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Basis of Presentation and Summary of Significant Accounting Policies | 6 Months Ended
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Jun. 30, 2026
Accounting Policies [Abstract] |
Basis of Presentation and Summary of Significant Accounting Policies | Note 2 — Basis of Presentation and Summary of Significant Accounting Policies The accompanying unaudited Consolidated Financial Statements as of and for the three and six months ended June 30, 2026 and 2025 have been prepared on a basis that is substantially consistent with the accounting principles applied to the Company’s audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal, recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the Company’s audited Consolidated Financial Statements. (a) Use of Estimates The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of consolidated income and expenses during the reporting period. These estimates relate to the allowance for credit losses and fair value option accounting. (b) Significant Accounting Policies The Company’s significant accounting policies are described in Note 2 — Basis of Presentation and Summary of Significant Accounting Policies, of its audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the Securities and Exchange Commission (“SEC”). There have been no material changes to the Company’s significant accounting policies as described in its 2025 Annual Report. (c) Securitizations and Principles of Consolidation The Company transfers mortgage loans and certain financial assets to special-purpose entities in securitization transactions. These transactions are used to obtain liquidity while retaining certain interests in the securitization structures. 1. Consolidation Policy The Company evaluates securitization trusts and other special-purpose entities under the variable interest entity (VIE) model. Under this model, the Company consolidates an entity when it has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. In substantially all securitization transactions, the Company is the primary beneficiary of the securitization trust and therefore consolidates the trust. The consolidated financial statements as of June 30, 2026 and December 31, 2025 include only those assets, liabilities, and results of operations related to the business of the Company, its subsidiaries, and consolidated VIEs. In the 2026-MC2 securitization transaction, the Company concluded it is not the primary beneficiary because it does not have the power to direct the activities that most significantly impact the entity's economic performance and, therefore, the Company did not consolidate 2026-MC2. The Company recognized on its consolidated balance sheet its retained interest in the 2026-MC2 security through its ownership of the Trust Certificate. 2. Sale Recognition & Derecognition For securitization transactions in which the Company is not required to consolidate, the transfer of financial assets is evaluated under the sale accounting and derecognition guidance. For nonconsolidated special-purpose entities, the transferred financial assets are removed from the Company's consolidated balance sheet provided the conditions for sale accounting are met. The Company recognizes a sale when control over the transferred financial assets has been surrendered, which generally requires that (i) the transferred financial assets are legally isolated from the Company's creditors, (ii) the transferee or beneficial interest holders have the right to pledge or exchange the transferred financial assets, and (iii) the Company does not maintain effective control over the transferred financial assets (for example, the Company cannot repurchase the transferred assets before their maturity and does not have the ability to unilaterally cause the holder to return the transferred assets). In connection with this nonconsolidated securitization transaction involving 2026-MC2, the Company evaluated the transfer under the applicable derecognition criteria, including legal isolation and surrender of control, supported by a true sale legal opinion obtained in connection with the transaction. The Company received gross proceeds of $107.2 million in connection with the transfer, which were used to repay $91.9 million of existing indebtedness and fund a $2.8 million reserve account, resulting in net proceeds of $11.2 million after transaction costs of $1.3 million, received at closing. The Company recognized a $754 thousand gain from the transfer of nonperforming loans into 2026-MC2. In addition, the Company wrote off $6.0 million of protective advances related to the sale of nonperforming loans, which is included in “Loan servicing” in the Consolidated Statements of Income. 3. Retained Securities The Company's retained interest in 2026-MC2 (the “Retained Securities”) consists of the trust certificate. The retained securities may be held to satisfy risk retention requirements and represent the Company’s compliance with the risk retention rules under the Dodd-Frank Act, requiring the Company to retain at least five percent of the credit risk of the assets underlying asset-backed securitizations. 4. Accounting Classification and Measurement The Company has elected the fair value option for subsequently measuring the retained securities in 2026-MC2. The retained securities are measured at fair value at each reporting date, and changes in fair v alue are recognized in current period earnings. (d) Fair Value Option Accounting The Company elected to apply fair value option (“FVO”) accounting to mortgage loans originated effective October 1, 2022. The fair value option loans are presented as a separate line item in the Consolidated Balance Sheets. Interest income on FVO loans is recorded on an accrual basis in the Consolidated Statements of Income under the heading “Interest income.” Changes in the fair value of the loans are recorded as “Unrealized gain (loss) on fair value of loans” in the Consolidated Statements of Income. The Company does not record a current expected credit loss (“CECL”) reserve on fair value option loans. The Company elected to apply FVO accounting to securitized debt issued effective January 1, 2023 when the underlying collateral is also carried at fair value. The FVO securitized debt is presented as a separate line item in the Consolidated Balance Sheets. The Company reflects interest expense on the FVO securitized debt as “Interest expense – portfolio related” and presents the other fair value changes of the FVO securitized debt separately as “Unrealized gain (loss) on fair value securitized debt” in the Consolidated Statements of Income. (e) Derivative Instruments and Hedge Accounting The Company issues fixed rate debt at regular intervals during the year through the securitization of its fixed rate mortgage assets. The Company is subject to interest rate risk on its forecasted debt issuances as these fixed rate debt issuances are priced at then-current market rates. The Company’s risk management objective is to hedge the risk of variability in its interest payment cash flows attributable to changes in the benchmark Secured Overnight Financing Rate (“SOFR”) between the time the fixed rate mortgages are originated and the fixed rate debt is issued. To accomplish this hedging strategy, the Company may from time to time enter into derivative instruments such as forward starting payer interest rate swaps or interest rate payer and receiver swaptions designated as cash flow hedges that are designed to be highly correlated to the underlying terms of the forecasted debt instruments. To qualify for hedge accounting, the Company formally documents its hedging relationships at inception, including the identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction at the time the derivative contract is executed. The Company also formally assesses effectiveness both at the hedge's inception and on an ongoing basis. The Company's policy is to present all derivative balances on a gross basis, without regard to counterparty master netting agreements or similar arrangements. The fair value of the derivative instruments is recorded as a separate line item on the Consolidated Balance Sheets as an asset or liability with the related gains or losses reported as a component of Accumulated Other Comprehensive Income (“AOCI”). Beginning in the period in which the forecasted debt issuance occurs and the related derivative instruments are terminated, the gains or losses accumulated in AOCI are then reclassified into interest expense as a yield adjustment over the term of the related debt. If the Company determines it is not probable that the forecasted transaction will occur, gains and losses are reclassified immediately to earnings. The related cash flows are recognized on the cash flows from operating activities section on the Consolidated Statements of Cash Flows. The Company uses hedge accounting based on the exposure being hedged as cash flow hedges in operations. (f) Other Comprehensive Income Other comprehensive income (“OCI”) is reported in the Consolidated Statements of Comprehensive Income. OCI is comprised of net income and the effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges, net of tax, less amounts reclassified into earnings. Accumulated other comprehensive income represents the cumulative balance of OCI, net of tax, as of the end of the reporting period and relates to unrealized gains or losses on cash flow hedges, net of tax.

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