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Fair Value of Financial Instruments (Tables)
 9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Fair value measurements, recurring assets and liabilities
The following table sets forth the carrying value and fair value of our financial assets and liabilities by level within the fair value hierarchy as of September 30, 2019 and December 31, 2018 ($ in thousands):
 
 
 
Level 1
 
Level 2
 
Level 3
 
Carrying Value
 
Quoted Prices in Active Markets
 
 Observable Inputs Other Than Level 1 Prices
 
 Unobservable Inputs
September 30, 2019
 
 
 
 
 
 
 
Recurring basis (assets)
 
 
 
 
 
 
 
Mortgage loans at fair value
$
3,613

 
$
—

 
$
3,613

 
$
—

Interest rate cap derivatives (1)
1,812

 
—

 
1,812

 
—

Not recognized on condensed consolidated balance sheets at fair value (liabilities)
 
 
 
 
 
 
 
Repurchase and loan agreements
1,617,457

 
—

 
1,627,472

 
—

 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
Recurring basis (assets)
 
 
 
 
 
 
 
Mortgage loans at fair value
$
8,072

 
$
—

 
$
—

 
$
8,072

Interest rate cap derivatives (1)
14,367

 
—

 
14,367

 
—

Not recognized on consolidated balance sheets at fair value (liabilities)


 


 


 


Repurchase and loan agreements
1,722,219

 
—

 
1,734,152

 
—

_____________
(1)
Included within prepaid expenses and other assets in the condensed consolidated balance sheets.
Fair value, assets measured on recurring basis, reconciliation
The following table sets forth the changes in our Level 3 assets, which consisted solely of mortgage loans at fair value, during the three and nine months ended September 30, 2019 and 2018 ($ in thousands):

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Mortgage loans at fair value based on Level 3 inputs, beginning balance
$
4,372

 
$
9,778

 
$
8,072

 
$
11,477

Net (loss) gain on mortgage loans (1)
(1,759
)
 
785

 
12

 
1,143

Mortgage loan dispositions, resolutions and payments (1)
1,355

 
(841
)
 
(405
)
 
(2,847
)
Real estate tax advances to borrowers
36

 
68

 
65

 
164

Selling costs on loans held for sale
—

 
—

 
—

 
(83
)
Transfer of mortgage loans to real estate owned, net
(391
)
 
(2,115
)
 
(4,131
)
 
(2,179
)
Transfers out of Level 3 (2)
(3,613
)
 
—

 
(3,613
)
 
—

Mortgage loans at fair value based on Level 3 inputs, ending balance
$
—

 
$
7,675

 
$
—

 
$
7,675

 
 
 
 
 
 
 
 
Change in unrealized gain on mortgage loans at fair value based on Level 3 inputs held at the end of the period (3)
n/a

 
$
158

 
n/a

 
$
—


_____________
(1)
Includes downward purchase price adjustments on prior loan sales of $1.6 million, which were recognized during the third quarter of 2019 as a component of net gain (loss) on real estate and mortgage loans in the interim condensed statements of operations.
(2)
Transferred from Level 3 to Level 2 because observable market data became available and is the primary valuation input.
(3)
Included in net gain (loss) on real estate and mortgage loans in the interim condensed consolidated statements of operations.
Fair value measurements, recurring and nonrecurring, unobservable inputs
The following table sets forth quantitative information about the significant unobservable inputs used to measure the fair value of certain of our mortgage loans:
Input
 
December 31, 2018
Equity discount rate
 
17.0%
Debt to asset ratio
 
65.0%
Cost of funds
 
3.5% over 1 month LIBOR
Annual change in home pricing index
 
-0.55% to 16.79%
Loan resolution probabilities — modification
 
0% to 5.9%
Loan resolution probabilities — liquidation
 
38.8% to 100%
Loan resolution probabilities — paid in full
 
0% to 61.2%
Loan resolution timelines (in years)
 
0.1 to 6.1
Value of underlying properties
 
$50,000 to $2,500,000