

1.3%

30%-75%

56.3%

December 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% -10%

2.5%

4% - 40%

10.5%

0% - 7%

1.3%

30% - 75%

57.6%

A summary of the significant factors used to estimate the fair value of Loans held for investment collateralized primarily by seasoned reperforming mortgages at fair value as of September 30, 2021 and December 31, 2020 follows:



	September 30, 2021	December 31, 2020
Factor:
Coupon
Base Rate	2.9%	3.4%
Actual	6.1%	6.3%

FICO
Base Rate	640	640
Actual	655	627

Loan-to-value (LTV)
Base Rate	87%	85%
Actual	86%	86%

Loan Characteristics:
Occupancy
Owner Occupied	90%	89%
Investor	3%	2%
Secondary	7%	9%
Property Type
Single family	83%	84%
Manufactured housing	4%	4%
Multi-family/mixed use/other	13%	12%

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 September 30, 2021 and December 31, 2020.


	September 30, 2021
	(dollars in thousands)
	Level in Fair Value Hierarchy	Carrying Amount	Fair Value
Secured financing agreements	2	3,788,336	3,791,783
Securitized debt, collateralized by Non-Agency RMBS	3	92,204	73,633


	December 31, 2020
	(dollars in thousands)
	Level in Fair Value Hierarchy	Carrying Amount	Fair Value
Secured financing agreements	2	4,636,847	4,803,256
Securitized debt, collateralized by Non-Agency RMBS	3	113,433	97,097
Long Term Debt	2	51,623	80,750