Fair Value (Tables)

3 Months Ended

Mar. 31, 2017

Schedule of financial assets and liabilities carried at fair value on a recurring basis

The following tables present our financial assets and liabilities carried at fair value on a recurring basis in the condensed consolidated balance sheets by their level in the fair value hierarchy as of March 31, 2017 and December 31, 2016 (amounts in thousands):


	March 31, 2017
	Total		Level I		Level II		Level III
Financial Assets:
Loans held-for-sale, fair value option	$	340,266	$	—	$	—	$	340,266
RMBS		249,419		—		—		249,419
CMBS		15,472		—		—		15,472
Equity security		12,555		12,555		—		—
Domestic servicing rights		46,649		—		—		46,649
Derivative assets		71,040		—		71,040		—
VIE assets		60,185,851		—		—		60,185,851
Total	$	60,921,252	$	12,555	$	71,040	$	60,837,657
Financial Liabilities:
Derivative liabilities	$	1,567	$	—	$	1,567	$	—
VIE liabilities		59,147,068		—		56,985,773		2,161,295
Total	$	59,148,635	$	—	$	56,987,340	$	2,161,295


	December 31, 2016
	Total		Level I		Level II		Level III
Financial Assets:
Loans held-for-sale, fair value option	$	63,279	$	—	$	—	$	63,279
RMBS		253,915		—		—		253,915
CMBS		31,546		—		—		31,546
Equity security		12,177		12,177		—		—
Domestic servicing rights		55,082		—		—		55,082
Derivative assets		89,361		—		89,361		—
VIE assets		67,123,261		—		—		67,123,261
Total	$	67,628,621	$	12,177	$	89,361	$	67,527,083
Financial Liabilities:
Derivative liabilities	$	3,904	$	—	$	3,904	$	—
VIE liabilities		66,130,592		—		63,545,223		2,585,369
Total	$	66,134,496	$	—	$	63,549,127	$	2,585,369

Schedule of changes in financial assets and liabilities classified as Level III

The changes in financial assets and liabilities classified as Level III are as follows for the three months ended March 31, 2017 and 2016 (amounts in thousands):


							Domestic
	Loans						Servicing				VIE
Three Months Ended March 31, 2017	Held‑for‑sale		RMBS		CMBS		Rights		VIE Assets		Liabilities		Total
January 1, 2017 balance	$	63,279	$	253,915	$	31,546	$	55,082	$	67,123,261	$	(2,585,369)	$	64,941,714
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale		10,593		—		(1,343)		(8,433)		(6,537,225)		384,981		(6,151,427)
Net accretion		—		3,886		—		—		—		—		3,886
Included in OCI		—		1,846		—		—		—		—		1,846
Purchases / Originations		445,887		—		—		—		—		—		445,887
Sales		(179,296)		—		(10,434)		—		—		—		(189,730)
Issuances		—		—		—		—		—		(4,759)		(4,759)
Cash repayments / receipts		(197)		(10,228)		(5,766)		—		—		(30,796)		(46,987)
Transfers into Level III		—		—		—		—		—		(63,970)		(63,970)
Transfers out of Level III		—		—		—		—		—		129,452		129,452
Consolidation of VIEs		—		—		—		—		1,127,952		—		1,127,952
Deconsolidation of VIEs		—		—		1,469		—		(1,528,137)		9,166		(1,517,502)
March 31, 2017 balance	$	340,266	$	249,419	$	15,472	$	46,649	$	60,185,851	$	(2,161,295)	$	58,676,362
Amount of total (losses) gains included in earnings attributable to assets still held at March 31, 2017	$	(6)	$	3,795	$	248	$	(8,433)	$	(6,537,225)	$	384,981	$	(6,156,640)


							Domestic
	Loans						Servicing				VIE
Three Months Ended March 31, 2016	Held‑for‑sale		RMBS		CMBS		Rights		VIE Assets		Liabilities		Total
January 1, 2016 balance	$	203,865	$	176,224	$	212,981	$	119,698	$	76,675,689	$	(2,552,448)	$	74,836,009
Impact of ASU 2015-02 adoption (1)		—		—		—		(17,467)		17,467		—		—
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale		6,891		—		967		(6,739)		(4,089,501)		236,123		(3,852,259)
Net accretion		—		3,415		—		—		—		—		3,415
Included in OCI		—		(3,400)		—		—		—		—		(3,400)
Purchases / Originations		200,570		41,470		33,173		—		—		—		275,213
Sales		(256,964)		—		—		—		—		—		(256,964)
Issuances		—		—		—		—		—		(596)		(596)
Cash repayments / receipts		(137)		(6,811)		(12,303)		—		—		5,850		(13,401)
Transfers into Level III		—		—		—		—		—		(415,044)		(415,044)
Transfers out of Level III		—		—		—		—		—		110,965		110,965
Consolidation of VIEs		—		—		(138,342)		—		15,103,275		(430,653)		14,534,280
Deconsolidation of VIEs		—		—		248		—		(2,591,268)		7,269		(2,583,751)
March 31, 2016 balance	$	154,225	$	210,898	$	96,724	$	95,492	$	85,115,662	$	(3,038,534)	$	82,634,467
Amount of total gains (losses) included in earnings attributable to assets still held at March 31, 2016	$	2,162	$	3,415	$	1,499	$	(6,739)	$	(4,089,501)	$	236,123	$	(3,853,041)

(1)

Our implementation of ASU 2015-02 resulted in the consolidation of certain CMBS trusts effective January 1, 2016, which required the elimination of $17.5 million of domestic servicing rights associated with these newly consolidated trusts.

Schedule of fair value of financial instruments not carried at fair value

The following table presents the fair values, all of which are classified in Level III of the fair value hierarchy, of our financial instruments not carried at fair value on the condensed consolidated balance sheets (amounts in thousands):


	March 31, 2017				December 31, 2016
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financial assets not carried at fair value:
Loans held-for-investment and loans transferred as secured borrowings	$	6,265,819	$	6,320,782	$	5,882,995	$	5,934,219
HTM securities		452,725		447,723		509,980		504,165
Financial liabilities not carried at fair value:
Secured financing agreements and secured borrowings on transferred loans	$	4,449,917	$	4,446,571	$	4,189,126	$	4,198,136
Unsecured senior notes		2,033,384		2,092,717		2,011,544		2,088,374

Schedule of quantitative information for Level 3 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 (dollars in thousands):


	Carrying Value at		Valuation	Unobservable	Range as of (1)
	March 31, 2017		Technique	Input	March 31, 2017	December 31, 2016
Loans held-for-sale, fair value option	$	340,266	Discounted cash flow	Yield (b)	4.7% - 5.5%	5.0% - 5.7%
				Duration (c)	1.7 - 11.3 years	10.0 years
RMBS		249,419	Discounted cash flow	Constant prepayment rate (a)	2.3% - 20.1%	2.8% - 17.0%
				Constant default rate (b)	1.0% - 7.3%	1.1% - 8.1%
				Loss severity (b)	23% - 83% (e)	12% - 79% (e)
				Delinquency rate (c)	4% - 32%	2% - 29%
				Servicer advances (a)	18% - 83%	23% - 94%
				Annual coupon deterioration (b)	0% - 0.8%	0% - 0.6%
				Putback amount per projected total collateral loss (d)	0% - 15%	0% - 15%
CMBS		15,472	Discounted cash flow	Yield (b)	0% - 147.9%	0% - 172.0%
				Duration (c)	0 - 8.9 years	0 - 18.7 years
Domestic servicing rights		46,649	Discounted cash flow	Debt yield (a)	7.75%	7.75%
				Discount rate (b)	15%	15%
				Control migration (b)	0% - 80%	0% - 80%
VIE assets		60,185,851	Discounted cash flow	Yield (b)	0% - 578.7%	0% - 960.4%
				Duration (c)	0 - 11.8 years	0 - 12.0 years
VIE liabilities		2,161,295	Discounted cash flow	Yield (b)	0% - 578.7%	0% - 960.4%
				Duration (c)	0 - 11.8 years	0 - 12.0 years

(1)

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

Sensitivity of the Fair Value to Changes in the Unobservable Inputs

(a)

Significant increase (decrease) in the unobservable input in isolation would result in a significantly higher (lower) fair value measurement.

(b)

Significant increase (decrease) in the unobservable input in isolation would result in a significantly lower (higher) fair value measurement.

(c)

Significant increase (decrease) in the unobservable input in isolation would result in either a significantly lower or higher (higher or lower) fair value measurement depending on the structural features of the security in question.

(d)

Any delay in the putback recovery date leads to a decrease in fair value for the majority of securities in our RMBS portfolio.

(e)

86% and 57% of the portfolio falls within a range of 45%-80% as of March 31, 2017 and December 31, 2016, respectively.