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Fair Value of Financial Instruments (Tables) | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
Carrying Values and Fair Values of Assets and Liabilities | The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at September 30, 2020 and December 31, 2019. Table 5.1 – Carrying Values and Fair Values of Assets and Liabilities
|  | September 30, 2020 |  | December 31, 2019
|  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
(In Thousands) |  |  |  |
Assets |  |  |  |  |  |  |  |
Residential loans, held-for-sale at fair value |  | $ | 105,091 |  |  | $ | 105,091 |  |  | $ | 536,385 |  |  | $ | 536,509 |
Residential loans, held-for-investment |  | 4,389,808 |  |  | 4,389,808 |  |  | 7,178,465 |  |  | 7,178,465 |
Business purpose residential loans, held-for-sale |  | 285,549 |  |  | 285,549 |  |  | 331,565 |  |  | 331,565 |
Business purpose residential loans, held-for-investment |  | 3,670,552 |  |  | 3,670,552 |  |  | 3,175,178 |  |  | 3,175,178 |
Multifamily loans |  | 491,415 |  |  | 491,415 |  |  | 4,408,524 |  |  | 4,408,524 |
Real estate securities |  | 351,335 |  |  | 351,335 |  |  | 1,099,874 |  |  | 1,099,874 |
Servicer advance investments (1) |  | 258,621 |  |  | 258,621 |  |  | 169,204 |  |  | 169,204 |
MSRs (1) |  | 14,878 |  |  | 14,878 |  |  | 42,224 |  |  | 42,224 |
Excess MSRs (1) |  | 35,070 |  |  | 35,070 |  |  | 31,814 |  |  | 31,814 |
Shared home appreciation options (1) |  | 41,758 |  |  | 41,758 |  |  | 45,085 |  |  | 45,085 |
Cash and cash equivalents |  | 450,684 |  |  | 450,684 |  |  | 196,966 |  |  | 196,966 |
Restricted cash |  | 73,594 |  |  | 73,594 |  |  | 93,867 |  |  | 93,867 |
Derivative assets |  | 14,709 |  |  | 14,709 |  |  | 35,701 |  |  | 35,701 |
REO (2) |  | 8,535 |  |  | 9,654 |  |  | 9,462 |  |  | 10,389 |
Margin receivable (2) |  | 3,809 |  |  | 3,809 |  |  | 209,776 |  |  | 209,776 |
FHLBC stock (2) |  | 5,000 |  |  | 5,000 |  |  | 43,393 |  |  | 43,393 |
Guarantee asset (2) |  | 579 |  |  | 579 |  |  | 1,686 |  |  | 1,686 |
Pledged collateral (2) |  | 8,172 |  |  | 8,172 |  |  | 32,945 |  |  | 32,945 |
Liabilities |  |  |  |  |  |  |  |
Short-term debt |  | $ | 482,761 |  |  | $ | 482,761 |  |  | $ | 2,329,145 |  |  | $ | 2,329,145 |
Margin payable (3) |  | — |  |  | — |  |  | 1,700 |  |  | 1,700 |
Guarantee obligation (3) |  | 11,264 |  |  | 10,185 |  |  | 14,009 |  |  | 13,754 |
Contingent consideration (3) |  | — |  |  | — |  |  | 28,484 |  |  | 28,484 |
Derivative liabilities |  | 1,612 |  |  | 1,612 |  |  | 163,424 |  |  | 163,424 |
ABS issued, net |  |  |  |  |  |  |  |
Fair value |  | 6,969,376 |  |  | 6,969,376 |  |  | 10,515,475 |  |  | 10,515,475 |
Amortized cost |  | 203,022 |  |  | 207,812 |  |  | — |  |  | — |
FHLBC long-term borrowings |  | 1,000 |  |  | 1,000 |  |  | 1,999,999 |  |  | 1,999,999 |
Other long-term debt, net |  | 886,054 |  |  | 885,172 |  |  | 183,520 |  |  | 184,666 |
Convertible notes, net |  | 510,472 |  |  | 476,071 |  |  | 631,125 |  |  | 661,985 |
Trust preferred securities and subordinated notes, net |  | 138,663 |  |  | 73,238 |  |  | 138,628 |  |  | 99,045 |
(1)These investments are included in Other investments on our consolidated balance sheets. (2)These assets are included in Other assets on our consolidated balance sheets. (3)These liabilities are included in Accrued expenses and other liabilities on our consolidated balance sheets.
Assets and Liabilities Measured at Fair Value on Recurring Basis | The following table presents the assets and liabilities that are reported at fair value on our consolidated balance sheets on a recurring basis at September 30, 2020 and December 31, 2019, as well as the fair value hierarchy of the valuation inputs used to measure fair value. Table 5.2 – Assets and Liabilities Measured at Fair Value on a Recurring Basis
September 30, 2020 |  | Carrying Value |  | Fair Value Measurements Using
(In Thousands) |  |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |  |
Residential loans |  | $ | 4,494,899 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,494,899 |
Business purpose residential loans |  | 3,956,101 |  |  | — |  |  | — |  |  | 3,956,101 |
Multifamily loans |  | 491,415 |  |  | — |  |  | — |  |  | 491,415 |
Real estate securities |  | 351,335 |  |  | — |  |  | — |  |  | 351,335 |
Servicer advance investments |  | 258,621 |  |  | — |  |  | — |  |  | 258,621 |
MSRs |  | 14,878 |  |  | — |  |  | — |  |  | 14,878 |
Excess MSRs |  | 35,070 |  |  | — |  |  | — |  |  | 35,070 |
Shared home appreciation options |  | 41,758 |  |  | — |  |  | — |  |  | 41,758 |
Derivative assets |  | 14,709 |  |  | 464 |  |  | 3,472 |  |  | 10,773 |
Pledged collateral |  | 8,172 |  |  | 8,172 |  |  | — |  |  | — |
FHLBC stock |  | 5,000 |  |  | — |  |  | 5,000 |  |  | — |
Guarantee asset |  | 579 |  |  | — |  |  | — |  |  | 579 |
Liabilities |  |  |  |  |  |  |  |
Derivative liabilities |  | $ | 1,612 |  |  | $ | 263 |  |  | $ | 15 |  |  | $ | 1,334 |
ABS issued |  | 6,969,376 |  |  | — |  |  | — |  |  | 6,969,376 |
December 31, 2019 |  | Carrying Value |  | Fair Value Measurements Using
(In Thousands) |  |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |  |
Residential loans |  | $ | 7,714,745 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,714,745 |
Business purpose residential loans |  | 3,506,743 |  |  | — |  |  | — |  |  | 3,506,743 |
Multifamily loans |  | 4,408,524 |  |  | — |  |  | — |  |  | 4,408,524 |
Real estate securities |  | 1,099,874 |  |  | — |  |  | — |  |  | 1,099,874 |
Servicer advance investments |  | 169,204 |  |  | — |  |  | — |  |  | 169,204 |
MSRs |  | 42,224 |  |  | — |  |  | — |  |  | 42,224 |
Excess MSRs |  | 31,814 |  |  | — |  |  | — |  |  | 31,814 |
Shared home appreciation options |  | 45,085 |  |  | — |  |  | — |  |  | 45,085 |
Derivative assets |  | 35,701 |  |  | 6,531 |  |  | 19,020 |  |  | 10,150 |
Pledged collateral |  | 32,945 |  |  | 32,945 |  |  | — |  |  | — |
FHLBC stock |  | 43,393 |  |  | — |  |  | 43,393 |  |  | — |
Guarantee asset |  | 1,686 |  |  | — |  |  | — |  |  | 1,686 |
Liabilities |  |  |  |  |  |  |  |
Contingent consideration |  | $ | 28,484 |  |  | $ | — |  |  | $ | — |  |  | $ | 28,484 |
Derivative liabilities |  | 163,424 |  |  | 13,368 |  |  | 148,766 |  |  | 1,290 |
ABS issued |  | 10,515,475 |  |  | — |  |  | — |  |  | 10,515,475 |
Changes in Level 3 Assets and Liabilities Measured at Fair Value on Recurring Basis | The following table presents additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2020. Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
|  | Assets |  |  |  |
|  | Residential Loans |  | Business Purpose Residential Loans |  | Multifamily Loans |  | Trading Securities |  | AFS Securities |  | Servicer Advance Investments |  | MSRs |  | Excess MSRs |  | Shared Home Appreciation Options |  |  |  |
(In Thousands) |  |  |  |  |  |  |  |  |  |  |
Beginning balance - December 31, 2019 |  | $ | 7,714,745 |  |  | $ | 3,506,743 |  |  | $ | 4,408,524 |  |  | $ | 860,540 |  |  | $ | 239,334 |  |  | $ | 169,204 |  |  | $ | 42,224 |  |  | $ | 31,814 |  |  | $ | 45,085 |  |  |  |  |
Acquisitions |  | 2,927,697 |  |  | — |  |  | — |  |  | 96,318 |  |  | 56,664 |  |  | 179,419 |  |  | — |  |  | 10,906 |  |  | 3,517 |  |  |  |  |
Originations |  | — |  |  | 982,315 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Sales |  | (4,783,682) |  |  | (53,434) |  |  | — |  |  | (579,466) |  |  | (55,193) |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Principal paydowns |  | (1,210,117) |  |  | (489,243) |  |  | (5,830) |  |  | (8,502) |  |  | (10,345) |  |  | (83,124) |  |  | — |  |  | — |  |  | (2,558) |  |  |  |  |
Deconsolidations |  | — |  |  | — |  |  | (3,849,779) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Gains (losses) in net income (loss), net |  | (152,145) |  |  | 16,246 |  |  | (61,500) |  |  | (224,728) |  |  | (23,287) |  |  | (6,878) |  |  | (27,346) |  |  | (7,650) |  |  | (4,286) |  |  |  |  |
Other settlements, net (1) |  | (1,599) |  |  | (6,526) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Ending balance - September 30, 2020 |  | $ | 4,494,899 |  |  | $ | 3,956,101 |  |  | $ | 491,415 |  |  | $ | 144,162 |  |  | $ | 207,173 |  |  | $ | 258,621 |  |  | $ | 14,878 |  |  | $ | 35,070 |  |  | $ | 41,758 |  |  |  |  |
Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis (continued)
|  |  |  | Assets |  |  |  | Liabilities
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Guarantee Asset |  | Derivatives (2) |  | Contingent Consideration |  | ABS Issued
(In Thousands) |  |  |  |  |  |  |  |  |  |  |
Beginning balance - December 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 1,686 |  |  | $ | 8,860 |  |  | $ | 28,484 |  |  | $ | 10,515,475 |
Acquisitions |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 1,137,656 |
Principal paydowns |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  | — |  |  | (13,353) |  |  | (1,035,359) |
Deconsolidations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | (3,706,789) |
Gains (losses) in net income (loss), net |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (1,107) |  |  | 34,620 |  |  | (446) |  |  | 58,393 |
Other settlements, net (1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  | (34,041) |  |  | (14,685) |  |  | — |
Ending balance - September 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 579 |  |  | $ | 9,439 |  |  | $ | — |  |  | $ | 6,969,376 |
(1) Other settlements, net for residential and business purpose residential loans represents the transfer of loans to REO, and for derivatives, the settlement of forward sale commitments and the transfer of the fair value of loan purchase or interest rate lock commitments at the time loans are acquired to the basis of residential and single-family rental loans. Other settlements, net for contingent consideration reflects the reclassification from a contingent liability to a deferred liability during the period due to an amendment in the underlying agreement. See Note 16 for further discussion. (2) For the purpose of this presentation, derivative assets and liabilities, which consist of loan purchase commitments and interest rate lock commitments, are presented on a net basis.
Portion of Net Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held and Included in Net Income | The following table presents the portion of gains or losses included in our consolidated statements of income (loss) that were attributable to Level 3 assets and liabilities recorded at fair value on a recurring basis and held at September 30, 2020 and 2019. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the three and nine months ended September 30, 2020 and 2019 are not included in this presentation. Table 5.4 – Portion of Net Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held at September 30, 2020 and 2019 Included in Net Income
|  | Included in Net Income
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In Thousands) |  | 2020 |  | 2019 |  | 2020 |  | 2019
Assets |  |  |  |  |  |  |  |
Residential loans at Redwood |  | $ | (107) |  |  | $ | 17,771 |  |  | $ | (865) |  |  | $ | 82,408 |
Business purpose residential loans |  | 21,155 |  |  | 584 |  |  | 17,901 |  |  | 4,069 |
Net investments in consolidated Sequoia entities (1) |  | 7,700 |  |  | 1,860 |  |  | (22,802) |  |  | 7,051 |
Net investments in consolidated Freddie Mac SLST entities (1) |  | 82,209 |  |  | 17,300 |  |  | (33,087) |  |  | 31,702 |
Net investments in consolidated Freddie Mac K-Series entities (1) |  | 2,165 |  |  | 7,445 |  |  | (11,014) |  |  | 13,810 |
Net investments in consolidated CAFL entities (1) |  | 9,673 |  |  | — |  |  | (41,048) |  |  | — |
Trading securities |  | (3,549) |  |  | 11,206 |  |  | (80,358) |  |  | 33,196 |
Servicer advance investments |  | 25 |  |  | 1,585 |  |  | (6,172) |  |  | 3,025 |
MSRs |  | (2,376) |  |  | (5,892) |  |  | (16,798) |  |  | (16,971) |
Excess MSRs |  | (1,127) |  |  | (1,634) |  |  | (7,650) |  |  | (2,137) |
Shared home appreciation options |  | 2,384 |  |  | 29 |  |  | (4,286) |  |  | 29 |
Loan purchase and interest rate lock commitments |  | 10,791 |  |  | 4,678 |  |  | 10,773 |  |  | 4,757 |
Other assets - Guarantee asset |  | (191) |  |  | (216) |  |  | (1,107) |  |  | (834) |
Liabilities |  |  |  |  |  |  |  |
Loan purchase commitments |  | $ | 420 |  |  | $ | (1,668) |  |  | $ | (1,334) |  |  | $ | (1,669) |
(1) Represents the portion of net gains or losses included in our consolidated statements of income (loss) related to loans and the associated ABS issued at our consolidated securitization entities held at September 30, 2020 and 2019, which netted together represent the change in value of our investments at the consolidated VIEs.
Assets and Liabilities Measured at Fair Value on Non-Recurring Basis | The following table presents information on assets recorded at fair value on a non-recurring basis at September 30, 2020. This table does not include the carrying value and gains or losses associated with the asset types below that were not recorded at fair value on our consolidated balance sheets at September 30, 2020. Table 5.5 – Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis at September 30, 2020
|  |  |  |  |  |  |  |  |  | Gain (Loss) for
September 30, 2020 |  | Carrying Value |  | Fair Value Measurements Using |  | Three Months Ended |  | Nine Months Ended
(In Thousands) |  |  | Level 1 |  | Level 2 |  | Level 3 |  | September 30, 2020 |  | September 30, 2020
Assets |  |  |  |  |  |  |  |  |  |  |  |
REO |  | $ | 3,523 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,523 |  |  | $ | (805) |  |  | $ | (840) |
Market Valuation Gains and Losses, Net | The following table presents the net market valuation gains and losses recorded in each line item of our consolidated statements of income for the three and nine months ended September 30, 2020 and 2019. Table 5.6 – Market Valuation Gains and Losses, Net
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In Thousands) |  | 2020 |  | 2019 |  | 2020 |  | 2019
Mortgage Banking Activities, Net |  |  |  |  |  |  |  |
Residential loans held-for-sale, at fair value |  | $ | (478) |  |  | $ | (6,623) |  |  | $ | (15,972) |  |  | $ | 289 |
Residential loan purchase and forward sale commitments |  | 13,067 |  |  | 12,943 |  |  | 35,123 |  |  | 41,142 |
Single-family rental loans held-for-sale, at fair value |  | 43,191 |  |  | 1,283 |  |  | 55,868 |  |  | 4,200 |
Single-family rental loan purchase and interest rate lock commitments |  | — |  |  | 564 |  |  | 341 |  |  | 1,273 |
Residential bridge loans |  | 938 |  |  | 1,010 |  |  | (4,256) |  |  | 2,108 |
Risk management derivatives, net |  | (99) |  |  | (2,972) |  |  | (52,931) |  |  | (15,387) |
Total mortgage banking activities, net (1) |  | $ | 56,619 |  |  | $ | 6,205 |  |  | $ | 18,173 |  |  | $ | 33,625 |
Investment Fair Value Changes, Net |  |  |  |  |  |  |  |
Residential loans held-for-investment, at Redwood |  | $ | 218 |  |  | $ | 7,667 |  |  | $ | (93,314) |  |  | $ | 71,323 |
Single-family rental loans held-for-investment |  | — |  |  | 22 |  |  | (20,806) |  |  | 22 |
Residential bridge loans held-for-investment |  | 6,812 |  |  | (742) |  |  | (10,016) |  |  | (1,363) |
Trading securities |  | (3,600) |  |  | 15,275 |  |  | (224,679) |  |  | 55,577 |
Servicer advance investments |  | 26 |  |  | 1,585 |  |  | (6,172) |  |  | 3,025 |
Excess MSRs |  | (1,127) |  |  | (1,635) |  |  | (7,650) |  |  | (2,137) |
Net investments in Legacy Sequoia entities (2) |  | (81) |  |  | (407) |  |  | (702) |  |  | (904) |
Net investments in Sequoia Choice entities (2) |  | 7,851 |  |  | 2,722 |  |  | (22,065) |  |  | 8,866 |
Net investments in Freddie Mac SLST entities (2) |  | 82,214 |  |  | 17,300 |  |  | (33,081) |  |  | 31,702 |
Net investments in Freddie Mac K-Series entities (2) |  | 2,166 |  |  | 7,445 |  |  | (82,744) |  |  | 13,810 |
Net investments in CAFL entities (2) |  | 9,673 |  |  | — |  |  | (41,048) |  |  | — |
Other investments |  | 2,451 |  |  | (355) |  |  | (9,111) |  |  | (632) |
Risk management derivatives, net |  | — |  |  | (37,433) |  |  | (59,142) |  |  | (144,548) |
Credit recoveries (losses) on AFS securities |  | 444 |  |  | — |  |  | (1,027) |  |  | — |
Total investment fair value changes, net |  | $ | 107,047 |  |  | $ | 11,444 |  |  | $ | (611,557) |  |  | $ | 34,741 |
Other Income |  |  |  |  |  |  |  |
MSRs |  | $ | (4,783) |  |  | $ | (7,489) |  |  | $ | (27,346) |  |  | $ | (21,243) |
Risk management derivatives, net |  | — |  |  | 4,389 |  |  | 13,966 |  |  | 13,157 |
Gain on re-measurement of 5 Arches investment |  | — |  |  | — |  |  | — |  |  | 2,440 |
Total other income (3) |  | $ | (4,783) |  |  | $ | (3,100) |  |  | $ | (13,380) |  |  | $ | (5,646) |
Total Market Valuation Gains (Losses), Net |  | $ | 158,883 |  |  | $ | 14,549 |  |  | $ | (606,764) |  |  | $ | 62,720 |
(1)Mortgage banking activities, net presented above does not include fee income from loan originations or acquisitions, provisions for repurchases expense, and other expenses that are components of Mortgage banking activities, net presented on our consolidated statements of income (loss), as these amounts do not represent market valuation changes. (2)Includes changes in fair value of the residential loans held-for-investment, REO and the ABS issued at the entities, which netted together represent the change in value of our investments at the consolidated VIEs. (3)Other income presented above does not include net MSR fee income or provisions for repurchases for MSRs, as these amounts do not represent market valuation adjustments.
Quantitative Information about Significant Unobservable Inputs Used in Valuation of Level 3 Assets and Liabilities Measured at Fair Value | The following table provides quantitative information about the significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value. Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments
September 30, 2020 |  | Fair Value |  |  |  | Input Values
(Dollars in Thousands, except Input Values) |  |  | Unobservable Input |  | Range |  |  | Weighted Average(1)
Assets |  |  |  |  |  |  |  |  |  |  |  |
Residential loans, at fair value: |  |  |  |  |  |  |  |  |  |  |  |
Jumbo fixed-rate loans |  | $ | 6,312 |  |  | Prepayment rate (annual CPR) |  | 20 |  | - | 20 |  | % |  | 20 |  | %
|  |  |  | Whole loan spread to swap rate |  | 350 |  | - | 350 |  | bps |  | 350 |  | bps
Jumbo loans committed to sell |  | 98,779 |  |  | Whole loan committed sales price |  | $ | 101.61 |  | - | $ | 103.40 |  |  |  | $ | 103.23 |  |
Loans held by Legacy Sequoia (2) |  | 296,765 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Loans held by Sequoia Choice (2) |  | 1,836,361 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Loans held by Freddie Mac SLST (2) |  | 2,256,682 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Business purpose residential loans: |  |  |  |  |  |  |  |  |  |  |  |
Single-family rental loans |  | 285,549 |  |  | Senior credit spread |  | 130 |  | - | 130 |  | bps |  | 130 |  | bps
|  |  |  | Subordinate credit spread |  | 200 |  | - | 1,600 |  | bps |  | 551 |  | bps
|  |  |  | Senior credit support |  | 30 |  | - | 32 |  | % |  | 31 |  | %
|  |  |  | IO discount rate |  | 8 |  | - | 9 |  | % |  | 9 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | — |  | - | 3 |  | % |  | 3 |  | %
|  |  |  | Non-securitizable loan dollar price |  | $ | 101 |  | - | $ | 101 |  |  |  | $ | 101 |  |
Single-family rental loans held by CAFL |  | 2,969,692 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Residential bridge loans |  | 700,860 |  |  | Discount rate |  | 6 |  | - | 12 |  | % |  | 8 |  | %
|  |  |  | Non-performing loan dollar price |  | $ | 3 |  | - | $ | 100 |  |  |  | $ | 89 |  |
Multifamily loans held by Freddie Mac K-Series (2) |  | 491,415 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Trading and AFS securities |  | 351,335 |  |  | Discount rate |  | 3 |  | - | 34 |  | % |  | 9 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 7 |  | - | 65 |  | % |  | 24 |  | %
|  |  |  | Default rate |  | — |  | - | 26 |  | % |  | 1 |  | %
|  |  |  | Loss severity |  | — |  | - | 50 |  | % |  | 19 |  | %
|  |  |  | CRT dollar price |  | $ | 49 |  | - | $ | 103 |  |  |  | $ | 84 |  |
Servicer advance investments |  | 258,621 |  |  | Discount rate |  | 3 |  | - | 4 |  | % |  | 4 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 8 |  | - | 14 |  | % |  | 13 |  | %
|  |  |  | Expected remaining life (3) |  | 1 | - | 2 | years |  | 2 | years
|  |  |  | Mortgage servicing income |  | 6 |  | - | 16 |  | bps |  | 8 |  | bps
MSRs |  | 14,878 |  |  | Discount rate |  | 12 |  | - | 12 |  | % |  | 12 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 8 |  | - | 97 |  | % |  | 26 |  | %
|  |  |  | Per loan annual cost to service |  | $ | 95 |  | - | $ | 95 |  |  |  | $ | 95 |  |
Excess MSRs |  | 35,070 |  |  | Discount rate |  | 15 |  | - | 21 |  | % |  | 18 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 10 |  | - | 13 |  | % |  | 11 |  | %
|  |  |  | Excess mortgage servicing income |  | 9 |  | - | 17 |  | bps |  | 12 |  | bps
Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments (continued)
September 30, 2020 |  | Fair Value |  |  |  | Input Values
(Dollars in Thousands, except Input Values) |  |  | Unobservable Input |  | Range |  |  | Weighted Average (1)
Assets (continued) |  |  |  |  |  |  |  |  |  |  |  |
Shared home appreciation options |  | $ | 41,758 |  |  | Discount rate |  | 16 |  | - | 16 |  | % |  | 16 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 8 |  | - | 26 |  | % |  | 19 |  | %
|  |  |  | Home price appreciation |  | 2 |  | - | 3 |  | % |  | 3 |  | %
Guarantee asset |  | 579 |  |  | Discount rate |  | 12 |  | - | 12 |  | % |  | 12 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 42 |  | - | 42 |  | % |  | 42 |  | %
REO |  | 3,523 |  |  | Loss severity |  | 3 |  | - | 63 |  | % |  | 23 |  | %
Residential loan purchase commitments, net |  | 10,282 |  |  | Committed sales price |  | $ | 100.89 |  | - | $ | 103.40 |  |  |  | $ | 102.59 |  |
|  |  |  | Pull-through rate |  | 13 |  | - | 100 |  | % |  | 58 |  | %
|  |  |  | Whole loan spread to TBA price |  | $ | 2.00 |  | - | $ | 2.00 |  |  |  | $ | 2.00 |  |
|  |  |  | Whole loan spread to swap rate - fixed rate |  | 350 |  | - | 350 |  | bps |  | 350 |  | bps
|  |  |  | Prepayment rate (annual CPR) |  | 15 |  | - | 15 |  | % |  | 15 |  | %
|  |  |  | MSR multiple |  | 0.8 |  | - | 4.1 |  | x |  | 3.4 |  | x
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
ABS issued (2): |  |  |  |  |  |  |  |  |  |  |  |
At consolidated Sequoia entities |  | 1,919,048 |  |  | Discount rate |  | 2 |  | - | 30 |  | % |  | 3 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 5 |  | - | 53 |  | % |  | 27 |  | %
|  |  |  | Default rate |  | — |  | - | 40 |  | % |  | 2 |  | %
|  |  |  | Loss severity |  | — |  | - | 50 |  | % |  | 31 |  | %
At consolidated Freddie Mac SLST entities |  | 1,841,313 |  |  | Dollar price |  | $ | 1 |  | - | $ | 108 |  |  |  | $ | 99 |  |
At consolidated Freddie Mac K-Series entities (4) |  | 464,865 |  |  | Discount rate |  | 1 |  | - | 18 |  | % |  | 2 |  | %
At consolidated CAFL entities (4) |  | 2,744,150 |  |  | Discount rate |  | 0.2 |  | - | 40 |  | % |  | 3 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | — |  | - | 3 |  | % |  | — |  | %
|  |  |  | Default rate |  | — |  | - | 18 |  | % |  | 11 |  | %
|  |  |  | Loss severity |  | 30 |  | - | 30 |  | % |  | 30 |  | %
(1)The weighted average input values for all loan types are based on the unpaid principal balance. The weighted average input values for all other assets and liabilities are based on relative fair value. (2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities. At September 30, 2020, the fair value of securities we owned at the consolidated Sequoia, Freddie Mac SLST, Freddie Mac K-Series, and CAFL entities was $215 million, $416 million, $27 million, and $229 million, respectively. (3)Represents the estimated average duration of outstanding servicer advances at a given point in time (not taking into account new advances made with respect to the pool). (4)As a market convention, certain securities are priced to a no-loss yield and therefore do not include default and loss severity assumptions.

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