Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2013

Fair Value of Financial Instruments

Schedule of financial instruments carried at fair value on a recurring basis

The following table presents our financial instruments carried at fair value on a recurring basis in the consolidated balance sheet by their level in the fair value hierarchy as of September 30, 2013 (amounts in thousands):

	September 30, 2013
	Total		Level I		Level II		Level III
Financial Assets:
Loans held-for-sale, fair value option	$	279,121	$	—	$	—	$	279,121
RMBS	316,261		—		—		316,261
CMBS	198,146		—		—		198,146
Domestic servicing rights	158,023		—		—		158,023
Equity securities	15,016		15,016		—		—
Derivative assets	9,513		—		9,513		—
VIE assets	97,359,666		—		—		97,359,666
Total	$	98,335,746	$	15,016	$	9,513	$	98,311,217
Financial Liabilities:
Derivative liabilities	$	32,252	$	—	$	32,252	$	—
VIE liabilities	96,934,006		—		95,150,366		1,783,640
Total	$	96,966,258	$	—	$	95,182,618	$	1,783,640

Schedule of fair value measurements using significant unobservable inputs (level III)

The changes in financial instruments classified as Level III are as follows for the three months ended September 30, 2013 (amounts in thousands):

	Loans Held- for-sale			RMBS			CMBS			Domestic Servicing Rights			VIE assets			VIE liabilities			Total
Beginning balance, June 30, 2013	$	171,176		$	319,655		$	164,399		$	159,891		$	97,284,473		$	(2,334,660	)	$	95,764,934
Total realized and unrealized (losses) gains:
Included in earnings:
Change in fair value	25,856			—			4,620			(1,868		)	(4,283,956		)	239,094			(4,016,254		)
Impairment	—			(52		)	—			—			—			—			(52		)
Included in other comprehensive income	—			4,842			474			—			—			—			5,316
Net accretion	—			5,940			—			—			—			—			5,940
Purchases / Originations	457,468			—			23,871			—			—			—			481,339
Sales	(375,204		)	—			—			—			—			—			(375,204		)
Issuances	—			—			—			—			—			(8,760		)	(8,760		)
Cash repayments / receipts	(175		)	(14,124		)	(163		)	—			—			(5,041		)	(19,503		)
Transfers into Level III	—			—			5,098			—			—			(88,806		)	(83,708		)
Transfers out of Level III	—			—			—			—			—			483,608			483,608
Consolidations of VIEs	—			—			—			—			4,359,149			(69,075		)	4,290,074
Deconsolidations of VIEs	—			—			(153		)	—			—			—			(153		)
Ending balance, as of September 30, 2013	$	279,121		$	316,261		$	198,146		$	158,023		$	97,359,666		$	(1,783,640	)	$	96,527,577
Amount of total (losses) gains included in earnings attributable to assets still held at September 30, 2013	$	6,011		7,057			5,428			(1,868		)	(4,283,956		)	239,094			$	(4,028,234	)

The changes in financial instruments classified as Level III are as follows for the nine months ended September 30, 2013 (amounts in thousands):

	Loans Held- for-sale			RMBS			CMBS			Domestic Servicing Rights		VIE assets			VIE liabilities			Total
Beginning balance, December 31, 2012	$	—		$	333,153		$	—		$	—	$	—		$	—		$	333,153
Acquisition of LNR	256,502			—			62,432			156,993		90,989,793			(1,994,243		)	89,471,477
Total realized and unrealized (losses) gains:
Included in earnings:																		—
Change in fair value	26,315			2,129			3,452			1,030		(8,078,597		)	333,542			(7,712,129		)
Impairment	—			(453		)	—			—		—			—			(453		)
Included in other comprehensive income	—			2,970			2,382			—		—			—			5,352
Net accretion	—			17,846			—			—		—			—			17,846
Purchases / Originations	848,137			20,090			23,910			—		—			—			892,137
Sales	(851,539		)	(12,712		)	(10,072		)	—		—			—			(874,323		)
Issuances	—			—			—			—		—			(8,760		)	(8,760		)
Cash repayments / receipts	(294		)	(46,762		)	(163		)	—		—			74,694			27,475
Transfers into Level III	—			—			117,413			—		—			(578,319		)	(460,906		)
Transfers out of Level III	—			—			—			—		—			636,291			636,291
Consolidations of VIEs	—			—			(1,208		)	—		15,033,274			(247,706		)	14,784,360
Deconsolidations of VIEs	—			—			—			—		(584,804		)	861			(583,943		)
Ending balance, as of September 30, 2013	$	279,121		$	316,261		$	198,146		$	158,023	$	97,359,666		$	(1,783,640	)	$	96,527,577
Amount of total (losses) gains included in earnings attributable to assets still held at September 30, 2013	$	6,011		21,363			1,854			1,030		(8,078,597		)	333,542			$	(7,714,797	)

The following table presents our financial instruments carried at fair value on a recurring basis in the consolidated balance sheet by their level in the fair value hierarchy as of December 31, 2012 (amounts in thousands):

	December 31, 2012
	Total			Level I		Level II			Level III
Available-for-sale debt securities:
RMBS	$	333,153		$	—	$	—		$	333,153
CMBS	529,434			—		529,434			—
Total available-for-sale debt securities	862,587			—		529,434			333,153
Available-for-sale equity securities:
Real estate industry	21,667			21,667		—			—
Total available-for-sale equity securities:	21,667			21,667		—			—
Total investments	884,254			21,667		529,434			333,153
Derivative assets:
Foreign exchange contracts	$	4,335		$	—	$	4,335		$	—
Interest rate contracts	4,892			—		4,892			—
Derivatives liabilities:
Interest rate contracts	(4,343		)	—		(4,343		)	—
Foreign exchange contracts	(23,427		)	—		(23,427		)	—
Total derivatives	(18,543		)	—		(18,543		)	—
Total	$	865,711		$	21,667	$	510,891		$	333,153

The changes in investments classified as Level III are as follows for the three months ended September 30, 2012 (amounts in thousands):

Fair Value Measurements Using Significant Unobservable Inputs

(Level III)

	Loans held-for-sale, at fair value		MBS available- for-sale, at fair value			Total
Beginning balance, June 30, 2012	$	—	$	233,456		$	233,456
Purchases	—		95,814			95,814
Originations	—		—			—
Transfer out	—		—			—
Sales	—		(9,425		)	(9,425		)
Maturities	—		—			—
Principal amortization	—		(18,542		)	(18,542		)
Net decrease in assets	—		67,847			67,847
Gain (loss) amounts from Level III investments:
Unrealized (loss) gain on assets	—		30,575			30,575
Realized gain on assets	—		730			730
Accretion of discount	—		5,924			5,924
OTTI	—		(637		)	(637		)
Other	—		5			5
Net gain on assets	—		36,597			36,597
Ending balance, as of September 30, 2012	$	—	$	337,900		$	337,900

The changes in investments classified as Level III are as follows for the nine months ended September 30, 2012 (amounts in thousands):

Fair Value Measurements Using Significant Unobservable Inputs

(Level III)

	Loans held-for-sale, at fair value			MBS available- for-sale, at fair value			Total
Beginning balance, January 1, 2012	$	128,593		$	341,734		$	470,327
Purchases	—			203,433			203,433
Originations	—			—			—
Transfer out	—			(176,786		)	(176,786		)
Sales	(132,128		)	(26,049		)	(158,177		)
Maturities	—			—			—
Principal amortization	(122		)	(52,310		)	(52,432		)
Net decrease in assets	(132,250		)	(51,712		)	(183,962		)
Gain (loss) amounts from Level III investments:
Unrealized (loss) gain on assets	(5,760		)	34,371			28,611
Realized gain on assets	9,417			3,643			13,060
Accretion of discount	—			12,548			12,548
OTTI	—			(2,689		)	(2,689		)
Other	—			5			5
Net gain on assets	3,657			47,878			51,535
Ending balance, as of September 30, 2012	$	—		$	337,900		$	337,900

Schedule of fair value of financial instruments not carried at fair value (level III)

The following table presents the fair value of our financial instruments, which are classified as Level III, including loans transferred as secured borrowings, not carried at fair value on the condensed consolidated balance sheet (amounts in thousands):

	Carrying Value as of September 30, 2013		Fair Value as of September 30, 2013		Carrying Value as of December 31, 2012		Fair Value as of December 31, 2012
Financial instruments not carried at fair value:
Loans held-for-investment and loans transferred as secured borrowings	$	3,875,852	$	3,974,875	$	3,000,335	$	3,097,089
Loans held-for-sale	66,018		66,813		—		—
Securities, held-to-maturity	37,370		37,600		—		—
European servicing rights	29,709		31,448		—		—
Non-performing residential loans	197,716		203,700		68,883		68,883
Financial Liabilities:
Secured financing agreements, loan transfer secured borrowings, and loan participation liability	$	1,493,726	$	1,493,257	$	1,393,705	$	1,397,128
Convertible senior notes	995,072		1,102,300		—		—

Schedule of quantitative information for Level 3 Fair Value Measurements for assets and liabilities measured at fair value on recurring basis

The following is quantitative information about significant unobservable inputs in our Level III measurements for those assets and liabilities measured at fair value on a recurring basis (dollar amounts in thousands):

Quantitative Information about Level III Fair Value Measurements

	Carrying Value at September 30, 2013		Valuation Technique	Unobservable Input	Range (1)
Loans held-for-sale, fair value option	$	279,121	Discounted cash flow	Yield (b) Duration (c)	4.65% - 5.61% 5.0 to 10.0 years
RMBS	316,261		Discounted cash flow	Constant prepayment rate (a) Constant default rate (b) Loss severity (b) Delinquency Rate (c) Servicer Advances (a) Annual Coupon Deterioration (b) Putback Amount per Projected Total Collateral Loss (d)	(0.6)%-14.9% 2.0%-13.3% 10%-83%(e) 5%-47% 8%-100% 0.025%-0.18% 0%-9%
CMBS and CMBS, fair value option	198,146		Discounted cash flow	Yield (b) Duration (c)	0% to 767.0% 0 to 10.0 years
Domestic servicing rights	158,023		Discounted cash flow	Debt yield (a) Discount rate (b)	8.75% 15%
VIE assets	97,359,666		Discounted cash flow	Yield (b) Duration (c)	0% to 791.8% 0 to 23.5 years
VIE liabilities	1,783,640		Discounted cash flow	Yield (b) Duration (c)	0% to 791.8% 0 to 23.5 years

(1) The ranges of significant unobservable inputs are represented in percentages and years.