Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2020

4. Fair Value of Financial Instruments

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, 2020 and December 31, 2019 ($ 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, 2020
Recurring basis (assets)

Interest rate cap derivatives (1)	$	114	$	—	$	114	$	—
Not recognized on condensed consolidated balance sheets at fair value (liabilities)
Repurchase and loan agreements	1,620,968		—		1,630,102		—


December 31, 2019
Recurring basis (assets)

Interest rate cap derivatives (1)	$	2,070	$	—	$	2,070	$	—
Not recognized on consolidated balance sheets at fair value (liabilities)
Repurchase and loan agreements	1,644,230		—		1,653,720		—

_____________

(1)Included within prepaid expenses and other assets in the condensed consolidated balance sheets.

We have not transferred any other assets from one level to another level during the nine months ended September 30, 2020. We transferred our mortgage loans at fair value from Level 3 to Level 2 during the third quarter of 2019 due to the contract price being the primary input to the fair value of the mortgage loans prior to the sale of the remaining loans on October 7, 2019. We have not transferred any other assets from one level to another level during the year ended December 31, 2019.

The fair value of our interest rate cap derivatives is estimated using a discounted cash flow analysis based on the contractual terms of the derivatives.

On October 7, 2019, we sold the last of our remaining mortgage loans. The following table sets forth the changes in our Level 3 assets, which consisted solely of mortgage loans at fair value, during the period indicated ($ in thousands):


Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

	Three months ended September 30, 2019		Nine months ended September 30, 2019
Mortgage loans at fair value based on Level 3 inputs, beginning balance	$	4,372	$	8,072
Net gain (loss) on mortgage loans	(1,759)		12


Mortgage loan dispositions, resolutions and payments	1,355		(405)
Real estate tax advances to borrowers	36		65

Transfer of mortgage loans to real estate owned, net	(391)		(4,131)
Transfers out of Level 3	(3,613)		(3,613)
Mortgage loans at fair value based on Level 3 inputs, ending balance	$	—	$	—

- Definition

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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