Fair Value (Tables)

9 Months Ended

Sep. 30, 2019

Company's Assets and Liabilities Measured at Fair Value on Recurring Basis

The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis as of the dates indicated (dollars in thousands).

Recurring Fair Value Measurements

As of September 30, 2019

	Level 1		Level 2		Level 3		Carrying Value
Assets
RMBS
Fannie Mae	$	-	$	1,617,345	$	-	$	1,617,345
Freddie Mac		-		702,136		-		702,136
CMOs		-		163,756		-		163,756
RMBS total		-		2,483,237		-		2,483,237
Derivative assets
Interest rate swaps		-		26,745		-		26,745
Interest rate swaptions		-		6		-		6
TBAs		-		-		-		-
Treasury futures		-		-		-		-
Derivative assets total		-		26,751		-		26,751
Servicing related assets		-		-		255,845		255,845
Total Assets	$	-	$	2,509,988	$	255,845	$	2,765,833
Liabilities
Derivative liabilities
Interest rate swaps		-		14,649		-		14,649
TBAs		-		616		-		616
Treasury futures		-		1,651		-		1,651
Derivative liabilities total		-		16,916		-		16,916
Total Liabilities	$	-	$	16,916	$	-	$	16,916

As of December 31, 2018

	Level 1		Level 2		Level 3		Carrying Value
Assets
RMBS
Fannie Mae	$	-	$	1,178,164	$	-	$	1,178,164
Freddie Mac		-		459,008		-		459,008
CMOs		-		132,938		-		132,938
RMBS total		-		1,770,110		-		1,770,110
Derivative assets
Interest rate swaps		-		23,176		-		23,176
Interest rate swaptions		-		170		-		170
TBAs		-		168		-		168
Treasury futures		-		744		-		744
Derivative assets total		-		24,258		-		24,258
Servicing related assets		-		-		294,907		294,907
Total Assets	$	-	$	1,794,368	$	294,907	$	2,089,275
Liabilities
Derivative liabilities
Interest rate swaps		-		3,816		-		3,816
TBAs		-		-		-		-
Treasury futures		-		-		-		-
Derivative liabilities total		-		3,816		-		3,816
Total Liabilities	$	-	$	3,816	$	-	$	3,816

Company's Level 3 Assets (Servicing Related Assets) Measured at Fair Value on Recurring Basis

The tables below present the reconciliation for the Company’s Level 3 assets (Servicing Related Assets) measured at fair value on a recurring basis as of the dates indicated (dollars in thousands):

Level 3 Fair Value Measurements

As of September 30, 2019

	Level 3
	MSRs
Balance at December 31, 2018	$	294,907
Purchases and other changes:
Purchases		71,294
Other changes ^(A)		(1,625	)
Purchases and other changes:	$	69,669
Changes in Fair Value due to:
Changes in valuation inputs or assumptions used in valuation model		(68,740	)
Other changes in fair value ^(B)		(39,991	)
Unrealized gain (loss) included in Net Income	$	(108,731	)
Balance at September 30, 2019	$	255,845

As of December 31, 2018

	Level 3
	MSRs
Balance at December 31, 2017	$	122,806
Purchases and other changes:
Purchases		178,192
Other changes ^(A)		(2,518	)
Purchases and other changes:	$	175,674
Changes in Fair Value due to:
Changes in valuation inputs or assumptions used in valuation model		14,648
Other changes in fair value ^(B)		(18,221	)
Unrealized gain (loss) included in Net Income	$	(3,573	)
Balance at December 31, 2018	$	294,907

(A)	Represents purchase price adjustments, principally contractual prepayment protection, and changes due to the Company’s repurchase of the underlying collateral.

(B)	Represents changes due to realization of expected cash flows and estimated MSR runoff.

Significant Unobservable Inputs Used in Fair Value Measurement

The tables below present information about the significant unobservable inputs used in the fair value measurement of the Company’s Servicing Related Assets classified as Level 3 fair value assets as of the dates indicated (dollars in thousands):

Fair Value Measurements

As of September 30, 2019

	Fair Value		Valuation Technique	Unobservable Input ^(A)	Range			Weighted Average
MSRs
Conventional	$	227,522	Discounted cash flow	Constant prepayment speed		7.9% - 42.1	%		14.7	%
				Uncollected payments		0.4% - 0.8	%		0.7	%
				Discount rate					7.0	%
				Annual cost to service, per loan				$	73
Government	$	28,323	Discounted cash flow	Constant prepayment speed		6.1% - 21.7	%		14.0	%
				Uncollected payments		2.5% - 10.0	%		2.7	%
				Discount rate					9.1	%
				Annual cost to service, per loan				$	110
TOTAL	$	255,845

As of December 31, 2018

	Fair Value		Valuation Technique	Unobservable Input ^(A)	Range			Weighted Average
MSRs
Conventional	$	254,691	Discounted cash flow	Constant prepayment speed		4.5% - 20.6	%		9.1	%
				Uncollected payments		0.5% - 11.7	%		0.9	%
				Discount rate					9.3	%
				Annual cost to service, per loan				$	70
Government	$	40,216	Discounted cash flow	Constant prepayment speed		6.3% - 17.9	%		8.9	%
				Uncollected payments		3.1% - 12.4	%		4.2	%
				Discount rate					12.0	%
				Annual cost to service, per loan				$	111
TOTAL	$	294,907

(A)

Significant increases (decreases) in any of the inputs in isolation may result in significantly lower (higher) fair value measurements. A change in the assumption used for discount rates may be accompanied by a directionally similar change in the assumption used for the probability of uncollected payments and a directionally opposite change in the assumption used for prepayment rates.