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Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

Schedule of fair value measurement inputs and valuation techniques

The following tables present a summary of quantitative information about the significant unobservable inputs used in the fair value measurement of the Company’s residential whole loans held at fair value for which it has utilized Level 3 inputs to determine fair value as of March 31, 2020 and December 31, 2019:

		March 31, 2020
(Dollars in Thousands)		Fair Value (1)				Valuation Technique		Unobservable Input		Weighted Average (2)				Range
Residential whole loans, at fair value		$	745,726			Discounted cash flow		Discount rate		5.6		%		5.1-9.7%
								Prepayment rate		5.2		%		0.1-19.9%
								Default rate		3.9		%		0.0-23.5%
								Loss severity		13.0		%		0.0-100.0%
		$	497,816			Liquidation model		Discount rate		8.6		%		6.2-50.0%
								Annual change in home prices		2.5		%		(0.5)-6.9%
								Liquidation timeline (in years)		1.9				0.1-4.8
								Current value of underlying properties (3)		$	709			$5-$4,500
Total		$	1,243,542

		December 31, 2019
(Dollars in Thousands)		Fair Value (1)				Valuation Technique		Unobservable Input		Weighted Average (2)				Range
Residential whole loans, at fair value		$	829,842			Discounted cash flow		Discount rate		4.2		%		3.8-8.0%
								Prepayment rate		4.5		%		0.7-18.0%
								Default rate		4.0		%		0.0-23.0%
								Loss severity		12.9		%		0.0-100.0%
		$	551,271			Liquidation model		Discount rate		8.0		%		6.2-50.0%
								Annual change in home prices		3.7		%		2.4-8.0%
								Liquidation timeline (in years)		1.8				0.1-4.5
								Current value of underlying properties (3)		$	684			$10-$4,500
Total		$	1,381,113

(1) Excludes approximately $250,000 and $470,000 of loans for which management considers the purchase price continues to reflect the fair value of such loans at March 31, 2020 and December 31, 2019, respectively.

(2) Amounts are weighted based on the fair value of the underlying loan.

(3) The simple average value of the properties underlying residential whole loans held at fair value valued via a liquidation model was approximately $368,000 and $365,000 as of March 31, 2020 and December 31, 2019, respectively.

The following tables present the Company’s financial instruments carried at fair value on a recurring basis as of March 31, 2020 and December 31, 2019, on the consolidated balance sheets by the valuation hierarchy, as previously described:

Fair Value at March 31, 2020

(In Thousands)		Level 1				Level 2				Level 3				Total
Assets:
Residential whole loans, at fair value		$	—			$	—			$	1,243,792			$	1,243,792
Non-Agency MBS		—				1,119,940				—				1,119,940
Agency MBS		—				553,413				—				553,413
CRT securities		—				254,101				—				254,101
Term notes backed by MSR-related collateral		—				706,608				—				706,608
Total assets carried at fair value		$	—			$	2,634,062			$	1,243,792			$	3,877,854

Fair Value at December 31, 2019

(In Thousands)		Level 1				Level 2				Level 3				Total
Assets:
Residential whole loans, at fair value		$	—			$	—			$	1,381,583			$	1,381,583
Non-Agency MBS		—				2,063,529				—				2,063,529
Agency MBS		—				1,664,582				—				1,664,582
CRT securities		—				255,408				—				255,408
Term notes backed by MSR-related collateral		—				1,157,463				—				1,157,463
Total assets carried at fair value		$	—			$	5,140,982			$	1,381,583			$	6,522,565

Schedule of significant unobservable inputs used in fair value measurement of residential whole loans

The following table presents additional information for the three months ended March 31, 2020 and 2019 about the Company’s Residential whole loans, at fair value, which are classified as Level 3 and measured at fair value on a recurring basis:

		Residential Whole Loans, at Fair Value
		Three Months Ended March 31,
(In Thousands)		2020				2019
Balance at beginning of period		$	1,381,583			$	1,471,263
Purchases and capitalized advances (1)		3,520				130,089
Changes in fair value recorded in Net gain on residential whole loans measured at fair value through earnings		(74,556		)		(1,060		)
Collection of principal, net of liquidation gains/(losses)		(23,805		)		(31,751		)
Repurchases		(305		)		(318		)
Transfer to REO		(42,645		)		(55,886		)
Balance at end of period		$	1,243,792			$	1,512,337

(1) Included in the activity presented for the three months ended March 31, 2019 is an adjustment of $70.6 million for loans the Company committed to purchase during the three months ended December 31, 2018, but for which the closing of the purchase transaction occurred during the three months ended March 31, 2019. The adjustment was required following the finalization of due diligence performed prior to the closing of the purchase transaction and resulted in a downward revision to the prior estimate of the loan purchase amount.

The following table presents additional information for the three months ended March 31, 2019 about the Company’s investments in term notes backed by MSR-related collateral, which were classified as Level 3 prior to September 30, 2019 and measured at fair value on a recurring basis:

		Term Notes Backed by MSR-Related Collateral
		Three Months Ended March 31,
(In Thousands)		2019
Balance at beginning of period		$	538,499
Purchases		219,166
Sales		—
Collection of principal		(4,584		)
Changes in unrealized gain/(losses)		513
Transfer to Level 2		—
Balance at end of period		$	753,594

Schedule of carrying value and fair value of financial instruments

The following table presents the carrying values and estimated fair values of the Company’s financial instruments at March 31, 2020 and December 31, 2019:

		March 31, 2020		March 31, 2020								December 31, 2019
		Level in Fair Value Hierarchy		Carrying Value				Estimated Fair Value				Carrying Value				Estimated Fair Value
(In Thousands)
Financial Assets:
Residential whole loans, at carrying value (1)		3		$	5,716,031			$	5,602,536			$	6,069,370			$	6,248,745
Residential whole loans, at fair value		3		1,243,792				1,243,792				1,381,583				1,381,583
Non-Agency MBS		2		1,119,940				1,119,940				2,063,529				2,063,529
Agency MBS		2		553,413				553,413				1,664,582				1,664,582
CRT securities		2		254,101				254,101				255,408				255,408
MSR-related assets (2)		2 and 3		738,054				738,054				1,217,002				1,217,002
Cash and cash equivalents		1		116,465				116,465				70,629				70,629
Restricted cash		1		216,902				216,902				64,035				64,035
Financial Liabilities (3):
Repurchase agreements		2		7,768,180				7,786,911				9,139,821				9,156,209
Securitized debt		2		533,733				481,808				570,952				575,353
Convertible Senior Notes		2		224,264				135,700				223,971				244,088
Senior Notes		1		96,874				46,551				96,862				103,231

(1) Includes Non-QM loans held-for-sale with a net carrying value of $895.3 million at March 31, 2020.

(2) Includes $31.4 million and $59.5 million of MSR-related assets that are measured at fair value on a non-recurring basis that are classified as Level 3 in the fair value hierarchy at March 31, 2020 and December 31, 2019, respectively.

(3) Carrying value of securitized debt, Convertible Senior Notes, Senior Notes and certain repurchase agreements is net of associated debt issuance costs.

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- Definition

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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-Publisher FASB
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-Topic 820
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-Section 50
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- Definition

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.

+ References

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-Publisher FASB
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-SubTopic 10
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- Definition

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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