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Fair Value Measurements

12 Months Ended

Dec. 31, 2023

Fair Value Measurements

Fair Value Measurements

Note 7. Fair value measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP has a three-level hierarchy that prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). The Company’s valuation techniques for financial instruments use observable and unobservable inputs. Investments with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Investments measured and reported at fair value are classified and disclosed into one of the following categories:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the ability to access.

Level 2 — Pricing inputs are other than quoted prices in active markets, including, but not limited to, quoted prices for similar assets and liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs.

Level 3 — One or more pricing inputs is significant to the overall valuation and unobservable. Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of financial instruments. Fair value for these investments is determined using valuation methodologies that consider a range of factors including, but not limited to, the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment.

Valuation techniques of Level 3 investments vary by instrument type, but are generally based on an income, market or cost-based approach. The income approach predominantly considers discounted cash flows which is the measure of expected future cash flows in a default scenario, implied by the value of the underlying collateral, where applicable, and current performance whereas the market-based approach predominantly considers pull-through rates, industry multiples and the unpaid principal balance. Fair value measurements of loans are sensitive to changes in assumptions regarding prepayments, probability of default, loss severity in the event of default, forecasts of home prices, and significant activity or developments in the real estate market.

The fair value of the contingent consideration in connection with mergers and acquisitions was determined using a Monte Carlo simulation model which considers various potential results based on Level 3 inputs, including management’s latest estimates of future operating results. Fair value measurements of the contingent consideration liability are sensitive to changes in assumptions related to earnings before tax, discount rate and risk-free rate of return. Contingent consideration also consists of CERs. Pursuant to the CER agreement, if, as of the revaluation date, the sum of the updated fair value of the acquired portfolio less all advances made on such assets, plus all principal payments, return of capital and liquidation proceeds received on such assets exceeds the initial discounted fair value of the acquired portfolio, then the Company will issue to the CER holders, with respect to each CER, a number of shares of common stock equal to 90% of the lesser of the valuation excess and the discount amount, divided by the number of initially issued CERs divided by the Company share value, with cash being paid in lieu of any fractional shares of common stock otherwise due to such holder. In addition, each CER holder will be entitled to receive a number of additional shares of common stock equal to (i) the amount of any dividends or other distributions paid with respect to the number of whole shares of common stock received by such CER holder in respect of such holder’s CERs and having a record date on or after the closing of the Mosaic Mergers and a payment date prior to the issuance date of such shares of common stock, divided by (ii) the Company share value. The probability-weighted expected return method (“PWERM”) was utilized to estimate the return of capital and liquidation proceeds of the acquired asset portfolio, considering each possible outcome, including the economic and projected performance of each acquired asset, using a probability of 65%-100% return of capital. The discounted cashflow technique

was utilized by the Company to assess the updated value of the acquired portfolio as of the revaluation date. The fair value of dividend distributions to the CER holders was determined using a Monte Carlo simulation model which considers various potential results based on the CER payments, volatility of the Company’s share value and projected dividend distributions. Refer to Note 5 for further details on assets acquired and liabilities assumed in connection with the Mosaic Mergers.

In certain cases, the inputs used to measure fair value may be categorized into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.

The table below presents financial instruments carried at fair value on a recurring basis.


(in thousands)	Level 1			Level 2			Level 3			Total
December 31, 2023
Assets:
Money market funds ^(a)	$	100,238		$	—		$	—		$	100,238
Loans, held for sale, at fair value		—			81,599			—			81,599
Loans, net, at fair value		—			—			9,348			9,348
Paycheck Protection Program loans		—			165			—			165
MBS, at fair value		—			27,436			—			27,436
Derivative instruments		—			2,404			—			2,404
Investment in unconsolidated joint ventures		—			—			7,360			7,360
Preferred equity investment ^(b)		—			—			108,423			108,423
Total assets	$	100,238		$	111,604		$	125,131		$	336,973

Liabilities:
Derivative instruments		—			212			—			212
Contingent consideration		—			—			7,628			7,628
Total liabilities	$	—		$	212		$	7,628		$	7,840
December 31, 2022
Assets:
Money market funds ^(a)	$	44,611		$	—		$	—		$	44,611
Loans, held for sale, at fair value		—			62,812			60,924			123,736
Loans, net, at fair value		—			—			9,786			9,786
Paycheck Protection Program loans		—			576			—			576
MBS, at fair value		—			32,041			—			32,041
Derivative instruments		—			12,532			—			12,532
Investment in unconsolidated joint ventures		—			—			8,094			8,094
Preferred equity investment ^(b)		—			—			108,423			108,423
Total assets	$	44,611		$	107,961		$	187,227		$	339,799

Liabilities:
Derivative instruments		—			1,319			—			1,319
Contingent consideration		—			—			28,500			28,500
Total liabilities	$	—		$	1,319		$	28,500		$	29,819
(a) Money market funds are included in cash and cash equivalents on the consolidated balance sheets
(b) Preferred equity investment held through consolidated joint ventures are included in assets of consolidated VIEs on the consolidated balance sheets

The table below presents the valuation techniques and significant unobservable inputs used to value Level 3 financial instruments, using third party information without adjustment.



(in thousands)	Fair Value		Predominant Valuation Technique (a)			Type	Range		Weighted Average
December 31, 2023
Investment in unconsolidated joint ventures	$	7,360		Income Approach		Discount rate		9.0%		9.0%
Preferred equity investment	$	108,423		Income Approach		Discount rate		10.0%		10.0%
Contingent consideration- Mosaic CER dividends	$	(1,591)		Monte Carlo Simulation Model		Equity volatility \| Risk-free rate of return \| Discount rate		30.0% \| 4.7% \| 11.5%		30.0% \| 4.7% \| 11.5%
Contingent consideration- Mosaic CER units	$	(6,037)		Income approach and PWERM Model		Revaluation discount rate \| Discount rate		12.0% \| 11.5%		12.0% \| 11.5%
December 31, 2022
Investment in unconsolidated joint ventures	$	8,094		Income Approach		Discount rate		9.0%		9.0%
Preferred equity investment	$	108,423		Income Approach		Discount rate		10.5%		10.5%
Contingent consideration- Mosaic CER dividends	$	(4,587)		Monte Carlo Simulation Model		Equity volatility \| Risk-free rate of return \| Discount rate		35.0% \| 4.4% \| 11.9%		35.0% \| 4.4% \| 11.9%
Contingent consideration- Mosaic CER units	$	(14,913)		Income approach and PWERM Model		Revaluation discount rate \| Discount rate		12.0% \| 11.9%		12.0% \| 11.9%
(a) Prices are weighted based on the unpaid principal balance of the loans and securities included in the range for each class.

Included within Level 3 assets of $125.1 million as of December 31, 2023 and $187.2 million as of December 31, 2022, is $9.3 million and $70.7 million, respectively of quoted or transaction prices in which quantitative unobservable inputs are not developed by the Company when measuring fair value. Included within Level 3 liabilities of $28.5 million as of December 31, 2022 is $9.0 million of quoted or transaction prices in which quantitative unobservable inputs are not developed by the Company when measuring fair value.

The table below presents a summary of changes in fair value for Level 3 assets and liabilities.


	Year Ended December 31,
(in thousands)	2023			2022
MBS
Beginning balance	$	—		$	1,581
Sales / Principal payments		—			(1,352)
Accreted discount, net		—			1
Realized gains (losses), net		—			(1,449)
Unrealized gains (losses), net		—			2,688
Transfer to (from) Level 3		—			(1,469)
Ending balance	$	—		$	—
Loans, net
Beginning balance		9,786			10,766
Unrealized gains (losses), net		(438)			(980)
Ending balance	$	9,348		$	9,786
Loans, held for sale
Beginning balance		60,924			231,865
Purchases or Originations		—			23,470
Sales / Principal payments		(22)			(155,380)
Realized gains (losses), net		—			(16,658)
Unrealized gains (losses), net		(3,887)			(17,188)
Transfer to loans, held for investment		(57,015)			(3,845)
Transfer to (from) Level 3		—			(1,340)
Ending balance	$	—		$	60,924
Investments held to maturity
Beginning balance		—			—
Sales / Principal payments		—			(13,173)
Measurement period adjustment ⁽¹⁾		—			(3,724)
Realized gains (losses), net		—			(156)
Merger ⁽²⁾		—			17,053
Ending balance	$	—		$	—
PPP loans
Beginning balance		—			3,243
Sales / Principal payments		—			(1,400)
Transfer to (from) Level 3		—			(1,843)
Ending balance	$	—		$	—
Investment in unconsolidated joint ventures
Beginning balance		8,094			8,894
Unrealized gains (losses), net		(734)			(800)
Ending balance	$	7,360		$	8,094
Contingent consideration
Beginning balance		(28,500)			(16,400)
Sales / Principal payments		9,000			9,000
Measurement period adjustment ⁽¹⁾		—			59,348
Unrealized losses (gains), net		11,872			3,900
Merger ⁽²⁾		—			(84,348)
Ending balance	$	(7,628)		$	(28,500)
Preferred equity investment ⁽³⁾
Beginning balance		108,423			—
Merger ⁽²⁾		—			108,423
Ending balance	$	108,423		$	108,423
Total
Beginning balance		158,727			239,949
Purchases or Originations		—			23,470
Sales / Principal payments		8,978			(162,305)
Accreted discount, net		—			1
Measurement period adjustment ⁽¹⁾		—			55,624
Realized gains (losses), net		—			(18,263)
Unrealized gains (losses), net		6,813			(12,380)
Merger ⁽²⁾		—			41,128
Transfer to loans, held for investment		(57,015)			(3,845)
Transfer to (from) Level 3		—			(4,652)
Ending balance	$	117,503		$	158,727
(1) Represents adjustments made subsequent to the determination of the preliminary purchase price allocation at the time of the merger. Refer to Note 5 for further details on assets acquired and liabilities assumed in connection with the Mosaic Mergers.
(2) Includes assets acquired and liabilities assumed as a result of the Mosaic Mergers. Refer to Note 5 for further details on assets acquired and liabilities assumed in connection with the Mosaic Mergers.
(3) Preferred equity investment held through consolidated joint ventures are included in assets of consolidated VIEs on the consolidated balance sheets.

The Company’s policy is to recognize transfers in and transfers out as of the end of the period of the event or the date of the change in circumstances that caused the transfer. Transfers between Level 2 and Level 3 generally relate to whether there were changes in the significant relevant observable and unobservable inputs that are available for the fair value measurements of such financial instruments.

Financial instruments not carried at fair value

The table below presents the carrying value and estimated fair value of financial instruments that are not carried at fair value and are classified as Level 3.


		December 31, 2023						December 31, 2022
(in thousands)		Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value
Assets:
Loans, net		$	10,622,137		$	10,380,893		$	9,873,711		$	9,605,901
PPP loans			34,432			35,637			186,409			196,222
Servicing rights			102,837			113,715			87,117			91,698
Total assets		$	10,759,406		$	10,530,245		$	10,147,237		$	9,893,821
Liabilities:
Secured borrowings			2,102,075			2,102,075			2,663,735			2,663,735
PPPLF borrowings			36,036			36,036			201,011			201,011
Securitized debt obligations of consolidated VIEs, net			5,068,453			5,022,057			4,903,350			4,748,291
Senior secured note, net			345,127			317,239			343,355			312,975
Guaranteed loan financing			844,540			889,744			264,889			275,316
Convertible notes, net			—			—			114,397			113,823
Corporate debt, net			764,908			731,104			662,665			614,744
Total liabilities		$	9,161,139		$	9,098,255		$	9,153,402		$	8,929,895

As of both December 31, 2023 and December 31, 2022, other assets and accounts payable and accrued liabilities are not

carried at fair value but generally approximate fair value. Further details are presented in Note 18 – Other Assets and Other

Liabilities.

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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