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Fair Value of Financial Instruments
 9 Months Ended
Sep. 30, 2024
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 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.
Determination of Fair Value
Included in Note 5 to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2023 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. At September 30, 2024, 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, 2023.
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, 2024 and December 31, 2023, as well as the fair value hierarchy of the valuation inputs used to measure fair value.
Table 6.1 – Assets and Liabilities Measured at Fair Value on a Recurring Basis
September 30, 2024Fair ValueFair Value Measurements Using
(In Thousands)Level 1Level 2Level 3
Assets
Residential consumer loans$11,157,159 $— $— $11,157,159 
Residential investor loans4,746,174 — — 4,746,174 
Consolidated Agency multifamily loans425,648 — — 425,648 
Real estate securities:
  Trading128,780 — — 128,780 
  Available-for-sale205,361 — — 205,361 
HEI590,080 — — 590,080 
Other investments:
  Servicer advance investments212,446 — — 212,446 
  Excess MSRs33,491 — — 33,491 
  MSRs 26,594 — — 26,594 
  Strategic investments
2,960 — — 2,960 
  Other
92 — — 92 
Derivative assets78,933 5,817 70,151 2,965 
Total Assets$17,607,718 $5,817 $70,151 $17,531,750 
Liabilities
ABS issued$12,564,029 $— $— $12,564,029 
Derivative liabilities7,977 4,143 — 3,834 
HEI securitization non-controlling interest80,864 — — 80,864 
Total Liabilities$12,652,870 $4,143 $— $12,648,727 
December 31, 2023Fair ValueFair Value Measurements Using
(In Thousands)Level 1Level 2Level 3
Assets
Residential consumer loans$7,050,637 $— $— $7,050,637 
Residential investor loans5,220,297 — — 5,220,297 
Consolidated agency multifamily loans425,285 — — 425,285 
Real estate securities:
  Trading40,424 — — 40,424 
  Available-for-sale87,373 — — 87,373 
HEI550,436 — — 550,436 
Other investments:
  Servicer advance investments225,345 — — 225,345 
  MSRs24,877 — — 24,877 
  Excess MSRs37,367 — — 37,367 
  Strategic investments3,193 — — 3,193 
Derivative assets14,212 952 1,742 11,518 
Total Assets$13,679,446 $952 $1,742 $13,676,752 
Liabilities
ABS issued$9,151,263 $— $— $9,151,263 
Derivative liabilities33,828 30,414 — 3,414 
HEI securitization non-controlling interest59,752 — — 59,752 
Total Liabilities$9,244,843 $30,414 $— $9,214,429 
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, 2024.
Table 6.2 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets
Residential Consumer LoansResidential Investor
Loans		Consolidated Agency Multifamily LoansReal Estate Trading SecuritiesReal Estate AFS
Securities		HEIServicer Advance InvestmentsExcess MSRsMSRs/Strategic Investments/Other
(In Thousands)
Beginning balance - December 31, 2023
$7,050,637 $5,220,297 $425,285 $40,424 $87,373 $550,436 $225,345 $37,367 $28,070 
Acquisitions4,931,228 19,155 — 96,810 103,934 1,066 — — 185 
Originations— 1,201,564 — — — — — — — 
Sales(245,771)(744,759)— (2,833)— — — — — 
Principal paydowns(790,158)(1,016,256)(6,418)(556)(4,757)(36,899)(21,151)— (141)
Gains (losses) in net income, net213,491 79,288 6,781 (5,065)1,731 75,477 8,252 (3,876)1,632 
Unrealized gains in OCI, net— — — — 17,080 — — — — 
Other settlements, net (1)
(2,268)(13,115)— — — — — — (100)
Ending balance - September 30, 2024
$11,157,159 $4,746,174 $425,648 $128,780 $205,361 $590,080 $212,446 $33,491 $29,646 
Change in unrealized gains or (losses) for the period included in earnings for assets held at the end of the reporting period (2)
$145,485 $50,712 $6,582 $(5,320)$17,083 $68,078 $8,252 $(3,877)$2,555 
Liabilities
ABS Issued
Derivatives (3)
HEI Securitization Non-controlling interest
(In Thousands)
Beginning balance - December 31, 2023
$9,151,263 $8,104 $59,752 
Acquisitions4,280,237 — — 
Sales(1,544)— — 
Principal paydowns(1,122,041)— — 
Gains (losses) in net income, net256,114 10,938 21,111 
Other settlements, net (1)
— (19,911)— 
Ending balance - September 30, 2024
$12,564,029 $(869)$80,863 
Change in unrealized gains or (losses) for the period included in earnings for liabilities held at the end of the reporting period (2)
$195,951 $(869)$(21,111)
(1)Other settlements, net: for residential consumer and residential investor 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 consumer and residential investor loans; and for mortgage servicing rights ("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)All changes in unrealized gains or (losses) are included in earnings with the exception of Real Estate AFS Securities, which are included in comprehensive income.
(3)For the purpose of this presentation, derivative assets and liabilities, which consist of loan purchase commitments, are presented on a net basis.
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 6.3 – Fair Value Methodology for Level 3 Financial Instruments
September 30, 2024
Fair
Value (1)
Input Values
(Dollars in Thousands, except Input Values)Unobservable InputRange
Weighted
Average (2)
Assets
Residential consumer loans (4)
$11,157,159
Senior Credit Spread to TBA price (3)
$0.75 -$1.75 $0.93 
Senior credit spread to Swap rate (3)
170 -200 bps190 bps
Subordinate credit spread to Swap rate225 -900 bps341 bps
Senior credit support (3)
7 -10 %8 %
IO discount rate (3)
25 -28 %27 %
Liability price$37 -$103 $95 
Residential investor loans:
Residential investor term loans (4)
2,836,370 
Whole loan spread (3)
250 -260 bps254 bps
Liability price$92 -$103 $95 
Residential investor bridge loans (4)
1,909,804 Whole loan discount rate5 -18 %9 %
Whole loan spread435 -435 bps435 bps
Liability Price$102 -$109 $103 
Dollar price of non-performing loans$38 -$100 $88 
Consolidated agency multifamily loans(6)
425,648Liability price$98 -$98 $98 
Trading and AFS securities334,141Discount rate5 -40 %12 %
Prepayment rate (Annual CPR)— -40 %13 %
Default rate— -18 %0.1 %
Loss severity25 -50 %25 %
HEI590,080Discount rate10 -10 %10 %
Prepayment rate (Annual CPR)1 -20 %14 %
Home price appreciation (depreciation)4 -4 %4 %
Servicer advance investments212,446Prepayment rate (Annual CPR)11 -30 %14 %
Expected remaining life (5)
5-5yrs5yrs
Mortgage servicing amount2 -49 bps9 bps
Other assets (7)
66,102
Total Assets$17,531,750 
Liabilities
ABS issued (4)
$12,564,029Discount rate4 -30 %6 %
Prepayment rate (annual CPR)— -30 %5 %
Default rate— -17 %4 %
Loss severity— -50 %20 %
Other liabilities (7)
84,698
Total Liabilities$12,648,727 
(1)The predominant valuation technique used to determine our Level 3 fair value assets and liabilities is based on the discounted cash flow model.
(2)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.
(3)Values represent pricing inputs used in a securitization pricing model. Credit spreads represent spreads to applicable swap rates unless specified otherwise.
Footnotes to Table 6.3 (Continued)
(4)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, 2024, the fair value of securities we owned at the consolidated Sequoia, CAFL Term, CAFL Bridge (under the Collateralized Financing Entity "CFE" election), Freddie Mac SLST, Freddie Mac K-Series, and HEI securitization entities was $333 million, $339 million, $26 million, $268 million, $34 million, and $46 million, respectively. CAFL Bridge only includes the one securitization entity for which we made the CFE election.
(5)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).
(6)Consolidated agency multifamily loans represent securitized financial assets and liabilities of the Company's CFEs.
(7)Represents less than 1% of the individual and aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis.
The following table summarizes the estimated fair values of assets and liabilities that are not measured at fair value at September 30, 2024 and December 31, 2023.
Table 6.4 – Carrying Values and Estimated Fair Values of Assets and Liabilities
September 30, 2024December 31, 2023
Level in Fair Value HierarchyCarrying
Value		Estimated Fair
Value		Carrying
Value		Estimated Fair
Value
(In Thousands)
Assets
Cash and cash equivalents1$253,673 $253,673 $293,104 $293,104 
Restricted cash172,294 72,294 75,684 75,684 
Liabilities
Debt obligation facilities and other financing2$3,163,534 $3,164,737 $2,596,582 $2,591,931 
ABS issued, net3455,487 456,272 660,617 637,816 
Convertible notes, net1359,297 364,599 503,728 488,341 
Trust preferred securities and subordinated notes, net3138,848 96,255 138,813 92,070 
Senior Notes1139,767 146,666 — — 
Guarantee obligations (1)
33,753 3,303 5,781 3,772 
(1)These liabilities are included in Accrued expenses and other liabilities on our consolidated balance sheets.
During the three and nine months ended September 30, 2024, we elected the fair value option for $33 million and $97 million of securities, respectively, $2.00 billion and $4.87 billion (principal balance) of residential consumer loans, respectively, and $449 million and $1.23 billion (principal balance) of residential investor loans, respectively. Additionally, during the three and nine months ended September 30, 2024, we elected the fair value option for $0.5 million and $1 million of HEI, respectively. For the three and nine months ended September 30, 2024, we elected the fair value option for zero and $0.2 million, respectively, of Other investments.     
Nonrecurring Fair Values
We measure the fair value of certain assets and liabilities on a nonrecurring basis when events or changes in circumstances indicate that the carrying value may be impaired. Adjustments to fair value generally result from the write-down of asset values due to impairment. Real estate owned ("REO") in Other Assets and Liabilities are classified as Level 3 in the fair value hierarchy based upon fair value determinations using appraisals, broker price opinions, comparable properties or other indications of value.
Refer to Note 14 for further information on our Real estate owned ("REO").