v3.19.3
Valuation (Tables)
 9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]
The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments that are measured at fair value on a recurring basis as of September 30, 2019:
Description
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In thousands)
Assets:
 
 
 
 
 
 
 
 
Securities, at fair value:
 
 
 
 
 
 
 
 
Agency RMBS
 
$
—

 
$
1,541,508

 
$
23,499

 
$
1,565,007

Non-Agency RMBS
 
—

 
75,732

 
81,482

 
157,214

CMBS
 
—

 
27,206

 
12,368

 
39,574

CLOs
 
—

 
39,392

 
28,008

 
67,400

Asset-backed securities, backed by consumer loans
 
—

 
—

 
39,316

 
39,316

Corporate debt securities
 
—

 
—

 
3,182

 
3,182

Corporate equity securities
 
1,958

 
—

 
2,278

 
4,236

Loans, at fair value:
 
 
 
 
 
 
 
 
Residential mortgage loans
 
—

 
—

 
797,728

 
797,728

Commercial mortgage loans
 
—

 
—

 
260,626

 
260,626

Consumer loans
 
—

 
—

 
151,699

 
151,699

Corporate loans
 
—

 
—

 
15,790

 
15,790

Investment in unconsolidated entities, at fair value
 
—

 
—

 
70,435

 
70,435

Financial derivatives–assets, at fair value:
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
 
—

 
—

 
1,078

 
1,078

Credit default swaps on asset-backed indices
 
—

 
2,146

 
—

 
2,146

Credit default swaps on corporate bonds
 
—

 
41

 
—

 
41

Credit default swaps on corporate bond indices
 
—

 
5,060

 
—

 
5,060

Interest rate swaps
 
—

 
3,440

 
—

 
3,440

TBAs
 
—

 
142

 
—

 
142

Total return swaps
 
—

 
—

 
235

 
235

Futures
 
484

 
—

 
—

 
484

Forwards
 
—

 
114

 
—

 
114

Total assets
 
$
2,442

 
$
1,694,781

 
$
1,487,724

 
$
3,184,947

Liabilities:
 
 
 
 
 
 
 
 
Securities sold short, at fair value:
 
 
 
 
 
 
 
 
Government debt
 
$
—

 
$
(36,436
)
 
$
—

 
$
(36,436
)
Corporate debt securities
 
—

 
(473
)
 
—

 
(473
)
Financial derivatives–liabilities, at fair value:
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed indices
 
—

 
(194
)
 
—

 
(194
)
Credit default swaps on corporate bonds
 
—

 
(186
)
 
—

 
(186
)
Credit default swaps on corporate bond indices
 
—

 
(11,185
)
 
—

 
(11,185
)
Interest rate swaps
 
—

 
(12,115
)
 
—

 
(12,115
)
TBAs
 
—

 
(904
)
 
—

 
(904
)
Futures
 
(67
)
 
—

 
—

 
(67
)
Total return swaps
 
—

 
(707
)
 
(214
)
 
(921
)
Other secured borrowings, at fair value
 
—

 
—

 
(438,629
)
 
(438,629
)
Total liabilities
 
$
(67
)
 
$
(62,200
)
 
$
(438,843
)
 
$
(501,110
)
The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at December 31, 2018:
Description
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In thousands)
Assets:
 
 
 
 
 
 
 
 
Cash equivalents
 
$
12,460

 
$
—

 
$
—

 
$
12,460

Investments, at fair value-
 
 
 
 
 
 
 
 
Agency residential mortgage-backed securities
 
$
—

 
$
1,442,924

 
$
7,293

 
$
1,450,217

U.S. Treasury securities
 
—

 
76

 
—

 
76

Private label residential mortgage-backed securities
 
—

 
211,348

 
91,291

 
302,639

Private label commercial mortgage-backed securities
 
—

 
33,105

 
803

 
33,908

Commercial mortgage loans
 
—

 
—

 
211,185

 
211,185

Residential mortgage loans
 
—

 
—

 
496,830

 
496,830

Collateralized loan obligations
 
—

 
108,978

 
14,915

 
123,893

Consumer loans and asset-backed securities backed by consumer loans
 
—

 
—

 
206,761

 
206,761

Corporate debt
 
—

 
16,074

 
6,318

 
22,392

Secured notes
 
—

 
—

 
10,917

 
10,917

Real estate owned
 
—

 
—

 
34,500

 
34,500

Common stock
 
2,200

 
—

 
—

 
2,200

Corporate equity investments
 
—

 
—

 
43,793

 
43,793

Total investments, at fair value
 
2,200

 
1,812,505

 
1,124,606

 
2,939,311

Financial derivatives–assets, at fair value-
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
 
—

 
—

 
1,472

 
1,472

Credit default swaps on corporate bond indices
 
—

 
733

 
—

 
733

Credit default swaps on corporate bonds
 
—

 
2,473

 
—

 
2,473

Credit default swaps on asset-backed indices
 
—

 
8,092

 
—

 
8,092

Total return swaps
 
—

 
1

 
—

 
1

Interest rate swaps
 
—

 
7,224

 
—

 
7,224

Forwards
 
—

 
6

 
—

 
6

Total financial derivatives–assets, at fair value
 
—

 
18,529

 
1,472

 
20,001

Repurchase agreements, at fair value
 
—

 
61,274

 
—

 
61,274

Total investments, financial derivatives–assets, and repurchase agreements, at fair value
 
$
2,200

 
$
1,892,308

 
$
1,126,078

 
$
3,020,586

Liabilities:
 
 
 
 
 
 
 
 
Investments sold short, at fair value-
 
 
 
 
 
 
 
 
Agency residential mortgage-backed securities
 
$
—

 
$
(772,964
)
 
$
—

 
$
(772,964
)
Government debt
 
—

 
(54,151
)
 
—

 
(54,151
)
Corporate debt
 
—

 
(6,529
)
 
—

 
(6,529
)
Common stock
 
(16,933
)
 
—

 
—

 
(16,933
)
Total investments sold short, at fair value
 
(16,933
)
 
(833,644
)
 
—

 
(850,577
)
 
 
 
 
 
 
 
 
 
Description
 
Level 1
 
Level 2
 
Level 3
 
Total
(continued)
 
(In thousands)
Financial derivatives–liabilities, at fair value-
 
 
 
 
 
 
 
 
Credit default swaps on corporate bond indices
 
$
—

 
$
(11,557
)
 
$
—

 
$
(11,557
)
Credit default swaps on corporate bonds
 
—

 
(3,246
)
 
—

 
(3,246
)
Credit default swaps on asset-backed indices
 
—

 
(2,125
)
 
—

 
(2,125
)
Interest rate swaps
 
—

 
(3,397
)
 
—

 
(3,397
)
Total return swaps
 
—

 
(6
)
 
—

 
(6
)
Futures
 
(355
)
 
—

 
—

 
(355
)
Forwards
 
—

 
(120
)
 
—

 
(120
)
Total financial derivatives–liabilities, at fair value
 
(355
)
 
(20,451
)
 
—

 
(20,806
)
Other secured borrowings, at fair value
 
—

 
—

 
(297,948
)
 
(297,948
)
Total investments sold short, financial derivatives–liabilities, and other secured borrowings, at fair value
 
$
(17,288
)
 
$
(854,095
)
 
$
(297,948
)
 
$
(1,169,331
)
Schedule of Financial Instruments
The following table summarizes the estimated fair value of all other financial instruments not measured at fair value on a recurring basis as of September 30, 2019:
(In thousands)
 
Fair Value
 
Carrying Value
Other financial instruments
 
 
 
 
Assets:
 
 
 
 
Cash and cash equivalents
 
$
33,251

 
$
33,251

Restricted cash
 
175

 
175

Due from brokers
 
66,162

 
66,162

Reverse repurchase agreements
 
36,473

 
36,473

Liabilities:
 
 
 
 
Repurchase agreements
 
2,056,422

 
2,056,422

Other secured borrowings
 
91,151

 
91,151

Senior notes, net
 
86,952

 
85,232

Due to brokers
 
5,978

 
5,978

Cash and cash equivalents includes cash held in an interest bearing overnight account, for which fair value equals the carrying value, and cash held in money market accounts, which are liquid in nature and for which fair value equals the carrying value; such assets are considered Level 1. Restricted cash includes cash held in a segregated account for which fair value equals the carrying value; such assets are considered Level 1. Due from brokers and Due to brokers include collateral transferred to or received from counterparties, along with receivables and payables for open and/or closed derivative positions. These receivables and payables are short term in nature and any collateral transferred consists primarily of cash; fair value of these items is approximated by carrying value and such items are considered Level 1. The Company's reverse repurchase agreements, repurchase agreements, and other secured borrowings are carried at cost, which approximates fair value due to their short term nature. Reverse repurchase agreements, repurchase agreements, and other secured borrowings are classified as Level 2 based on the adequacy of the collateral and their short term nature. The Senior notes are considered Level 3 liabilities given the relative unobservability of the most significant inputs to valuation estimation as well as the lack of trading activity of these instruments. As of September 30, 2019, the estimated fair value of the Company's Senior notes was based on a third-party valuation.
Schedule of Significant Unobservable Inputs, Qualitative Information
The following table identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of September 30, 2019:
 
 
Fair Value
 
Valuation 
Technique
 
Unobservable Input
 
Range
 
Weighted
Average
Description
 
 
 
 
Min
 
Max
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
Non-Agency RMBS
 
$
29,780

 
Market Quotes
 
Non Binding Third-Party Valuation
 
$
13.58

 
$
164.58

 
$
77.94

CMBS
 
11,240

 
Market Quotes
 
Non Binding Third-Party Valuation
 
5.75

 
82.38

 
66.76

CLOs
 
24,894

 
Market Quotes
 
Non Binding Third-Party Valuation
 
29.86

 
298.56

 
72.29

Agency interest only RMBS
 
3,257

 
Market Quotes
 
Non Binding Third-Party Valuation
 
3.03

 
19.27

 
9.47

Total return swaps - asset
 
235

 
Market Quotes
 
Non Binding Third-Party Valuation
 
53.50

 
95.00

 
88.56

Total return swaps - liability
 
(214
)
 
Market Quotes
 
Non Binding Third-Party Valuation
 
53.50

 
54.50

 
54.00

Corporate debt and equity
 
2,670

 
Market Quotes
 
Non Binding Third-Party Valuation
 
97.25

 
100.50

 
98.65

Corporate loans
 
5,790

 
Market Quotes
 
Non Binding Third-Party Valuation
 
100.00

 
100.00

 
100.00

Non-Agency RMBS
 
51,702

 
Discounted Cash Flows
 
Yield
 
3.5
%
 
57.8
%
 
13.8
%
 
 
 
 
 
 
Projected Collateral Prepayments
 
29.7
%
 
72.0
%
 
58.5
%
 
 
 
 
 
 
Projected Collateral Losses
 
0.2
%
 
11.7
%
 
4.8
%
 
 
 
 
 
 
Projected Collateral Recoveries
 
0.0
%
 
22.4
%
 
7.6
%
 
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
16.3
%
 
52.2
%
 
29.1
%
 
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Non-Agency CMBS
 
1,128

 
Discounted Cash Flows
 
Yield
 
25.0
%
 
25.0
%
 
25.0
%
 
 
 
 
 
 
Projected Collateral Losses
 
1.0
%
 
1.0
%
 
1.0
%
 
 
 
 
 
 
Projected Collateral Recoveries
 
3.1
%
 
3.1
%
 
3.1
%
 
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
95.9
%
 
95.9
%
 
95.9
%
 
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Corporate debt and equity
 
2,790

 
Discounted Cash Flows
 
Yield
 
10.0
%
 
10.0
%
 
10.0
%
CLOs
 
3,114

 
Discounted Cash Flows
 
Yield
 
15.7
%
 
24.0
%
 
19.6
%
 
 
 
 
 
 
Projected Collateral Prepayments
 
78.2
%
 
83.0
%
 
80.5
%
 
 
 
 
 
 
Projected Collateral Losses
 
10.4
%
 
15.6
%
 
14.0
%
 
 
 
 
 
 
Projected Collateral Recoveries
 
4.5
%
 
6.2
%
 
5.5
%
 
 
 
 
 
 
 
 
 
 
 
 
100.0
%
ABS backed by consumer loans
 
39,316

 
Discounted Cash Flows
 
Yield
 
12.0
%
 
24.5
%
 
12.2
%
 
 
 
 
 
 
Projected Collateral Prepayments
 
0.0
%
 
11.4
%
 
9.5
%
 
 
 
 
 
 
Projected Collateral Losses
 
0.9
%
 
48.0
%
 
14.2
%
 
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
52.0
%
 
98.7
%
 
76.3
%
 
 
 
 
 
 
 
 
 
 
 
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
(continued)
 
Fair Value
 
Valuation 
Technique
 
Unobservable Input
 
Range
 
Weighted
Average
Description
 
 
 
 
Min
 
Max
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
Consumer loans
 
$
151,699

 
Discounted Cash Flows
 
Yield
 
7.0
%
 
10.0
%
 
8.1
%
 
 
 
 
 
 
Projected Collateral Prepayments
 
0.0
%
 
43.9
%
 
15.3
%
 
 
 
 
 
 
Projected Collateral Losses
 
3.3
%
 
86.4
%
 
8.2
%
 
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
13.6
%
 
87.2
%
 
76.5
%
 
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Corporate loans
 
10,000

 
Discounted Cash Flows
 
Yield
 
15.0
%
 
18.0
%
 
16.5
%
Performing commercial mortgage loans
 
222,219

 
Discounted Cash Flows
 
Yield
 
8.0
%
 
12.6
%
 
8.9
%
Non-performing commercial mortgage loans
 
38,407

 
Discounted Cash Flows
 
Yield
 
10.3
%
 
16.2
%
 
11.2
%
 
 
 
 
 
 
Months to Resolution
 
1.0

 
5.0

 
2.5

Performing and re-performing residential mortgage loans
 
316,804

 
Discounted Cash Flows
 
Yield
 
3.3
%
 
58.1
%
 
5.6
%
Securitized residential mortgage loans(1)(2)
 
466,297

 
Discounted Cash Flows
 
Yield
 
3.6
%
 
10.0
%
 
4.9
%
Non-performing residential mortgage loans
 
14,628

 
Discounted Cash Flows
 
Yield
 
1.4
%
 
37.6
%
 
10.4
%
 
 
 
 
 
 
Months to Resolution
 
0.0

 
115.8

 
53.9

Credit default swaps on asset-backed securities
 
1,078

 
Net Discounted Cash Flows
 
Projected Collateral Prepayments
 
33.7
%
 
40.2
%
 
35.5
%
 
 
 
 
 
 
Projected Collateral Losses
 
10.8
%
 
15.7
%
 
11.8
%
 
 
 
 
 
 
Projected Collateral Recoveries
 
15.2
%
 
19.9
%
 
18.5
%
 
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
30.7
%
 
35.6
%
 
34.2
%
 
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Agency interest only RMBS
 
20,242

 
Option Adjusted Spread ("OAS")
 
LIBOR OAS(3)
 
93

 
3,527

 
953

 
 
 
 
 
 
Projected Collateral Prepayments
 
13.3
%
 
100.0
%
 
80.4
%
 
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
0.0
%
 
86.7
%
 
19.6
%
 
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Investment in unconsolidated entities
 
34,715

 
Enterprise Value
 
Equity Price-to-Book(4)
 
1.0x
 
2.5x
 
1.3x
Investment in unconsolidated entities
 
3,000

 
Recent Transactions
 
Transaction Price
 
n/a
 
n/a
 
n/a
Investment in unconsolidated entities
 
32,720

 
Discounted Cash Flows
 
Yield(5)
 
4.6%
 
15.6%
 
9.7%
Other secured borrowings, at fair value(1)
 
(438,629
)
 
Discounted Cash Flows
 
Yield
 
3.2%
 
10.0%
 
4.4%
(1)
Securitized residential mortgage loans and Other secured borrowings, at fair value, represent financial assets and liabilities of the Company's CFE as discussed in Note 2.
(2)
Includes $1.3 million of non-performing securitized residential mortgage loans.
(3)
Shown in basis points.
(4)
Represent an estimation of where market participants might value an enterprise on a price-to-book basis.
(5)
Represents the significant unobservable inputs used to fair value the financial instruments of the unconsolidated entity. The fair value of such financial instruments is the largest component of the valuation of such entity as a whole.
The following table identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of December 31, 2018:
 
 
Fair Value
 
Valuation 
Technique
 
Unobservable Input
 
Range
 
Weighted
Average
Description
 
 
 
 
Min
 
Max
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
Private label residential mortgage-backed securities
 
$
36,945

 
Market Quotes
 
Non Binding Third-Party Valuation
 
$
17.42

 
$
178.00

 
$
78.31

Collateralized loan obligations
 
5,828

 
Market Quotes
 
Non Binding Third-Party Valuation
 
2.64

 
375.00

 
167.78

Corporate debt, non-exchange traded corporate equity, and secured notes
 
13,976

 
Market Quotes
 
Non Binding Third-Party Valuation
 
9.69

 
91.00

 
59.18

Private label commercial mortgage-backed securities
 
576

 
Market Quotes
 
Non Binding Third-Party Valuation
 
5.93

 
6.36

 
6.14

Agency interest only residential mortgage-backed securities
 
744

 
Market Quotes
 
Non Binding Third-Party Valuation
 
1.70

 
9.12

 
5.64

Private label residential mortgage-backed securities
 
54,346

 
Discounted Cash Flows
 
Yield
 
3.5
%
 
66.1
%
 
10.7
%
 
 
 
 
 
 
Projected Collateral Prepayments
 
16.0
%
 
92.1
%
 
50.4
%
 
 
 
 
 
 
Projected Collateral Losses
 
0.0
%
 
23.1
%
 
8.7
%
 
 
 
 
 
 
Projected Collateral Recoveries
 
1.5
%
 
14.6
%
 
7.3
%
 
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
6.1
%
 
61.8
%
 
33.6
%
 
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Private label commercial mortgage-backed securities
 
227

 
Discounted Cash Flows
 
Yield
 
3.4
%
 
3.4
%
 
3.4
%
 
 
 
 
 
 
Projected Collateral Losses
 
2.0
%
 
2.0
%
 
2.0
%
 
 
 
 
 
 
Projected Collateral Recoveries
 
6.6
%
 
6.6
%
 
6.6
%
 
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
91.4
%
 
91.4
%
 
91.4
%
 
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Corporate debt and non-exchange traded corporate equity
 
4,793

 
Discounted Cash Flows
 
Yield
 
17.5
%
 
17.5
%
 
17.5
%
(continued)
 
Fair Value
 
Valuation 
Technique
 
Unobservable Input
 
Range
 
Weighted
Average
Description
 
 
 
 
Min
 
Max
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
Collateralized loan obligations
 
$
9,087

 
Discounted Cash Flows
 
Yield
 
12.6
%
 
103.1
%
 
26.7
%
 
 
 
 
 
 
Projected Collateral Prepayments
 
8.1
%
 
88.4
%
 
65.2
%
 
 
 
 
 
 
Projected Collateral Losses
 
3.7
%
 
40.8
%
 
13.5
%
 
 
 
 
 
 
Projected Collateral Recoveries
 
4.2
%
 
38.0
%
 
11.9
%
 
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
3.5
%
 
13.5
%
 
9.4
%
 
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Consumer loans and asset-backed securities backed by consumer loans
 
206,761

 
Discounted Cash Flows
 
Yield
 
7.0
%
 
18.3
%
 
8.5
%
 
 
 
 
 
 
Projected Collateral Prepayments
 
0.0
%
 
45.9
%
 
33.5
%
 
 
 
 
 
 
Projected Collateral Losses
 
2.6
%
 
84.8
%
 
9.1
%
 
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
15.2
%
 
96.6
%
 
57.4
%
 
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Performing commercial mortgage loans
 
163,876

 
Discounted Cash Flows
 
Yield
 
8.0
%
 
22.5
%
 
9.6
%
Non-performing commercial mortgage loans and commercial real estate owned
 
80,513

 
Discounted Cash Flows
 
Yield
 
9.6
%
 
27.4
%
 
13.2
%
 
 
 
 
 
 
Months to Resolution
 
3.0

 
16.0

 
7.9

Performing residential mortgage loans
 
171,367

 
Discounted Cash Flows
 
Yield
 
2.7
%
 
12.9
%
 
6.0
%
Securitized residential mortgage loans(1)
 
314,202

 
Discounted Cash Flows
 
Yield
 
4.3
%
 
4.6
%
 
4.6
%
Non-performing residential mortgage loans and residential real estate owned
 
12,557

 
Discounted Cash Flows
 
Yield
 
4.3
%
 
25.1
%
 
11.3
%
 
 
 
 
 
 
Months to Resolution(2)
 
1.9

 
42.2

 
27.8

Credit default swaps on asset-backed securities
 
1,472

 
Net Discounted Cash Flows
 
Projected Collateral Prepayments
 
33.6
%
 
42.0
%
 
36.5
%
 
 
 
 
 
 
Projected Collateral Losses
 
11.1
%
 
15.6
%
 
12.8
%
 
 
 
 
 
 
Projected Collateral Recoveries
 
10.3
%
 
18.7
%
 
15.8
%
 
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
32.0
%
 
36.5
%
 
34.9
%
 
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Agency interest only residential mortgage-backed securities
 
6,549

 
Option Adjusted Spread ("OAS")
 
LIBOR OAS(3)
 
211

 
3,521

 
677

 
 
 
 
 
 
Projected Collateral Prepayments
 
37.7
%
 
100.0
%
 
66.2
%
 
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
0.0
%
 
62.3
%
 
33.8
%
 
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Non-exchange traded common equity investment in mortgage-related entity
 
6,750

 
Enterprise Value
 
Equity Price-to-Book(4)
 
3.3x
 
3.3x
 
3.3x
Non-exchange traded preferred equity investment in mortgage-related entity
 
27,317

 
Enterprise Value
 
Equity Price-to-Book(4)
 
1.1x
 
1.1x
 
1.1x
Non-exchange traded preferred equity investment in loan origination entity
 
3,000

 
Recent Transactions
 
Transaction Price
 
N/A
 
N/A
 
N/A
Non-controlling equity interest in limited liability company
 
5,192

 
Discounted Cash Flows
 
Yield(5)
 
12.9%
 
16.1%
 
15.4%
Other secured borrowings, at fair value(1)
 
(297,948
)
 
Discounted Cash Flows
 
Yield
 
3.9%
 
4.4%
 
4.3%

(1)
Securitized residential mortgage loans and Other secured borrowings, at fair value, represent financial assets and liabilities of the Company's CFE as discussed in Note 2.
(2)
Excludes certain loans that are re-performing.
(3)
Shown in basis points.
(4)
Represent an estimation of where market participants might value an enterprise on a price-to-book basis.
(5)
Represents the significant unobservable inputs used to fair value the financial instruments of the limited liability company. The fair value of such financial instruments is the largest component of the valuation of the limited liability company as a whole.
Fair Value Measurement Using Significant Unobservable Inputs
The tables below include a roll-forward of the Company's financial instruments for the three- and nine-month periods ended September 30, 2019 (including the change in fair value), for financial instruments classified by the Company within Level 3 of the valuation hierarchy.
Level 3—Fair Value Measurement Using Significant Unobservable Inputs:
Three-Month Period Ended September 30, 2019
(In thousands)
Beginning Balance as of 
June 30, 2019
 
Accreted
Discounts /
(Amortized
Premiums)
 
Net Realized
Gain/
(Loss)
 
Change in Net
Unrealized
Gain/(Loss)
 
Purchases/
Payments
 
Sales/
Issuances
 
Transfers Into Level 3
 
Transfers Out of Level 3
 
Ending
Balance as of 
September 30, 2019
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities, at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency RMBS
$
11,034

 
$
(1,164
)
 
$
(621
)
 
$
696

 
$
13,254

 
$
—

 
$
737

 
$
(437
)
 
$
23,499

Non-Agency RMBS
96,790

 
(121
)
 
7,836

 
(6,457
)
 
6,483

 
(21,457
)
 
5,808

 
(7,400
)
 
81,482

CMBS
6,278

 
25

 
374

 
(302
)
 
6,815

 
(1,474
)
 
652

 
—

 
12,368

CLOs
17,222

 
(184
)
 
1,158

 
184

 
—

 
(1,139
)
 
15,287

 
(4,520
)
 
28,008

Asset-backed securities backed by consumer loans
25,019

 
(611
)
 
(100
)
 
(320
)
 
18,638

 
(3,310
)
 
—

 
—

 
39,316

Corporate debt securities
4,081

 
—

 
(583
)
 
142

 
6,425

 
(6,883
)
 
—

 
—

 
3,182

Corporate equity securities
1,791

 
—

 
(768
)
 
(61
)
 
1,316

 
—

 
—

 
—

 
2,278

Loans, at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans
663,880

 
(2,241
)
 
(400
)
 
3,559

 
191,512

 
(58,582
)
 
—

 
—

 
797,728

Commercial mortgage loans
260,034

 
(52
)
 
(1
)
 
507

 
32,426

 
(32,288
)
 
—

 
—

 
260,626

Consumer loans
162,609

 
(6,474
)
 
(1,055
)
 
28

 
33,101

 
(36,510
)
 
—

 
—

 
151,699

Corporate loans
5,000

 
—

 
—

 
—

 
10,790

 
—

 
—

 
—

 
15,790

Investment in unconsolidated entities, at fair value
69,676

 
—

 
(139
)
 
2,935

 
9,643

 
(11,680
)
 
—

 
—

 
70,435

Financial derivatives–assets, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
1,090

 
—

 
16

 
(12
)
 
10

 
(26
)
 
—

 
—

 
1,078

Total return swaps
87

 
—

 
(15
)
 
148

 
—

 
15

 
—

 
—

 
235

Total assets, at fair value
$
1,324,591

 
$
(10,822
)
 
$
5,702

 
$
1,047

 
$
330,413

 
$
(173,334
)
 
$
22,484

 
$
(12,357
)
 
$
1,487,724

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial derivatives–assets, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total return swaps
$
—

 
$
—

 
$
48

 
$
(214
)
 
$
—

 
$
(48
)
 
$
—

 
$
—

 
$
(214
)
Other secured borrowings, at fair value
(475,816
)
 
—

 
—

 
(72
)
 
37,259

 
—

 
—

 
—

 
(438,629
)
Total liabilities, at fair value
$
(475,816
)
 
$
—

 
$
48

 
$
(286
)
 
$
37,259

 
$
(48
)
 
$
—

 
$
—

 
$
(438,843
)
All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Condensed Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at September 30, 2019, as well as Level 3 financial instruments disposed of by the Company during the three-month period ended September 30, 2019. For Level 3 financial instruments held by the Company at September 30, 2019, change in net unrealized gain (loss) of $(4.7) million, $4.1 million, $3.3 million, $0.1 million, $(0.2) million, and $(0.1) million, for the three-month period ended September 30, 2019 relate to securities, loans, investments in unconsolidated entities, financial derivatives–assets, financial derivatives–liabilities, and other secured borrowings, at fair value, respectively.
At September 30, 2019, the Company transferred $12.4 million of assets from Level 3 to Level 2 and $22.5 million from Level 2 to Level 3. Transfers between these hierarchy levels were based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The leveling of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third-party pricing sources.
Nine-Month Period Ended September 30, 2019
(In thousands)
Beginning Balance as of 
January 1, 2019
 
Accreted
Discounts /
(Amortized
Premiums)
 
Net Realized
Gain/
(Loss)
 
Change in Net
Unrealized
Gain/(Loss)
 
Purchases/
Payments
 
Sales/
Issuances
 
Transfers Into Level 3
 
Transfers Out of Level 3
 
Ending
Balance as of 
September 30, 2019
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities, at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency RMBS
$
7,293

 
$
(2,228
)
 
$
(1,228
)
 
$
1,430

 
$
14,854

 
$
(463
)
 
$
4,708

 
$
(867
)
 
$
23,499

Non-Agency RMBS
91,291

 
104

 
7,187

 
(4,482
)
 
10,239

 
(27,514
)
 
14,633

 
(9,976
)
 
81,482

CMBS
803

 
(16
)
 
76

 
(73
)
 
7,937

 
(221
)
 
3,862

 
—

 
12,368

CLOs
14,915

 
(670
)
 
(536
)
 
1,889

 
816

 
(1,125
)
 
15,287

 
(2,568
)
 
28,008

Asset-backed securities backed by consumer loans
22,800

 
(1,580
)
 
(765
)
 
537

 
28,189

 
(9,865
)
 
—

 
—

 
39,316

Corporate debt securities
6,318

 
22

 
(928
)
 
65

 
9,257

 
(11,552
)
 
—

 
—

 
3,182

Corporate equity securities
1,534

 
—

 
(910
)
 
337

 
1,317

 
—

 
—

 
—

 
2,278

Loans, at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans
496,829

 
(4,515
)
 
1,554

 
7,717

 
452,958

 
(156,815
)
 
—

 
—

 
797,728

Commercial mortgage loans
195,301

 
1,087

 
1,412

 
(1,844
)
 
128,839

 
(64,169
)
 
—

 
—

 
260,626

Consumer loans
183,961

 
(22,432
)
 
(4,565
)
 
2,726

 
103,983

 
(111,974
)
 
—

 
—

 
151,699

Corporate loan
—

 
—

 
—

 
—

 
15,790

 
—

 
—

 
—

 
15,790

Investment in unconsolidated entities, at fair value
72,298

 
276

 
1,545

 
5,125

 
40,097

 
(48,906
)
 
—

 
—

 
70,435

Financial derivatives–assets, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
1,472

 
—

 
419

 
(394
)
 
18

 
(437
)
 
—

 
—

 
1,078

Total return swaps
—

 
—

 
1

 
235

 
—

 
(1
)
 
—

 
—

 
235

Total assets, at fair value
$
1,094,815

 
$
(29,952
)
 
$
3,262

 
$
13,268

 
$
814,294

 
$
(433,042
)
 
$
38,490

 
$
(13,411
)
 
$
1,487,724

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial derivatives–assets, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total return swaps
$
—

 
$
—

 
$
48

 
$
(214
)
 
$
—

 
$
(48
)
 
$
—

 
$
—

 
$
(214
)
Other secured borrowings, at fair value
(297,948
)
 
—

 
—

 
(32
)
 
78,887

 
(219,536
)
 
—

 
—

 
(438,629
)
Total liabilities, at fair value
$
(297,948
)
 
$
—

 
$
48

 
$
(246
)
 
$
78,887

 
$
(219,584
)
 
$
—

 
$
—

 
$
(438,843
)
All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Condensed Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at September 30, 2019, as well as Level 3 financial instruments disposed of by the Company during the nine-month period ended September 30, 2019. For Level 3 financial instruments held by the Company at September 30, 2019, change in net unrealized gain (loss) of $(0.4) million, $10.2 million, $2.4 million, $(0.2) million, $(0.2) million, and $(32) thousand, for the nine-month period ended September 30, 2019 relate to securities, loans, investments in unconsolidated entities, financial derivatives–assets, financial derivatives–liabilities, and other secured borrowings, at fair value, respectively.
At September 30, 2019, the Company transferred $13.4 million of assets from Level 3 to Level 2 and $38.5 million from Level 2 to Level 3. Transfers between these hierarchy levels were based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The leveling of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third-party pricing sources.
The tables below include a roll-forward of the Company's financial instruments for the three- and nine-month period ended September 30, 2018 (including the change in fair value), for financial instruments classified by the Company within Level 3 of the valuation hierarchy.
Level 3—Fair Value Measurement Using Significant Unobservable Inputs:
Three-Month Period Ended September 30, 2018
(In thousands)
Ending Balance as of 
June 30, 2018
 
Accreted
Discounts /
(Amortized
Premiums)
 
Net Realized
Gain/
(Loss)
 
Change in Net
Unrealized
Gain/(Loss)
 
Purchases/
Payments
 
Sales/
Issuances
 
Transfers Into Level 3
 
Transfers Out of Level 3
 
Ending
Balance as of 
September 30, 2018
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency residential mortgage-backed securities
$
5,889

 
$
(509
)
 
$
(24
)
 
$
(67
)
 
$
773

 
$
(209
)
 
$
3,981

 
$
(1,055
)
 
$
8,779

Private label residential mortgage-backed securities
96,396

 
(206
)
 
335

 
(1,181
)
 
48,860

 
(16,726
)
 
3,942

 
(10,146
)
 
121,274

Private label commercial mortgage-backed securities
8,761

 
4

 
198

 
494

 
—

 
(2,415
)
 
—

 
(6,059
)
 
983

Commercial mortgage loans
104,951

 
(300
)
 
252

 
522

 
36,571

 
(16,188
)
 
—

 
—

 
125,808

Residential mortgage loans
293,472

 
(513
)
 
25

 
(400
)
 
117,101

 
(17,225
)
 
—

 
—

 
392,460

Collateralized loan obligations
6,109

 
302

 
(25
)
 
(491
)
 
24,115

 
(3,183
)
 
2,184

 
—

 
29,011

Consumer loans and asset-backed securities backed by consumer loans
199,254

 
(8,012
)
 
7,555

 
(7,615
)
 
54,503

 
(41,181
)
 
—

 
—

 
204,504

Corporate debt
8,850

 
13

 
87

 
(280
)
 
6,780

 
(7,769
)
 
—

 
—

 
7,681

Secured notes
11,126

 
405

 
—

 
(466
)
 
—

 
—

 
—

 
—

 
11,065

Real estate owned
34,339

 
—

 
(81
)
 
331

 
475

 
(120
)
 
—

 
—

 
34,944

Corporate equity investments
44,768

 
—

 
487

 
(377
)
 
—

 
(5,723
)
 
—

 
—

 
39,155

Total investments, at fair value
813,915

 
(8,816
)
 
8,809

 
(9,530
)
 
289,178

 
(110,739
)
 
10,107

 
(17,260
)
 
975,664

Financial derivatives–assets, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
2,591

 
—

 
(986
)
 
1,307

 
27

 
(1,424
)
 
—

 
—

 
1,515

Total financial derivatives– assets, at fair value
2,591

 
—

 
(986
)
 
1,307

 
27

 
(1,424
)
 
—

 
—

 
1,515

Total investments and financial derivatives–assets, at fair value
$
816,506

 
$
(8,816
)
 
$
7,823

 
$
(8,223
)
 
$
289,205

 
$
(112,163
)
 
$
10,107

 
$
(17,260
)
 
$
977,179

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other secured borrowings, at fair value
$
(101,100
)
 
$
—

 
$
—

 
$
(358
)
 
$
11,889

 
$
—

 
$
—

 
$
—

 
$
(89,569
)
Total other secured borrowings, at fair value
$
(101,100
)
 
$
—

 
$
—

 
$
(358
)
 
$
11,889

 
$
—

 
$
—

 
$
—

 
$
(89,569
)

All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at September 30, 2018, as well as Level 3 financial instruments disposed of by the Company during the three-month period ended September 30, 2018. For Level 3 financial instruments held by the Company at September 30, 2018, change in net unrealized gain (loss) of $(2.4) million, $(0.1) million, and $(0.4) million, for the three-month period ended September 30, 2018 relate to investments, financial derivatives–assets, and other secured borrowings, at fair value, respectively.
At September 30, 2018, the Company transferred $17.3 million of securities from Level 3 to Level 2 and $10.1 million from Level 2 to Level 3. Transfers between these hierarchy levels were based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The leveling of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third party pricing sources.
Nine-Month Period Ended September 30, 2018
(In thousands)
Ending
Balance as of 
December 31, 2017
 
Accreted
Discounts /
(Amortized
Premiums)
 
Net Realized
Gain/
(Loss)
 
Change in Net
Unrealized
Gain/(Loss)
 
Purchases/
Payments
 
Sales/
Issuances
 
Transfers Into Level 3
 
Transfers Out of Level 3
 
Ending
Balance as of 
September 30, 2018
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency residential mortgage-backed securities
$
6,173

 
$
(1,711
)
 
$
34

 
$
206

 
$
2,751

 
$
(1,166
)
 
$
3,981

 
$
(1,489
)
 
$
8,779

Private label residential mortgage-backed securities
101,297

 
1

 
2,836

 
(2,392
)
 
76,816

 
(43,723
)
 
7,139

 
(20,700
)
 
121,274

Private label commercial mortgage-backed securities
12,347

 
(225
)
 
1,815

 
2,111

 
1,480

 
(16,305
)
 
—

 
(240
)
 
983

Commercial mortgage loans
108,301

 
545

 
1,135

 
971

 
60,691

 
(45,835
)
 
—

 
—

 
125,808

Residential mortgage loans
182,472

 
(1,692
)
 
608

 
(1,319
)
 
266,925

 
(54,534
)
 
—

 
—

 
392,460

Collateralized loan obligations
24,911

 
345

 
826

 
(991
)
 
47,837

 
(30,309
)
 
—

 
(13,608
)
 
29,011

Consumer loans and asset-backed securities backed by consumer loans
135,258

 
(20,864
)
 
8,506

 
(30
)
 
179,706

 
(98,072
)
 
—

 
—

 
204,504

Corporate debt
23,947

 
—

 
235

 
(709
)
 
7,684

 
(16,419
)
 
—

 
(7,057
)
 
7,681

Secured notes
—

 
497

 
—

 
(700
)
 
11,268

 
—

 
—

 
—

 
11,065

Real estate owned
26,277

 
—

 
(527
)
 
945

 
10,045

 
(1,796
)
 
—

 
—

 
34,944

Corporate equity investments
37,465

 
—

 
1,669

 
3,948

 
9,078

 
(13,005
)
 
—

 
—

 
39,155

Total investments, at fair value
658,448

 
(23,104
)
 
17,137

 
2,040

 
674,281

 
(321,164
)
 
11,120

 
(43,094
)
 
975,664

Financial derivatives–assets, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
3,140

 
—

 
(739
)
 
759

 
72

 
(1,717
)
 
—

 
—

 
1,515

Total financial derivatives– assets, at fair value
3,140

 
—

 
(739
)
 
759

 
72

 
(1,717
)
 
—

 
—

 
1,515

Total investments and financial derivatives–assets, at fair value
$
661,588

 
$
(23,104
)
 
$
16,398

 
$
2,799

 
$
674,353

 
$
(322,881
)
 
$
11,120

 
$
(43,094
)
 
$
977,179

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other secured borrowings, at fair value
$
(125,105
)
 
$
—

 
$
—

 
$
840

 
$
34,696

 
$
—

 
$
—

 
$
—

 
$
(89,569
)
Total other secured borrowings, at fair value
$
(125,105
)
 
$
—

 
$
—

 
$
840

 
$
34,696

 
$
—

 
$
—

 
$
—

 
$
(89,569
)
All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at September 30, 2018, as well as Level 3 financial instruments disposed of by the Company during the nine-month period ended September 30, 2018. For Level 3 financial instruments held by the Company at September 30, 2018, change in net unrealized gain (loss) of $1.8 million, $(0.6) million, and $0.8 million, for the nine-month period ended September 30, 2018 relate to investments, financial derivatives–assets, and other secured borrowings, at fair value, respectively.
At September 30, 2018, the Company transferred $43.1 million of securities from Level 3 to Level 2 and $11.1 million from Level 2 to Level 3. Transfers between these hierarchy levels were based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The leveling of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third-party pricing sources.