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Fair Value of Financial Instruments | 12 Months Ended
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Dec. 31, 2021
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments | Fair Value of Financial Instruments For financial reporting purposes, we follow a fair value hierarchy established under GAAP that is used to determine the fair value of financial instruments. This hierarchy prioritizes relevant market inputs in order to determine an “exit price” at the measurement date, or the price at which an asset could be sold or a liability could be transferred in an orderly process that is not a forced liquidation or distressed sale. Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets. Level 2 inputs are observable inputs other than quoted prices for an asset or liability that are obtained through corroboration with observable market data. Level 3 inputs are unobservable inputs (e.g., our own data or assumptions) that are used when there is little, if any, relevant market activity for the asset or liability required to be measured at fair value. In certain cases, inputs used to measure fair value fall into different levels of the fair value hierarchy. In such cases, the level at which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input requires judgment and considers factors specific to the asset or liability being measured. 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 December 31, 2021 and 2020. Table 5.1 – Carrying Values and Fair Values of Assets and Liabilities
|  | December 31, 2021 |  | December 31, 2020
|  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
(In Thousands) |  |  |  |
Assets |  |  |  |  |  |  |  |
Residential loans, held-for-sale at fair value |  | $ | 1,845,248 |  |  | $ | 1,845,248 |  |  | $ | 176,604 |  |  | $ | 176,604 |
Residential loans, held-for-investment |  | 5,747,150 |  |  | 5,747,150 |  |  | 4,072,410 |  |  | 4,072,410 |
Business purpose loans, held-for-sale |  | 358,309 |  |  | 358,309 |  |  | 245,394 |  |  | 245,394 |
Business purpose loans, held-for-investment |  | 4,432,680 |  |  | 4,432,680 |  |  | 3,890,959 |  |  | 3,890,959 |
Multifamily loans |  | 473,514 |  |  | 473,514 |  |  | 492,221 |  |  | 492,221 |
Real estate securities |  | 377,411 |  |  | 377,411 |  |  | 344,125 |  |  | 344,125 |
Servicer advance investments (1) |  | 350,923 |  |  | 350,923 |  |  | 231,489 |  |  | 231,489 |
MSRs (1) |  | 12,438 |  |  | 12,438 |  |  | 8,815 |  |  | 8,815 |
Excess MSRs (1) |  | 44,231 |  |  | 44,231 |  |  | 34,418 |  |  | 34,418 |
HEIs (1) |  | 192,740 |  |  | 192,740 |  |  | 42,440 |  |  | 42,440 |
Other investments (1) |  | 12,663 |  |  | 12,663 |  |  | 18,847 |  |  | 18,847 |
Cash and cash equivalents |  | 450,485 |  |  | 450,485 |  |  | 461,260 |  |  | 461,260 |
Restricted cash |  | 80,999 |  |  | 80,999 |  |  | 83,190 |  |  | 83,190 |
Derivative assets |  | 26,467 |  |  | 26,467 |  |  | 53,238 |  |  | 53,238 |
REO (2) |  | 36,126 |  |  | 39,272 |  |  | 8,413 |  |  | 9,229 |
Margin receivable (2) |  | 7,269 |  |  | 7,269 |  |  | 4,758 |  |  | 4,758 |
FHLBC stock (2) |  | 10 |  |  | 10 |  |  | 5,000 |  |  | 5,000 |
Pledged collateral (2) |  | — |  |  | — |  |  | 1,177 |  |  | 1,177 |
Liabilities |  |  |  |  |  |  |  |
Short-term debt |  | $ | 2,177,362 |  |  | $ | 2,177,362 |  |  | $ | 522,609 |  |  | $ | 522,609 |
Margin payable (3) |  | 24,368 |  |  | 24,368 |  |  | — |  |  | — |
Guarantee obligation (3) |  | 7,459 |  |  | 7,133 |  |  | 10,039 |  |  | 7,843 |
Point HEI non-controlling interest |  | 17,035 |  |  | 17,035 |  |  | — |  |  | — |
Derivative liabilities |  | 3,317 |  |  | 3,317 |  |  | 16,072 |  |  | 16,072 |
ABS issued net |  |  |  |  |  |  |  |
Fair value |  | 8,843,147 |  |  | 8,843,147 |  |  | 6,900,362 |  |  | 6,900,362 |
Amortized cost |  | 410,410 |  |  | 410,471 |  |  | 200,299 |  |  | 204,892 |
Other long-term debt, net (4) |  | 988,483 |  |  | 989,570 |  |  | 774,726 |  |  | 783,570 |
Convertible notes, net (4) |  | 513,629 |  |  | 537,300 |  |  | 511,085 |  |  | 499,865 |
Trust preferred securities and subordinated notes, net (4) |  | 138,721 |  |  | 97,650 |  |  | 138,674 |  |  | 80,910 |
(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. (4)The liabilities are included in Long-Term debt, net of our consolidated balance sheets. During the years ended December 31, 2021 and 2020, we elected the fair value option for $59 million and $108 million of securities, respectively, $12.92 billion and $4.37 billion of residential loans (principal balance), respectively, $2.22 billion and $1.40 billion of business purpose loans (principal balance), respectively, $197 million and $179 million of servicer advance investments, respectively, $18 million and $11 million of excess MSRs, respectively, $15 million and $0.5 million of other financial instruments, respectively. Additionally, during the years ended December 31, 2021 and 2020, we elected the fair value option for $155 million and $4 million of HEIs, respectively. We anticipate electing the fair value option for all future purchases of residential and business purpose loans that we intend to sell to third parties or transfer to securitizations, as well as for certain securities we purchase, including IO securities and fixed-rate securities rated investment grade or higher. The following table presents the assets and liabilities that are reported at fair value on our consolidated balance sheets on a recurring basis at December 31, 2021 and 2020, 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
December 31, 2021 |  | Carrying Value |  | Fair Value Measurements Using
(In Thousands) |  |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |  |
Residential loans |  | $ | 7,592,398 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,592,398 |
Business purpose loans |  | 4,790,989 |  |  | — |  |  | — |  |  | 4,790,989 |
Multifamily loans |  | 473,514 |  |  | — |  |  | — |  |  | 473,514 |
Real estate securities |  | 377,411 |  |  | — |  |  | — |  |  | 377,411 |
Servicer advance investments |  | 350,923 |  |  | — |  |  | — |  |  | 350,923 |
MSRs |  | 12,438 |  |  | — |  |  | — |  |  | 12,438 |
Excess MSRs |  | 44,231 |  |  | — |  |  | — |  |  | 44,231 |
HEIs |  | 192,740 |  |  | — |  |  | — |  |  | 192,740 |
Other investments |  | 17,574 |  |  | — |  |  | — |  |  | 17,574 |
Derivative assets |  | 26,467 |  |  | 2,906 |  |  | 18,928 |  |  | 4,633 |
FHLBC stock |  | 10 |  |  | — |  |  | 10 |  |  | — |
Liabilities |  |  |  |  |  |  |  |
Derivative liabilities |  | $ | 3,317 |  |  | $ | 1,563 |  |  | $ | 1,251 |  |  | $ | 503 |
ABS issued |  | 8,843,147 |  |  | — |  |  | — |  |  | 8,843,147 |
December 31, 2020 |  | Carrying Value |  | Fair Value Measurements Using
(In Thousands) |  |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |  |
Residential loans |  | $ | 4,249,014 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,249,014 |
Business purpose loans |  | 4,136,353 |  |  | — |  |  | — |  |  | 4,136,353 |
Multifamily loans |  | 492,221 |  |  | — |  |  | — |  |  | 492,221 |
Real estate securities |  | 344,125 |  |  | — |  |  | — |  |  | 344,125 |
Servicer advance investments |  | 231,489 |  |  | — |  |  | — |  |  | 231,489 |
MSRs |  | 8,815 |  |  | — |  |  | — |  |  | 8,815 |
Excess MSRs |  | 34,418 |  |  | — |  |  | — |  |  | 34,418 |
HEIs |  | 42,440 |  |  | — |  |  | — |  |  | 42,440 |
Derivative assets |  | 53,238 |  |  | 18,260 |  |  | 19,951 |  |  | 15,027 |
Pledged collateral |  | 1,177 |  |  | 1,177 |  |  | — |  |  | — |
FHLBC stock |  | 5,000 |  |  | — |  |  | 5,000 |  |  | — |
Liabilities |  |  |  |  |  |  |  |
Derivative liabilities |  | 16,072 |  |  | 15,495 |  |  | — |  |  | 577 |
ABS issued |  | 6,900,362 |  |  | — |  |  | — |  |  | 6,900,362 |
The following table presents additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the years ended December 31, 2021 and 2020. Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
|  | Assets |  |  |  |
|  | Residential Loans |  | Business Purpose Loans |  | Multifamily Loans |  | Trading Securities |  | AFS Securities |  | Servicer Advance Investments |  | Excess MSRs |  | HEIs |  | MSRs and Other Investments |  |  |  |
(In Thousands) |  |  |  |  |  |  |  |  |  |  |
Beginning balance - December 31, 2020 |  | $ | 4,249,014 |  |  | $ | 4,136,353 |  |  | $ | 492,221 |  |  | $ | 125,667 |  |  | $ | 218,458 |  |  | $ | 231,489 |  |  | $ | 34,418 |  |  | $ | 42,440 |  |  | $ | 27,662 |  |  |  |  |
Acquisitions |  | 13,139,907 |  |  | 136,685 |  |  | — |  |  | 58,917 |  |  | 19,100 |  |  | 196,583 |  |  | 17,830 |  |  | 155,023 |  |  | 15,215 |  |  |  |  |
Originations |  | — |  |  | 2,150,539 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Sales |  | (8,449,328) |  |  | (211,113) |  |  | — |  |  | (34,802) |  |  | (4,785) |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Principal paydowns |  | (1,360,649) |  |  | (1,307,566) |  |  | (7,639) |  |  | (2,713) |  |  | (57,953) |  |  | (76,223) |  |  | — |  |  | (19,395) |  |  | (14,751) |  |  |  |  |
Gains (losses) in net income (loss), net |  | 16,688 |  |  | (77,357) |  |  | (11,068) |  |  | 23,550 |  |  | 40,735 |  |  | (926) |  |  | (8,017) |  |  | 13,774 |  |  | (2,846) |  |  |  |  |
Unrealized losses in OCI, net |  | — |  |  | — |  |  | — |  |  | — |  |  | (8,763) |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Other settlements, net (1) |  | (3,234) |  |  | (36,552) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 898 |  |  | (179) |  |  |  |  |
Ending balance - December 31, 2021 |  | $ | 7,592,398 |  |  | $ | 4,790,989 |  |  | $ | 473,514 |  |  | $ | 170,619 |  |  | $ | 206,792 |  |  | $ | 350,923 |  |  | $ | 44,231 |  |  | $ | 192,740 |  |  | $ | 25,101 |  |  |  |  |
Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis (continued)
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Liabilities
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Derivatives (2) |  | Point HEI Non-Controlling Interest |  | ABS Issued
(In Thousands) |  |  |  |  |  |  |  |  |  |
Beginning balance - December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 14,450 |  |  | — |  |  | $ | 6,900,362 |
Acquisitions |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  | 16,639 |  |  | 4,202,070 |
Principal paydowns |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  | — |  |  | (1,922,313) |
Gains (losses) in net income (loss), net |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 10,437 |  |  | 396 |  |  | (336,972) |
Other settlements, net (1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (20,757) |  |  | — |  |  | — |
Ending balance - December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 4,130 |  |  | $ | 17,035 |  |  | $ | 8,843,147 |
|  | Assets |  |  |  |
(In Thousands) |  | Residential Loans |  | Business Purpose Loans |  | Multifamily Loans |  | Trading Securities |  | AFS Securities |  | Servicer Advance Investments |  | Excess MSRs |  | HEIs |  | MSRs and Other Investments |  |  |  |  |  |
Beginning balance - December 31, 2019 |  | $ | 7,714,745 |  |  | $ | 3,506,743 |  |  | $ | 4,408,524 |  |  | $ | 860,540 |  |  | $ | 239,334 |  |  | $ | 169,204 |  |  | $ | 31,814 |  |  | $ | 45,085 |  |  | $ | 67,313 |  |  |  |  |  |  |
Acquisitions |  | 4,483,473 |  |  | — |  |  | — |  |  | 108,249 |  |  | 57,652 |  |  | 179,419 |  |  | 10,906 |  |  | 3,517 |  |  | 450 |  |  |  |  |  |  |
Originations |  | — |  |  | 1,431,251 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |  |  |
Sales |  | (6,262,958) |  |  | (135,800) |  |  | — |  |  | (603,529) |  |  | (55,192) |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |  |  |
Principal paydowns |  | (1,552,171) |  |  | (753,026) |  |  | (7,703) |  |  | (8,687) |  |  | (17,924) |  |  | (107,527) |  |  | — |  |  | (4,278) |  |  | (5,843) |  |  |  |  |  |  |
Deconsolidations |  | — |  |  | — |  |  | (3,849,779) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |  |  |
Gains (losses) in net income, net |  | (132,307) |  |  | 99,590 |  |  | (58,821) |  |  | (230,906) |  |  | 10,792 |  |  | (9,607) |  |  | (8,302) |  |  | (1,884) |  |  | (34,258) |  |  |  |  |  |  |
Unrealized gains in OCI, net |  | — |  |  | — |  |  | — |  |  | — |  |  | (16,204) |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |  |  |
Other settlements, net (1) |  | (1,768) |  |  | (12,405) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |  |  |
Ending balance - December 31, 2020 |  | $ | 4,249,014 |  |  | $ | 4,136,353 |  |  | $ | 492,221 |  |  | $ | 125,667 |  |  | $ | 218,458 |  |  | $ | 231,489 |  |  | $ | 34,418 |  |  | $ | 42,440 |  |  | $ | 27,662 |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Liabilities
(In Thousands) |  |  |  |  |  |  |  |  |  |  |  | Derivatives (2) |  | Contingent Consideration |  | ABS Issued
Beginning balance - December 31, 2019 |  |  |  |  |  |  |  |  |  |  |  | $ | 8,860 |  |  | $ | 28,484 |  |  | $ | 10,515,475 |
Acquisitions |  |  |  |  |  |  |  |  |  |  |  | — |  |  | — |  |  | 1,478,589 |
Principal paydowns |  |  |  |  |  |  |  |  |  |  |  | — |  |  | (13,353) |  |  | (1,487,958) |
Deconsolidations |  |  |  |  |  |  |  |  |  |  |  | — |  |  | — |  |  | (3,706,789) |
Gains (losses) in net income, net |  |  |  |  |  |  |  |  |  |  |  | 56,972 |  |  | (446) |  |  | 101,045 |
Other settlements, net (1) |  |  |  |  |  |  |  |  |  |  |  | (51,382) |  |  | (14,685) |  |  | — |
Ending balance - December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  | $ | 14,450 |  |  | $ | — |  |  | $ | 6,900,362 |
(1) Other settlements, net for residential and business purpose 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. Other settlements, net for trading securities relates to the consolidation of Freddie Mac K-Series securitization entities. (2) For the purpose of this presentation, derivative assets and liabilities, which consist of loan purchase commitments, forward sale commitments, and interest rate lock commitments, are presented on a net basis. 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 December 31, 2021, 2020, and 2019. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the years ended December 31, 2021, 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 December 31, 2021, 2020, and 2019 Included in Net Income
|  | Included in Net Income
|  | Years Ended December 31,
(In Thousands) |  | 2021 |  | 2020 |  | 2019
Assets |  |  |  |  |  |
Residential loans at Redwood |  | $ | 5,886 |  |  | $ | 1,138 |  |  | $ | 67,470 |
Business purpose loans |  | 9,444 |  |  | 9,420 |  |  | 14,603 |
Net investments in consolidated Sequoia entities (1) |  | 12,455 |  |  | (14,646) |  |  | 4,529 |
Net investments in consolidated Freddie Mac SLST entities (1) |  | 62,124 |  |  | (21,220) |  |  | 27,225 |
Net investments in consolidated Freddie Mac K-Series entities (1) |  | 11,599 |  |  | (9,309) |  |  | 21,430 |
Net investments in consolidated CAFL SFR entities (1) |  | 8,198 |  |  | (37,062) |  |  | (14,681) |
Net investments in consolidated Point HEI entity (1) |  | 614 |  |  | — |  |  | — |
Trading securities |  | 738 |  |  | (83,327) |  |  | 18,865 |
Available-for-sale securities |  | — |  |  | (388) |  |  | — |
Servicer advance investments |  | (926) |  |  | (8,902) |  |  | 3,001 |
MSRs |  | 629 |  |  | (17,545) |  |  | (11,957) |
Excess MSRs |  | (8,017) |  |  | (8,302) |  |  | (3,260) |
HEIs at Redwood |  | 212 |  |  | (1,884) |  |  | 842 |
Loan purchase and interest rate lock commitments |  | 4,633 |  |  | 15,027 |  |  | 10,190 |
Liabilities |  |  |  |  |  |
Non-controlling interest in consolidated Point HEI entity |  | $ | (396) |  |  | $ | — |  |  | $ | — |
Loan purchase commitments |  | (503) |  |  | $ | (577) |  |  | $ | (1,290) |
Contingent consideration |  | — |  |  | — |  |  | (3,217) |
(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 December 31, 2021, 2020, and 2019, which netted together represent the change in value of our investments at the consolidated VIEs. The net gain attributable for the Point HEI entity excludes valuation change in the non-controlling interest in consolidated Point HEI entity, which is separately shown in Table 5.4 above. The following table presents information on assets recorded at fair value on a non-recurring basis at December 31, 2021 and 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 December 31, 2021 and 2020. Table 5.5 – Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
|  |  |  |  |  |  |  |  |  | Gain (Loss) for Year Ended
December 31, 2021 |  | Carrying Value |  | Fair Value Measurements Using |
(In Thousands) |  |  | Level 1 |  | Level 2 |  | Level 3 |  | December 31, 2021
Assets |  |  |  |  |  |  |  |  |  |
REO |  | $ | 588 |  |  | $ | — |  |  | $ | — |  |  | $ | 588 |  |  | $ | (217) |
|  |  |  |  |  |  |  |  |  | Gain (Loss) for Year Ended
December 31, 2020 |  | Carrying Value |  | Fair Value Measurements Using |
(In Thousands) |  |  | Level 1 |  | Level 2 |  | Level 3 |  | December 31, 2020
Assets |  |  |  |  |  |  |  |  |  |
REO |  | $ | 1,117 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,117 |  |  | $ | (157) |
The following table presents the net market valuation gains and losses recorded in each line item of our consolidated statements of income (loss) for the years ended December 31, 2021, 2020, and 2019. Table 5.6 – Market Valuation Gains and Losses, Net
|  | Years Ended December 31,
(In Thousands) |  | 2021 |  | 2020 |  | 2019
Mortgage Banking Activities, Net |  |  |  |  |  |
Residential loans held-for-sale, at fair value |  | $ | 73,332 |  |  | $ | (15,477) |  |  | $ | 3,267 |
Residential loan purchase and forward sale commitments |  | 10,401 |  |  | 56,761 |  |  | 60,260 |
Single-family rental loans held-for-sale, at fair value |  | 63,206 |  |  | 82,169 |  |  | 15,043 |
Single-family rental loan purchase and interest rate lock commitments |  | 666 |  |  | 341 |  |  | 1,961 |
Bridge loans |  | 8,253 |  |  | (4,998) |  |  | 4,518 |
Trading securities (1) |  | (352) |  |  | (4,535) |  |  | — |
Risk management derivatives, net |  | 41,060 |  |  | (47,779) |  |  | (15,723) |
Total mortgage banking activities, net (2) |  | $ | 196,566 |  |  | $ | 66,482 |  |  | $ | 69,326 |
Investment Fair Value Changes, Net |  |  |  |  |  |
Residential loans held-for-investment at Redwood |  | $ | 2,812 |  |  | $ | (93,314) |  |  | $ | 58,891 |
Single-family rental loans held-for-investment |  | — |  |  | (20,806) |  |  | 272 |
Bridge loans held-for-investment |  | (65) |  |  | (10,629) |  |  | (2,139) |
Trading securities |  | 23,935 |  |  | (226,196) |  |  | 56,046 |
Servicer advance investments |  | (925) |  |  | (8,901) |  |  | 3,001 |
Excess MSRs |  | (8,017) |  |  | (8,302) |  |  | (3,260) |
Net investments in Legacy Sequoia entities (3) |  | (1,558) |  |  | (1,513) |  |  | (1,545) |
Net investments in Sequoia entities (3) |  | 14,176 |  |  | (13,244) |  |  | 6,947 |
Net investments in Freddie Mac SLST entities (3) |  | 62,374 |  |  | (21,160) |  |  | 27,206 |
Net investments in Freddie Mac K-Series entities (3) |  | 11,599 |  |  | (81,039) |  |  | 21,430 |
Net investments in CAFL entities (3) |  | 10,271 |  |  | (36,754) |  |  | (3,636) |
Net investments in Point HEI entities (3) |  | 218 |  |  | — |  |  | — |
HEIs at Redwood |  | 13,207 |  |  | (1,883) |  |  | — |
Other investments |  | (366) |  |  | (5,167) |  |  | (544) |
Risk management derivatives, net |  | — |  |  | (59,142) |  |  | (127,169) |
Change in allowance for credit losses on AFS securities |  | 388 |  |  | (388) |  |  | — |
Total investment fair value changes, net |  | $ | 128,049 |  |  | $ | (588,438) |  |  | $ | 35,500 |
Other Income |  |  |  |  |  |
MSRs |  | $ | (3,182) |  |  | $ | (33,409) |  |  | $ | (18,856) |
Risk management derivatives, net |  | — |  |  | 13,966 |  |  | 8,595 |
Gain on re-measurement of 5 Arches investment |  | — |  |  | — |  |  | 2,441 |
Total other income (4) |  | $ | (3,182) |  |  | $ | (19,443) |  |  | $ | (7,820) |
Total Market Valuation (Losses) Gains, Net |  | $ | 321,433 |  |  | $ | (541,399) |  |  | $ | 97,006 |
(1)Represents fair value changes on trading securities that are being used along with risk management derivatives to manage the mark-to-market risks associated with our residential mortgage banking operations. (2)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. (3)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. (4)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. Valuation Policy We maintain policies that specify the methodologies we use to value different types of financial instruments. Significant changes to the valuation methodologies are reviewed by members of senior management to confirm the changes are appropriate and reasonable. Valuations based on information from external sources are performed on an instrument-by-instrument basis with the resulting amounts analyzed individually against internal calculations as well as in the aggregate by product type classification. Initial valuations are performed by our portfolio management groups using the valuation processes described below. Our finance department then independently reviews all fair value estimates to ensure they are reasonable. Finally, members of senior management review all fair value estimates, including an analysis of the methodology and valuation changes from prior reporting periods. Valuation Process We estimate fair values for financial assets or liabilities based on available inputs observed in the marketplace as well as unobservable inputs. We primarily use two pricing valuation techniques: market comparable pricing and discounted cash flow analysis. Market comparable pricing is used to determine the estimated fair value of certain instruments by incorporating known inputs and performance metrics, such as observed prepayment rates, delinquencies, severities, credit support, recent transaction prices, pending transactions, or prices of other similar instruments. Discounted cash flow analysis techniques generally consist of developing an estimate of future cash flows that are expected to occur over the life of an instrument and then discounting those cash flows at a rate of return that results in an estimate of fair value. After considering all available indications of the appropriate rate of return that market participants would require, we consider the reasonableness of the range indicated by the results to determine an estimate that is most representative of fair value. We also consider counterparty credit quality and risk as part of our fair value assessments. 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
December 31, 2021 |  | 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 |  | $ | 1,200,322 |  |  | Prepayment rate (annual CPR) |  | 20 |  | - | 20 |  | % |  | 20 |  | %
|  |  |  | Whole loan spread to TBA price |  | $ | 2.56 |  | - | $ | 2.56 |  |  |  | $ | 2.56 |  |
|  |  |  | Whole loan spread to swap rate |  | 185 |  | - | 185 |  | bps |  | 185 |  | bps
|  |  |  | Called loan dollar price |  | $ | 102 |  | - | $ | 102 |  |  |  | $ | 102 |  |
Jumbo loans committed to sell |  | 644,926 |  |  | Whole loan committed sales price |  | $ | 101.91 |  | - | $ | 102.58 |  |  |  | $ | 102.19 |  |
Loans held by Legacy Sequoia (2) |  | 230,455 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Loans held by Sequoia (2) |  | 3,628,465 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Loans held by Freddie Mac SLST (2) |  | 1,888,230 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Business purpose loans: |  |  |  |  |  |  |  |  |  |  |  |
Single-family rental loans |  | 358,309 |  |  | Senior credit spread |  | 85 |  | - | 110 |  | bps |  | 91 |  | bps
|  |  |  | Subordinate credit spread |  | 125 |  | - | 1,517 |  | bps |  | 362 |  | bps
|  |  |  | Senior credit support |  | 36 |  | - | 36 |  | % |  | 36 |  | %
|  |  |  | IO discount rate |  | 8 |  | - | 14 |  | % |  | 9 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 3 |  | - | 3 |  | % |  | 3 |  | %
|  |  |  | Non-securitizable loan dollar price |  | $ | 78 |  | - | $ | 103 |  |  |  | $ | 99 |  |
Single-family rental loans held by CAFL |  | 3,488,074 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Bridge loans |  | 944,606 |  |  | Discount rate |  | 4 |  | - | 15 |  | % |  | 6 |  | %
Multifamily loans held by Freddie Mac K-Series (2) |  | 473,514 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Trading and AFS securities |  | 377,411 |  |  | Discount rate |  | 2 |  | - | 47 |  | % |  | 7 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 7 |  | - | 50 |  | % |  | 26 |  | %
|  |  |  | Default rate |  | — |  | - | 27 |  | % |  | 4 |  | %
|  |  |  | Loss severity |  | — |  | - | 50 |  | % |  | 24 |  | %
|  |  |  | CRT dollar price |  | $ | 96 |  | - | $ | 112 |  |  |  | $ | 103 |  |
Servicer advance investments |  | 350,923 |  |  | Discount rate |  | 2 |  | - | 4 |  | % |  | 3 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 17 |  | - | 30 |  | % |  | 18 |  | %
|  |  |  | Expected remaining life (3) |  | 4 | - | 5 | yrs |  | 5 | yrs
|  |  |  | Mortgage servicing income |  | 2 |  | - | 18 |  | bps |  | 11 |  | bps
MSRs |  | 12,438 |  |  | Discount rate |  | 12 |  | - | 15 |  | % |  | 13 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 6 |  | - | 79 |  | % |  | 24 |  | %
|  |  |  | Per loan annual cost to service |  | $ | 95 |  | - | $ | 95 |  |  |  | $ | 95 |  |
Excess MSRs |  | 44,231 |  |  | Discount rate |  | 13 |  | - | 19 |  | % |  | 17 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 19 |  | - | 31 |  | % |  | 22 |  | %
|  |  |  | Excess mortgage servicing amount |  | 9 |  | - | 17 |  | bps |  | 11 |  | bps
Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments (continued)
December 31, 2021 |  | Fair Value |  |  |  | Input Values
(Dollars in Thousands, except Input Values) |  |  | Unobservable Input |  | Range |  |  | Weighted Average
Assets (continued) |  |  |  |  |  |  |  |  |  |  |  |
Shared Home Appreciation Options |  | $ | 33,187 |  |  | Discount rate |  | 10 |  | - | 10 |  | % |  | 10 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 1 |  | - | 24 |  | % |  | 17 |  | %
|  |  |  | Home Price Appreciation |  | 3 |  | - | 4 |  | % |  | 3 |  | %
HEIs held by Point HEI entity |  | $ | 159,553 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
REO |  | 588 |  |  | Loss severity |  | 9 |  | - | 100 |  | % |  | 17 |  | %
Residential loan purchase commitments, net |  | 3,464 |  |  | Prepayment rate (annual CPR) |  | 20 |  | - | 20 |  | % |  | 20 |  | %
|  |  |  | Whole loan spread to TBA price |  | $ | 2.56 |  | - | $ | 2.56 |  |  |  | $ | 2.56 |  |
|  |  |  | Whole loan spread to swap rate |  | 185 |  | - | 185 |  | bps |  | 185 |  | bps
|  |  |  | Pull-through rate |  | 7 |  | - | 100 |  | % |  | 69 |  | %
|  |  |  | Committed sales price |  | $ | 101.97 |  | - | $ | 102.62 |  |  |  | $ | 102.07 |  |
Single-family rental interest rate lock commitments |  | 666 |  |  | Senior credit spread |  | 85 |  | - | 85 |  | bps |  | 85 |  | bps
|  |  |  | Subordinate credit spread |  | 125 |  | - | 1,517 |  | bps |  | 450 |  | bps
|  |  |  | Senior credit support |  | 30 |  | - | 30 |  | % |  | 30 |  | %
|  |  |  | IO discount rate |  | 8 |  | - | 8 |  | % |  | 8 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 3 |  | - | 3 |  | % |  | 3 |  | %
|  |  |  | Pull-through rate |  | 100 |  |  | 100 |  | % |  | 100 |  | %
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
ABS issued (2) |  |  |  |  |  |  |  |  |  |  |  |
At consolidated Sequoia entities |  | 3,610,929 |  |  | Discount rate |  | 1 |  | - | 18 |  | % |  | 4 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 7 |  | - | 50 |  | % |  | 28 |  | %
|  |  |  | Default rate |  | — |  | - | 37 |  | % |  | 1 |  | %
|  |  |  | Loss severity |  | 25 |  | - | 50 |  | % |  | 32 |  | %
At consolidated CAFL SFR entities (4) |  | 3,207,444 |  |  | Discount rate |  | 1 |  | - | 12 |  | % |  | 3 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 3 |  | - | 3 |  | % |  | 3 |  | %
|  |  |  | Default rate |  | 5 |  | - | 20 |  | % |  | 8 |  | %
|  |  |  | Loss severity |  | 30 |  | - | 30 |  | % |  | 30 |  | %
At consolidated Freddie Mac SLST entities |  | 1,445,507 |  |  | Discount rate |  | 2 |  | - | 7 |  | % |  | 3 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 6 |  | - | 8 |  | % |  | 6 |  | %
|  |  |  | Default rate |  | 9 |  | - | 10 |  | % |  | 9 |  | %
|  |  |  | Loss severity |  | 35 |  | - | 35 |  | % |  | 35 |  | %
At consolidated Freddie Mac K-Series entities (4) |  | 441,857 |  |  | Discount rate |  | 1 |  | - | 8 |  | % |  | 2 |  | %
At consolidated Point HEI entities(4) |  | 137,410 |  |  | Discount rate |  | 4 |  | - | 15 |  | % |  | 5 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 20 |  | - | 20 |  | % |  | 20 |  | %
|  |  |  | Default rate |  | 6 |  | - | 6 |  | % |  | 6 |  | %
|  |  |  | Loss severity |  | 25 |  | - | 25 |  | % |  | 25 |  | %
|  |  |  | Home price appreciation |  | 3 |  | - | 4 |  | % |  | 3 |  | %
Footnotes to Table 5.7 (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 December 31, 2021, the fair value of securities we owned at the consolidated Sequoia, CAFL SFR, Freddie Mac SLST, Freddie Mac K-Series, and Point HEI entities was $248 million, $302 million, $445 million, $32 million, and $10 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. Determination of Fair Value A description of the instruments measured at fair value as well as the general classification of such instruments pursuant to the Level 1, Level 2, and Level 3 valuation hierarchy is listed herein. We generally use both market comparable information and discounted cash flow modeling techniques to determine the fair value of our Level 3 assets and liabilities. Use of these techniques requires determination of relevant inputs and assumptions, some of which represent significant unobservable inputs as indicated in the preceding table. Accordingly, a significant increase or decrease in any of these inputs – such as anticipated credit losses, prepayment rates, interest rates, or other valuation assumptions – in isolation would likely result in a significantly lower or higher fair value measurement. Residential loans, business purpose loans, multifamily loans a nd HEI at con solidated entities We have elected to account for most of our consolidated securitization entities as collateralized financing entities in accordance with GAAP. A CFE is a variable interest entity that holds financial assets and issues beneficial interests in those assets, and these beneficial interests have contractual recourse only to the related assets of the CFE. Accounting guidance for CFEs allows companies to elect to measure both the financial assets and financial liabilities of a CFE using the more observable of the fair value of the financial assets or fair value of the financial liabilities. Pursuant to this guidance, we use the fair value of the ABS issued by the CFEs (which we determined to be more observable) to determine the fair value of the loans held at these entities, whereby the net assets we consolidate in our financial statements related to these entities represent the estimated fair value of our retained interests in the CFEs. Residential loans at Redwood Estimated fair values for residential loans are determined using models that incorporate various observable inputs, including pricing information from whole loan sales and securitizations. Certain significant inputs in these models are considered unobservable and are therefore Level 3 in nature. Significant pricing inputs obtained from market whole loan transaction activity include indicative spreads to indexed TBA prices and indexed swap rates for fixed-rate loans and indexed swap rates for hybrid loans (Level 3). Significant pricing inputs obtained from market securitization activity include indicative spreads to indexed TBA prices for senior MBS and indexed swap rates for subordinate MBS, senior credit support levels, and assumed future prepayment rates (Level 3). These assets would generally decrease in value based upon an increase in the credit spread, prepayment speed, or credit support assumptions. Business purpose loans Business purpose loans include single-family rental loans and bridge loans. Significant inputs in the valuation analysis for these assets are predominantly Level 3 in nature, due to the lack of readily available market quotes and related inputs. Estimated fair values for our securitizable single-family rental loans are determined using models that incorporate various inputs, including pricing information from market comparable securitizations. Certain significant inputs in these models are considered unobservable and are therefore Level 3 in nature. Significant pricing inputs obtained from market activity include indicative spreads to indexed swap rates for senior and subordinate MBS, IO MBS discount rates, senior credit support levels, and assumed future prepayment rates (Level 3). These assets would generally decrease in value based upon an increase in the credit spread, prepayment speed, or credit support assumptions. Non-securitizable single-family rental loans are generally comprised of performing loans that cannot be securitized and certain delinquent loans, and are valued at a dollar price that is informed by various market data, including the estimated fair value of the collateral securing the loan, for which we typically receive third-party appraisals (Level 3). Prices for our bridge loans are determined using discounted cash flow modeling, which incorporates a primary significant unobservable input of discount rate. Cash flows for performing loans are generally based on contractual loan terms, whereas cash flows for delinquent loans are generally based on the estimated fair value of the underlying collateral, for which we typically receive third-party appraisals (Level 3). These assets would generally decrease in value based upon an increase in the discount rate. Real estate securities Real estate securities include residential, multifamily, and other mortgage-backed securities that are generally illiquid in nature and trade infrequently. Significant inputs in the valuation analysis for these assets are predominantly Level 3 in nature, due to the lack of readily available market quotes and related inputs. For real estate securities, we utilize both market comparable pricing and discounted cash flow analysis valuation techniques. Relevant market indicators that are factored into the analysis include bid/ask spreads, the amount and timing of credit losses, interest rates, and collateral prepayment rates. Estimated fair values are based on applying the market indicators to generate discounted cash flows (Level 3). These cash flow models use significant unobservable inputs such as a discount rate, prepayment rate, default rate and loss severity. The estimated fair value of our securities would generally decrease based upon an increase in discount rate, default rates, loss severities, or a decrease in prepayment rates. Derivative assets and liabilities Our derivative instruments include swaps, swaptions, TBAs, interest rate futures, loan purchase commitments, and forward sale commitments. Fair values of derivative instruments are determined using quoted prices from active markets, when available, or from valuation models and are supported by valuations provided by dealers active in derivative markets. Fair values of TBAs and interest rate futures are generally obtained using quoted prices from active markets (Level 1). Our derivative valuation models for swaps and swaptions require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, prepayment rates, and correlations of certain inputs. Model inputs can generally be verified and model selection does not involve significant management judgment (Level 2). LPC, IRLC and FSC fair values for residential jumbo and single-family rental loans are estimated based on the estimated fair values of the underlying loans (as described in "Residential loans at Redwood" and "Business purpose loans" above). In addition, fair values for LPCs and IRLCs are estimated based on the probability that the mortgage loan will be purchased or originated (the "Pull-through rate") (Level 3). Servicer advance investments Estimated fair values for servicer advance investments are determined through internal pricing models that estimate future cash flows and utilize certain significant inputs that are considered unobservable and are therefore Level 3 in nature. Our estimations of cash flows include the combined cash flows of all of the components that comprise the servicer advance investments: existing advances, the requirement to purchase future advances, the recovery of advances, and the right to a portion of the associated mortgage servicing fee ("mortgage servicing income"). The valuation technique is based on discounted cash flows. Significant inputs used in the valuations include prepayment rate (of the loans underlying the investments), mortgage servicing income, servicer advance WAL (the weighted-average expected remaining life of servicer advances), and discount rate. These assets would generally decrease in value based upon an increase in prepayment rates, an increase in servicer advance WAL, an increase in discount rate, or a decrease in mortgage servicing income. MSRs MSRs include the rights to service jumbo residential mortgage loans. Significant inputs in the valuation analysis are predominantly Level 3, due to the nature of these instruments and the lack of readily available market quotes. Changes in the fair value of MSRs occur primarily due to the collection/realization of expected cash flows, as well as changes in valuation inputs and assumptions. Estimated fair values are based on applying the inputs to generate the net present value of estimated future MSR income (Level 3). These discounted cash flow models utilize certain significant unobservable inputs including market discount rates, assumed future prepayment rates of serviced loans, and the market cost of servicing. An increase in these unobservable inputs would generally reduce the estimated fair value of the MSRs. Excess MSRs Estimated fair values for excess MSRs are determined through internal pricing models that estimate future cash flows and utilize certain significant inputs that are considered unobservable and are therefore Level 3 in nature. The valuation technique is based on discounted cash flows. Significant unobservable inputs used in the valuations include prepayment rate (of the loans underlying the investments), the amount of excess servicing income expected to be received ("excess mortgage servicing income"), and discount rate. These assets would generally decrease in value based upon an increase in prepayment rates or discount rate, or a decrease in excess mortgage servicing income. HEI at Redwood Estimated fair values for home equity investment contracts are determined through internal pricing models that estimate future cash flows and utilize certain significant unobservable inputs such as forecasted home price appreciation, prepayment rates, default rate, loss severity and discount rate, and are therefore Level 3 in nature. The valuation technique is based on discounted cash flows. An increase in discount rate, default rate or loss severity, or a decrease in expected future home values combined with a decrease in prepayment rates, would generally reduce the estimated fair value of the HEIs. Other Investments Certain of our Other investments (comprised of strategic investments in early-stage start-up companies) are Level 3 financial instruments that we account for under the fair value option. These investments generally take the form of equity or debt with conversion features and do not have readily determinable fair values. We initially record these investments at cost and adjust their fair value based on observable price changes, such as follow-on capital raises or secondary sales, and will also evaluate impacts to valuation from changing market conditions and underlying business performance. Cash and cash equivalents Cash and cash equivalents include cash on hand and highly liquid investments with original maturities of three months or less and money market fund investments which are generally invested in U.S. government securities and are available to us on a daily basis. Fair values equal carrying values (Level 1). Restricted cash Restricted cash primarily includes interest-earning cash balances related to risk-sharing transactions with the Agencies, cash held in association with borrowings from the FHLBC, cash held at Servicing Investment entities, and cash held at consolidated Sequoia entities for the purpose of distribution to investors and reinvestment. Due to the short-term nature of the restrictions, fair values approximate carrying values (Level 1). Accrued interest receivable and payable Accrued interest receivable and payable includes interest due on our assets and payable on our liabilities. Due to the short-term nature of when these interest payments will be received or paid, fair values approximate carrying values (Level 1). Real estate owned Real estate owned ("REO") includes properties owned in satisfaction of foreclosed loans. Fair values are determined using available market quotes, appraisals, broker price opinions, comparable properties, or other indications of value (Level 3). Margin receivable Margin receivable reflects cash collateral we have posted with our various derivative and debt counterparties as required to satisfy margin requirements. Fair values approximate carrying values (Level 2). Short-term debt Short-term debt includes our credit facilities for residential and business purpose loans and real estate securities as well as non-recourse short-term borrowings used to finance servicer advance investments. As these borrowings are secured and subject to margin calls and as the rates on these borrowings reset frequently to market rates, we believe that carrying values approximate fair values (Level 2). ABS issued ABS issued includes asset-backed securities issued through the Legacy Sequoia, Sequoia, and CAFL securitization entities, as well as securities issued by certain third-party Freddie Mac K-Series and SLST securitization entities that we consolidate. These instruments are generally illiquid in nature and trade infrequently. Significant inputs in the valuation analysis are predominantly Level 3, due to the nature of these instruments and the lack of readily available market quotes. For ABS issued, we utilize both market comparable pricing and discounted cash flow analysis valuation techniques. Relevant market indicators factored into the analysis include bid/ask spreads, the amount and timing of collateral credit losses, interest rates, and collateral prepayment rates. Estimated fair values incorporate market indicators as well as other significant unobservable inputs to generate discounted cash flows (Level 3). These cash flow models use significant unobservable inputs such as discount rate, prepayment rate, default rate, and loss severity. A decrease in credit losses or discount rates, or an increase in prepayment rates, would generally cause the fair value of the ABS issued to decrease (i.e., become a larger liability). Financial Instruments Carried at Amortized Cost Guarantee obligations In association with our risk-sharing transactions with the Agencies, we have made certain guarantees which are carried on our balance sheet at amortized cost (Level 3). ABS issued We account for certain ABS issued by securitizations we consolidate at amortized cost (Level 3). Subordinate securities financing facilities Borrowings under our subordinate securities financing facilities are secured by real estate securities and carried at unpaid principal balance net of any unamortized deferred issuance costs (Level 3). Non-Recourse Business Purpose Loan Financing Facilities Borrowings under our non-recourse business purpose loans financing facilities are secured by bridge loans and other BPL investments and carried at unpaid principal balance net of any unamortized deferred issuance costs (Level 3). Recourse Business Purpose Loan Financing Facilities Borrowings under our recourse business purpose loan financing facilities are secured by bridge loans and single-family rental loans and carried at unpaid principal balance net of any unamortized deferred issuance costs (Level 3). Recourse Revolving Debt Facility Borrowings under our recourse revolving debt facility are secured by MSRs and certificated mortgage servicing rights and carried at unpaid principal balance (Level 3). Convertible notes Convertible notes include unsecured convertible and exchangeable senior notes that are carried at their unpaid principal balance net of any unamortized deferred issuance costs. The fair value of the convertible notes is determined using quoted prices in generally active markets (Level 2). Trust preferred securities and subordinated notes Trust preferred securities and subordinated notes are carried at their unpaid principal balance net of any unamortized deferred issuance costs (Level 3).

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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