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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2024

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, 2024 and December 31, 2023, respectively:


	September 30, 2024				December 31, 2023
	(dollars in thousands)
	Unpaid Principal/ Notional		Fair Value		Unpaid Principal/ Notional		Fair Value
Assets:
Non-Agency RMBS
Senior	$	14,381	$	13,632	$	15,820	$	14,321
Subordinated	490,049		278,115		409,043		171,633
Interest-only	2,699,126		92,119		2,874,680		90,775
Agency RMBS

CMO	956,976		959,143		—		—
Interest-only	384,826		16,810		392,284		15,023
Agency CMBS
Project loans	40,890		36,302		78,752		71,383
Interest-only	468,136		6,664		478,239		8,282
Loans held for investment, at fair value	11,557,126		11,283,775		12,028,480		11,397,046
Liabilities:
Secured Financing Agreements, at fair value	345,107		338,782		362,215		350,238
Securitized debt at fair value, collateralized by Loans held for investment	7,866,891		7,314,411		8,389,563		7,601,881

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 the Consolidated Statement of Operations for the quarters and nine months ended September 30, 2024 and 2023:


	For the Quarter Ended				For the Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
	(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	$	712	$	(368)	$	698	$	(150)
Subordinated	6,455		(6,682)		14,178		(9,215)
Interest-only	16,855		(20,340)		4,567		(21,472)
Agency RMBS
CMO	2,722		—		2,033		—
Interest-only	1,532		882		1,323		(1,525)
Agency CMBS
Project loans	297		(2,616)		3,409		2,210
Interest-only	23		(286)		(334)		13,691
Loans held for investment, at fair value	287,692		(144,976)		405,641		(70,432)
Liabilities:
Secured Financing Agreements, at fair value	(14,062)		6,669		(5,652)		19,115
Securitized debt at fair value, collateralized by Loans held for investment	(198,214)		123,728		(233,855)		95,338

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, 2024 and December 31, 2023 are presented below.


	September 30, 2024
	(dollars in thousands)
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral, netting		Total
Assets:
Non-Agency RMBS, at fair value	$	—	$	—	$	1,121,836	$	—	$	1,121,836
Agency MBS, at fair value	—		1,018,918		—		—		1,018,918
Loans held for investment, at fair value	—		233,229		11,050,546		—		11,283,775
Derivatives, at fair value	—		6,987		—		(6,890)		97

Liabilities:
Secured Financing Agreement, at fair value	—		338,782		—		—		338,782
Securitized debt at fair value, collateralized by Loans held for investment	—		—		7,314,411		—		7,314,411
Derivatives, at fair value	—		—		—		—		—


	December 31, 2023
	(dollars in thousands)
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral, netting		Total
Assets:
Non-Agency RMBS, at fair value	$	—	$	—	$	1,043,806	$	—	$	1,043,806
Agency MBS, at fair value	—		102,484		—		—		102,484
Loans held for investment, at fair value	—		271,994		11,125,052		—		11,397,046
Derivatives, at fair value	—		18,817		—		(18,817)		—

Liabilities:
Secured Financing Agreement, at fair value	—		350,238		—		—		350,238
Securitized debt at fair value, collateralized by Loans held for investment	—		—		7,601,881		—		7,601,881
Derivatives, at fair value	—		—		—		—		—

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, 2024 and December 31, 2023.


Fair Value Level 3 Rollforward - Assets
	For the Nine Months Ended		For the Year Ended
	September 30, 2024		December 31, 2023
	(dollars in thousands)
	Non-Agency RMBS		Loans held for investment		Non-Agency RMBS		Loans held for investment
Beginning balance Level 3	$	1,043,806	$	11,125,052	$	1,147,481	$	11,154,600
Transfers into Level 3	—		—		—		—
Transfers out of Level 3	—		—		—		—

Purchases of assets	97,261		441,564		5,669		1,183,663
Principal payments	(57,893)		(880,620)		(83,730)		(1,247,364)
Sales and Settlements	—		(2,959)		—		2,166
Net accretion (amortization)	26,607		(37,096)		38,789		(52,595)
Gains (losses) included in net income
(Increase) decrease in provision for credit losses	(5,389)		—		(11,371)		—
Realized gains (losses) on sales and settlements	—		—		13		—
Net unrealized gains (losses) included in income	19,444		404,605		(6,561)		84,582
Gains (losses) included in other comprehensive income	—		—		—		—
Total unrealized gains (losses) for the period	(2,000)		—		(46,484)		—
Ending balance Level 3	$	1,121,836	$	11,050,546	$	1,043,806	$	11,125,052


Fair Value Level 3 Rollforward - Liabilities
	For the Nine Months Ended		For the Year Ended
	September 30, 2024		December 31, 2023
	(dollars in thousands)
	Securitized Debt		Securitized Debt
Beginning balance Level 3	$	7,601,881	$	7,100,742
Transfers into Level 3	—		—
Transfers out of Level 3	—		—

Issuance of debt	340,096		2,186,058
Principal payments	(874,437)		(1,222,593)
Sales and Settlements	—		(544,693)
Net (accretion) amortization	13,015		20,309
(Gains) losses included in net income	—		—
Other than temporary credit impairment losses	—		—
Realized (gains) losses on sales and settlements	—		(6,348)
Net unrealized (gains) losses included in income	233,855		68,406
(Gains) losses included in other comprehensive income	—		—
Total unrealized (gains) losses for the period	—		—
Ending balance Level 3	$	7,314,411	$	7,601,881

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, 2024 and December 31, 2023 follows. The weighted average discount rates are based on fair value.


	September 30, 2024
	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	5%-10%	6.0%	6%-20%	6.9%	0%-10%	1.2%	25%-80%	31.3%
Subordinated	0%-15%	8.2%	6%-16%	7.9%	0%-3%	0.8%	10%-50%	33.5%
Interest-only	0%-100%	11.7%	6%-30%	7.1%	0%-7%	0.8%	0%-82%	30.1%


	December 31, 2023
	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	6% -10%	6.6%	1% -20%	6.4%	0% -12%	1.4%	26% -77%	32.8%
Subordinated	0% -13%	7.5%	5% -25%	6.6%	0% -5%	0.5%	10% -50%	34.8%
Interest-only	0% -100%	12.0%	4% -25%	6.8%	0% -7%	0.9%	0% -82%	30.3%

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 September 30, 2024 and December 31, 2023 follows:

September 30, 2024

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

5%-9%

5.8%

6%-15%

7.6%

0%-5%

0.7%

20%-55%

37.6%

December 31, 2023

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

6%-9%

6.5%

6%-15%

7.9%

0%-6%

0.8%

0%-55%

40.9%

A summary of the significant factors used to estimate the fair value of Loans held for investment collateralized primarily by seasoned reperforming residential mortgages at fair value as of September 30, 2024 and December 31, 2023 follows:



	September 30, 2024	December 31, 2023
Factor:
Coupon
Base Rate	5.7%	6.4%
Actual	5.9%	5.9%

FICO
Base Rate	640	640
Actual	665	664

Loan-to-value (LTV)
Base Rate	86%	86%
Actual	78%	79%

Loan Characteristics:
Occupancy
Owner Occupied	86%	86%
Investor	9%	9%
Secondary	5%	5%
Property Type
Single family	78%	79%
Manufactured housing	3%	3%
Multi-family/mixed use/other	19%	18%

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, 2024 and December 31, 2023.


	September 30, 2024
	(dollars in thousands)
	Level in Fair Value Hierarchy	Carrying Amount		Fair Value
Equity method investments (1)	3	$	61,967	$	61,967
Secured financing agreements	2	2,889,966		2,925,112
Securitized debt, collateralized by Non-Agency RMBS	3	72,174		51,178
Long term debt	2	134,437		144,303

(1) Included in Other Assets on the Consolidated Statements of Financial Condition


	December 31, 2023
	(dollars in thousands)
	Level in Fair Value Hierarchy	Carrying Amount		Fair Value
Equity method investments (1)	3	$	45,053	$	45,053
Secured financing agreements	2	2,081,877		2,111,855
Securitized debt, collateralized by Non-Agency RMBS	3	75,012		50,430

(1) Included in Other Assets on the Consolidated Statements of Financial Condition

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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