Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2017

Schedule of Financial Instruments Measured at Fair Value on a Recurring Basis

The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016, respectively, on the Company’s condensed consolidated balance sheets (dollar amounts in thousands):



	Measured at Fair Value on a Recurring Basis at
	September 30, 2017								December 31, 2016
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets carried at fair value
Investment securities available for sale:
Agency RMBS	$	—	$	415,032	$	—	$	415,032	$	—	$	526,363	$	—	$	526,363
Non-Agency RMBS	—		133,022		—		133,022		—		163,284		—		163,284
U.S. Treasury Securities	2,924		—		—		2,924		2,887		—		—		2,887
CMBS	—		76,560		46,623		123,183		—		82,545		43,897		126,442
Multi-family loans held in securitization trusts	—		—		8,399,334		8,399,334		—		—		6,939,844		6,939,844
Residential mortgage loans, at fair value	—		—		69,512		69,512		—		—		17,769		17,769
Derivative assets:
TBA Securities	—		180,562		—		180,562		—		148,139		—		148,139
Interest rate swap futures	1,228		—		—		1,228		444		—		—		444
Interest rate swaps	—		18		—		18		—		108		—		108
Swaptions	—		18		—		18		—		431		—		431
Eurodollar futures	289		—		—		289		1,175		—		—		1,175
Investment in unconsolidated entities	—		—		41,026		41,026		—		—		60,332		60,332
Total	$	4,441	$	805,212	$	8,556,495	$	9,366,148	$	4,506	$	920,870	$	7,061,842	$	7,987,218
Liabilities carried at fair value
Multi-family collateralized debt obligations	$	—	$	—	$	7,990,619	$	7,990,619	$	—	$	—	$	6,624,896	$	6,624,896
Derivative liabilities:
U.S. Treasury futures	193		—		—		193		107		—		—		107
Interest rate swaps	—		274		—		274		—		391		—		391
Total	$	193	$	274	$	7,990,619	$	7,991,086	$	107	$	391	$	6,624,896	$	6,625,394

Changes in Valuation of Level 3 Assets

The following table details changes in valuation for the Level 3 assets for the nine months ended September 30, 2017 and 2016, respectively (amounts in thousands):

Level 3 Assets:



	Nine Months Ended September 30,
	2017			2016
Balance at beginning of period	$	7,061,842		$	7,214,587
Total gains/(losses) (realized/unrealized)
Included in earnings ⁽¹⁾	38,978			215,325
Included in other comprehensive income	208			178
Purchases	1,598,018			13,326
Transfers in⁽²⁾	—			52,176
Transfers out ⁽³⁾	—			(56,756		)
Contributions	1,300			2,000
Paydowns/Distributions	(139,751		)	(93,129		)
Sales	(4,100		)	—
Balance at the end of period	$	8,556,495		$	7,340,018


⁽¹⁾	Amounts included in interest income from multi-family loans held in securitization trusts, interest income from residential mortgage loans, realized gain on distressed residential mortgage loans, net gain on residential mortgage loans at fair value, unrealized gain on multi-family loans and debt held in securitization trusts, and other income.

⁽²⁾

Transfers into Level 3 include investments in unconsolidated entities held by RiverBanc and RBMI for which the Company accounts under the equity method of accounting with a fair value election. These transfers in are a result of the Company's acquisition of the outstanding membership interests in RiverBanc and RBMI that were not previously owned by the Company on May 16, 2016, which resulted in consolidation of these entities into the Company's financial statements (see Note 23).

⁽³⁾

Transfers out of Level 3 represent the Company's previously held membership interests in RBMI and RBDHC that were accounted for under the equity method of accounting with a fair value election. These transfers out are a result of the Company's acquisition of the outstanding membership interests in RBMI and RBDHC that were not previously owned by the Company on May 16, 2016, which resulted in consolidation of these entities into the Company's financial statements (see Note 23).

Changes in Valuation of Level 3 Liabilities

The following table details changes in valuation for the Level 3 liabilities for the nine months ended September 30, 2017 and 2016, respectively (amounts in thousands):

Level 3 Liabilities:



	Nine Months Ended September 30,
	2017			2016
Balance at beginning of period	$	6,624,896		$	6,818,901
Total gains/(losses) (realized/unrealized)
Included in earnings ⁽¹⁾	(1,389		)	186,855
Purchases	1,472,073			—
Paydowns	(104,961		)	(91,901		)
Balance at the end of period	$	7,990,619		$	6,913,855


⁽¹⁾	Amounts included in interest expense on Multi-Family CDOs and unrealized gain on multi-family loans and debt held in securitization trusts.

Changes in Unrealized Gains (Losses) Included in Earnings for Level 3 Assets and Liabilities

The following table details the changes in unrealized gains (losses) included in earnings for our Level 3 multi-family loans and debt held in securitization trusts for the three and nine months ended September 30, 2017 and 2016, respectively (dollar amounts in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Change in unrealized (losses) gains – assets	$	(19,767	)	$	(17,722	)	$	56,995		$	237,934
Change in unrealized gains (losses) – liabilities	22,120			18,460			(51,811		)	(235,594		)
Net change in unrealized gains included in earnings for assets and liabilities	$	2,353		$	738		$	5,184		$	2,340

Schedule of Assets Measured at Fair Value on a Non-recurring Basis

The following table presents assets measured at fair value on a non-recurring basis as of September 30, 2017 and December 31, 2016, respectively, on the condensed consolidated balance sheets (dollar amounts in thousands):



	Assets Measured at Fair Value on a Non-Recurring Basis at
	September 30, 2017								December 31, 2016
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Residential mortgage loans held in securitization trusts – impaired loans (net)	$	—	$	—	$	7,201	$	7,201	$	—	$	—	$	9,050	$	9,050
Real estate owned held in residential securitization trusts	—		—		742		742		—		—		150		150

Schedule of Gains (Losses) Incurred for Assets Measured at Fair Value on a Non-recurring Basis

The following table presents losses (gains) incurred for assets measured at fair value on a non-recurring basis for the three and nine months ended September 30, 2017 and 2016, respectively, on the Company’s condensed consolidated statements of operations (dollar amounts in thousands):



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017		2016
Residential mortgage loans held in securitization trusts – impaired loans (net)	$	(199	)	$	102	$	6	$	534
Real estate owned held in residential securitization trusts	297			46		303		23

Schedule of Carrying Value and Estimated Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value of the Company’s financial instruments at September 30, 2017 and December 31, 2016, respectively (dollar amounts in thousands):



		September 30, 2017				December 31, 2016
	Fair Value Hierarchy Level	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets:
Cash and cash equivalents	Level 1	$	101,904	$	101,904	$	83,554	$	83,554
Investment securities available for sale ⁽¹⁾	Level 1, 2 or 3	674,161		674,161		818,976		818,976
Residential mortgage loans held in securitization trusts (net)	Level 3	79,875		77,412		95,144		88,718
Distressed residential mortgage loans, at carrying value ⁽²⁾	Level 3	369,651		374,169		503,094		504,915
Residential mortgage loans, at fair value	Level 3	69,512		69,512		17,769		17,769
Multi-family loans held in securitization trusts	Level 3	8,399,334		8,399,334		6,939,844		6,939,844
Derivative assets	Level 1 or 2	182,115		182,115		150,296		150,296
Mortgage loans held for sale (net) ⁽³⁾	Level 3	6,797		6,899		7,847		7,959
Mortgage loans held for investment ⁽³⁾	Level 3	1,760		1,900		19,529		19,641
Mezzanine loan and preferred equity investments ⁽⁴⁾	Level 3	122,578		124,436		100,150		101,408
Investment in unconsolidated entities ⁽⁵⁾	Level 3	51,268		51,342		79,259		79,390
Receivable for securities sold	Level 1	1,261		1,261		—		—
Financial Liabilities:
Financing arrangements, portfolio investments	Level 2	608,304		608,304		773,142		773,142
Financing arrangements, residential mortgage loans	Level 2	160,562		160,562		192,419		192,419
Residential collateralized debt obligations	Level 3	76,867		72,428		91,663		85,568
Multi-family collateralized debt obligations	Level 3	7,990,619		7,990,619		6,624,896		6,624,896
Securitized debt	Level 3	98,371		105,768		158,867		163,884
Derivative liabilities	Level 1 or 2	467		467		498		498
Payable for securities purchased	Level 1	181,718		181,718		148,015		148,015
Subordinated debentures	Level 3	45,000		44,989		45,000		43,132
Convertible notes	Level 2	128,273		138,697		—		—


⁽¹⁾	Includes $46.6 million and $43.9 million of investment securities for sale held in securitization trusts as of September 30, 2017 and December 31, 2016, respectively.

⁽²⁾

Includes distressed residential mortgage loans held in securitization trusts with a carrying value amounting to approximately $134.0 million and $195.3 million at September 30, 2017 and December 31, 2016, respectively, and distressed residential mortgage loans with a carrying value amounting to approximately $235.7 million and $307.7 million at September 30, 2017 and December 31, 2016, respectively.


⁽³⁾	Included in receivables and other assets in the accompanying condensed consolidated balance sheets.


⁽⁴⁾	Includes mezzanine loan and preferred equity investments accounted for as loans (see Note 9).


⁽⁵⁾	Includes investments in unconsolidated entities accounted for under the fair value option with a carrying value of $41.0 million and $60.3 million at September 30, 2017 and December 31, 2016, respectively (see Note 8).