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VARIABLE INTEREST ENTITIES | 9 Months Ended
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Sep. 30, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
VARIABLE INTEREST ENTITIES |
8. VARIABLE INTEREST ENTITIES
The Company’s exposure to the obligations of its VIEs is generally limited to the Company’s investment in the VIEs of $2.1 billion at September 30, 2024. Assets of the VIEs may only be used to settle obligations of the VIEs. Creditors of the VIEs have no recourse to the general credit of the Company. The Company is not contractually required to provide and has not provided any form of financial support to the VIEs. No gains or losses were recognized upon consolidation of existing VIEs. Interest income and expense are recognized using the effective interest method. Residential Securitizations The Company also invests in residential mortgage-backed securities issued by entities that are VIEs because they do not have sufficient equity at risk for the entities to finance their activities without additional subordinated financial support from other parties. The Company is not the primary beneficiary because it does not have the power to direct the activities that most significantly impact the VIEs’ economic performance. For these entities, the Company’s maximum exposure to loss is the amortized cost basis of the securities it owns and it does not provide any liquidity arrangements, guarantees or other commitments to these VIEs. Refer to the “Securities” Note for further information on Residential Securities. OBX Trusts Residential securitizations are issued by entities generally referred to collectively as the “OBX Trusts.” These securitizations represent financing transactions that provide non-recourse financing to the Company and are collateralized by residential mortgage loans purchased by the Company. Residential securitizations closed as of September 30, 2024 are included in the following table:
Securitization | Date of Closing | Face Value at Closing
|  | (dollars in thousands)
OBX 2024-NQM1 | January 2024 | $ | 413,581 |
OBX 2024-NQM2 | January 2024 | $ | 495,980 |
OBX 2024-HYB1 | February 2024 | $ | 412,084 |
OBX 2024-NQM3 | February 2024 | $ | 439,904 |
OBX 2024-NQM4 | March 2024 | $ | 592,448 |
OBX 2024-HYB2 | March 2024 | $ | 397,787 |
OBX 2024-NQM5 | April 2024 | $ | 574,553 |
OBX 2024-NQM6 | April 2024 | $ | 441,421 |
OBX 2024-NQM7 | May 2024 | $ | 551,759 |
OBX 2024-NQM8 | May 2024 | $ | 723,086 |
OBX 2024-NQM9 | June 2024 | $ | 532,126 |
OBX 2024-NQM10 | July 2024 | $ | 482,526 |
OBX 2024-NQM11 | July 2024 | $ | 602,981 |
OBX 2024-NQM12 | August 2024 | $ | 532,193 |
OBX 2024-NQM13 | September 2024 | $ | 582,213 |
OBX 2024-J1 | September 2024 | $ | 357,801 |
OBX 2024-NQM14 | September 2024 | $ | 600,909 |
As of September 30, 2024 and December 31, 2023, a total carrying value of $18.7 billion and $11.6 billion, respectively, of bonds were held by third parties and the Company retained $2.1 billion and $1.4 billion, respectively, of MBS, which were eliminated in consolidation. The Company is deemed to be the primary beneficiary and consolidates the OBX Trusts because it has power to direct the activities that most significantly impact the OBX Trusts’ performance and holds a variable interest that could be potentially significant to these VIEs. Effective August 1, 2022, upon initial consolidation of new securitization entities, the Company elected to apply the measurement alternative for consolidated collateralized financing entities in order to simplify the accounting and valuation processes. The liabilities of these securitization entities are deemed to be more observable and are used to measure the fair value of the assets. The Company incurred $5.0 million and $1.9 million of costs during the three months ended September 30, 2024 and 2023, respectively, and $14.0 million and $5.9 million of costs during the nine months ended September 30, 2024 and 2023, respectively, in connection with these securitizations that were expensed as incurred. The contractual principal amount of the OBX Trusts’ debt held by third parties was $19.3 billion and $12.6 billion at September 30, 2024 and December 31, 2023, respectively. During the three months ended September 30, 2024 and 2023, the Company recorded ($430.4) million and $294.9 million, respectively, and ($339.6) million and $213.5 million during the nine months ended September 30, 2024 and 2023, respectively, of unrealized gains (losses) on debt held by third parties issued by OBX Trusts, which is reported in Net gains (losses) on investments and other in the Company's Consolidated Statements of Comprehensive Income (Loss). Although the residential mortgage loans have been sold for bankruptcy and state law purposes, the transfers of the residential mortgage loans to the OBX Trusts did not qualify for sale accounting and are reflected as intercompany secured borrowings that are eliminated upon consolidation. Residential Credit Fund The Company manages a fund investing in participations in residential mortgage loans. The residential credit fund is deemed to be a VIE because the entity does not have sufficient equity at risk to permit the legal entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders, as capital commitments are not considered equity at risk. The Company is not the primary beneficiary and does not consolidate the residential credit fund as its only interest in the fund is the management and performance fees that it earns, which are not considered variable interests in the entity. As of September 30, 2024 and December 31, 2023, the Company had outstanding participating interests in residential mortgage loans of $0.5 billion and $1.1 billion, respectively. These transfers do not meet the criteria for sale accounting and are accounted for as secured borrowings, thus the residential loans are reported as Loans, net and the associated liability is reported as Participations issued in the Consolidated Statements of Financial Condition. The Company elected the fair value option for participations issued with changes in fair value reflected in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss) to more accurately reflect the economics of the transfers as the underlying loans are carried at fair value through earnings.

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- Definition The entire disclosure for a variable interest entity (VIE), including but not limited to, judgments and assumptions in determining whether to consolidate and in identifying the primary beneficiary, gain (loss) recognized on the initial consolidation of the VIE, terms of arrangements, amounts and classification of the VIE's assets and liabilities, and the entity's maximum exposure to loss. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 810 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/810/tableOfContent + Details
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