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Other Assets | 9 Months Ended
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Sep. 30, 2022
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] |
Other Assets | Other Assets The following table presents the components of the Company’s Other assets at September 30, 2022 and December 31, 2021:
(In Thousands) |  | September 30, 2022 |  | December 31, 2021
REO (1) |  | $ | 132,663 |  |  | $ | 156,223 |
Goodwill |  | 61,076 |  |  | 61,076 |
Intangibles, net (2) |  | 13,500 |  |  | 21,400 |
Capital contributions made to loan origination partners |  | 30,358 |  |  | 71,673 |
Other interest-earning assets |  | 74,342 |  |  | 57,522 |
Interest receivable |  | 66,080 |  |  | 50,191 |
Other loan related receivables |  | 19,697 |  |  | 34,191 |
Lease right-of-use asset (3) |  | 38,168 |  |  | 39,370 |
Other |  | 61,110 |  |  | 73,910 |
Total Other Assets |  | $ | 496,994 |  |  | $ | 565,556 |
(1) Includes $11.3 million of REO that was held-for-investment at December 31, 2021. (2) Net of aggregate accumulated amortization of $14.5 million and $6.6 million as of September 30, 2022 and December 31, 2021, respectively. (3) An estimated incremental borrowing rate of 7.5% was used in connection with the Company’s primary operating lease (see Notes 2 and 9). (a) Real Estate Owned At September 30, 2022, the Company had 412 REO properties with an aggregate carrying value of $132.7 million. At December 31, 2021, the Company had 553 REO properties with an aggregate carrying value of $156.2 million. At September 30, 2022, $132.2 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 $58.0 million of residential whole loans held at carrying value and $269.4 million of residential whole loans held at fair value at September 30, 2022. The following table presents the activity in the Company’s REO for the three and nine months ended September 30, 2022 and 2021:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(Dollars In Thousands) |  | 2022 |  | 2021 |  | 2022 |  | 2021
Balance at beginning of period |  | $ | 135,847 |  |  | $ | 204,762 |  |  | $ | 156,223 |  |  | $ | 249,699 |
Adjustments to record at lower of cost or fair value |  | (1,655) |  |  | (2,448) |  |  | (2,426) |  |  | (3,390) |
Transfer from residential whole loans (1) |  | 16,658 |  |  | 11,673 |  |  | 61,875 |  |  | 50,043 |
Purchases and capital improvements, net |  | 215 |  |  | 1,584 |  |  | 845 |  |  | 2,207 |
Disposals and other (2) |  | (18,402) |  |  | (36,769) |  |  | (83,854) |  |  | (119,757) |
Balance at end of period |  | $ | 132,663 |  |  | $ | 178,802 |  |  | $ | 132,663 |  |  | $ | 178,802 |
Number of properties |  | 412 |  |  | 674 |  |  | 412 |  |  | 674 |
(1)Includes a net loss recorded on transfer of approximately $300,000 for the three months ended September 30, 2022 and a net gain recorded on transfer of approximately $700,000 for the three months ended September 30, 2021; and a net loss recorded on transfer of approximately $300,000 for the nine months ended September 30, 2022 and a net loss recorded on transfer of approximately $400,000 for the nine months ended September 30, 2021. (2)During the three and nine months ended September 30, 2022, the Company sold 74 and 333 REO properties for consideration of $23.8 million and $105.0 million, realizing net gains of approximately $5.3 million and $21.3 million, respectively. During the three and nine months ended September 30, 2021, the Company sold 151 and 470 REO properties for consideration of $45.4 million and $134.0 million, realizing net gains of approximately $7.3 million and $13.4 million, respectively. These amounts are included in Other Income, net on the Company’s consolidated statements of operations. (b) Goodwill and Intangible Assets On July 1, 2021, the Company completed the acquisition of Lima One (see Note 15). In connection with the acquisition of Lima One, the Company identified and recorded goodwill of $61.1 million and finite-lived intangible assets totaling $28.0 million. The amortization period for each of the finite lived intangible assets and the activity for the nine months ended September 30, 2022 is summarized in the table below:
(Dollars in Thousands) |  | Carrying Value at December 31, 2021 |  | Amortization Nine Months Ended September 30, 2022 |  | Carrying Value at September 30, 2022 |  | Amortization Period (Years) (1)
Trademarks / Trade Names |  | $ | 3,800 |  |  | $ | (300) |  |  | $ | 3,500 |  |  | 10
Customer Relationships |  | 12,000 |  |  | (5,000) |  |  | 7,000 |  |  | 4
Internally Developed Software |  | 3,600 |  |  | (600) |  |  | 3,000 |  |  | 5
Non-Compete Agreements |  | 2,000 |  |  | (2,000) |  |  | — |  |  | 1
Total Identified Intangibles |  | $ | 21,400 |  |  | $ | (7,900) |  |  | $ | 13,500 |  |  |
(1) Amortization is calculated on a straight-line basis over the amortization period, except for Customer Relationships, where amortization is calculated based on expected levels of customer attrition. (c) 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 the Company sources residential mortgage loans through both flow arrangements and bulk purchases. At September 30, 2022, the carrying value of these investments (including adjustments for impairments or mark-to-market changes) was $30.4 million, including $6.8 million of common equity (including partnership interests) and $23.5 million of preferred equity. During the nine months ended September 30, 2022, the Company recorded an impairment charge in earnings of $28.6 million against the carrying value of its investment in one loan origination partner, bringing the net carrying value of this investment to zero as of September 30, 2022. During the three months ended September 30, 2021, the Company reversed $10.0 million of previously recorded impairment as two of the Company’s preferred equity investments were repaid in full. This gain was recorded in Other Income in the consolidated statements of operations. The Company did not record any impairment charges to earnings on investments in loan origination partners during the three and nine months ended September 30, 2021. Further, for three and nine months ended September 30, 2022, the Company recorded a valuation adjustment of $2.0 million and $13.4 million against an investment in a loan origination partner that is accounted for at fair value through earnings, respectively. For certain of the Company’s investments, the interests acquired to date by the Company generally do not have a readily determinable fair value. Consequently, the Company accounts for these 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. In addition, for certain partners options or warrants 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. On July 1, 2021, the Company completed the acquisition of certain ownership interests in Lima One, which resulted in the Company owning all of Lima One’s outstanding ownership interests. Accordingly, the Company consolidated Lima One’s financial results beginning on that date. (d) Derivative Instruments Swaps The Company’s derivative instruments include Swaps, which are used to economically hedge the interest rate risk associated with certain borrowings. Pursuant to these arrangements, the Company agreed to pay a fixed rate of interest and receive a variable interest rate, generally based on the Secured Overnight Financing Rate (“SOFR”), on the notional amount of the Swap. At September 30, 2022, none of the Company’s Swaps were designated as hedges for accounting purposes. The following table presents the assets pledged as collateral against the Company’s Swap contracts at September 30, 2022, and December 31, 2021:
(In Thousands) |  | September 30, 2022 |  | December 31, 2021 |  |
Restricted Cash |  | $ | 65,392 |  |  | $ | 14,446 |  |  |
At September 30, 2022, the Company had Swaps with an aggregate notional amount of $3.2 billion and an average maturity of approximately 45 months with a maximum term of approximately 81 months. The following table presents information about the Company’s Swaps at September 30, 2022, and December 31, 2021:
|  | September 30, 2022 |  | December 31, 2021 |  |  |  |
Maturity (1) |  | Notional Amount |  | Weighted Average Fixed-Pay Interest Rate |  | Weighted Average Variable Interest Rate (2) |  | Notional Amount |  | Weighted Average Fixed-Pay Interest Rate |  | Weighted Average Variable Interest Rate (2) |  |  |  |
(Dollars in Thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Within 30 days to 12 months |  | $ | — |  |  | — | % |  | — | % |  | $ | — |  |  | — | % |  | — | % |  |  |  |
Over 12 months to 24 months |  | 100,000 |  |  | 1.49 |  |  | 2.98 |  |  | — |  |  | — |  |  | — |  |  |  |  |
Over 24 months to 36 months |  | 1,225,010 |  |  | 1.44 |  |  | 2.98 |  |  | 450,010 |  |  | 0.90 |  |  | 0.05 |  |  |  |  |
Over 36 months to 48 months |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Over 48 months to 60 months |  | 1,525,000 |  |  | 1.64 |  |  | 2.98 |  |  | 450,000 |  |  | 1.12 |  |  | 0.05 |  |  |  |  |
Over 60 months to 72 months |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Over 72 months to 84 months |  | 310,000 |  |  | 2.95 |  |  | 2.98 |  |  | — |  |  | — |  |  | — |  |  |  |  |
Total Swaps |  | $ | 3,160,010 |  |  | 1.69 | % |  | 2.98 | % |  | $ | 900,010 |  |  | 1.01 | % |  | 0.05 | % |  |  |  |
(1)Each maturity category reflects contractual amortization and/or maturity of notional amounts. (2)Reflects the benchmark variable rate due from the counterparty at the date presented, which rate adjusts daily based on SOFR. During the three and nine months ended September 30, 2022, the Company recorded net gains on Swaps of approximately $112.6 million and $215.3 million, which includes net swap income of $3.7 million and net swap expense of $6.2 million, respectively. These amounts are included in Other income, net on the Company’s consolidated statements of operations. The Company did not have any Swaps during the three and nine months ended September 30, 2021. TBA Securities In order to economically hedge the risks arising from the investments in Agency eligible investor loans, the Company has entered into short positions in certain TBA securities. The Company did not have any open short positions in TBA securities at September 30, 2022. The table below summarizes open short positions in TBA securities as of December 31, 2021, which had an aggregate value of ($1.3) million and were included in Other assets/liabilities on the Company’s consolidated balance sheets.
|  |  |  | December 31, 2021
(Dollars in Thousands) |  |  |  |  |  | Notional Amount |  | Settlement Date
TBA Security |  |  |  |  |  |  |  |
FNCL 2.5 |  |  |  |  |  | $ | 180,000 |  |  | January 13, 2022
FNCL 2 |  |  |  |  |  | $ | 130,000 |  |  | January 13, 2022
TBA short positions are subject to margining requirements which serve to mitigate counterparty credit risk associated with these transactions. Open TBA positions are measured at fair value each reporting date, with realized and unrealized changes in the fair value of these positions recorded in Other income, net in the Company’s consolidated statements of operations. For the nine months ended September 30, 2022, the Company recorded realized and unrealized changes in fair value on TBA short positions of $39.2 million. For the three and nine months ended September 30, 2021, the Company recorded a net gain on TBA short positions of $2.1 million and $1.0 million, respectively.

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