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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 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 September 30, 2021 and December 31, 2020, on the consolidated balance sheets by the valuation hierarchy, as previously described:

Fair Value at September 30, 2021

(In Thousands)						Level 1						Level 2						Level 3						Total
Assets:
Residential whole loans, at fair value						$	—					$	—					$	4,093,598					$	4,093,598
Securities, at fair value						—						283,037						—						283,037
Total assets carried at fair value						$	—					$	283,037					$	4,093,598					$	4,376,635
Liabilities:
Agreements with non-mark-to-market collateral provisions						$	—					$	—					$	690,583					$	690,583
Agreements with mark-to-market collateral provisions						—						—						1,275,172						1,275,172
Securitized debt						—						530,829						—						530,829
Total liabilities carried at fair value						$	—					$	530,829					$	1,965,755					$	2,496,584

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 September 30, 2021 and December 31, 2020:

						September 30, 2021
(Dollars in Thousands)						Fair Value (1)						Valuation Technique						Unobservable Input						Weighted Average (2)						Range
Purchased Non-Performing Loans						$	774,666					Discounted cash flow						Discount rate						3.4		%				2.5-11.5%
																		Prepayment rate						12.2		%				0.0-43.8%
																		Default rate						4.0		%				0.0-31.3%
																		Loss severity						11.8		%				0.0-100.0%
						$	365,077					Liquidation model						Discount rate						8.1		%				6.7-50.0%
																		Annual change in home prices						9.3		%				4.6-27.3%
																		Liquidation timeline (in years)						1.7						0.1-4.8
																		Current value of underlying properties (3)						$	788					$10-$3,995
Total						$	1,139,743

						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 $1.1 million and $265,000 of loans for which management considers the purchase price continues to reflect the fair value of such loans at September 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 $432,000 and $380,000 as of September 30, 2021 and December 31, 2020, respectively.

						September 30, 2021
(Dollars in Thousands)						Fair Value (1)						Valuation Technique						Unobservable Input						Weighted Average (2)						Range
Purchased Performing Loans						$	2,780,698					Discounted cash flow						Discount rate						3.3		%				0.9-50.5%
																		Prepayment rate						18.4		%				0.0-50.1%
																		Default rate						0.3		%				0.0-21.8%
																		Loss severity						8.9		%				0.0-10.0%
						$	9,814					Liquidation model						Discount rate						7.0		%				7.0-7.0%
																		Annual change in home prices						7.8		%				0.0-12.4%
																		Liquidation timeline (in years)						2.2						1.0-4.4
																		Current value of underlying properties						$	884					$50-$2,075
Total						$	2,790,512

(1) Excludes approximately $162.2 million of loans for which management considers the purchase price continues to reflect the fair value of such loans at September 30, 2021.

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

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

The following table presents additional information for the three and nine months ended September 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 September 30,												Nine Months Ended September 30,
(In Thousands)						2021						2020						2021						2020
Balance at beginning of period						$	2,003,580					$	1,200,981					$	1,216,902					$	1,381,583
Purchases and originations						1,968,079						—						2,805,939						—
Draws						11,152						—						11,575						—
Changes in fair value recorded in Net gain on residential whole loans measured at fair value through earnings						20,494						58,863						58,807						(13,683)
Repayments						(65,985)						(21,721)						(130,488)						(65,934)
Sales and repurchases						241						(929)						671						(19,460)
Transfer to REO						(6,978)						(7,530)						(32,823)						(52,842)
Balance at end of period						$	3,930,583					$	1,229,664					$	3,930,583					$	1,229,664

(1) Excluded from the table above are approximately $163.0 million of Residential whole loans, at fair value for which the closing of the purchase transaction had not occurred as of September 30, 2021.

The following table presents additional information for the three and nine months ended September 30, 2021 and 2020 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
						Three Months Ended September 30,												Nine Months Ended September 30,
(In Thousands)						2021						2020						2021						2020
Balance at beginning of period						$	795,341					$	—					$	1,159,213					$	—
Issuances						—						2,036,597						—						2,036,597
Payment of principal						(104,549)						(312,638)						(467,695)						(312,638)
Changes in unrealized losses						(209)						3,448						(935)						3,448
Balance at end of period						$	690,583					$	1,727,407					$	690,583					$	1,727,407

The following table presents additional information for the three and nine months ended September 30, 2021 and 2020 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
						Three Months Ended September 30,												Nine Months Ended September 30,
(In Thousands)						2021						2020						2021						2020
Balance at beginning of period						$	858,066					$	—					$	1,124,162					$	—
Issuances						597,761						1,386,592						989,407						1,386,592
Payment of principal						(180,655)						(156,032)						(838,397)						(156,032)
Changes in unrealized losses						—						1,174						—						1,174
Balance at end of period						$	1,275,172					$	1,231,734					$	1,275,172					$	1,231,734

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 September 30, 2021 and December 31, 2020:

						September 30, 2021						September 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						$	7,081,462					$	7,280,297					$	5,325,401					$	5,499,303
Securities, at fair value						2						283,037						283,037						399,999						399,999
Cash and cash equivalents						1						526,241						526,241						814,354						814,354
Restricted cash						1						55,507						55,507						7,165						7,165
Financial Liabilities (1):
Financing agreements with non-mark-to-market collateral provisions						3						847,949						848,367						1,159,213						1,159,213
Financing agreements with mark-to-market collateral provisions						3						2,259,188						2,259,332						1,124,162						1,124,162
Financing agreements with mark-to-market collateral provisions						2						171,804						171,804						213,915						213,915
Securitized debt (2)						2						2,045,729						2,053,714						1,514,509						1,519,567
Convertible senior notes						2						226,138						234,328						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.

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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

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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- 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

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-Publisher FASB
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