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Derivative Instruments and Hedging Activities | 6 Months Ended
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Jun. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | 10. Derivative Instruments and Hedging Activities The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company enters into derivative financial instruments in connection with its risk management activities. These derivative instruments may include interest rate swaps, interest rate caps, credit default swaps, futures and options contracts such as options on credit default swap indices, equity index options, swaptions and options on futures. The Company may also pursue forward-settling purchases or sales of Agency RMBS where the underlying pools of mortgage loans are “To-Be-Announced,” or TBAs, purchase options on U.S. Treasury futures or invest in other types of mortgage derivative securities. The Company elected not to apply hedge accounting for its derivative instruments. Derivatives Not Designated as Hedging Instruments The Company and Consolidated Real Estate VIEs are required by lenders on certain repurchase agreement financing and variable-rate mortgages payable on real estate to enter into interest rate cap contracts that limit the indexed portion of the interest rate on the respective related financing to a strike rate based upon various SOFR tenors. The Company uses interest rate swaps to hedge the variable cash flows associated with our variable-rate borrowings. Interest rate swaps generally involve the receipt of variable-rate amounts from a counterparty, based on SOFR, in exchange for the Company making fixed-rate payments over the life of the interest rate swap without exchange of the underlying notional amount. Notwithstanding the foregoing, in order to manage its position with regard to its liabilities, the Company may also enter into interest rate swaps which involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments, based on SOFR, over the life of the interest rate swap without exchange of the underlying notional amount. The variable rate the Company pays or receives under its swap agreements has the effect of offsetting the repricing characteristics and cash flows of the Company's financing arrangements. The Company has equity index put options that give the Company the right to sell or buy the underlying index at a specified strike price and U.S. Treasury future contracts that obligate the Company to sell or buy U.S. Treasury securities for future delivery. The Company has purchased credit default swap index contracts under which a counterparty, in exchange for a premium, agrees to compensate the Company for the financial loss associated with the occurrence of a credit event in relation to a notional value of an index. The Company may also purchase credit default swap index options that allow the Company to enter into a fixed rate payor position in the underlying credit default swap index at the agreed strike level. The following table summarizes the Company's derivative instruments as of June 30, 2024 and December 31, 2023, respectively (dollar amounts in thousands):
|  |  |  | Fair Value
Type of Derivative Instrument |  | Consolidated Balance Sheet Location |  | June 30, 2024 |  | December 31, 2023
Interest rate caps |  | Other assets |  | $ | 3,049 |  |  | $ | 6,510 |
Options |  | Other assets |  | 779 |  |  | — |
Interest rate swaps |  | Other assets |  | — |  |  | — |
Total derivative assets (1) |  |  |  | $ | 3,828 |  |  | $ | 6,510 |
U.S. Treasury futures |  | Other liabilities |  | $ | — |  |  | $ | — |
Credit default swaps |  | Other liabilities |  | — |  |  | — |
Total derivative liabilities |  |  |  | $ | — |  |  | $ | — |
(1)Excludes interest rate cap contracts held by certain Consolidated Real Estate VIEs included in other assets in disposal group held for sale. The Company elects to net the fair value of its derivative contracts by counterparty when appropriate. These contracts contain legally enforceable provisions that allow for netting or setting off of all individual derivative receivables and payables with each counterparty and therefore, the fair values of those derivative contracts are reported net by counterparty. All of the Company’s interest rate swaps, credit default swaps and U.S. Treasury futures are cleared through two central clearing houses, CME Group Inc. ("CME Clearing"), which is the parent company of the Chicago Mercantile Exchange Inc., or the Intercontinental Exchange ("ICE"). CME Clearing and ICE serve as the counterparty to every cleared transaction, becoming the buyer to each seller and the seller to each buyer, limiting the credit risk by guaranteeing the financial performance of both parties and netting down exposures. The Company also exchanges variation margin based upon daily changes in fair value, as measured by CME Clearing and ICE. The exchange of variation margin is treated as a legal settlement of the exposure under these contracts, as opposed to pledged collateral. Accordingly, the Company accounts for the receipt or payment of variation margin as a direct reduction to or increase in the carrying value of the related asset or liability. The following tables present a reconciliation of gross derivative assets and liabilities to net amounts presented in the accompanying condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023, respectively (dollar amounts in thousands):
| June 30, 2024
| Gross Amount of Recognized Assets (Liabilities) |  | Gross Amounts Offset in Balance Sheets |  | Variation Margin |  | Net Amounts of Assets (Liabilities) Presented in Balance Sheets
Derivative assets |  |  |  |  |  |  |
Interest rate caps | $ | 3,049 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,049 |
Options | 779 |  |  | — |  |  | — |  |  | 779 |
Interest rate swaps | 28,760 |  |  | (8,356) |  |  | (20,404) |  |  | — |
Total derivative assets | $ | 32,588 |  |  | $ | (8,356) |  |  | $ | (20,404) |  |  | $ | 3,828 |
Derivative liabilities |  |  |  |  |  |  |
Credit default swaps | $ | (8,570) |  |  | $ | — |  |  | $ | 8,570 |  |  | $ | — |
Interest rate swaps | (8,356) |  |  | 8,356 |  |  | — |  |  | — |
U.S. Treasury futures | (265) |  |  | — |  |  | 265 |  |  | — |
Total derivative liabilities | $ | (17,191) |  |  | $ | 8,356 |  |  | $ | 8,835 |  |  | $ | — |
| December 31, 2023
| Gross Amount of Recognized Assets (Liabilities) |  | Gross Amounts Offset in Balance Sheets |  | Variation Margin |  | Net Amounts of Assets (Liabilities) Presented in Balance Sheets
Derivative assets |  |  |  |  |  |  |
Interest rate caps | $ | 6,510 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,510 |
Interest rate swaps | 13,094 |  |  | (13,094) |  |  | — |  |  | — |
Total derivative assets | $ | 19,604 |  |  | $ | (13,094) |  |  | $ | — |  |  | $ | 6,510 |
Derivative liabilities |  |  |  |  |  |  |
Interest rate swaps | $ | (40,541) |  |  | $ | 13,094 |  |  | $ | 27,447 |  |  | $ | — |
Total derivative liabilities | $ | (40,541) |  |  | $ | 13,094 |  |  | $ | 27,447 |  |  | $ | — |
The use of derivatives exposes the Company to counterparty credit risks in the event of a default by a counterparty. If a counterparty defaults under the applicable derivative agreement, the Company may be unable to collect payments to which it is entitled under its derivative agreements and may have difficulty collecting the assets it pledged as collateral against such derivatives. The Company is required to post an initial margin amount for its interest rate swaps, credit default swaps, and U.S. Treasury futures determined by CME Clearing and ICE, which is generally intended to be set at a level sufficient to protect the exchange from the derivative financial instrument’s maximum estimated single-day price movement. The following table summarizes assets pledged as initial margin as of June 30, 2024 and December 31, 2023, respectively (dollar amounts in thousands):
Initial Margin Collateral |  | Consolidated Balance Sheet Location |  | June 30, 2024 |  | December 31, 2023
Agency RMBS |  | Investment securities available for sale, at fair value |  | $ | 34,149 |  |  | $ | — |
Restricted cash |  | Other assets |  | 23,012 |  |  | 53,458 |
Total initial margin collateral |  |  |  | $ | 57,161 |  |  | $ | 53,458 |
Margin excess related to settlement of variation margin in the amount of approximately $8.1 million and $1.1 million as of June 30, 2024 and December 31, 2023, respectively, is included in other assets on the accompanying condensed consolidated balance sheets. Margin deficit related to settlement of variation margin in the amount of approximately $6.2 million as of June 30, 2024 is included in other liabilities on the accompanying condensed consolidated balance sheets. The tables below summarize the activity of derivative instruments not designated as hedging instruments for the three and six months ended June 30, 2024 and 2023, respectively (dollar amounts in thousands):
|  | Notional Amount For the Three Months Ended June 30, 2024
Type of Derivative Instrument |  | March 31, 2024 |  | Additions/Transfers In (1) |  | Terminations/Transfers Out (1) |  | June 30, 2024
Interest rate caps |  | $ | 536,904 |  |  | $ | 29,000 |  |  | $ | (302,762) |  |  | $ | 263,142 |
Options |  | 100 |  |  | 180 |  |  | (200) |  |  | 80 |
Interest rate swaps |  | 3,376,745 |  |  | 189,244 |  |  | (593,959) |  |  | 2,972,030 |
Credit default swaps |  | 400,000 |  |  | — |  |  | — |  |  | 400,000 |
U.S. Treasury futures |  | 25,300 |  |  | 218,200 |  |  | (176,500) |  |  | 67,000 |
|  | Notional Amount For the Three Months Ended June 30, 2023
Type of Derivative Instrument |  | March 31, 2023 |  | Additions |  | Terminations |  | June 30, 2023
Options |  | 500,053 |  |  | 95 |  |  | (500,067) |  |  | 81 |
Interest rate swaps |  | 341,300 |  |  | 559,625 |  |  | — |  |  | 900,925 |
|  | Notional Amount For the Six Months Ended June 30, 2024
Type of Derivative Instrument |  | December 31, 2023 |  | Additions/Transfers In (1) |  | Terminations/Transfers Out (1) |  | June 30, 2024
Interest rate caps |  | $ | 550,025 |  |  | $ | 177,044 |  |  | $ | (463,927) |  |  | $ | 263,142 |
Options |  | — |  |  | 382 |  |  | (302) |  |  | 80 |
Interest rate swaps |  | 2,778,015 |  |  | 1,093,424 |  |  | (899,409) |  |  | 2,972,030 |
Credit default swaps |  | — |  |  | 400,000 |  |  | — |  |  | 400,000 |
U.S. Treasury futures |  | — |  |  | 498,950 |  |  | (431,950) |  |  | 67,000 |
|  | Notional Amount For the Six Months Ended June 30, 2023
Type of Derivative Instrument |  | December 31, 2022 |  | Additions |  | Terminations |  | June 30, 2023
Options |  | — |  |  | 500,148 |  |  | (500,067) |  |  | 81 |
Interest rate swaps |  | — |  |  | 900,925 |  |  | — |  |  | 900,925 |
(1)Includes transfers from or transfers to disposal group held for sale with respect to interest rate caps held in certain Consolidated Real Estate VIEs (see Note 9). The following tables present the components of realized gains (losses), net and unrealized gains (losses), net related to our derivative instruments that were not designated as hedging instruments, which are included in gains (losses) on derivative instruments, net in our condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023, respectively (dollar amounts in thousands):
|  | For the Three Months Ended June 30, |  | For the Six Months Ended June 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
Type of Derivative Instrument |  | Realized Gains (Losses) |  | Unrealized Gains (Losses) |  | Realized Gains (Losses) |  | Unrealized Gains (Losses) |  | Realized Gains (Losses) |  | Unrealized Gains (Losses) |  | Realized Gains (Losses) |  | Unrealized Gains (Losses)
Interest rate caps (1) |  | $ | — |  |  | $ | 446 |  |  | $ | 4,820 |  |  | $ | 2,469 |  |  | $ | — |  |  | $ | 3,253 |  |  | $ | 4,820 |  |  | $ | 1,014 |
Options |  | (1,279) |  |  | 516 |  |  | (1,608) |  |  | (554) |  |  | (1,490) |  |  | 7 |  |  | (1,608) |  |  | (974) |
Interest rate swaps |  | 12,196 |  |  | 4,142 |  |  | — |  |  | 16,446 |  |  | 17,426 |  |  | 47,851 |  |  | — |  |  | 13,959 |
Credit default swaps |  | (1,022) |  |  | 693 |  |  | — |  |  | — |  |  | (2,033) |  |  | (303) |  |  | — |  |  | — |
U.S. Treasury futures |  | 67 |  |  | (288) |  |  | — |  |  | — |  |  | 236 |  |  | (265) |  |  | — |  |  | — |
Total |  | $ | 9,962 |  |  | $ | 5,509 |  |  | $ | 3,212 |  |  | $ | 18,361 |  |  | $ | 14,139 |  |  | $ | 50,543 |  |  | $ | 3,212 |  |  | $ | 13,999 |
(1)Includes interest rate caps held by certain Consolidated Real Estate VIEs included in other assets in disposal group held for sale. The following table presents information about our interest rate cap contracts related to certain repurchase agreement financing and variable-rate mortgages payable on real estate that are not included in disposal group held for sale as of June 30, 2024 and December 31, 2023 (dollar amounts in thousands):
June 30, 2024
Financing Type |  | Weighted Average SOFR Strike Price |  | SOFR Strike Price/Range |  | Notional Amount |  | Expiration Date/Range
Repurchase agreement |  | 4.10 | % |  | 4.10 | % |  | $ | 111,000 |  |  | November 17, 2024
Mortgages payable on real estate |  | 2.62 | % |  | 2.00% - 3.22% |  | 152,142 |  |  | January 1, 2025 - April 1, 2025
December 31, 2023
Financing Type |  | Weighted Average SOFR Strike Price |  | SOFR Strike Price/Range |  | Notional Amount |  | Expiration Date/Range
Repurchase agreement |  | 4.10 | % |  | 4.10 | % |  | $ | 111,000 |  |  | November 17, 2024
Mortgages payable on real estate |  | 2.13 | % |  | 1.50% - 3.22% |  | 439,025 |  |  | January 9, 2024 - January 15, 2025
The following table presents information about our interest rate swaps whereby we receive floating rate payments in exchange for fixed rate payments as of June 30, 2024 and December 31, 2023 (dollar amounts in thousands):
|  | June 30, 2024
Swap Maturities |  | Notional Amount |  | Weighted Average Fixed Interest Rate |  | Weighted Average Variable Interest Rate
2025 |  | $ | 1,276,370 |  |  | 4.67 | % |  | 5.41 | %
2026 |  | 134,985 |  |  | 4.59 | % |  | 5.42 | %
2027 |  | 249,297 |  |  | 4.15 | % |  | 5.36 | %
2028 |  | 665,744 |  |  | 4.03 | % |  | 5.41 | %
2029 |  | 165,356 |  |  | 3.93 | % |  | 5.36 | %
2033 |  | 347,656 |  |  | 4.03 | % |  | 5.41 | %
2034 |  | 79,572 |  |  | 3.89 | % |  | 5.35 | %
Total |  | $ | 2,918,980 |  |  | 4.33 | % |  | 5.40 | %
|  | December 31, 2023
Swap Maturities |  | Notional Amount |  | Weighted Average Fixed Interest Rate |  | Weighted Average Variable Interest Rate
2025 |  | $ | 1,476,370 |  |  | 4.62 | % |  | 5.33 | %
2026 |  | 214,985 |  |  | 4.19 | % |  | 5.33 | %
2028 |  | 674,804 |  |  | 4.03 | % |  | 5.35 | %
2033 |  | 358,806 |  |  | 4.04 | % |  | 5.34 | %
Total |  | $ | 2,724,965 |  |  | 4.36 | % |  | 5.34 | %
The following table presents information about our interest rate swaps whereby we receive fixed rate payments in exchange for floating rate payments as of June 30, 2024 and December 31, 2023 (dollar amounts in thousands):
|  | June 30, 2024
Swap Maturities |  | Notional Amount |  | Weighted Average Fixed Interest Rate |  | Weighted Average Variable Interest Rate
2028 |  | 9,550 |  |  | 3.48 | % |  | 5.37 | %
2033 |  | 43,500 |  |  | 3.64 | % |  | 5.41 | %
Total |  | $ | 53,050 |  |  | 3.61 | % |  | 5.40 | %
|  | December 31, 2023
Swap Maturities |  | Notional Amount |  | Weighted Average Fixed Interest Rate |  | Weighted Average Variable Interest Rate
2028 |  | $ | 9,550 |  |  | 3.48 | % |  | 5.29 | %
2033 |  | 43,500 |  |  | 3.64 | % |  | 5.33 | %
Total |  | $ | 53,050 |  |  | 3.61 | % |  | 5.33 | %
Certain of the Company’s derivative contracts are subject to International Swaps and Derivatives Association Master Agreements or other similar agreements which may contain provisions that grant counterparties certain rights with respect to the applicable agreement upon the occurrence of certain events, including a decline in the Company's stockholders’ equity (as defined in the respective agreements) in excess of specified thresholds or dollar amounts over set periods of time, the Company’s failure to maintain its REIT status, the Company’s failure to comply with limits on the amount of leverage and the Company’s stock being delisted from Nasdaq.

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