Fair Value

12 Months Ended

Dec. 31, 2019

The following tables set forth the fair value of financial assets and liabilities by level within the fair value hierarchy as of December 31, 2019 and 2018 ($ in thousands):


			Level 1		Level 2		Level 3
December 31, 2019	Carrying Value		Quoted prices in active markets		Observable inputs other than Level 1 prices		Unobservable inputs
Financial assets
Mortgage loans	$	1,151,469	$	—	$	—	$	1,260,385
Investment in debt securities at fair value	$	231,685	$	—	$	231,685	$	—
Investment in beneficial interests	$	57,954	$	—	$	57,954	$	—
Investment in Manager	$	1,755	$	—	$	—	$	7,712
Investment in AS Ajax E	$	931	$	—	$	1,012	$	—
Investment in GAFS, including warrants	$	3,023	$	—	$	—	$	3,320
Investment in Gaea	$	19,995	$	—	$	—	$	19,995
Investment in legacy entities	$	760	$	—	$	—	$	760
Financial liabilities
Secured borrowings, net	$	652,747	$	—	$	—	$	657,918
Borrowings under repurchase agreement	$	414,114	$	—	$	414,114	$	—
Convertible senior notes, net	$	118,784	$	132,173	$	—	$	—


			Level 1		Level 2		Level 3
December 31, 2018	Carrying Value		Quoted prices in active markets		Observable inputs other than Level 1 prices		Unobservable inputs
Financial assets
Mortgage loans	$	1,310,873	$	—	$	—	$	1,448,895
Investment in debt securities at fair value	$	146,811	$	—	$	146,811	$	—
Investment in beneficial interests	$	22,086	$	—	$	22,086	$	—
Investment in Manager	$	1,016	$	—	$	—	$	5,231
Investment in AS Ajax E	$	1,037	$	—	$	1,239	$	—
Investment in GAFS, including warrants	$	2,844	$	—	$	—	$	3,320
Financial liabilities
Secured borrowings, net	$	610,199	$	—	$	—	$	610,217
Borrowings under repurchase agreement	$	534,089	$	—	$	534,089	$	—
Convertible senior notes, net	$	117,525	$	118,103	$	—	$	—

The fair value of mortgage loans is estimated using the Manager’s proprietary pricing model which estimates expected cash flows with the discount rate used in the present value calculation representing the estimated effective yield of the loan. The value of transfers of mortgage loans to REO is based upon the present value of future expected cash flows of the loans being transferred.

The Company values its Investments in debt securities and beneficial interests using estimates provided by banking institutions. The Company also relies on its Manager's proprietary pricing model to estimate the underlying cash flows expected to be collected on these investments as a comparison to the estimates received from banking institutions (See Note 5 - Investments).

The Company's investment in the Manager is valued by applying an earnings multiple to expected earnings.

The Company’s investment in AS Ajax E is valued using estimates provided by banking institutions.

The fair value of the Company's investment in GAFS is presented by applying an earnings multiple to expected earnings.

The Company's investment in Gaea and the legacy entities are presented as the carrying value due to the recent nature of the acquisition transactions.

The fair value of secured borrowings is estimated using the Manager’s proprietary pricing model which estimates expected cash flows of the underlying mortgage loans which collateralize the debt, and which drive the cash flows used to make interest payments. The discount rate used in the present value calculation of the mortgage loans used as collateral, therefore, represents the estimated effective yield on the secured debt. The discount rate is then applied to the face value of the secured debt to derive the debt's fair value.

The Company’s borrowings under repurchase agreement are short-term in nature, and the Company’s management believes it can renew the current borrowing arrangements on similar terms in the future. Accordingly, the carrying value of these borrowings approximates fair value.

The Company’s convertible senior notes are traded on the NYSE; the debt’s fair value is determined from the NYSE closing price on the Balance Sheet date.

The carrying values of its Cash and cash equivalents, Cash held in trust, Receivable from servicer, Prepaid expenses and other assets, Management fee payable and Accrued expenses and other liabilities are equal to or approximate fair value.

Non-financial assets

Property held-for-sale is carried at the lower of its acquisition basis plus improvements (cost) or net realizable value. Net realizable value is determined based on appraisals, broker price opinions, or other market indicators of fair value less expected liquidation costs. The lower of cost or net realizable value for the Company's REO Property is stated at its carrying value. The following tables set forth the fair value of non-financial assets by level within the fair value hierarchy as of December 31, 2019 and 2018 ($ in thousands):


					Level 1		Level 2		Level 3
December 31, 2019	Carrying Value		Fair value adjustment recognized in the consolidated Statements of Income		Quoted prices in active markets		Observable inputs other than Level 1 prices		Unobservable inputs
Non-financial assets
Property held-for-sale	$	13,537	$	2,104	$	—	$	—	$	13,537


					Level 1		Level 2		Level 3
December 31, 2018	Carrying Value		Fair value adjustment recognized in the consolidated Statements of Income		Quoted prices in active markets		Observable inputs other than Level 1 prices		Unobservable inputs
Non-financial assets
Property held-for-sale	$	19,402	$	2,700	$	—	$	—	$	19,402

- 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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