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Fair Value
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
Fair Value Fair Value
Fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in variability in estimates with changes in assumptions. The following table summarizes the principal amounts, carrying values and the estimated fair values of our financial instruments (in thousands):
September 30, 2024December 31, 2023
Principal /
Notional Amount		Carrying
Value		Estimated
Fair Value		Principal /
Notional Amount		Carrying
Value		Estimated
Fair Value
Financial assets:
Loans and investments, net$11,565,538 $11,292,647 $11,236,801 $12,615,006 $12,377,806 $12,452,563 
Loans held-for-sale, net326,910 326,141 334,884 552,325 551,707 566,451 
Capitalized mortgage servicing rights, netn/a376,403 499,630 n/a391,254 510,472 
Securities held-to-maturity, net230,190 156,027 145,000 230,495 155,279 129,390 
Derivative financial instruments134,688 1,912 1,912 447,609 6,547 6,547 
Financial liabilities:
Credit and repurchase facilities$3,264,033 $3,257,719 $3,247,500 $3,242,939 $3,237,827 $3,228,324 
Securitized debt5,327,245 5,315,079 5,281,765 6,956,284 6,935,010 6,864,557 
Senior unsecured notes1,255,000 1,246,908 1,161,256 1,345,000 1,333,968 1,214,331 
Convertible senior unsecured notes287,500 285,170 292,712 287,500 283,118 301,156 
Junior subordinated notes154,336 144,480 107,761 154,336 143,896 106,444 
Mortgage notes payable - real estate owned35,350 35,350 35,132 44,339 44,339 44,103 
Derivative financial instruments227,478 1,115 1,115 138,270 1,021 1,021 
Assets and liabilities disclosed at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Determining which category an asset or liability falls within the hierarchy requires judgment and we evaluate our hierarchy disclosures each quarter. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities are as follows:
Level 1—Inputs are unadjusted and quoted prices exist in active markets for identical assets or liabilities, such as government, agency and equity securities.
Level 2—Inputs (other than quoted prices included in Level 1) are observable for the asset or liability through correlation with market data. Level 2 inputs may include quoted market prices for a similar asset or liability, interest rates and credit risk. Examples include non-government securities, certain mortgage and asset-backed securities, certain corporate debt and certain derivative instruments.
Level 3—Inputs reflect our best estimate of what market participants would use in pricing the asset or liability and are based on significant unobservable inputs that require a considerable amount of judgment and assumptions. Examples include certain mortgage and asset-backed securities, certain corporate debt and certain derivative instruments.
The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy.
Loans and investments, net. Fair values of loans and investments that are not impaired are estimated using inputs based on direct capitalization rate and discounted cash flow methodology using discount rates, which, in our opinion, best reflect current market interest rates that would be offered for loans with similar characteristics and credit quality (Level 3). Fair values of impaired loans and investments are estimated using inputs that require significant judgments, which include assumptions regarding discount rates, capitalization rates, creditworthiness of major tenants, occupancy rates, availability of financing, exit plans and other factors (Level 3).
Loans held-for-sale, net. Consists of originated loans that are generally expected to be transferred or sold within 60 days to 180 days of loan funding, and are valued using pricing models that incorporate observable inputs from current market assumptions or a hypothetical securitization model utilizing observable market data from recent securitization spreads and observable pricing of loans with similar characteristics (Level 2). Fair value includes the fair value allocated to the associated future MSRs and is calculated pursuant to the valuation techniques described below for capitalized mortgage servicing rights, net (Level 3).
Capitalized mortgage servicing rights, net. Fair values are estimated using inputs based on discounted future net cash flow methodology (Level 3). MSRs are initially recorded at fair value and are carried at amortized cost. The fair value of MSRs is estimated using a process that involves the use of independent third-party valuation experts, supported by commercially available discounted cash flow models and analysis of current market data. The key inputs used in estimating fair value include the discount rate and contractually specified servicing fees, and to a lessor extent the prepayment speed of the underlying loans, annual per loan cost to service loans, delinquency rates, late charges and other economic factors.
Securities held-to-maturity, net. Fair values are approximated using inputs based on current market quotes received from financial sources that trade such securities and are based on prevailing market data and, in some cases, are derived from third-party proprietary models based on well recognized financial principles and reasonable estimates about relevant future market conditions (Level 3).
Derivative financial instruments. Fair values of rate lock and forward sale commitments are estimated using valuation techniques, which include internally-developed models based on changes in the U.S. Treasury rate and other observable market data (Level 2). The fair value of rate lock commitments includes the fair value of the expected net cash flows associated with the servicing of the loans, see capitalized mortgage servicing rights, net above for details on the applicable valuation technique (Level 3). We also consider the impact of counterparty non-performance risk when measuring the fair value of these derivatives.
Credit facilities, repurchase facilities and mortgage notes payable. Fair values for credit and repurchase facilities and mortgage notes payable of the Structured Business are estimated using discounted cash flow methodology, using discount rates, which, in our opinion, best reflect current market interest rates for financing with similar characteristics and credit quality (Level 3). The majority of our credit and repurchase facilities for the Agency Business bear interest at rates that are similar to those available in the market currently and fair values are estimated using Level 2 inputs. For these facilities, the fair values approximate their carrying values.
Securitized debt and junior subordinated notes. Fair values are estimated based on broker quotations, representing the discounted expected future cash flows at a yield that reflects current market interest rates and credit spreads (Level 3).
Senior unsecured notes. Fair values are estimated at current market quotes received from active markets when available (Level 1). If quotes from active markets are unavailable, then the fair values are estimated utilizing current market quotes received from inactive markets (Level 2).
Convertible senior unsecured notes. Fair values are estimated using current market quotes received from inactive markets (Level 2).
We measure certain financial assets and financial liabilities at fair value on a recurring basis. The fair values of these financial assets and liabilities are determined using the following input levels at September 30, 2024 (in thousands):
Carrying ValueFair ValueFair Value Measurements Using Fair Value Hierarchy
Level 1Level 2Level 3
Financial assets:
Derivative financial instruments$1,912 $1,912 $— $1,536 $376 
Financial liabilities:
Derivative financial instruments$1,115 $1,115 $— $1,115 $— 
We measure certain financial and non-financial assets at fair value on a nonrecurring basis. The fair values of these financial and non-financial assets, if applicable, are determined using the following input levels at September 30, 2024 (in thousands):
Net Carrying ValueFair Value
Fair Value Measurements Using Fair Value Hierarchy
Level 1Level 2Level 3
Financial assets:
Impaired loans, net
Loans held-for-investment (1)$451,114 $451,114 $— $— $451,114 
Loans held-for-sale (2)14,054 14,054 — 14,054 — 
$465,168 $465,168 $— $14,054 $451,114 
________________________
(1)We had an allowance for credit losses of $145.7 million related to twenty-seven impaired loans with a total carrying value, before loan loss reserves, of $596.9 million at September 30, 2024. The fair values of these impaired loans are based on the value of the underlying collateral.
(2)We had unrealized impairment losses of $0.9 million related to four held-for-sale loans with a total carrying value, before unrealized impairment losses, of $14.9 million.
Loan impairment assessments. Loans held-for-investment are intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan origination costs and fees, loan purchase discounts, and net of the allowance for credit losses, when such loan or investment is deemed to be impaired. We consider a loan impaired when, based upon current information, it is probable that all amounts due for both principal and interest will not be collected according to the contractual terms of the loan agreement. We evaluate our loans to determine if the value of the underlying collateral securing the impaired loan is less than the net carrying value of the loan, which may result in an allowance, and corresponding charge to the provision for credit losses, or an impairment loss. These valuations require significant judgments, which include assumptions regarding capitalization and discount rates, revenue growth rates, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan and other factors.
Loans held-for-sale are generally expected to be transferred or sold within 60 days to 180 days of loan origination and are reported at lower of cost or market. We consider a loan classified as held-for-sale impaired if, based on current information, it is probable that we will sell the loan below par, or not be able to collect all principal and interest in accordance with the contractual terms of the loan agreement. These loans are valued using pricing models that incorporate observable inputs from current market assumptions or a hypothetical securitization model utilizing observable market data from recent securitization spreads and observable pricing of loans with similar characteristics.
The tables above and below include all impaired loans, regardless of the period in which the impairment was recognized.
Quantitative information about Level 3 fair value measurements at September 30, 2024 is as follows ($ in thousands):
Fair ValueValuation Techniques
Significant Unobservable Inputs
Financial assets:
Impaired loans:Weighted AverageMinimum / Maximum
Multifamily$389,350 Discounted cash flowsCapitalization rate6.20%
5.75% - 7.25%
Land49,999 Discounted cash flowsDiscount rate21.50%21.50%
Revenue growth rate3.00%3.00%
Retail11,765 Sales comparativePrice per acre$165,128$165,128
Derivative financial instruments:
Rate lock commitments376 Discounted cash flowsW/A discount rate13.37%13.37%
The derivative financial instruments using Level 3 inputs are outstanding for short periods of time (generally less than 60 days). A roll-forward of Level 3 derivative instruments is as follows (in thousands):
Fair Value Measurements Using Significant Unobservable Inputs
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Derivative assets and liabilities, net
Beginning balance$1,066 $757 $428 $354 
Settlements(13,460)(13,369)(36,902)(46,123)
Realized gains recorded in earnings12,394 12,612 36,474 45,769 
Unrealized gains recorded in earnings376 962 376 962 
Ending balance$376 $962 $376 $962 
The components of fair value and other relevant information associated with our rate lock commitments, forward sales commitments and the estimated fair value of cash flows from servicing on loans held-for-sale are as follows (in thousands):
September 30, 2024Notional/
Principal Amount		Fair Value of
Servicing Rights		Interest Rate
Movement Effect		Unrealized
Impairment Loss		Total Fair Value
Adjustment
Rate lock commitments$25,093 $376 $20 $— $396 
Forward sale commitments337,073 — (20)— (20)
Loans held-for-sale, net (1)326,910 3,887 — (876)3,011 
Total$4,263 $— $(876)$3,387 
________________________
(1)Loans held-for-sale, net are recorded at the lower of cost or market on an aggregate basis and includes fair value adjustments related to estimated cash flows from MSRs.
We measure certain assets and liabilities for which fair value is only disclosed. The fair value of these assets and liabilities are determined using the following input levels at September 30, 2024 (in thousands):
Fair Value Measurements Using Fair Value Hierarchy
Carrying ValueFair ValueLevel 1Level 2Level 3
Financial assets: 
Loans and investments, net$11,292,647 $11,236,801 $— $— $11,236,801 
Loans held-for-sale, net326,141 334,884 — 330,997 3,887 
Capitalized mortgage servicing rights, net376,403 499,630 — — 499,630 
Securities held-to-maturity, net156,027 145,000 — — 145,000 
Financial liabilities:
Credit and repurchase facilities$3,257,719 $3,247,500 $— $319,419 $2,928,081 
Securitized debt5,315,079 5,281,765 — — 5,281,765 
Senior unsecured notes1,246,908 1,161,256 1,161,256 — — 
Convertible senior unsecured notes285,170 292,712 — 292,712 — 
Junior subordinated notes144,480 107,761 — — 107,761 
Mortgage notes payable - real estate owned35,350 35,132 — — 35,132