Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2018

The following tables present our assets and liabilities measured at fair value on a recurring basis.



	March 31, 2018
	Fair Value Measurements Using:
$ in thousands	Level 1	Level 2	Level 3	NAV as a practical expedient ⁽³⁾	Total at Fair Value
Assets:
Mortgage-backed and credit risk transfer securities ⁽¹⁾⁽²⁾	—	17,579,302	42,932	—	17,622,234
Derivative assets	—	26,385	—	—	26,385
Other assets ⁽⁴⁾	3,966	—	—	28,168	32,134
Total assets	3,966	17,605,687	42,932	28,168	17,680,753
Liabilities:
Derivative liabilities	1,612	18,742	—	—	20,354
Total liabilities	1,612	18,742	—	—	20,354



	December 31, 2017
	Fair Value Measurements Using:
$ in thousands	Level 1	Level 2	Level 3	NAV as a practical expedient ⁽³⁾	Total at Fair Value
Assets:
Mortgage-backed and credit risk transfer securities ⁽¹⁾⁽²⁾	—	18,145,354	45,400	—	18,190,754
Derivative assets	—	6,896	—	—	6,896
Other assets ⁽⁴⁾	3,979	—	—	25,972	29,951
Total assets	3,979	18,152,250	45,400	25,972	18,227,601
Liabilities:
Derivative liabilities	—	32,765	—	—	32,765
Total liabilities	—	32,765	—	—	32,765


(1)	For more detail about the fair value of our MBS and GSE CRTs, refer to Note 4 - "Mortgage-Backed and Credit Risk Transfer Securities."

(2)

Our GSE CRTs purchased prior to August 24, 2015 are accounted for as hybrid financial instruments with an embedded derivative. The hybrid financial instruments consist of debt host contracts classified as Level 2 and embedded derivatives classified as Level 3. As of March 31, 2018, the net embedded derivative asset position of $42.9 million includes $44.1 million of embedded derivatives in an asset position and $1.2 million of embedded derivatives in a liability position. As of December 31, 2017, the net embedded derivative asset position of $45.4 million includes $46.5 million of embedded derivatives in an asset position and $1.1 million of embedded derivatives in a liability position.

(3)

Investments in unconsolidated ventures are valued using the net asset value ("NAV") as a practical expedient and are not subject to redemption, although investors may sell or transfer their interest at the approval of the general partner of the underlying funds. As of March 31, 2018 and December 31, 2017, the weighted average remaining term of investments in unconsolidated ventures is 2.3 and 1.9 years, respectively.


(4)	Includes $4.0 million and $4.0 million of investment in an exchange-traded fund as of March 31, 2018 and December 31, 2017, respectively.

Embedded Derivatives Level 3 Roll Forward

The following table shows a reconciliation of the beginning and ending fair value measurements of our GSE CRT embedded derivatives, which we have valued utilizing Level 3 inputs:



	Three Months Ended March 31,
$ in thousands	2018		2017
Beginning balance	45,400		17,095
Unrealized credit derivative gains (losses), net	(2,468	)	14,148
Ending balance	42,932		31,243

Embedded Derivatives Fair Value Inputs

The following tables summarize significant unobservable inputs used in the fair value measurement of our GSE CRT embedded derivatives:



	Fair Value at	Valuation	Unobservable		Weighted
$ in thousands	March 31, 2018	Technique	Input	Range	Average
GSE CRT Embedded Derivatives	42,932	Market Comparables, Vendor Pricing	Weighted average life	2.5 - 6.6 years	4.6 years



	Fair Value at	Valuation	Unobservable		Weighted
$ in thousands	December 31, 2017	Technique	Input	Range	Average
GSE CRT Embedded Derivatives	45,400	Market Comparables, Vendor Pricing	Weighted average life	2.6 - 6.8 years	4.8 years

Carrying Value and Estimated Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value of our financial instruments that are not carried at fair value on the condensed consolidated balance sheets at March 31, 2018 and December 31, 2017:



	March 31, 2018		December 31, 2017
$ in thousands	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value
Financial Assets
Commercial loans, held-for-investment	184,255	184,510	191,808	191,930
Other assets	74,250	74,250	74,250	74,250
Total	258,505	258,760	266,058	266,180
Financial Liabilities
Repurchase agreements	13,911,137	13,910,631	14,080,801	14,080,460
Secured loans	1,650,000	1,650,000	1,650,000	1,650,000
Exchangeable senior notes	—	—	143,231	143,948
Total	15,561,137	15,560,631	15,874,032	15,874,408