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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2021

Fair Value Disclosures [Abstract]

Schedule of fair value measurement inputs and valuation techniques

The following tables present the Company’s financial instruments carried at fair value on a recurring basis as of June 30, 2021 and December 31, 2020, on the consolidated balance sheets by the valuation hierarchy, as previously described:

Fair Value at June 30, 2021

(In Thousands)						Level 1						Level 2						Level 3						Total
Assets:
Residential whole loans, at fair value						$	—					$	—					$	2,134,855					$	2,134,855
Securities, at fair value						—						302,835						—						302,835
Total assets carried at fair value						$	—					$	302,835					$	2,134,855					$	2,437,690
Liabilities:
Agreements with non-mark-to-market collateral provisions						$	—					$	—					$	795,341					$	795,341
Agreements with mark-to-market collateral provisions						—						—						858,066						858,066
Securitized debt						—						640,696						—						640,696
Total liabilities carried at fair value						$	—					$	640,696					$	1,653,407					$	2,294,103

Fair Value at December 31, 2020

(In Thousands)						Level 1						Level 2						Level 3						Total
Assets:
Residential whole loans, at fair value						$	—					$	—					$	1,216,902					$	1,216,902
Securities, at fair value						—						399,999						—						399,999
Total assets carried at fair value						$	—					$	399,999					$	1,216,902					$	1,616,901
Liabilities:
Agreements with non-mark-to-market collateral provisions						$	—					$	—					$	1,159,213					$	1,159,213
Agreements with mark-to-market collateral provisions						—						213,915						1,124,162						1,338,077
Securitized debt						—						869,482						—						869,482
Total liabilities carried at fair value						$	—					$	1,083,397					$	2,283,375					$	3,366,772

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 June 30, 2021 and December 31, 2020:

						June 30, 2021
(Dollars in Thousands)						Fair Value (1)						Valuation Technique						Unobservable Input						Weighted Average (2)						Range
Purchased Non-Performing Loans						$	773,449					Discounted cash flow						Discount rate						3.5		%				2.5-11.8%
																		Prepayment rate						14.0		%				0.0-43.9%
																		Default rate						4.1		%				0.0-49.1%
																		Loss severity						12.0		%				0.0-100.0%
						$	394,736					Liquidation model						Discount rate						8.0		%				6.7-50.0%
																		Annual change in home prices						7.0		%				4.3-12.1%
																		Liquidation timeline (in years)						1.8						0.7-4.8
																		Current value of underlying properties (3)						$	765					$5-$3,704
Total						$	1,168,185

						December 31, 2020
(Dollars in Thousands)						Fair Value (1)						Valuation Technique						Unobservable Input						Weighted Average (2)						Range
Purchased Non-Performing Loans						$	789,576					Discounted cash flow						Discount rate						3.9		%				3.3-8.0%
																		Prepayment rate						5.4		%				0.0-17.6%
																		Default rate						4.1		%				0.0-47.7%
																		Loss severity						12.7		%				0.0-100.0%
						$	427,061					Liquidation model						Discount rate						8.1		%				6.7-50.0%
																		Annual change in home prices						3.6		%				1.8-6.5%
																		Liquidation timeline (in years)						1.8						0.8-4.8
																		Current value of underlying properties (3)						$	729					$12-$4,500
Total						$	1,216,637

(1) Excludes approximately $266,000 and $265,000 of loans for which management considers the purchase price continues to reflect the fair value of such loans at June 30, 2021 and December 31, 2020, 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 $410,000 and $380,000 as of June 30, 2021 and December 31, 2020, respectively.

						June 30, 2021
(Dollars in Thousands)						Fair Value (1)						Valuation Technique						Unobservable Input						Weighted Average (2)						Range
Purchased Performing Loans						$	832,928					Discounted cash flow						Discount rate						3.1		%				0.8-7.3%
																		Prepayment rate						20.2		%				0.0-46.1%
																		Default rate						0.4		%				0.0-22.1%
																		Loss severity						9.2		%				0.0-10.0%
						$	2,249					Liquidation model						Discount rate						7.5		%				7.5-7.5%
																		Annual change in home prices						8.1		%				6.8-8.7%
																		Liquidation timeline (in years)						2.5						2.0-3.3
																		Current value of underlying properties (3)						$	1,048					$124-$1,750
Total						$	835,177

(1) Excludes approximately $131.3 million of loans for which management considers the purchase price continues to reflect the fair value of such loans at June 30, 2021.

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

The following table presents additional information for the three and six months ended June 30, 2021 and 2020 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 June 30,												Six Months Ended June 30,
(In Thousands)						2021 (1)						2020						2021						2020
Balance at beginning of period						$	1,207,997					$	1,243,792					$	1,216,902					$	1,381,583
Purchases						837,859						4,679						837,859						8,198
Originations and draws						423						—						423						—
Changes in fair value recorded in Net gain on residential whole loans measured at fair value through earnings						6,226						2,010						38,313						(72,546)
Repayments						(38,932)						(28,608)						(64,502)						(52,412)
Sales and repurchases						430						(18,225)						430						(18,530)
Transfer to REO						(10,423)						(2,667)						(25,845)						(45,312)
Balance at end of period						$	2,003,580					$	1,200,981					$	2,003,580					$	1,200,981

(1) Excluded from the table above are approximately $131.3 million of Residential whole loans, at fair value for which the closing of the purchase transaction had not occurred as of June 30, 2021.

The following table presents additional information for the three and six months ended June 30, 2021 about the Company’s financing agreements with non-mark-to-market collateral provisions, which are classified as Level 3 and measured at fair value on a recurring basis:

						Agreements with Non-mark-to-market Collateral Provisions
(In Thousands)						Three Months Ended June 30, 2021						Six Months Ended June 30, 2021
Balance at beginning of period						$	1,041,283					$	1,159,213
Issuances						—						—
Payment of principal						(245,451)						(363,146)
Changes in unrealized losses						(491)						(726)
Balance at end of period						$	795,341					$	795,341

The following table presents additional information for the three and six months ended June 30, 2021 about the Company’s financing agreements with mark-to-market collateral provisions, which are classified as Level 3 and measured at fair value on a recurring basis:

						Agreements with Mark-to-market Collateral Provisions
(In Thousands)						Three Months Ended June 30, 2021						Six Months Ended June 30, 2021
Balance at beginning of period						$	979,541					$	1,124,162
Issuances						299,650						391,647
Payment of principal						(421,125)						(657,743)
Changes in unrealized losses						—						—
Balance at end of period						$	858,066					$	858,066

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 June 30, 2021 and December 31, 2020:

						June 30, 2021						June 30, 2021												December 31, 2020
						Level in Fair Value Hierarchy						Carrying Value						Estimated Fair Value						Carrying Value						Estimated Fair Value
(In Thousands)
Financial Assets:
Residential whole loans						3						$	5,550,979					$	5,757,133					$	5,325,401					$	5,499,303
Securities, at fair value						2						302,835						302,835						399,999						399,999
Cash and cash equivalents						1						906,409						906,409						814,354						814,354
Restricted cash						1						8,839						8,839						7,165						7,165
Financial Liabilities (1):
Financing agreements with non-mark-to-market collateral provisions						3						795,341						795,341						1,159,213						1,159,213
Financing agreements with mark-to-market collateral provisions						3						1,182,900						1,183,012						1,124,162						1,124,162
Financing agreements with mark-to-market collateral provisions						2						178,357						178,357						213,915						213,915
Securitized debt (2)						2						2,046,381						2,055,295						1,514,509						1,519,567
Convertible senior notes						2						225,812						236,053						225,177						228,287
Senior notes (3)						1						—						—						100,000						100,031

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

(2)Includes Securitized debt that is carried at amortized cost basis and fair value.

(3)On January 6, 2021, the Company redeemed all of its outstanding Senior Notes (see Note 6).

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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.

+ References

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
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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

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19279-110258

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-Publisher FASB
-Name Accounting Standards Codification
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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.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
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-SubTopic 10
-Section 50
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-Publisher FASB
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