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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2022

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, 2022 and December 31, 2021, on the consolidated balance sheets by the valuation hierarchy, as previously described:

Fair Value at June 30, 2022

(In Thousands)						Level 1						Level 2						Level 3						Total
Assets:
Residential whole loans, at fair value						$	—					$	912,245					$	5,252,048					$	6,164,293
Securities, at fair value						—						245,613						—						245,613
Total assets carried at fair value						$	—					$	1,157,858					$	5,252,048					$	6,409,906
Liabilities:
Agreements with non-mark-to-market collateral provisions						$	—					$	—					$	441,883					$	441,883
Agreements with mark-to-market collateral provisions						—						—						1,433,857						1,433,857
Securitized debt						—						2,323,718						—						2,323,718
Total liabilities carried at fair value						$	—					$	2,323,718					$	1,875,740					$	4,199,458

Fair Value at December 31, 2021

(In Thousands)						Level 1						Level 2						Level 3						Total
Assets:
Residential whole loans, at fair value						$	—					$	1,082,765					$	4,222,584					$	5,305,349
Securities, at fair value						—						256,685						—						256,685
Total assets carried at fair value						$	—					$	1,339,450					$	4,222,584					$	5,562,034
Liabilities:
Agreements with non-mark-to-market collateral provisions						—						—						628,280						628,280
Agreements with mark-to-market collateral provisions						$	—					$	—					$	1,322,362					$	1,322,362
Securitized debt						—						1,316,131						—						1,316,131
Total liabilities carried at fair value						$	—					$	1,316,131					$	1,950,642					$	3,266,773

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, 2022 and December 31, 2021:

						June 30, 2022
(Dollars in Thousands)						Fair Value (1)						Valuation Technique						Unobservable Input						Weighted Average (2)						Range
Purchased Non-Performing Loans						$	623,394					Discounted cash flow						Discount rate						5.7		%				3.7-9.7%
																		Prepayment rate						10.1		%				0.0-38.4%
																		Default rate						3.5		%				0.0-35.2%
																		Loss severity						11.6		%				0.0-100.0%
						$	298,296					Liquidation model						Discount rate						7.9		%				6.7-50.0%
																		Annual change in home prices						9.2		%				3.4-19.6%
																		Liquidation timeline (in years)						1.9						0.1-4.5
																		Current value of underlying properties (3)						$	765					$30-$3,763
Total						$	921,690

						December 31, 2021
(Dollars in Thousands)						Fair Value (1)						Valuation Technique						Unobservable Input						Weighted Average (2)						Range
Purchased Non-Performing Loans						$	720,766					Discounted cash flow						Discount rate						3.6		%				1.5-9.8%
																		Prepayment rate						14.4		%				0.0-44.0%
																		Default rate						3.9		%				0.0-50.8%
																		Loss severity						11.7		%				0.0-100.0%
						$	351,008					Liquidation model						Discount rate						8.0		%				6.7-50.0%
																		Annual change in home prices						9.7		%				4.5-21.9%
																		Liquidation timeline (in years)						1.7						0.1-4.5
																		Current value of underlying properties (3)						$	770					$10-$3,995
Total						$	1,071,774

(1) Excludes approximately $368,000 and $496,000 of loans for which management considers the purchase price continues to reflect the fair value of such loans at June 30, 2022 and December 31, 2021, 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 $441,000 and $421,000 as of June 30, 2022 and December 31, 2021, respectively.

						June 30, 2022
(Dollars in Thousands)						Fair Value						Valuation Technique						Unobservable Input						Weighted Average (1)						Range
Purchased Performing Loans						$	4,311,462					Discounted cash flow						Discount rate						6.3		%				4.7-27.1%
																		Prepayment rate						12.5		%				0.0-57.6%
																		Default rate						0.4		%				0.0-18.4%
																		Loss severity						7.8		%				0.0-10.0%
						$	18,528					Liquidation model						Discount rate						7.0		%				7.0-7.0%
																		Annual change in home prices						11.3		%				0.0-16.5%
																		Liquidation timeline (in years)						1.8						0.8-4.2
																		Current value of underlying properties						$	1,487					$52-$3,470
Total						$	4,329,990

						December 31, 2021
(Dollars in Thousands)						Fair Value						Valuation Technique						Unobservable Input						Weighted Average (1)						Range
Purchased Performing Loans						$	3,142,366					Discounted cash flow						Discount rate						3.9		%				1.4-25.9%
																		Prepayment rate						19.0		%				0.0-47.2%
																		Default rate						0.2		%				0.0-17.8%
																		Loss severity						8.4		%				0.0-10.0%
						$	7,948					Liquidation model						Discount rate						7.0		%				7.0%-7.0%
																		Annual change in home prices						6.5		%				—%-14.8%
																		Liquidation timeline (in years)						2.0						0.8-4.2
																		Current value of underlying properties						$	691					$60-$1,750
Total						$	3,150,314

(1) 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 six months ended June 30, 2022 and 2021 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)						2022						2021						2022						2021
Balance at beginning of period						$	4,956,772					$	1,207,997					$	4,222,584					$	1,216,902
Purchases and originations (1)(2)						674,202						837,859						1,788,245						837,859
Draws						82,482						423						143,822						423
Changes in fair value recorded in Net gain on residential whole loans measured at fair value through earnings						(158,507)						6,226						(381,919)						38,313
Repayments						(280,662)						(38,932)						(482,747)						(64,502)
Sales and repurchases						(8,949)						430						(10,496)						430
Transfer to REO						(13,290)						(10,423)						(27,441)						(25,845)
Balance at end of period						$	5,252,048					$	2,003,580					$	5,252,048					$	2,003,580

(1) Included in the activity presented for the three months ended June 30, 2022 are approximately $28.9 million of residential whole loans held at fair value for which the Company committed to purchase during the three months ended March 31, 2022, but for which the closing of the purchase transaction occurred during the three months ended June 30, 2022.

(2) 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, 2022 and 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
						Three Months Ended June 30,												Six Months Ended June 30,
(In Thousands)						2022						2021						2022						2021
Balance at beginning of period						$	563,860					$	1,041,283					$	628,280					$	1,159,213
Payment of principal						(121,977)						(245,451)						(185,142)						(363,146)
Changes in unrealized losses						—						(491)						(1,255)						(726)
Balance at end of period						$	441,883					$	795,341					$	441,883					$	795,341

The following table presents additional information for the three and six months ended June 30, 2022 and 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
						Three Months Ended June 30,												Six Months Ended June 30,
(In Thousands)						2022						2021						2022						2021
Balance at beginning of period						$	1,555,250					$	979,541					$	1,322,362					$	1,124,162
Issuances						401,122						299,650						870,606						391,647
Payment of principal						(522,515)						(421,125)						(759,111)						(657,743)
Changes in unrealized losses						—						—						—						—
Balance at end of period						$	1,433,857					$	858,066					$	1,433,857					$	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, 2022 and December 31, 2021:

						June 30, 2022						June 30, 2022												December 31, 2021
						Level in Fair Value Hierarchy						Carrying Value						Estimated Fair Value						Carrying Value						Estimated Fair Value
(In Thousands)
Financial Assets:
Residential whole loans						3						$	7,278,336					$	7,287,790					$	6,830,235					$	6,983,686
Residential whole loans						2						912,245						912,245						1,082,765						1,082,765
Securities, at fair value						2						245,613						245,613						256,685						256,685
Cash and cash equivalents						1						385,598						385,598						304,696						304,696
Restricted cash						1						159,745						159,745						99,751						99,751
Financial Liabilities (1):
Financing agreements with non-mark-to-market collateral provisions						3						905,087						905,761						939,540						940,257
Financing agreements with mark-to-market collateral provisions						3						2,467,528						2,467,670						2,403,151						2,403,724
Financing agreements with mark-to-market collateral provisions						2						157,895						157,895						159,148						159,148
Securitized debt (2)						2						3,374,716						3,299,290						2,650,473						2,646,203
Convertible senior notes						2						227,140						206,578						226,470						239,292

(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.

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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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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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-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.

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