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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2023

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, 2023 and December 31, 2022, on the consolidated balance sheets by the valuation hierarchy, as previously described:

Fair Value at September 30, 2023

(In Thousands)						Level 1						Level 2						Level 3						Total
Assets:
Residential whole loans, at fair value						$	—					$	53,148					$	6,793,422					$	6,846,570
Securities, at fair value						—						723,959						—						723,959
Total assets carried at fair value						$	—					$	777,107					$	6,793,422					$	7,570,529
Liabilities:
Agreements with non-mark-to-market collateral provisions						$	—					$	—					$	401,353					$	401,353
Agreements with mark-to-market collateral provisions						—						—						505,747						505,747
Securitized debt						—						3,531,576						—						3,531,576
Total liabilities carried at fair value						$	—					$	3,531,576					$	907,100					$	4,438,676

Fair Value at December 31, 2022

(In Thousands)						Level 1						Level 2						Level 3						Total
Assets:
Residential whole loans, at fair value						$	—					$	51,094					$	5,676,430					$	5,727,524
Securities, at fair value						—						333,364						—						333,364
Total assets carried at fair value						$	—					$	384,458					$	5,676,430					$	6,060,888
Liabilities:
Agreements with non-mark-to-market collateral provisions						$	—					$	—					$	578,879					$	578,879
Agreements with mark-to-market collateral provisions						—						—						884,495						884,495
Securitized debt						—						2,435,370						—						2,435,370
Total liabilities carried at fair value						$	—					$	2,435,370					$	1,463,374					$	3,898,744

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, 2023 and December 31, 2022:

						September 30, 2023
(Dollars in Thousands)						Fair Value (1)						Valuation Technique						Unobservable Input						Weighted Average (2)						Range
Purchased Non-Performing Loans						$	512,213					Discounted cash flow						Discount rate						7.6		%				7.1-11.1%
																		Prepayment rate						6.6		%				0.0-28.2%
																		Default rate						2.7		%				0.0-38.9%
																		Loss severity						9.8		%				0.0-100.0%
						$	187,098					Liquidation model						Discount rate						8.0		%				8.0-8.0%
																		Annual change in home prices						3.3		%				(0.2)-12.6%
																		Liquidation timeline (in years)						2.0						0.1-4.5
																		Current value of underlying properties (3)						$	843					$43-$4,720
Total						$	699,311

						December 31, 2022
(Dollars in Thousands)						Fair Value (1)						Valuation Technique						Unobservable Input						Weighted Average (2)						Range
Purchased Non-Performing Loans						$	546,675					Discounted cash flow						Discount rate						7.0		%				6.3-10.0%
																		Prepayment rate						8.9		%				0.0-33.5%
																		Default rate						3.7		%				0.0-52.4%
																		Loss severity						11.3		%				0.0-100.0%
						$	249,219					Liquidation model						Discount rate						7.8		%				7.8-7.8%
																		Annual change in home prices						6.9		%				(5.4)-59.7%
																		Liquidation timeline (in years)						1.9						0.1-4.5
																		Current value of underlying properties (3)						$	743					$28-$4,000
Total						$	795,894

(1) Excludes approximately $499,000 and $215,000 of loans for which management considers the purchase price continues to reflect the fair value of such loans at September 30, 2023 and December 31, 2022, 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 $498,000 and $457,000 as of September 30, 2023 and December 31, 2022, respectively.

						September 30, 2023
(Dollars in Thousands)						Fair Value (1)						Valuation Technique						Unobservable Input						Weighted Average (1)						Range
Purchased Performing Loans						$	5,996,971					Discounted cash flow						Discount rate						8.4		%				6.5-24.8%
																		Prepayment rate						7.6		%				0.0-43.3%
																		Default rate						0.5		%				0.0-27.0%
																		Loss severity						10.8		%				0.0-98.4%
						$	96,641					Liquidation model						Discount rate						8.0		%				8.0-8.0%
																		Annual change in home prices						2.3		%				0.0-9.8%
																		Liquidation timeline (in years)						1.6						0.1-4.0
																		Current value of underlying properties						$	1,567					$40-$5,500
Total						$	6,093,612

						December 31, 2022
(Dollars in Thousands)						Fair Value						Valuation Technique						Unobservable Input						Weighted Average (1)						Range
Purchased Performing Loans						$	4,857,587					Discounted cash flow						Discount rate						7.6		%				5.6-22.7%
																		Prepayment rate						7.9		%				0.0-44.8%
																		Default rate						0.8		%				0.0-19.4%
																		Loss severity						7.3		%				0.0-100.0%
						$	22,734					Liquidation model						Discount rate						7.8		%				7.8%-7.8%
																		Annual change in home prices						3.2		%				(1.0)%-10.7%
																		Liquidation timeline (in years)						1.9						0.8-4.2
																		Current value of underlying properties						$	1,319					$50-$2,850
Total						$	4,880,321

(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 nine months ended September 30, 2023 and 2022 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)						2023						2022						2023						2022
Balance at beginning of period						$	6,441,964					$	5,252,047					$	5,676,430					$	4,222,584
Purchases and originations						635,646						591,184						1,707,209						2,379,428
Draws						166,937						106,633						418,928						250,455
Changes in fair value recorded in Net gain/(loss) on residential whole loans measured at fair value through earnings						(129,661)						(241,093)						(131,856)						(623,012)
Repayments						(309,214)						(236,236)						(836,440)						(718,983)
Loan sales						(2,243)						—						(3,720)						(10,496)
Transfer to REO						(10,007)						(9,565)						(37,129)						(37,006)
Balance at end of period						$	6,793,422					$	5,462,970					$	6,793,422					$	5,462,970

The following table presents additional information for the three and nine months ended September 30, 2023 and 2022 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)						2023						2022						2023						2022
Balance at beginning of period						$	440,106					$	441,883					$	578,879					$	628,280
Issuances						107,230						418,183						379,625						418,183
Payment of principal						(145,983)						(255,345)						(557,151)						(440,487)
Change in unrealized losses						—						—						—						(1,255)
Balance at end of period						$	401,353					$	604,721					$	401,353					$	604,721

The following table presents additional information for the three and nine months ended September 30, 2023 and 2022 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)						2023						2022						2023						2022
Balance at beginning of period						$	553,162					$	1,433,857					$	884,495					$	1,322,362
Issuances						56,330						272,005						78,348						1,142,611
Payment of principal						(103,745)						(773,366)						(457,096)						(1,532,477)
Changes in unrealized losses						—						—						—						—
Balance at end of period						$	505,747					$	932,496					$	505,747					$	932,496

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, 2023 and December 31, 2022:

						September 30, 2023						September 30, 2023												December 31, 2022
						Level in Fair Value Hierarchy						Carrying Value						Estimated Fair Value						Carrying Value						Estimated Fair Value
(In Thousands)
Financial Assets:
Residential whole loans						3						$	8,371,068					$	8,285,799					$	7,467,645					$	7,397,421
Residential whole loans						2						53,148						53,148						51,094						51,094
Securities, at fair value						2						723,959						723,959						333,364						333,364
Cash and cash equivalents						1						300,089						300,089						334,183						334,183
Restricted cash						1						153,449						153,449						159,898						159,898
Financial Liabilities (1):
Financing agreements with non-mark-to-market collateral provisions						3						1,124,953						1,125,773						1,003,604						1,004,260
Financing agreements with mark-to-market collateral provisions						3						1,752,492						1,753,355						2,111,396						2,111,647
Financing agreements with mark-to-market collateral provisions						2						608,996						608,996						111,651						111,651
Securitized debt (2)						2						4,332,936						4,210,440						3,357,590						3,217,905
Convertible senior notes						2						218,596						219,589						227,845						211,015

(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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-Name Accounting Standards Codification
-Section 50
-Paragraph 2
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-Topic 820
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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
-Name Accounting Standards Codification
-Section 50
-Paragraph 2
-Subparagraph (c)
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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
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
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