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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

Summary of fair value

The carrying values and estimated fair values of the Company’s financial instruments, which are both reported at fair value on a recurring basis (as indicated) or amortized cost/par, at March 31, 2020 and December 31, 2019 are as follows ($ in thousands):

March 31, 2020

															Weighted Average
	Outstanding Face Amount				Amortized Cost Basis/Purchase Price				Fair Value				Fair Value Method		Yield %			Remaining Maturity/Duration (years)
Assets:
CMBS(1)	$	1,943,507			$	1,943,359			$	1,868,149			Internal model, third-party inputs		2.21	%		2.31
CMBS interest-only(1)	1,550,358			(2)	26,800				27,835				Internal model, third-party inputs		2.99	%		2.46
GNMA interest-only(3)	105,009			(2)	1,661				1,607				Internal model, third-party inputs		4.86	%		3.05
Agency securities(1)	621				631				628				Internal model, third-party inputs		1.70	%		1.70
GNMA permanent securities(1)	31,159				31,345				32,211				Internal model, third-party inputs		3.50	%		2.61
Equity securities(3)	N/A				598				197				Observable market prices		N/A			N/A
Provision for current expected credit reserves	N/A				(22		)		(22		)		(5)		N/A			N/A
Mortgage loan receivables held for investment, net, at amortized cost:
Mortgage loan receivables held for investment, net, at amortized cost	3,453,893				3,432,779				3,447,851				Discounted Cash Flow(4)		6.86	%		1.29
Provision for current expected credit reserves	N/A				(49,457		)		(49,457		)		(5)		N/A			N/A
Mortgage loan receivables held for sale	154,833				146,713				146,961				Internal model, third-party inputs(6)		3.94	%		9.96
FHLB stock(7)	61,619				61,619				61,619				(7)		4.25	%		N/A
Nonhedge derivatives(1)(8)	121,400				N/A				950				Counterparty quotations		N/A			0.25
Liabilities:
Repurchase agreements - short-term	1,626,706				1,626,706				1,626,706				Discounted Cash Flow(9)		2.87	%		0.20
Repurchase agreements - long-term	100,094				100,094				100,094				Discounted Cash Flow(10)		2.48	%		1.36
Revolving credit facility	266,430				266,430				266,430				Discounted Cash Flow(11)		3.83	%		0.87
Mortgage loan financing	801,515				806,153				830,648				Discounted Cash Flow(10)		4.90	%		1.53
Borrowings from the FHLB	1,007,581				1,007,581				1,012,997				Discounted Cash Flow		2.08	%		1.92
Senior unsecured notes	1,891,897				1,874,056				1,005,958				Broker quotations, pricing services		4.95	%		4.50
Nonhedge derivatives(1)(8)	69,571				N/A				—				Counterparty quotations		N/A			0.11

(1) Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.

(2) Represents notional outstanding balance of underlying collateral.

(3) Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.

(4) Fair value for floating rate mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (30 days) and no significant change in credit risk. Fair value for fixed rate mortgage loan receivables, held for investment is measured using a discounted cash flow model.

(5) Fair value is estimated to equal par value.

(6) Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.

(7) Fair value of the FHLB stock approximates outstanding face amount as the Company’s captive insurance subsidiary is restricted from trading the stock and can only put the stock back to the FHLB, at the FHLB’s discretion, at par.

(8) The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.

(9) Fair value for repurchase agreement liabilities is estimated to approximate carrying amount primarily due to the short interest rate reset risk (30 days) of the financings and the high credit quality of the assets collateralizing these positions. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.

(10) For repurchase agreements - long term and mortgage loan financing, the carrying value approximates the fair value discounting the expected cash flows at current market rates. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.

December 31, 2019  

															Weighted Average
	Outstanding Face Amount				Amortized Cost Basis				Fair Value				Fair Value Method		Yield %			Remaining Maturity/Duration (years)
Assets:
CMBS(1)	$	1,640,597			$	1,640,905			$	1,644,322			Internal model, third-party inputs		3.08	%		2.41
CMBS interest-only(1)	1,559,160			(2)	28,553				29,146				Internal model, third-party inputs		3.04	%		2.53
GNMA interest-only(3)	109,783			(2)	1,982				1,851				Internal model, third-party inputs		4.59	%		2.77
Agency securities(1)	629				640				637				Internal model, third-party inputs		1.73	%		1.83
GNMA permanent securities(1)	31,461				31,681				32,369				Internal model, third-party inputs		3.17	%		1.93
Equity securities(3)	N/A				12,848				12,980				Observable market prices		N/A			N/A
Mortgage loan receivables held for investment, net, at amortized cost:
Mortgage loan receivables held for investment, net, at amortized cost	3,277,596				3,257,036				3,273,219				Discounted Cash Flow(4)		6.94	%		1.43
Provision for loan losses	N/A				(20,500		)		(20,500		)		(5)		N/A			N/A
Mortgage loan receivables held for sale	122,748				122,325				124,989				Internal model, third-party inputs(6)		4.20	%		9.99
FHLB stock(7)	61,619				61,619				61,619				(7)		4.75	%		N/A
Nonhedge derivatives(1)(8)	340,200				N/A				693				Counterparty quotations		N/A			0.25
Liabilities:
Repurchase agreements - short-term	1,781,253				1,781,253				1,781,253				Discounted Cash Flow(9)		2.50	%		0.19
Repurchase agreements - long-term	34,681				34,681				34,681				Discounted Cash Flow(10)		2.81	%		1.41
Mortgage loan financing	807,854				812,606				838,766				Discounted Cash Flow(10)		4.91	%		1.51
Borrowings from the FHLB	1,073,500				1,073,500				1,080,354				Discounted Cash Flow		2.33	%		2.08
Senior unsecured notes	1,166,201				1,157,833				1,208,860				Broker quotations, pricing services		5.39	%		3.28
Nonhedge derivatives(1)(8)	69,571				N/A				—				Counterparty quotations		N/A			0.36

(1) Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.

(2) Represents notional outstanding balance of underlying collateral.

(3) Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.

(4) Fair value for floating rate mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (30 days) and no significant change in credit risk. Fair value for fixed rate mortgage loan receivables, held for investment is measured using a discounted cash flow.

(5) Fair value is estimated to equal par value.

(6) Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.

(7) Fair value of the FHLB stock approximates outstanding face amount as the Company’s captive insurance subsidiary is restricted from trading the stock and can only put the stock back to the FHLB, at the FHLB’s discretion, at par.

(8) The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.

(9) Fair value for repurchase agreement liabilities is estimated to approximate carrying amount primarily due to the short interest rate reset risk (30 days) of the financings and the high credit quality of the assets collateralizing these positions. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.

(10) For repurchase agreements - long term and mortgage loan financing, the carrying value approximates the fair value discounting the expected cash flows at current market rates. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.

Summary of financial assets and liabilities, both reported at fair value on a recurring basis or amortized cost/par

The following table summarizes the Company’s financial assets and liabilities, which are both reported at fair value on a recurring basis (as indicated) or amortized cost/par, at March 31, 2020 and December 31, 2019 ($ in thousands):

March 31, 2020

Financial Instruments Reported at Fair Value on Consolidated Statements of Financial Condition		Outstanding Face Amount				Fair Value
						Level 1				Level 2				Level 3				Total
Assets:
CMBS(1)		$	1,931,411			$	—			$	—			$	1,856,559			$	1,856,559
CMBS interest-only(1)		1,539,283			(2)	—				—				27,065				27,065
GNMA interest-only(3)		105,009			(2)	—				—				1,607				1,607
Agency securities(1)		621				—				—				628				628
GNMA permanent securities(1)		31,159				—				—				32,211				32,211
Equity securities		N/A				197				—				—				197
Nonhedge derivatives(4)		121,400				—				950				—				950
						$	197			$	950			$	1,918,070			$	1,919,217
Liabilities:
Nonhedge derivatives(4)		69,571				$	—			$	—			$	—			$	—
Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial Condition		Outstanding Face Amount				Fair Value
						Level 1				Level 2				Level 3				Total
Assets:
Mortgage loan receivable held for investment, net, at amortized cost:
Mortgage loans held by consolidated subsidiaries		$	3,453,893			$	—			$	—			$	3,447,851			$	3,447,851
Provision for current expected credit losses		N/A				—				—				(49,457		)		(49,457		)
Mortgage loan receivable held for sale		154,833				—				—				146,961				146,961
CMBS(5)		12,096				—				—				11,590				11,590
CMBS interest-only(5)		11,075			(2)	—				—				770				770
Provision for current expected credit losses		N/A				—				—				(22		)		(22		)
FHLB stock		61,619				—				—				61,619				61,619
						$	—			$	—			$	3,619,312			$	3,619,312
Liabilities:
Repurchase agreements - short-term		1,626,706				$	—			$	—			$	1,626,706			$	1,626,706
Repurchase agreements - long-term		100,094				—				—				100,094				100,094
Revolving credit facility		266,430				—				—				266,430				266,430
Mortgage loan financing		801,515				—				—				830,648				830,648
Borrowings from the FHLB		1,007,581				—				—				1,012,997				1,012,997
Senior unsecured notes		1,891,897				—				—				1,005,958				1,005,958
						$	—			$	—			$	4,842,833			$	4,842,833

(1) Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity. 

(2) Represents notional outstanding balance of underlying collateral. 

(3) Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. 

(4) Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.  The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.

(5) Restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust, which are classified as held-to-maturity and reported at amortized cost.

December 31, 2019

Financial Instruments Reported at Fair Value on Consolidated Statements of Financial Condition		Outstanding Face Amount				Fair Value
						Level 1				Level 2				Level 3				Total
Assets:
CMBS(1)		$	1,628,476			$	—			$	—			$	1,632,714			$	1,632,714
CMBS interest-only(1)		1,548,061			(2)	—				—				28,342				28,342
GNMA interest-only(3)		109,783			(2)	—				—				1,851				1,851
Agency securities(1)		629				—				—				637				637
GNMA permanent securities(1)		31,461				—				—				32,369				32,369
Equity securities		N/A				12,980				—				—				12,980
Nonhedge derivatives(4)		340,200				—				693				—				693
						$	12,980			$	693			$	1,695,913			$	1,709,586
Liabilities:
Nonhedge derivatives(4)		$	69,571			$	—			$	—			$	—			$	—
Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial Condition		Outstanding Face Amount				Fair Value
						Level 1				Level 2				Level 3				Total
Assets:
Mortgage loan receivable held for investment, net, at amortized cost:
Mortgage loans held by consolidated subsidiaries		$	3,277,597			$	—			$	—			$	3,273,219			$	3,273,219
Provision for loan losses		N/A				—				—				(20,500		)		(20,500		)
Mortgage loan receivables held for sale		122,748				—				—				124,989				124,989
CMBS(5)		12,121				—				—				11,608				11,608
CMBS interest-only(5)		11,099			(2)	—				—				804				804
FHLB stock		61,619				—				—				61,619				61,619
						$	—			$	—			$	3,451,739			$	3,451,739
Liabilities:
Repurchase agreements - short-term		1,781,253				$	—			$	—			$	1,781,253			$	1,781,253
Repurchase agreements - long-term		34,681				—				—				34,681				34,681
Mortgage loan financing		807,854				—				—				838,766				838,766
Borrowings from the FHLB		1,073,500				—				—				1,080,354				1,080,354
Senior unsecured notes		1,166,201				—				—				1,208,860				1,208,860
						$	—			$	—			$	4,943,914			$	4,943,914

 

(1) Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity. 

(2) Represents notional outstanding balance of underlying collateral. 

(3) Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. 

(4) Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.  The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.

(5)

Restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust, which are classified as held-to-maturity and reported at amortized cost.

Schedule of changes in Level 3 of financial instruments

The following table summarizes changes in Level 3 financial instruments reported at fair value on the consolidated statements of financial condition for the three months ended March 31, 2020 and December 31, 2019 ($ in thousands):

		Three Months Ended March 31,
Level 3		2020				2019
Balance at January 1,		$	1,695,913			$	1,385,957
Transfer from level 2		—				—
Purchases		437,519				431,107
Sales		(93,301		)		(210,279		)
Paydowns/maturities		(43,603		)		(24,166		)
Amortization of premium/discount		(2,284		)		(3,191		)
Unrealized gain/(loss)		(77,931		)		13,203
Realized gain/(loss) on sale(1)		1,755				2,778
Balance at March 31,		$	1,918,068			$	1,595,409

(1) Includes realized losses on securities recorded as other than temporary impairments.

Schedule of quantitative information

The following is quantitative information about significant unobservable inputs in our Level 3 measurements for those assets and liabilities measured at fair value on a recurring basis ($ in thousands):

March 31, 2020

Financial Instrument		Carrying Value				Valuation Technique		Unobservable Input		Minimum			Weighted Average			Maximum
CMBS(1)		$	1,856,560			Discounted cash flow		Yield (4)		1.68	%		11.1	%		442.78	%
								Duration (years)(5)		0.01			2.60			6.25
CMBS interest-only(1)		27,065			(2)	Discounted cash flow		Yield (4)		2.06	%		4.04	%		6.8	%
								Duration (years)(5)		0.14			2.30			3.34
								Prepayment speed (CPY)(5)		100.00			97.23			100.00
GNMA interest-only(3)		1,607			(2)	Discounted cash flow		Yield (4)		(2.32	)%		10.81	%		123.94	%
								Duration (years)(5)		0.52			2.57			13.70
								Prepayment speed (CPJ)(5)		5.00			12.36			35.00
Agency securities(1)		628				Discounted cash flow		Yield (4)		1.42	%		15.77	%		72	%
								Duration (years)(5)		0.00			2.16			2.71
GNMA permanent securities(1)		32,211				Discounted cash flow		Yield (4)		157.21	%		277.67	%		410.00	%
								Duration (years)(5)		1.15			9.96			14.89
Total		$	1,918,071

(1) CMBS, CMBS interest-only securities, Agency securities, GNMA construction securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.

(2) The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.

(3) Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.

Sensitivity of the Fair Value to Changes in the Unobservable Inputs

(4) Significant increase (decrease) in the unobservable input in isolation would result in significantly lower (higher) fair value measurement.

(5) Significant increase (decrease) in the unobservable input in isolation would result in either a significantly lower or higher (lower or higher) fair value measurement depending on the structural features of the security in question.

December 31, 2019

Financial Instrument		Carrying Value				Valuation Technique		Unobservable Input		Minimum			Weighted Average			Maximum
CMBS(1)		$	1,632,714			Discounted cash flow		Yield (3)		—	%		3.11	%		19.92	%
								Duration (years)(4)		0.00			1.63			6.87
CMBS interest-only(1)		28,342			(2)	Discounted cash flow		Yield (3)		1.57	%		3.93	%		7.62	%
								Duration (years)(4)		0.26			2.47			3.51
								Prepayment speed (CPY)(4)		100.00			97.24			100.00
GNMA interest-only(3)		1,851			(2)	Discounted cash flow		Yield (4)		(4.82	)%		15.13	%		44.5	%
								Duration (years)(5)		0.85			2.90			13.69
								Prepayment speed (CPJ)(5)		5.00			12.36			35.00
Agency securities(1)		637				Discounted cash flow		Yield (4)		—	%		1.7	%		2.16	%
								Duration (years)(5)		0.00			2.30			2.92
GNMA permanent securities(1)		32,369				Discounted cash flow		Yield (4)		56.56	%		166.79	%		410	%
								Duration (years)(5)		2.60			3.61			6.49
Total		$	1,695,913

(1) CMBS, CMBS interest-only securities, Agency securities, GNMA construction securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.

(2) The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.

(3) Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.

Sensitivity of the Fair Value to Changes in the Unobservable Inputs

(4) Significant increase (decrease) in the unobservable input in isolation would result in significantly lower (higher) fair value measurement.

(5)

Significant increase (decrease) in the unobservable input in isolation would result in either a significantly lower or higher (lower or higher) fair value measurement depending on the structural features of the security in question.

X

- Definition

Tabular disclosure of assets and liabilities, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, that are measured at fair value on a recurring basis or on an amortized cost basis.. The disclosures contemplated herein include the fair value measurements at the reporting date by the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3).

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Tabular disclosure of input and valuation technique used to measure fair value and change in valuation approach and technique for each separate class of asset and liability measured on recurring and nonrecurring basis.

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Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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