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Other Assets

3 Months Ended

Mar. 31, 2021

The following table presents the components of the Company’s Other assets at March 31, 2021 and December 31, 2020:


(In Thousands)	March 31, 2021		December 31, 2020
REO (1)	$	220,393	$	249,699


Capital contributions made to loan origination partners	81,374		47,148
Interest receivable	35,989		38,850
Other MBS and loan related receivables	23,403		16,682
Other	31,567		33,002
Total Other Assets	$	392,726	$	385,381

(1) Includes $61.1 million and $61.8 million of REO that is held-for-investment at March 31, 2021 and December 31, 2020, respectively.

(a) Real Estate Owned

At March 31, 2021, the Company had 835 REO properties with an aggregate carrying value of $220.4 million. At December 31, 2020, the Company had 946 REO properties with an aggregate carrying value of $249.7 million.

At March 31, 2021, $218.0 million of residential real estate property was held by the Company that was acquired either through a completed foreclosure proceeding or from completion of a deed-in-lieu of foreclosure or similar legal agreement. In addition, formal foreclosure proceedings were in process with respect to $156.6 million of residential whole loans held at carrying value and $436.9 million of residential whole loans held at fair value at March 31, 2021.

The following table presents the activity in the Company’s REO for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
(In Thousands)	2021		2020
Balance at beginning of period	$	249,699	$	411,659
Adjustments to record at lower of cost or fair value	(874)		(4,750)
Transfer from residential whole loans (1)	20,068		50,693
Purchases and capital improvements, net	217		5,809
Disposals (2)	(48,386)		(51,735)
Depreciation	(331)		(203)
Balance at end of period	$	220,393	$	411,473

Number of properties	835		1,622

(1)Includes net gain recorded on transfer of approximately $1.1 million and $3.0 million for the three months ended March 31, 2021 and 2020, respectively.

(2)During the three months ended March 31, 2021 and 2020, the Company sold 177 and 249 REO properties for consideration of $50.6 million and $54.8 million, realizing net gains of approximately $2.2 million and $3.1 million, respectively. These amounts are included in Other Income, net on the Company’s consolidated statements of operations.

(b) Capital Contributions Made to Loan Origination Partners

The Company has made investments in several loan originators as part of its strategy to be a reliable source of capital to select partners from whom it sources residential mortgage loans through both flow arrangements and bulk purchases. To date, such contributions of capital include the following investments (based on their carrying value prior to any impairments): $49.2 million of common equity (including partnership interests) and $100.8 million of preferred equity. In addition, for certain partners, options or warrants may have also been acquired that provide the Company the ability to increase the level of its

investment if certain conditions are met. At the end of each reporting period, or earlier if circumstances warrant, the Company evaluates whether the nature of its interests and other involvement with the investee entity requires the Company to apply equity method accounting or consolidate the results of the investee entity with the Company’s financial results. To date, the nature of the Company’s interests and/or involvement with investee companies has not resulted in consolidation. Further, to the extent that the nature of the Company’s interests has resulted in the need for the Company to apply equity method accounting, the impact of such accounting on the Company’s results for periods subsequent to that in which the Company was determined to have significant influence over the investee company was not material for any period. As the interests acquired to date by the Company generally do not have a readily determinable fair value, the Company accounts for its non-equity method interests (including any acquired options and warrants) in loan originators initially at cost. The carrying value of these investments will be adjusted if it is determined that an impairment has occurred or if there has been a subsequent observable transaction in either the investee company’s equity securities or a similar security that provides evidence to support an adjustment to the carrying value. Following an evaluation of the anticipated impact of COVID-19 on economic conditions for the short to medium term, the Company recorded impairment charges of $58.1 million on investments in certain loan origination partners during the three months ended March 31, 2020, which was included in “Impairment and other losses on securities available-for-sale and other assets” on the consolidated statements of operations. The Company did not record any impairment charges to earnings on investments in certain loan origination partners during the three months ended March 31, 2021. At March 31, 2021, approximately $685.8 million of the Company’s Residential whole loans, at carrying value were serviced by entities in which the Company has an investment.

The Company’s derivative instruments have generally been comprised of Swaps, the majority of which were designated as cash flow hedges against the interest rate risk associated with certain borrowings. In addition, in connection with managing risks associated with purchases of longer duration Agency MBS, the Company has also entered into Swaps that are not designated as hedges for accounting purposes.

In response to the turmoil in the financial markets resulting from COVID-19 experienced during the three months ended March 31, 2020, and given that management no longer considered these transactions to be effective hedges in the then prevailing interest rate environment, the Company unwound all of its approximately $4.1 billion of Swap hedging transactions late in the first quarter of 2020 in order to recover previously posted margin.

The following table presents the net impact of the Company’s derivative hedging instruments on its net interest expense and the weighted average interest rate paid and received for such Swaps for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
(Dollars in Thousands)	2021			2020
Interest (expense)/income attributable to Swaps	$	—		$	(3,359)
Weighted average Swap rate paid	—		%	2.09		%
Weighted average Swap rate received	—		%	1.65		%

During the three months ended March 31, 2020, the Company recorded net losses on Swaps not designated in hedging relationships of approximately $4.3 million, which included $9.4 million of losses realized on the unwind of certain Swaps. These amounts are included in Other income, net on the Company’s consolidated statements of operations.

Impact of Derivative Hedging Instruments on AOCI

The following table presents the impact of the Company’s derivative hedging instruments on its AOCI for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
(In Thousands)	2021		2020
AOCI from derivative hedging instruments:
Balance at beginning of period	$	—	$	(22,675)
Net loss on Swaps	—		(50,127)
Reclassification adjustment for losses/gains related to hedging instruments included in net income	—		1,594
Balance at end of period	$	—	$	(71,208)