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Other Assets | 3 Months Ended
--- | ---
Mar. 31, 2024
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 March 31, 2024 and December 31, 2023:
(In Thousands) |  | March 31, 2024 |  | December 31, 2023
REO |  | $ | 106,185 |  |  | $ | 110,174 |
Commercial REO |  | 22,194 |  |  | 22,717 |
Goodwill |  | 61,076 |  |  | 61,076 |
Intangibles, net (1) |  | 7,200 |  |  | 8,000 |
Capital contributions made to loan origination partners |  | 19,780 |  |  | 19,780 |
Commercial loans |  | 45,793 |  |  | 51,426 |
Interest receivable |  | 104,636 |  |  | 98,924 |
Other loan related receivables |  | 17,891 |  |  | 24,084 |
Lease Right-of-Use Asset (2) |  | 37,158 |  |  | 37,819 |
Other |  | 67,431 |  |  | 63,097 |
Total Other Assets |  | $ | 489,344 |  |  | $ | 497,097 |
(1) Net of aggregate accumulated amortization of $20.8 million and $20.0 million as of March 31, 2024 and December 31, 2023, respectively. (2) 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 and Commercial REO At March 31, 2024, the Company had 288 REO properties with an aggregate carrying value of $106.2 million. At December 31, 2023, the Company had 300 REO properties with an aggregate carrying value of $110.2 million. At March 31, 2024, $106.1 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 $84.0 million of residential whole loans held at carrying value and $279.8 million of residential whole loans held at fair value at March 31, 2024. The following table presents the activity in the Company’s REO for the three months ended March 31, 2024 and 2023:
|  | Three Months Ended March 31, |  |
(Dollars In Thousands) |  | 2024 |  | 2023 |  |  |  |
Balance at beginning of period |  | $ | 110,174 |  |  | $ | 130,605 |  |  |  |  |
Adjustments to record at lower of cost or fair value |  | (1,267) |  |  | (1,052) |  |  |  |  |
Transfer from residential whole loans (1) |  | 19,342 |  |  | 20,925 |  |  |  |  |
Purchases and capital improvements, net |  | 151 |  |  | 137 |  |  |  |  |
Disposals and other (2) |  | (22,215) |  |  | (29,400) |  |  |  |  |
Balance at end of period |  | $ | 106,185 |  |  | $ | 121,215 |  |  |  |  |
Number of properties |  | 288 |  |  | 362 |  |  |  |  |
(1)During the three months ended March 31, 2024 and 2023, the Company recognized $(1.1) million and $41,000 of gains / (losses), respectively, on Residential whole loans in Other Income/(Loss), net associated with the transfer of loans to REO. (2)During the three months ended March 31, 2024 and 2023, the Company sold 73 and 93 REO properties for consideration of $24.2 million and $33.8 million, realizing net gains of approximately $2.0 million and $5.0 million, respectively. These amounts are included in Other Income, net on the Company’s consolidated statements of operations. Commercial REO In 2023, the Company received a 75% interest in an entity which owns a newly constructed industrial property as part of the negotiated settlement of a delinquent commercial mortgage loan. The entity was determined to be a VIE but the Company was not determined to be the primary beneficiary; as a result, the investment in the entity is considered an equity method investment. During the three months ended March 31, 2024, the Company recorded a $0.5 million loss based on an updated valuation of the property, which the Company agreed to sell subsequent to March 31, 2024. The entity accounts for this commercial REO similarly to the manner in which the Company accounts for its residential REO. The entity does not own any other significant assets or carry any significant liabilities and the property is currently vacant and considered held-for-sale. (b) Goodwill and Intangible Assets On July 1, 2021, the Company completed the acquisition of Lima One. 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 three months ended March 31, 2024 is summarized in the table below:
(Dollars in Thousands) |  | Carrying Value at December 31, 2023 |  | Amortization Three Months Ended March 31, 2024 |  | Carrying Value at March 31, 2024 |  | Amortization Period (Years) (1)
Trademarks / Trade Names |  | $ | 3,000 |  |  | $ | (100) |  |  | $ | 2,900 |  |  | 10
Customer Relationships |  | 3,000 |  |  | (500) |  |  | 2,500 |  |  | 4
Internally Developed Software |  | 2,000 |  |  | (200) |  |  | 1,800 |  |  | 5
Total Identified Intangibles |  | $ | 8,000 |  |  | $ | (800) |  |  | $ | 7,200 |  |  |
(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 March 31, 2024, the carrying value of these investments (including adjustments for impairments or mark-to-market changes) was $19.8 million, including $4.7 million of common equity (including partnership interests) and $15.1 million of preferred equity. During the three months ended March 31, 2024 and 2023, there were no impairment charges recorded by the Company on its investments in loan origination partners. 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. (d) Commercial Mortgage Loans The Company owns a portfolio of participations in commercial mortgage bridge loans, which are accounted for at fair value under the fair value option, and are classified as Level 3 fair value measurements in the fair value hierarchy. The participations range from 49% to 75% of the total UPB of the related loans; the remaining interest in each loan was retained by the originator of such loan. The commercial mortgage loans are predominantly collateralized by multi-family properties; the collateral also includes one senior living property and one office property. The commercial mortgage loans are generally first liens and bear variable interest rates. The Company received an interest in one of the underlying properties in the fourth quarter of 2023, as further described above under “Commercial REO.” The following table presents certain additional information about the Company’s commercial mortgage loans as of March 31, 2024 and December 31, 2023:
(In Thousands) |  | Fair Value / Carrying Value |  | UPB |  | Weighted Average Coupon |  | Weighted Average Term to Maturity (Months) |  | UPB 60+ Days Delinquent | Weighted Average LTV Ratio
Commercial Loans - March 31, 2024 |  | $ | 45,793 |  |  | $ | 46,633 |  |  | 13.29 | % |  | 2 |  | $ | 29,931 |  | 65 | %
Commercial Loans - December 31, 2023 |  | $ | 51,426 |  |  | $ | 51,602 |  |  | 13.18 | % |  | 2 |  | $ | 3,521 |  | 66 | %
(e) 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 March 31, 2024, none of the Company’s Swaps were designated as hedges for accounting purposes. Variation margin payments on the Company’s Swaps are treated as a legal settlement of the exposure under the related Swap contract, the effect of which reduces what would have otherwise been reported as the fair value of the Swap, generally to zero. The following table presents the assets pledged as collateral against the Company’s Swaps at March 31, 2024, and December 31, 2023:
(In Thousands) |  | March 31, 2024 |  | December 31, 2023 |  |
Agency MBS, at fair value |  | $ | 49,657 |  |  | $ | 41,179 |  |  |
Restricted Cash |  | 11,645 |  |  | 22,880 |  |  |
At March 31, 2024, the Company had Swaps with an aggregate notional amount of $3.2 billion and an average maturity of approximately 36 months with a maximum term of approximately 116 months. The following table presents information about the Company’s Swaps at March 31, 2024, and December 31, 2023:
|  | March 31, 2024 |  | December 31, 2023 |  |  |  |
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) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Over 30 days to 3 months |  | $ | — |  |  | — | % |  | — | % |  | $ | 100,000 |  |  | 1.49 | % |  | 5.38 | % |  |  |  |
Over 6 months to 12 months |  | 1,000,010 |  |  | 1.09 |  |  | 5.34 |  |  | 450,010 |  |  | 0.90 |  |  | 5.38 |  |  |  |  |
Over 12 months to 24 months |  | 125,000 |  |  | 2.70 |  |  | 5.34 |  |  | 675,000 |  |  | 1.52 |  |  | 5.38 |  |  |  |  |
Over 24 months to 36 months |  | 1,300,000 |  |  | 1.42 |  |  | 5.34 |  |  | 450,000 |  |  | 1.12 |  |  | 5.38 |  |  |  |  |
Over 36 months to 48 months |  | 125,000 |  |  | 2.71 |  |  | 5.34 |  |  | 975,000 |  |  | 1.73 |  |  | 5.38 |  |  |  |  |
Over 48 months to 60 months |  | 24,600 |  |  | 4.28 |  |  | 5.34 |  |  | 24,600 |  |  | 4.28 |  |  | 5.38 |  |  |  |  |
Over 60 months to 72 months |  | 310,000 |  |  | 2.95 |  |  | 5.34 |  |  | 310,000 |  |  | 2.95 |  |  | 5.38 |  |  |  |  |
Over 72 months |  | 292,650 |  |  | 4.32 |  |  | 5.34 |  |  | 292,650 |  |  | 4.32 |  |  | 5.38 |  |  |  |  |
Total Swaps |  | $ | 3,177,260 |  |  | 1.86 | % |  | 5.34 | % |  | $ | 3,277,260 |  |  | 1.85 | % |  | 5.38 | % |  |  |  |
(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. This rate adjusts daily based on SOFR. Impact of Derivative Instruments on Earnings The following table present the components of Net gain/(loss) on derivatives used for risk management purposes for the three months ended March 31, 2024 and 2023, which is presented in Other Income/(Loss), net in the consolidated statements of operations:
|  | Three Months Ended March 31, |  |
(In Thousands) |  | 2024 |  | 2023 |  |  |  |
Income on swap variable receive leg |  | $ | 44,177 |  |  | $ | 33,851 |  |  |  |  |
Expense on swap fixed pay leg |  | (15,086) |  |  | (12,034) |  |  |  |  |
Unrealized mark-to-market gain/(loss) |  | 23,182 |  |  | (40,747) |  |  |  |  |
Net price alignment expense on margin collateral received |  | (2,332) |  |  | (2,278) |  |  |  |  |
Total Net gain/(loss) on derivatives used for risk management purposes |  | $ | 49,941 |  |  | $ | (21,208) |  |  |  |  |

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