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Fair Value of Financial Instruments | 9 Months Ended
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Sep. 30, 2023
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 September 30, 2023 and December 31, 2022. Table 5.1 – Carrying Values and Fair Values of Assets and Liabilities
|  | September 30, 2023 |  | December 31, 2022
|  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
(In Thousands) |  |  |  |
Assets |  |  |  |  |  |  |  |
Residential loans, held-for-sale, at fair value |  | $ | 610,918 |  |  | $ | 610,918 |  |  | $ | 780,781 |  |  | $ | 780,781 |
Residential loans, held-for-investment, at fair value |  | 5,236,391 |  |  | 5,236,391 |  |  | 4,832,407 |  |  | 4,832,407 |
Business purpose loans, held-for-sale, at fair value |  | 102,777 |  |  | 102,777 |  |  | 364,073 |  |  | 364,073 |
Business purpose loans, held-for-investment, at fair value |  | 5,146,553 |  |  | 5,146,553 |  |  | 4,968,513 |  |  | 4,968,513 |
Consolidated Agency multifamily loans, at fair value |  | 420,554 |  |  | 420,554 |  |  | 424,551 |  |  | 424,551 |
Real estate securities, at fair value |  | 129,445 |  |  | 129,445 |  |  | 240,475 |  |  | 240,475 |
HEI |  | 431,272 |  |  | 431,272 |  |  | 403,462 |  |  | 403,462 |
Servicer advance investments (1) |  | 219,813 |  |  | 219,813 |  |  | 269,259 |  |  | 269,259 |
MSRs (1) |  | 26,033 |  |  | 26,033 |  |  | 25,421 |  |  | 25,421 |
Excess MSRs (1) |  | 38,427 |  |  | 38,427 |  |  | 39,035 |  |  | 39,035 |
Other investments (1) |  | 5,583 |  |  | 5,583 |  |  | 6,155 |  |  | 6,155 |
Cash and cash equivalents |  | 203,622 |  |  | 203,622 |  |  | 258,894 |  |  | 258,894 |
Restricted cash |  | 56,101 |  |  | 56,101 |  |  | 70,470 |  |  | 70,470 |
Derivative assets |  | 37,686 |  |  | 37,686 |  |  | 20,830 |  |  | 20,830 |
Margin receivable (2) |  | 10,536 |  |  | 10,536 |  |  | 13,802 |  |  | 13,802 |
Liabilities |  |  |  |  |  |  |  |
Short-term debt (3) |  | $ | 1,329,017 |  |  | $ | 1,327,134 |  |  | $ | 1,853,664 |  |  | $ | 1,853,664 |
Margin payable (4) |  | 25,210 |  |  | 25,210 |  |  | 5,944 |  |  | 5,944 |
Guarantee obligations (4) |  | 5,913 |  |  | 3,734 |  |  | 6,344 |  |  | 4,738 |
HEI securitization non-controlling interest |  | 25,627 |  |  | 25,627 |  |  | 22,329 |  |  | 22,329 |
Derivative liabilities |  | 8,781 |  |  | 8,781 |  |  | 16,855 |  |  | 16,855 |
ABS issued, net |  |  |  |  |  |  |  |
at fair value |  | 7,910,345 |  |  | 7,910,345 |  |  | 7,424,132 |  |  | 7,424,132 |
at amortized cost |  | 481,705 |  |  | 454,973 |  |  | 562,620 |  |  | 524,768 |
Other long-term debt, net (5) |  | 1,320,733 |  |  | 1,315,014 |  |  | 1,077,200 |  |  | 1,069,946 |
Convertible notes, net (5) |  | 517,662 |  |  | 489,828 |  |  | 693,473 |  |  | 638,049 |
Trust preferred securities and subordinated notes, net (5) |  | 138,802 |  |  | 97,650 |  |  | 138,767 |  |  | 83,700 |
(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)Short-term debt excludes short-term convertible notes, which are included below under "Convertible notes, net." (4)These liabilities are included in Accrued expenses and other liabilities on our consolidated balance sheets. (5)These liabilities are primarily included in Long-term debt, net on our consolidated balance sheets. Convertible notes, net also includes convertible notes classified as Short-term debt. See Note 14 for more information on Short-term debt. During the three and nine months ended September 30, 2023, we elected the fair value option for zero and $8 million of securities, respectively, $858 million and $1.1 billion (principal balance) of residential loans, respectively, and $411 million and $1.26 billion (principal balance) of business purpose loans, respectively. Additionally, during the three and nine months ended September 30, 2023, we elected the fair value option for $0.1 million and $26 million of HEI, respectively. For the three and nine months ended September 30, 2023, we elected the fair value option for zero and $1 million, respectively, of Other investments. 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, HEI and certain equity investments. 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, 2023 and December 31, 2022, 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, 2023 |  | Carrying Value |  | Fair Value Measurements Using
(In Thousands) |  |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |  |
Residential loans |  | $ | 5,847,309 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,847,309 |
Business purpose loans |  | 5,249,330 |  |  | — |  |  | — |  |  | 5,249,330 |
Consolidated Agency multifamily loans |  | 420,554 |  |  | — |  |  | — |  |  | 420,554 |
Real estate securities |  | 129,445 |  |  | — |  |  | — |  |  | 129,445 |
HEI |  | 431,272 |  |  | — |  |  | — |  |  | 431,272 |
Servicer advance investments |  | 219,813 |  |  | — |  |  | — |  |  | 219,813 |
MSRs |  | 26,033 |  |  | — |  |  | — |  |  | 26,033 |
Excess MSRs |  | 38,427 |  |  | — |  |  | — |  |  | 38,427 |
Other investments |  | 5,583 |  |  | — |  |  | — |  |  | 5,583 |
Derivative assets |  | 37,686 |  |  | 18,800 |  |  | 13,819 |  |  | 5,067 |
Liabilities |  |  |  |  |  |  |  |
HEI securitization non-controlling interest |  | $ | 25,627 |  |  | $ | — |  |  | $ | — |  |  | $ | 25,627 |
Derivative liabilities |  | 8,781 |  |  | 5,694 |  |  | — |  |  | 3,087 |
ABS issued |  | 7,910,345 |  |  | — |  |  | — |  |  | 7,910,345 |
December 31, 2022 |  | Carrying Value |  | Fair Value Measurements Using
(In Thousands) |  |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |  |
Residential loans |  | $ | 5,613,157 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,613,157 |
Business purpose loans |  | 5,332,586 |  |  | — |  |  | — |  |  | 5,332,586 |
Consolidated Agency multifamily loans |  | 424,551 |  |  | — |  |  | — |  |  | 424,551 |
Real estate securities |  | 240,475 |  |  | — |  |  | — |  |  | 240,475 |
HEI |  | 403,462 |  |  | — |  |  | — |  |  | 403,462 |
Servicer advance investments |  | 269,259 |  |  | — |  |  | — |  |  | 269,259 |
MSRs |  | 25,421 |  |  | — |  |  | — |  |  | 25,421 |
Excess MSRs |  | 39,035 |  |  | — |  |  | — |  |  | 39,035 |
Other investments |  | 6,155 |  |  | — |  |  | — |  |  | 6,155 |
Derivative assets |  | 20,830 |  |  | 5,869 |  |  | 14,625 |  |  | 336 |
Liabilities |  |  |  |  |  |  |  |
HEI securitization non-controlling interest |  | $ | 22,329 |  |  | $ | — |  |  | $ | — |  |  | $ | 22,329 |
Derivative liabilities |  | 16,855 |  |  | 16,841 |  |  | — |  |  | 14 |
ABS issued |  | 7,424,132 |  |  | — |  |  | — |  |  | 7,424,132 |
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, 2023. Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
|  | Assets
|  | Residential Loans |  | Business Purpose Loans |  | Consolidated Agency Multifamily Loans |  | Trading Securities |  | AFS Securities |  | HEI |  | Servicer Advance Investments |  | Excess MSRs |  | MSRs and Other Investments
(In Thousands) |  |  |  |  |  |  |  |  |
Beginning balance - December 31, 2022 |  | $ | 5,613,157 |  |  | $ | 5,332,586 |  |  | $ | 424,552 |  |  | $ | 108,329 |  |  | $ | 132,146 |  |  | $ | 403,462 |  |  | $ | 269,259 |  |  | $ | 39,035 |  |  | $ | 31,576 |
Acquisitions |  | 1,050,444 |  |  | — |  |  | — |  |  | 7,883 |  |  | 1,979 |  |  | 25,626 |  |  | — |  |  | — |  |  | 500 |
Originations |  | — |  |  | 1,255,680 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Sales |  | (226,646) |  |  | (471,336) |  |  | — |  |  | (82,270) |  |  | (54,339) |  |  | — |  |  | — |  |  | — |  |  | (272) |
Principal paydowns |  | (363,128) |  |  | (802,610) |  |  | (6,198) |  |  | (324) |  |  | (632) |  |  | (26,153) |  |  | (55,828) |  |  | — |  |  | (114) |
Gains (losses) in net income, net |  | (224,162) |  |  | (17,809) |  |  | 2,200 |  |  | 14,423 |  |  | 946 |  |  | 28,337 |  |  | 6,382 |  |  | (608) |  |  | 426 |
Unrealized losses in OCI, net |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,304 |  |  | — |  |  | — |  |  | — |  |  | — |
Other settlements, net (1) |  | (2,356) |  |  | (47,181) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (500) |
Ending balance - September 30, 2023 |  | $ | 5,847,309 |  |  | $ | 5,249,330 |  |  | $ | 420,554 |  |  | $ | 48,041 |  |  | $ | 81,404 |  |  | $ | 431,272 |  |  | $ | 219,813 |  |  | $ | 38,427 |  |  | $ | 31,616 |
|  |  | Liabilities
|  | Derivatives (2) |  | HEI Securitization Non-Controlling Interest |  | ABS Issued
(In Thousands) |  |  |
Beginning balance - December 31, 2022 |  | $ | 322 |  |  | $ | 22,329 |  |  | $ | 7,424,132 |
Acquisitions |  | — |  |  | — |  |  | 1,240,120 |
Principal paydowns |  | — |  |  | — |  |  | (571,883) |
Gains (losses) in net income, net |  | 10,086 |  |  | 3,298 |  |  | (182,023) |
Other settlements, net (1) |  | (8,428) |  |  | — |  |  | — |
Ending balance - September 30, 2023 |  | $ | 1,980 |  |  | $ | 25,627 |  |  | $ | 7,910,346 |
(1) Other settlements, net: for residential and business purpose loans, represents the transfer of loans to REO; for derivatives, represents the transfer of the fair value of loan purchase and interest rate lock commitments at the time loans are acquired to the basis of residential and business purpose loans; and for MSRs and other investments, primarily represents an investment that was exchanged into a new instrument that is no longer measured at fair value on a recurring basis. (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. The following table presents the portion of fair value gains or losses included in our consolidated statements of income that were attributable to Level 3 assets and liabilities recorded at fair value on a recurring basis and held at September 30, 2023 and 2022. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the three and nine months ended September 30, 2023 and 2022 are not included in this presentation. Table 5.4 – Portion of Net Fair Value Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held at September 30, 2023 and 2022 Included in Net Income
|  | Included in Net Income (loss)
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In Thousands) |  | 2023 |  | 2022 |  | 2023 |  | 2022
Assets |  |  |  |  |  |  |  |
Residential loans at Redwood |  | $ | (3,963) |  |  | $ | (28,762) |  |  | $ | (4,404) |  |  | $ | (42,952) |
Business purpose loans at Redwood and CAFL Bridge |  | (15,646) |  |  | (10,967) |  |  | (25,876) |  |  | (39,019) |
Net investments in consolidated Sequoia entities (1) |  | (4,471) |  |  | (11,264) |  |  | (1,952) |  |  | (22,467) |
Net investments in consolidated Freddie Mac SLST entities (1) |  | (32,397) |  |  | (41,969) |  |  | (40,398) |  |  | (75,043) |
Net investments in consolidated Freddie Mac K-Series entities (1) |  | 390 |  |  | 316 |  |  | 1,138 |  |  | 390 |
Net investments in consolidated CAFL Term entities (1) |  | (3,800) |  |  | (6,585) |  |  | (1,903) |  |  | (24,365) |
Net investment in consolidated HEI securitization entity (1) |  | 2,700 |  |  | (1,652) |  |  | 5,145 |  |  | 11,348 |
Trading securities |  | 4,408 |  |  | (12,668) |  |  | 5,795 |  |  | (34,104) |
Available-for-sale securities |  | 66 |  |  | — |  |  | (32) |  |  | — |
HEI at Redwood |  | 8,705 |  |  | (4,903) |  |  | 19,592 |  |  | (2,272) |
Servicer advance investments |  | 4,069 |  |  | (3,905) |  |  | 6,383 |  |  | (10,218) |
MSRs |  | 160 |  |  | 1,653 |  |  | 1,425 |  |  | 9,118 |
Excess MSRs |  | (1,450) |  |  | (351) |  |  | (608) |  |  | (3,779) |
Loan purchase and interest rate lock commitments |  | 5,061 |  |  | 723 |  |  | 5,067 |  |  | 744 |
Liabilities |  |  |  |  |  |  |  |
Non-controlling interest in consolidated HEI entity |  | $ | (1,732) |  |  | $ | 1,068 |  |  | $ | (3,298) |  |  | $ | (7,320) |
Loan purchase commitments |  | (3,087) |  |  | (212) |  |  | (3,087) |  |  | (212) |
(1) Represents the portion of net fair value gains or losses included in our consolidated statements of income related to securitized loans, securitized HEI, and the associated ABS issued at our consolidated securitization entities held at September 30, 2023 and 2022, which, netted together, represent the change in value of our investments at the consolidated VIEs accounted for under the CFE election, excluding REO. The following table presents information on assets recorded at fair value on a non-recurring basis at September 30, 2023. 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, 2023. Table 5.5 – Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis at September 30, 2023
|  |  |  |  |  |  |  |  |  | Gain (Loss) for
September 30, 2023 |  | Carrying Value |  | Fair Value Measurements Using |  | Three Months Ended |  | Nine Months Ended
(In Thousands) |  |  | Level 1 |  | Level 2 |  | Level 3 |  | September 30, 2023 |  | September 30, 2023
Assets |  |  |  |  |  |  |  |  |  |  |  |
Strategic investments |  | $ | 6,750 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,750 |  |  | $ | 100 |  |  | $ | (2,550) |
REO |  | 423 |  |  | — |  |  | — |  |  | 423 |  |  | (65) |  |  | (65) |
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, 2023 and 2022. Table 5.6 – Market Valuation Gains and Losses, Net
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In Thousands) |  | 2023 |  | 2022 |  | 2023 |  | 2022
Mortgage Banking Activities, Net |  |  |  |  |  |  |  |
Residential loans held-for-sale |  | $ | (8,683) |  |  | $ | (20,060) |  |  | $ | (2,774) |  |  | $ | (71,776) |
Residential loan purchase commitments |  | 5,864 |  |  | (2,716) |  |  | 8,045 |  |  | (53,236) |
BPL term loans held-for-sale |  | 1,600 |  |  | (19,325) |  |  | 13,214 |  |  | (83,827) |
BPL term loan interest rate lock commitments |  | — |  |  | 19 |  |  | — |  |  | (666) |
BPL bridge loans |  | 1,438 |  |  | (9) |  |  | 4,808 |  |  | 2,242 |
Trading securities (1) |  | (482) |  |  | 148 |  |  | 2,188 |  |  | 4,249 |
Risk management derivatives, net |  | 15,591 |  |  | 48,363 |  |  | 11,802 |  |  | 164,137 |
Total mortgage banking activities, net (2) |  | $ | 15,328 |  |  | $ | 6,420 |  |  | $ | 37,283 |  |  | $ | (38,877) |
Investment Fair Value Changes, Net |  |  |  |  |  |  |  |
Residential loans held-for-investment, at Redwood (called Sequoia loans) |  | $ | — |  |  | $ | (6,614) |  |  | $ | 183 |  |  | $ | (18,876) |
BPL term loans held-for-sale |  | — |  |  | — |  |  | (14,430) |  |  | — |
BPL bridge loans held-for-investment |  | (16,899) |  |  | 2,482 |  |  | (22,867) |  |  | (9,220) |
Trading securities |  | 5,738 |  |  | (12,668) |  |  | 12,271 |  |  | (34,268) |
Servicer advance investments |  | 4,069 |  |  | (3,905) |  |  | 6,382 |  |  | (10,217) |
Excess MSRs |  | (1,450) |  |  | (351) |  |  | (608) |  |  | (3,779) |
Net investments in Legacy Sequoia entities (3) |  | (215) |  |  | (328) |  |  | (319) |  |  | (1,378) |
Net investments in Sequoia entities (3) |  | (4,256) |  |  | (10,936) |  |  | (886) |  |  | (20,644) |
Net investments in Freddie Mac SLST entities (3) |  | (32,388) |  |  | (41,892) |  |  | (40,017) |  |  | (74,796) |
Net investment in Freddie Mac K-Series entity (3) |  | 390 |  |  | 316 |  |  | 1,138 |  |  | 390 |
Net investments in CAFL Term entities (3) |  | (3,800) |  |  | (6,585) |  |  | (1,903) |  |  | (24,365) |
Net investments in HEI securitization entities (3) |  | 968 |  |  | (584) |  |  | 1,846 |  |  | 4,028 |
HEI at Redwood |  | 9,290 |  |  | (4,774) |  |  | 21,598 |  |  | (1,986) |
Other investments |  | (414) |  |  | 1,445 |  |  | (4,208) |  |  | 12,028 |
Risk management derivatives, net |  | 7,471 |  |  | 27,241 |  |  | 6,446 |  |  | 33,609 |
Credit losses on AFS securities, net |  | 66 |  |  | (544) |  |  | (33) |  |  | (2,315) |
Other |  | — |  |  | — |  |  | (746) |  |  | — |
Total investment fair value changes, net |  | $ | (31,430) |  |  | $ | (57,697) |  |  | $ | (36,153) |  |  | $ | (151,789) |
Other Income |  |  |  |  |  |  |  |
MSRs |  | $ | (209) |  |  | $ | 1,236 |  |  | $ | 612 |  |  | $ | 8,031 |
Other |  | (7) |  |  | (852) |  |  | (467) |  |  | (852) |
Total other income (4) |  | $ | (216) |  |  | $ | 384 |  |  | $ | 145 |  |  | $ | 7,179 |
Total Market Valuation Gains (Losses), Net |  | $ | (16,318) |  |  | $ | (50,893) |  |  | $ | 1,275 |  |  | $ | (183,487) |
Footnotes to Table 5.6 (1)Represents fair value changes on trading securities that are being used along with risk management derivatives to manage the 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, and other expenses that are components of Mortgage banking activities, net presented on our consolidated statements of in come, as these amounts do not represent market valuation changes. (3)Includes changes in fair value of the loans held-for-investment, securitized HEI, REO, and ABS issued at the entities, which, netted together, represent the change in value of our investments at the consolidated VIEs accounted for under the CFE election. (4)Other income presented above does not include net MSR fee income or provisions for repurchases of MSRs, as these amounts do not represent market valuation adjustments. At September 30, 2023, our valuation policy and processes had not changed from those described in our Annual Report on Form 10-K for the year ended December 31, 2022. 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, 2023 |  | Fair Value |  |  |  | Input Values
(Dollars in Thousands, except Input Values) |  |  | Unobservable Input |  | Range |  |  | Weighted Average(1)
Assets |  |  |  |  |  |  |  |  |  |  |  |
Residential loans, at fair value: |  |  |  |  |  |  |  |  |  |  |  |
Jumbo loans |  | $ | 540,782 |  |  | Senior credit spread to TBA price(2) |  | $ | 1.63 |  |  | $ | 2.63 |  |  |  | $ | 1.71 |  |
|  |  |  | Subordinate credit spread(2) |  | 275 |  | 1020 | bps |  | 438 | bps
|  |  |  | Senior credit support(2) |  | 7 |  |  | 7 |  | % |  | 7 |  | %
|  |  |  | IO discount rate(2) |  | 10 |  |  | 10 |  | % |  | 10 |  | %
|  |  |  | Prepayment rate (annual CPR)(2) |  | 15 |  |  | 15 |  | % |  | 15 |  | %
Jumbo loans committed to sell |  | 70,136 |  |  | Whole loan committed sales price |  | $ | 98 |  | - | $ | 101 |  |  |  | $ | 98 |  |
Loans held by Legacy Sequoia (3) |  | 150,152 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Loans held by Sequoia (3) |  | 3,774,090 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Loans held by Freddie Mac SLST (3) |  | 1,312,149 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Business purpose loans: |  |  |  |  |  |  |  |  |  |  |  |
BPL term loans |  | 72,149 |  |  | Senior credit spread(2) |  | 185 |  | - | 185 |  | bps |  | 185 |  | bps
|  |  |  | Subordinate credit spread(2) |  | 325 |  | - | 818 |  | bps |  | 468 |  | bps
|  |  |  | Senior credit support(2) |  | 35 |  | - | 35 |  | % |  | 35 |  | %
|  |  |  | IO discount rate(2) |  | 8 |  | - | 9 |  | % |  | 8 |  | %
|  |  |  | Prepayment rate (annual CPR)(2) |  | — |  | - | 3 |  | % |  | 3 |  | %
|  |  |  | Dollar price of non-performing loans |  | $ | 60 |  | - | $ | 100 |  |  |  | $ | 61 |  |
BPL term loans held by CAFL (3) |  | 2,969,217 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
BPL bridge loans |  | 2,207,964 |  |  | Whole loan discount rate |  | 6 |  | - | 12 |  | % |  | 9 |  | %
|  |  |  | Whole loan spread |  | 520 |  | - | 520 |  | bps |  | 520 |  | bps
|  |  |  | Dollar price of non-performing loans |  | $48 | - | $ | 100 |  |  |  | $ | 91 |  |
Multifamily loans held by Freddie Mac K-Series (3) |  | 420,554 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Trading and AFS securities |  | 129,445 |  |  | Discount rate |  | 6 |  | - | 18 |  | % |  | 11 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 4 |  | - | 65 |  | % |  | 10 |  | %
|  |  |  | Default rate |  | — |  | - | 14 |  | % |  | 0.1 |  | %
|  |  |  | Loss severity |  | — |  | - | 50 |  | % |  | 22 |  | %
HEI |  | 302,122 |  |  | Discount rate |  | 10 |  | - | 11 |  | % |  | 10 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 1 |  | - | 20 |  | % |  | 15 |  | %
|  |  |  | Home price appreciation (depreciation) |  | (1) |  | - | 3 |  | % |  | 3 |  | %
HEI held by HEI securitization entity(3) |  | 129,150 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Servicer advance investments |  | 219,813 |  |  | Discount rate |  | 3 |  | - | 5 |  | % |  | 4 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 11 |  | - | 30 |  | % |  | 14 |  | %
|  |  |  | Expected remaining life (4) |  | 6 | - | 6 | yrs |  | 6 | yrs
|  |  |  | Mortgage servicing income |  | — |  | - | 18 |  | bps |  | 4 |  | bps
Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments (continued)
September 30, 2023 |  | Fair Value |  |  |  | Input Values
(Dollars in Thousands, except Input Values) |  |  | Unobservable Input |  | Range |  |  | Weighted Average (1)
Assets (continued) |  |  |  |  |  |  |  |  |  |  |  |
MSRs |  | $ | 26,033 |  |  | Discount rate |  | 12 |  | - | 73 |  | % |  | 13 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 3 |  | - | 21 |  | % |  | 6 |  | %
|  |  |  | Per loan annual cost to service |  | $ | 93 |  | - | $ | 93 |  |  |  | $ | 93 |  |
Excess MSRs |  | 38,427 |  |  | Discount rate |  | 13 |  | - | 19 |  | % |  | 18 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 10 |  | - | 100 |  | % |  | 17 |  | %
|  |  |  | Excess mortgage servicing amount |  | 8 |  | - | 20 |  | bps |  | 11 |  | bps
Residential loan purchase commitments, net |  | 1,980 |  |  | Senior credit spread to TBA price(2) |  | $ | 1.63 |  |  | $ | 2.63 |  |  |  | $ | 1.71 |  |
|  |  | Subordinate credit spread(2) |  | 275 | - | 1020 | bps |  | 438 | bps
|  |  |  | Senior credit support(2) |  | 7 |  | - | 7 |  | % |  | 7 |  | %
|  |  |  | IO discount rate(2) |  | 10 |  | - | 10 |  | % |  | 10 |  | %
|  |  |  | Prepayment rate (annual CPR)(2) |  | 15 |  | - | 15 |  | % |  | 15 |  | %
|  |  |  | Pull-through rate |  | 22 |  | - | 100 |  | % |  | 68 |  | %
|  |  |  | Committed sales price |  | $ | 102 |  | - | $ | 103 |  |  |  | $ | 102 |  |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
ABS issued (3): |  |  |  |  |  |  |  |  |  |  |  |
At consolidated Sequoia entities |  | 3,717,707 |  |  | Discount rate |  | 4 |  | - | 19 |  | % |  | 8 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 3 |  | - | 25 |  | % |  | 8 |  | %
|  |  |  | Default rate |  | — |  | - | 16 |  | % |  | 1 |  | %
|  |  |  | Loss severity |  | 25 |  | - | 50 |  | % |  | 31 |  | %
At consolidated CAFL Term entities |  | 2,653,224 |  |  | Discount rate |  | 6 |  | - | 12 |  | % |  | 7 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | — |  | - | 3 |  | % |  | 0.1 |  | %
|  |  |  | Default rate |  | 5 |  | - | 14 |  | % |  | 7 |  | %
|  |  |  | Loss severity |  | 30 |  | - | 40 |  | % |  | 30 |  | %
At consolidated Freddie Mac SLST entities |  | 1,058,991 |  |  | Discount rate |  | 6 |  | - | 16 |  | % |  | 7 |  | %
|  |  | Prepayment rate (annual CPR) |  | 6 |  | - | 6 |  | % |  | 6 |  | %
|  |  |  | Default rate |  | 12 |  | - | 14 |  | % |  | 13 |  | %
|  |  |  | Loss severity |  | 25 |  | - | 25 |  | % |  | 25 |  | %
At consolidated Freddie Mac K-Series entities (3) |  | 387,650 |  |  | Discount rate |  | 3 |  | - | 10 |  | % |  | 6 |  | %
At consolidated HEI entities |  | 92,773 |  |  | Discount rate |  | 10 |  | - | 16 |  | % |  | 11 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 20 |  | - | 20 |  | % |  | 20 |  | %
|  |  |  | Home price appreciation (depreciation) |  | (1) |  | - | 3 |  | % |  | 3 |  | %
(1)The weighted average input values for all loan types are based on unpaid principal balance. The weighted average input values for all other assets and liabilities are based on relative fair value. (2)Values represent pricing inputs used in securitization pricing model. Credit spreads represent spreads to applicable swap rates unless specified otherwise. (3)The fair value of the loans and HEI held by consolidated entities is based on the fair value of the ABS issued by these entities and the securities and other investments we own in those entities, which we determined were more readily observable in accordance with accounting guidance for collateralized financing entities. At September 30, 2023, the fair value of securities we owned at the consolidated Sequoia, CAFL SFR, Freddie Mac SLST, Freddie Mac K-Series, and HEI securitization entities was $206 million, $316 million, $256 million, $33 million, and $15 million, respectively. (4)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). Determination of Fair Value 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 in isolation — such as anticipated credit losses, prepayment rates, interest rates, or other valuation assumptions — would likely result in a significantly lower or higher fair value measurement. Included in Note 5 to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2022 is a more detailed description of our financial instruments measured at fair value and their significant inputs, as well as the general classification of such instruments pursuant to the Level 1, Level 2, and Level 3 valuation hierarchy. Certain of our Other investments (inclusive of strategic investments in early-stage 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. As of September 30, 2023, the carrying value of these investments was $6 million.

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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 -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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