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Other Assets | 9 Months Ended
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Sep. 30, 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 September 30, 2024 and December 31, 2023:
(In Thousands) |  | September 30, 2024 |  | December 31, 2023
REO |  | $ | 127,097 |  |  | $ | 110,174 |
Commercial REO |  | 40,050 |  |  | 22,717 |
Goodwill |  | 61,076 |  |  | 61,076 |
Intangibles, net (1) |  | 5,600 |  |  | 8,000 |
Capital contributions made to loan origination partners |  | 16,793 |  |  | 19,780 |
Commercial loans |  | 15,328 |  |  | 51,426 |
Interest receivable |  | 103,786 |  |  | 98,924 |
Other loan related receivables |  | 19,262 |  |  | 24,084 |
Lease right-of-use asset (2) |  | 35,792 |  |  | 37,819 |
Other |  | 64,747 |  |  | 63,097 |
Total Other Assets |  | $ | 489,531 |  |  | $ | 497,097 |
(1) Net of aggregate accumulated amortization of $22.4 million and $20.0 million as of September 30, 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 The below table summarizes the aggregate carrying value of REO properties by loan source prior to foreclosure proceeding or from completion of a deed-in-lieu of foreclosure or similar legal agreement.
(Dollars In Thousands) |  | September 30, 2024 |  | December 31, 2023
Business purpose loans |  | $ | 62,693 |  |  | $ | 28,328 |
Non-QM loans |  | 1,652 |  |  | 3,374 |
Legacy RPL/NPL loans |  | 62,752 |  |  | 78,472 |
Total |  | $ | 127,097 |  |  | $ | 110,174 |
Number of properties |  | 411 |  |  | 300 |
At September 30, 2024, $127.0 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 $57.1 million of residential whole loans held at carrying value and $290.3 million of residential whole loans held at fair value at September 30, 2024. The following table presents the activity in the Company’s REO for the three and nine months ended September 30, 2024 and 2023:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(Dollars In Thousands) |  | 2024 |  | 2023 |  | 2024 |  | 2023
Balance at beginning of period |  | $ | 108,013 |  |  | $ | 119,996 |  |  | $ | 110,174 |  |  | $ | 130,605 |
Adjustments to record at lower of cost or fair value |  | (2,180) |  |  | (958) |  |  | (6,137) |  |  | (3,811) |
Transfer from residential whole loans (1) |  | 37,132 |  |  | 16,991 |  |  | 82,083 |  |  | 66,171 |
Purchases and capital improvements, net |  | 78 |  |  | 88 |  |  | 281 |  |  | 344 |
Disposals and other (2) |  | (15,946) |  |  | (23,027) |  |  | (59,304) |  |  | (80,219) |
Balance at end of period |  | $ | 127,097 |  |  | $ | 113,090 |  |  | $ | 127,097 |  |  | $ | 113,090 |
Number of properties |  | 411 |  |  | 320 |  |  | 411 |  |  | 320 |
(1)During the three and nine months ended September 30, 2024, the Company recognized $(3.4) million and $(5.8) million of gains / (losses), respectively, on Residential whole loans in Other Income/(Loss), net associated with the transfer of loans to REO. During the three and nine months ended September 30, 2023, the Company recognized $(0.3) million and $1.0 million 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 and nine months ended September 30, 2024, the Company sold 58 and 194 REO properties for consideration of $18.3 million and $68.2 million, realizing net gains of approximately $2.4 million and $8.9 million, respectively. During the three and nine months ended September 30, 2023, the Company sold 77 and 271 REO properties for consideration of $26.2 million and $91.7 million, realizing net gains of approximately $3.2 million and $12.2 million, respectively. These amounts are included in Other Income/(Loss), net on the Company’s consolidated statements of operations. Commercial REO In December 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. In the third quarter of 2024, the Company received 75% and 49% interests, respectively, in two additional VIEs through foreclosure of a multifamily property and a senior living facility underlying delinquent commercial mortgage loans. Each of these entities was determined to be a VIE but the Company was not determined to be the primary beneficiary; as a result, the investments in the entities are considered equity method investments. During the three and nine months ended September 30, 2024, the Company recorded a $0.0 million and $0.7 million loss, respectively, based on updated valuations of the property acquired in 2023, which the Company entered into an agreement to sell in May 2024. Each entity accounts for its respective commercial REO property similarly to the manner in which the Company accounts for its residential REO. The entities generally do not own any other significant assets or carry any significant liabilities, except that two entities contain properties encumbered by third-party financing. The property acquired in 2023 is considered held-for-sale, while the properties foreclosed in 2024 are considered held-for-investment. (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 nine months ended September 30, 2024 is summarized in the table below:
(Dollars in Thousands) |  | Carrying Value at December 31, 2023 |  | Amortization Nine Months Ended September 30, 2024 |  | Carrying Value at September 30, 2024 |  | Amortization Period (Years) (1)
Trademarks / Trade Names |  | $ | 3,000 |  |  | $ | (300) |  |  | $ | 2,700 |  |  | 10
Customer Relationships |  | 3,000 |  |  | (1,500) |  |  | 1,500 |  |  | 4
Internally Developed Software |  | 2,000 |  |  | (600) |  |  | 1,400 |  |  | 5
Total Identified Intangibles |  | $ | 8,000 |  |  | $ | (2,400) |  |  | $ | 5,600 |  |  |
(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, 2024, the carrying value of these investments (including adjustments for impairments or mark-to-market changes) was $16.8 million, including $1.7 million of common equity (including partnership interests) and $15.1 million of preferred equity. During the nine months ended September 30, 2024 and 2023, there were no impairment charges recorded by the Company on its investments in loan origination partners. The Company has elected to account for certain of these investments pursuant to the fair value option, where changes in estimated fair value are recorded on the statement of operations. Such changes in estimated fair value resulted in gains (losses) being recorded of $(1.5) million and $(3.0) million during the three and nine months ended September 30, 2024, respectively, and $7.5 million and $6.6 million during the three and nine months ended September 30, 2023, 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. (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. Each of the participations is 75% of the total UPB of the related loans and the remaining interest in each loan was retained by the originator of such loan. The commercial mortgage loans are predominantly collateralized by multifamily properties; the collateral also includes one office property. The commercial mortgage loans are generally first liens and bear variable interest rates. The Company has received interests in three of the underlying properties, of which, two occurred in the three months ended September 30, 2024, as further described previously under “Commercial REO.” The following table presents certain additional information about the Company’s commercial mortgage loans as of September 30, 2024 and December 31, 2023:
(Dollars 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 - September 30, 2024 |  | $ | 15,328 |  |  | $ | 16,791 |  |  | 12.04 | % |  | 1 |  | $ | 4,875 |  | 61 | %
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 September 30, 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:
(In Thousands) |  | September 30, 2024 |  | December 31, 2023 |  |
Agency MBS, at fair value |  | $ | 47,775 |  |  | $ | 41,179 |  |  |
Restricted Cash |  | 9,388 |  |  | 22,880 |  |  |
At September 30, 2024, the Company had Swaps with an aggregate notional amount of $3.5 billion and an average maturity of approximately 34 months with a maximum term of approximately 120 months. The following table presents information about the Company’s Swaps at September 30, 2024 and December 31, 2023:
|  | September 30, 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 |  | $ | 300,010 |  |  | 0.89 | % |  | 4.96 | % |  | $ | 100,000 |  |  | 1.49 | % |  | 5.38 | % |  |  |  |
Over 3 months to 6 months |  | 700,000 |  |  | 1.18 |  |  | 4.96 |  |  | — |  |  | — |  |  | — |  |  |  |  |
Over 6 months to 12 months |  | 125,000 |  |  | 2.70 |  |  | 4.96 |  |  | 450,010 |  |  | 0.90 |  |  | 5.38 |  |  |  |  |
Over 12 months to 24 months |  | — |  |  | — |  |  | — |  |  | 675,000 |  |  | 1.52 |  |  | 5.38 |  |  |  |  |
Over 24 months to 36 months |  | 1,425,000 |  |  | 1.53 |  |  | 4.96 |  |  | 450,000 |  |  | 1.12 |  |  | 5.38 |  |  |  |  |
Over 36 months to 48 months |  | 89,100 |  |  | 3.65 |  |  | 4.96 |  |  | 975,000 |  |  | 1.73 |  |  | 5.38 |  |  |  |  |
Over 48 months to 60 months |  | 348,500 |  |  | 3.06 |  |  | 4.96 |  |  | 24,600 |  |  | 4.28 |  |  | 5.38 |  |  |  |  |
Over 60 months to 72 months |  | 93,000 |  |  | 3.38 |  |  | 4.96 |  |  | 310,000 |  |  | 2.95 |  |  | 5.38 |  |  |  |  |
Over 72 months |  | 405,650 |  |  | 3.30 |  |  | 4.96 |  |  | 292,650 |  |  | 4.32 |  |  | 5.38 |  |  |  |  |
Total Swaps |  | $ | 3,486,260 |  |  | 1.91 | % |  | 4.96 | % |  | $ | 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, which is presented in Other Income/(Loss), net in the consolidated statements of operations:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In Thousands) |  | 2024 |  | 2023 |  | 2024 |  | 2023
Income on swap variable receive leg |  | $ | 45,773 |  |  | $ | 41,427 |  |  | $ | 134,082 |  |  | $ | 113,062 |
Expense on swap fixed pay leg |  | (15,903) |  |  | (12,563) |  |  | (46,188) |  |  | (36,416) |
Unrealized mark-to-market gain/(loss) |  | (57,099) |  |  | 9,433 |  |  | (44,155) |  |  | 5,704 |
Net price alignment expense on margin collateral received |  | (2,059) |  |  | (3,437) |  |  | (6,999) |  |  | (8,247) |
Realized gain/(loss) on terminated swaps |  | (27,530) |  |  | — |  |  | (27,530) |  |  | — |
Total Net gain/(loss) on derivatives used for risk management purposes |  | $ | (56,818) |  |  | $ | 34,860 |  |  | $ | 9,210 |  |  | $ | 74,103 |

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