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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2020

Schedule of the entity's financial instruments carried at fair value based upon the valuation hierarchy

The following tables present the Company’s financial instruments carried at fair value as of June 30, 2020 and December 31, 2019, based upon the valuation hierarchy (dollars in thousands):


	June 30, 2020
	Fair Value
	Level I		Level II		Level III		Total
Assets




Agency RMBS Interest-Only Strips	$	—	$	—	$	180	$	180
Agency RMBS Interest-Only Strips accounted for as derivatives, included in MBS	—		—		1,795		1,795
Subtotal Agency MBS	—		—		1,975		1,975
Non-Agency CMBS	—		182,304		7,013		189,317
Non-Agency RMBS	—		—		21,693		21,693
Non-Agency RMBS Interest-Only Strips	—		—		5,278		5,278

Subtotal Non-Agency MBS	—		182,304		33,984		216,288

Other securities	—		31,771		8,695		40,466
Total mortgage-backed securities and other securities	—		214,075		44,654		258,729

Residential Whole Loans	—		—		1,124,051		1,124,051
Residential Bridge Loans	—		—		24,171		24,171
Securitized commercial loans	—		—		465,694		465,694
Commercial Loans	—		—		323,474		323,474
Derivative assets	—		714		—		714
Total Assets	$	—	$	214,789	$	1,982,044	$	2,196,833

Liabilities
Derivative liabilities	$	—	$	943	$	—	$	943
Securitized debt	—		424,186		31		424,217

Total Liabilities	$	—	$	425,129	$	31	$	425,160


	December 31, 2019
	Fair Value
	Level I		Level II		Level III		Total
Assets

Agency CMBS	$	—	$	1,435,477	$	—	$	1,435,477

Agency CMBS Interest-Only Strips accounted for as derivatives, included in MBS	—		3,092		—		3,092
Agency RMBS	—		340,771		—		340,771
Agency RMBS Interest-Only Strips	—		—		10,343		10,343
Agency RMBS Interest-Only Strips accounted for as derivatives, included in MBS	—		—		5,572		5,572
Subtotal Agency MBS	—		1,779,340		15,915		1,795,255

Non-Agency CMBS	—		316,019		—		316,019
Non-Agency RMBS	—		—		38,131		38,131
Non-Agency RMBS Interest-Only Strips	—		—		7,683		7,683

Subtotal Non-Agency MBS	—		316,019		45,814		361,833

Other securities	—		62,965		17,196		80,161
Total mortgage-backed securities and other securities	—		2,158,324		78,925		2,237,249

Residential Whole Loans	—		—		1,375,860		1,375,860
Residential Bridge Loans	—		—		33,269		33,269
Securitized commercial loan	—		—		370,213		370,213
Commercial Loans	—		—		909,040		909,040
Derivative assets	—		5,111		—		5,111
Total Assets	$	—	$	2,163,435	$	2,767,307	$	4,930,742

Liabilities
Derivative liabilities	$	—	$	6,370	$	—	$	6,370
Securitized debt	—		680,586		1,057		681,643
Total Liabilities	$	—	$	686,956	$	1,057	$	688,013

Summary of the available quantitative information about the significant unobservable inputs used in the fair value measurement of financial instruments

The following tables present a summary of the available quantitative information about the significant unobservable inputs used in the fair value measurement of financial instruments for which the Company has utilized Level III inputs to determine fair value as of June 30, 2020 and December 31, 2019 (dollars in thousands):


	Fair Value at			Range
	June 30, 2020	Valuation Technique	Unobservable Input	Minimum		Maximum			Weighted Average






Residential Whole-Loans	1,124,051	Discounted Cash Flow	Yield	3.9	%	8.0	%		5.7	%
			Weighted Average Life	1.4		7.6			3.0
Residential Bridge Loans	24,171	Discounted Cash Flow	Yield	8.0	%	43.9	%	⁽¹⁾	16.4	%
			Weighted Average Life	0.3		2.1			0.8



Commercial Loans	323,474	Discounted Cash Flow	Yield	6.5	%	14.7	%		9.4	%
			Weighted Average Life	0.9		2.4			1.2


	Fair Value at			Range
	December 31, 2019	Valuation Technique	Unobservable Input	Minimum		Maximum			Weighted Average






Residential Whole-Loans⁽²⁾	1,200,566	Discounted Cash Flow	Yield	3.4	%	7.0	%		3.7	%
			Weighted Average Life	1.4		7.8			3.0
Residential Bridge Loans	33,269	Discounted Cash Flow	Yield	7.5	%	27.0	%	⁽¹⁾	9.8	%
			Weighted Average Life	0.3		1.8			0.8

Commercial Loans	370,213	Discounted Cash Flow	Yield	4.7	%	10.9	%		7.5	%
			Weighted Average Life	0.4		2.9			1.6

(1) Yield to maturity is the total return on the loan expressed as an annual rate. Delinquent Bridge Loans that are nearing maturity and with fair value that is significantly less than the principal amount have a higher yield to maturity, some of which are greater than 100%.

(2) As of December 31, 2019, excludes $175.3 million of Conforming Residential Whole Loans, which were valued using TBA prices, adjusted for delivery to Fannie Mae using Fannie Mae's loan-level price adjustment matrix. As of December 31, 2019, the TBA prices used for valuing the conforming loans range from $101.39 to $107.63.

Schedule of additional information about the entity's financial instruments, which are measured at fair value on a recurring basis for which the entity has utilized Level III inputs to determine fair value

The following tables present additional information about the Company’s financial instruments which are measured at fair value on a recurring basis for which the Company has utilized Level III inputs to determine fair value:


	Three months ended June 30, 2020
$ in thousands	Agency MBS		Non-Agency MBS		Other Securities		Residential Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized commercial loans		Securitized debt
Beginning balance	$	14,442	$	33,162	$	7,371	$	1,309,795	$	26,050	$	320,308	$	477,131	$	161
Transfers into Level III from Level II	—		—		—		—		—		—		—		—
Transfers from Level III into Level II	—		—		—		—		—		—		—		—

Sales and settlements	(11,529)		—		—		(144,258)		—		—		—		—
Transfers to REO	—		—		—		—		70		—		—		—

Principal repayments	—		(166)		—		(51,969)		(1,471)		—		(23,943)		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	1,528		—		—		(10,511)		28		—		—		—
Realized (gains)/losses, net on liabilities	—		—		—		—		—		—		—		—

Unrealized gains/(losses), net on assets⁽¹⁾	(2,122)		1,253		1,282		21,800		(483)		3,050		12,921		—
Unrealized (gains)/losses, net on liabilities⁽²⁾	—		—		—		—		—		—		—		(177)
Premium and discount amortization, net	(344)		(265)		42		(806)		(23)		116		(415)		47
Ending balance	$	1,975	$	33,984	$	8,695	$	1,124,051	$	24,171	$	323,474	$	465,694	$	31

Unrealized gains/(losses), net on assets held at the end of the period⁽¹⁾	$	(306)	$	1,253	$	1,282	$	10,278	$	(495)	$	3,050	$	12,774	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period⁽²⁾	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	46


	Three months ended June 30, 2019
$ in thousands	Agency MBS		Non-Agency MBS		Other Securities		Residential Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized commercial loan		Securitized debt
Beginning balance	$	19,108	$	48,392	$	17,380	$	1,267,163	$	144,170	$	337,578	$	929,474	$	3,769
Transfers into Level III from Level II	—		—		—		—		—		—		—		—
Transfers from Level III into Level II	—		—		—		—		—		—		—		—
Purchases	39,856		—		—		—		—		50,000		—		—

Principal repayments	—		(274)		(185)		(69,312)		(56,650)		(75,835)		(125,170)		—
Total net gains / losses included in net income					0
Realized gains/(losses), net on assets	—		—		—		—		(162)		—		—		—

Other than temporary impairment	(4)		(936)		—		—		—		—		—		—
Unrealized gains/(losses), net on assets⁽¹⁾	984		716		697		9,170		291		(59)		572		—
Unrealized (gains)/losses, net on liabilities⁽²⁾	—		—		—		—		—		—		—		(47)
Premium and discount amortization, net	(1,027)		(711)		(95)		(801)		(247)		348		(742)		(846)
Ending balance	$	58,917	$	47,187	$	17,797	$	1,206,220	$	87,402	$	312,032	$	804,134	$	2,876

Unrealized gains/(losses), net on assets held at the end of the period⁽¹⁾	$	984	$	716	$	697	$	9,869	$	(27)	$	127	$	572	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period⁽²⁾	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	47


	Six months ended June 30, 2020
$ in thousands	Agency MBS		Non-Agency MBS		Other Securities		Residential Whole-Loans		Residential Bridge Loans		Commercial Loans		Securitized commercial loan		Securitized debt
Beginning balance	$	15,915	$	45,814	$	17,196	$	1,375,860	$	33,269	$	370,213	$	909,040	$	1,057
Transfers into Level III from Level II	—		—		—		—		—		—		—		—
Transfers from Level III into Level II	—		—		(6,482)		—		—		—		—		—
Purchases	—		—		—		110,150		—		—		—		—
Sales and settlements	(11,529)		(12,702)		—		(144,258)		—		—		—		—
Transfers to REO	—		—		—		—		(419)		—		—		—
VIE deconsolidation	—		6,852		—		—		—		—		(150,804)		—
Principal repayments	—		(486)		(154)		(131,035)		(7,879)		(37,638)		(178,644)		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	1,528		(16)		—		(10,511)		(57)		—		—		—


Unrealized gains/(losses), net on assets⁽¹⁾	(2,656)		(4,583)		(1,837)		(74,071)		(702)		(9,412)		(114,250)		—
Unrealized (gains)/losses, net on liabilities⁽²⁾	—		—		—		—		—		—		—		(554)
Premium and discount amortization, net	(1,283)		(895)		(28)		(2,084)		(41)		311		352		(472)
Ending balance	$	1,975	$	33,984	$	8,695	$	1,124,051	$	24,171	$	323,474	$	465,694	$	31

Unrealized gains/(losses), net on assets held at the end of the period⁽¹⁾	$	(663)	$	(4,353)	$	(487)	$	(68,797)	$	(919)	$	(9,412)	$	(55,084)	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period⁽²⁾	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	564


	Six months ended June 30, 2019
$ in thousands	Agency MBS		Non-Agency MBS		Other Securities		Residential Whole-Loans		Residential Bridge Loans		Commercial Loans		Securitized commercial loan		Securitized debt
Beginning balance	$	19,837	$	50,555	$	8,951	$	1,041,885	$	211,999	$	216,123	$	1,013,511	$	2,286
Transfers into Level III from Level II	—		—		8,386		—		—		—		—		—
Transfers from Level III into Level II	—		—		—		—		—		—		—		—
Purchases	39,856		—		—		244,274		—		95,379		903,770		—
Sales and settlements	—		—		—		—		—		—		—		3,769
Transfers to REO	—		—		—		—		—		—		—		—
Principal repayments	—		(525)		(185)		(94,101)		(123,262)		—		(1,113,884)		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	—		—		—		—		(249)		—		—		—
Realized (gains)/losses, net on liabilities	—		—		—		—		—		—		—		—
Other than temporary impairment	(29)		(1,177)		—		—		—		—		—		—
Unrealized gains/(losses), net on assets⁽¹⁾	1,371		(477)		818		15,149		(489)		164		1,921		—
Unrealized (gains)/losses, net on liabilities⁽²⁾	—		—		—		—		—		—		—		(2,017)
Premium and discount amortization, net	(2,118)		(1,189)		(173)		(987)		(597)		366		(1,184)		(1,162)
Ending balance	$	58,917	$	47,187	$	17,797	$	1,206,220	$	87,402	$	312,032	$	804,134	$	2,876

Unrealized gains/(losses), net on assets held at the end of the period⁽¹⁾	$	1,371	$	(477)	$	818	$	15,859	$	(997)	$	164	$	1,949	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period⁽²⁾	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	19

(1)Gains and losses are included in "Unrealized gain (loss), net" in the Consolidated Statements of Operations.

(2)Gains and losses on securitized debt are included in "Unrealized gain (loss), net" in the Consolidated Statements of Operations.

Schedule of fair value, by balance sheet grouping

The following table presents the carrying value and estimated fair value of the Company’s financial instruments that are not carried at fair value as of June 30, 2020 and December 31, 2019 in the consolidated financial statements (dollars in thousands):


	June 30, 2020						December 31, 2019
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Assets
Residential Bridge Loans	$	2,334	$	2,248	$	3,150	$	3,148
Total	$	2,334	$	2,248	$	3,150	$	3,148

Liabilities
Borrowings under repurchase agreements	$	369,096	$	372,874	$	2,824,801	$	2,829,093
Convertible senior unsecured notes	198,669		146,319		197,299		209,172
Securitized debt⁽¹⁾	1,041,597		1,056,094		801,109		810,914
Total	$	1,609,362	$	1,575,287	$	3,823,209	$	3,849,179

^{(1) Carrying value excludes $7.6 million and $5.3 million of deferred financing costs as of June 30, 2020 and December 31, 2019, respectively.}

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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