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Fair Value of Financial Instruments
 3 Months Ended
Mar. 31, 2025
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments
17. Fair Value of Financial Instruments

The Company has established and documented processes for determining fair values. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, then fair value is based upon internally developed models that primarily use inputs that are market-based or independently-sourced market parameters, including interest rate yield curves.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of valuation hierarchy are defined as follows:

Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following describes the valuation methodologies used for the Company’s financial instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

a.Residential Loans Held in Consolidated SLST – Residential loans held in Consolidated SLST are carried at fair value and classified as Level 3 fair values. In accordance with the practical expedient in ASC 810, the Company determines the fair value of residential loans held in Consolidated SLST based on the fair value of the CDOs issued by the respective securitizations and its investment in the securitizations (eliminated in consolidation in accordance with GAAP), as the fair value of these instruments is more observable.

The investment securities (eliminated in consolidation in accordance with GAAP) that we own in the securitizations are generally illiquid and trade infrequently. As such, they are classified as Level 3 in the fair value hierarchy. The fair valuation of these investment securities is determined based on an internal valuation model that considers expected cash flows from the underlying loans and yields required by market participants. The significant unobservable inputs used in the measurement of these investments are projected losses within the pool of loans and a discount rate. The discount rate used in determining fair value incorporates default rate, loss severity, prepayment rate and current market interest rates. Significant increases or decreases in these inputs would result in a significantly lower or higher fair value measurement.

b.Residential Loans and Residential Loans Held in Securitization Trusts – The Company’s acquired residential loans are recorded at fair value and classified as Level 3 in the fair value hierarchy. The fair value for residential loans is determined using valuations obtained from a third party that specializes in providing valuations of residential loans. The valuation approach depends on whether the residential loan is considered performing, re-performing or non-performing at the date the valuation is performed.

For performing and re-performing loans, estimates of fair value are derived using a discounted cash flow model, where estimates of cash flows are determined from scheduled payments for each loan, adjusted using forecast prepayment rates, default rates and rates for loss upon default. For non-performing loans, asset liquidation cash flows are derived based on the estimated time to liquidate the loan, expected liquidation costs and home price appreciation. Estimated cash flows for both performing and non-performing loans are discounted at yields considered appropriate to arrive at a reasonable exit price for the asset. Indications of loan value such as actual trades, bids, offers and generic market color may be used in determining the appropriate discount yield.

The Company independently calculates the fair value of residential loans based on discounted cash flows using an internal pricing model to validate all third party valuations of residential loans. The Company has established thresholds to compare internally generated prices with independent third-party prices and any differences that exceed the thresholds are reviewed both internally and with the third-party pricing service. The Company reconciles and resolves all pricing differences in excess of the thresholds before a final price is established.
c.Preferred Equity and Mezzanine Loan Investments – Fair value for preferred equity and mezzanine loan investments is determined by both market comparable pricing and discounted cash flows. The discounted cash flows are based on the underlying estimated cash flows and estimated changes in market yields. The fair value also reflects consideration of changes in credit risk since the origination or time of initial investment. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 in the fair value hierarchy.

d.Investment Securities Available for Sale – The Company determines the fair value of its Agency RMBS and non-Agency RMBS based on discounted cash flows utilizing an internal pricing model. The methodology considers the characteristics of the particular security and its underlying collateral, which are observable inputs. These inputs include, but are not limited to, delinquency status, coupon, loan-to-value ("LTV"), historical performance, periodic and life caps, collateral type, rate reset period, seasoning, prepayment speeds and credit enhancement levels. The Company also considers several observable market data points, including prices obtained from third-party pricing services or dealers who make markets in similar financial instruments, trading activity, and dialogue with market participants. Third-party pricing services typically incorporate commonly used market pricing methods, trading activity observed in the marketplace and other data inputs similar to those used in the Company's internal pricing model. The Company has established thresholds to compare internally generated prices with independent third-party prices and any differences that exceed the thresholds are reviewed both internally and with the third-party pricing service. The Company reconciles and resolves all pricing differences in excess of the thresholds before a final price is established.

The Company determines the fair value of its U.S. Treasury securities using a third-party pricing service that compiles prices from various sources or using pricing models that consider observable market data to determine the fair value of identical or similar securities.

The Company’s investment securities available for sale are valued based upon readily observable market parameters and are classified as Level 2 fair values.

e.Equity Investments – Fair value for equity investments is determined by (i) the valuation process for preferred equity and mezzanine loan investments as described in c. above, (ii) using a direct capitalization rate applied to stabilized net income of the underlying property or (iii) using weighted multiples of origination volume and earnings before taxes, depreciation and amortization of the entity and the net asset value ("NAV") of the equity investment entity. These fair value measurements are generally based on unobservable inputs and, as such, are classified as Level 3 in the fair value hierarchy.

f.Derivative Instruments – The Company's interest rate swaps, credit default swaps and U.S. Treasury futures are classified as Level 2 fair values and are measured using valuations reported by the respective central clearing houses. The derivatives are presented net of variation margin payments pledged or received.

The fair values of the Company's interest rate cap agreements are measured using models developed by either third-party pricing providers or the respective counterparty that use the market-standard methodology of discounting the future expected cash receipts which would occur if floating interest rates rise above the strike rate of the caps. The floating interest rates used in the calculation of projected receipts on the interest rate caps are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The inputs used in the valuation of interest rate caps fall within Level 2 of the fair value hierarchy.

The Company's options are classified as Level 2 fair values and are measured using prices obtained from the counterparty.

The Company obtains additional third-party valuations for interest rate swaps, credit default swaps, U.S. Treasury futures, interest rate cap agreements and option contracts. The Company has established thresholds to compare different independent third-party prices and any differences that exceed the thresholds are reviewed both internally and with the third-party pricing services. The Company reconciles and resolves all pricing differences in excess of the thresholds before a final price is established.
g.Mortgage Servicing Rights – The Company's MSRs are recorded at fair value and are classified as Level 3 in the fair value hierarchy. Although MSR transactions may be observable in the marketplace, the details of those transactions may not be representative of the Company's MSR portfolio. Accordingly, the fair value of the Company's MSRs is determined using valuations obtained from a third party that specializes in providing valuations of MSRs. The valuation incorporates both observable market data and unobservable market data including prepayment speeds, rates of default and discount rates as inputs to a discounted cash flow model.

The Company independently calculates the fair value of its MSRs based on discounted cash flows using a pricing model to validate all third party-valuations of MSRs. The Company has established thresholds to compare internally generated prices with independent third-party prices and any differences that exceed the thresholds are reviewed both internally and with the third-party pricing service. The Company reconciles and resolves all pricing differences in excess of the thresholds before a final price is established.

h.Collateralized Debt Obligations – CDOs issued by Consolidated SLST are classified as Level 3 fair values for which fair value is determined by considering several market data points, including prices obtained from third-party pricing services or dealers who make markets in similar financial instruments. The third-party pricing service or dealers incorporate common market pricing methods, including a spread measurement to the Treasury curve or interest rate swap curve as well as underlying characteristics of the particular security. They will also consider contractual cash payments and yields expected by market participants.

Refer to a. above for a description of the fair valuation of CDOs issued by Consolidated SLST that are eliminated in consolidation.

Fair value for CDOs issued by the Company's residential loan securitizations and non-Agency RMBS re-securitization is determined by the valuation process for investment securities available for sale as described in d. above and, as such, are classified as Level 2 fair values.

i.Senior unsecured notes – The Company's 2030 Senior Notes and 2029 Senior Notes are valued using pricing models that consider observable market data to determine the fair value of identical or similar securities and are classified as Level 2 fair values.

Management reviews all prices used in determining fair value to ensure they represent current market conditions. This review includes surveying similar market transactions and comparisons to interest pricing models as well as offerings of like securities by dealers. Any changes to the valuation methodology are reviewed by management to ensure the changes are appropriate. As markets and products develop and the pricing for certain products becomes more transparent, the Company continues to refine its valuation methodologies. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The Company uses inputs that are current as of each reporting date, which may include periods of market dislocation, during which time price transparency may be reduced. This condition could cause the Company’s financial instruments to be reclassified from Level 2 to Level 3 in future periods.
    
The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024, respectively, on the Company’s condensed consolidated balance sheets (dollar amounts in thousands):
Measured at Fair Value on a Recurring Basis at
March 31, 2025December 31, 2024
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets carried at fair value
        
Residential loans:
Residential loans
$— $— $445,562 $445,562 $— $— $632,266 $632,266 
Consolidated SLST
— — 959,250 959,250 — — 965,672 965,672 
Residential loans held in securitization trusts
— — 2,508,456 2,508,456 — — 2,243,800 2,243,800 
Investment securities available for sale:        
Agency RMBS
— 4,558,720 — 4,558,720 — 3,136,812 — 3,136,812 
Non-Agency RMBS
— 63,787 — 63,787 — 69,687 — 69,687 
U.S. Treasury securities
— 24,305 — 24,305 — 622,045 — 622,045 
Multi-family loans— — 87,222 87,222 — — 86,192 86,192 
Equity investments
— — 93,999 93,999 — — 113,492 113,492 
Derivative assets:      
Interest rate caps (1) (2)
— 346 — 346 — 56 — 56 
Options (2)
— 3,184 — 3,184 — — — — 
Interest rate swaps (2) (4)
— — — — — — — — 
U.S. Treasury futures (2) (4)
— — — — — — — — 
Mortgage servicing rights (2)
— — 20,297 20,297 — — 21,003 21,003 
Assets of disposal group held for sale (3)
— 222 — 222 — 67 — 67 
Total
$— $4,650,564 $4,114,786 $8,765,350 $— $3,828,667 $4,062,425 $7,891,092 
Liabilities carried at fair value
        
CDOs:
Consolidated SLST
$— $— $805,273 $805,273 $— $— $811,591 $811,591 
Residential loan securitizations
— 1,554,353 — 1,554,353 — 1,253,332 — 1,253,332 
Non-Agency RMBS re-securitization— 69,515 — 69,515 — 70,757 — 70,757 
Senior unsecured notes
— 139,761 — 139,761 — 60,310 — 60,310 
Derivative liabilities:
Interest rate swaps (2) (4)
— — — — — — — — 
U.S. Treasury futures (2) (4)
— — — — — — — — 
Credit default swaps (2) (4)
— — — — — — — — 
Total
$— $1,763,629 $805,273 $2,568,902 $— $1,384,399 $811,591 $2,195,990 
    
(1)Excludes assets of disposal group held for sale (see Note 9).
(2)Included in other assets or other liabilities, respectively, in the condensed consolidated balance sheets.
(3)Includes interest rate caps classified as Level 2 instruments in the amount of $0.2 million and $0.1 million as of March 31, 2025 and December 31, 2024, respectively.
(4)All of the Company’s interest rate swaps, credit default swaps and U.S. Treasury futures are cleared through central clearing houses. The Company exchanges variation margin for the derivative instruments based upon daily changes in fair value. Includes derivative liabilities of $39.3 million netted against derivative assets of $10.3 million and a net variation margin of $29.0 million as of March 31, 2025. Includes derivative liabilities of $19.9 million netted against derivative assets of $64.9 million and a variation margin of $45.0 million as of December 31, 2024. See Note 10 for additional information.

The following tables detail changes in valuation for the Level 3 assets for the three months ended March 31, 2025 and 2024, respectively (dollar amounts in thousands):

Level 3 Assets:
Three Months Ended March 31, 2025
Residential loans
Residential loansConsolidated SLSTResidential loans held in securitization trustsMulti-family loansEquity investments
Mortgage servicing rights
Total
Balance at beginning of period$632,266 $965,672 $2,243,800 $86,192 $113,492 $21,003 $4,062,425 
Total gains/(losses) (realized/unrealized)
Included in earnings5,857 11,743 25,378 2,991 3,589 (706)48,852 
Transfers out (1)
(22,506)— (659)— — — (23,165)
Transfer to securitization trust, net (2)
(464,214)— 464,214 — — — — 
Paydowns/Distributions(56,731)(18,165)(261,880)(1,961)(23,082)(361,819)
Sales(2,075)— (6,277)— — — (8,352)
Acquisitions
352,965 — 43,880 — — 396,845 
Balance at the end of period$445,562 $959,250 $2,508,456 $87,222 $93,999 $20,297 $4,114,786 

(1)Transfers out of Level 3 assets represents the transfer of residential loans to real estate owned assets.
(2)During the three months ended March 31, 2025, the Company transferred, on a net basis, certain residential loans into residential loan securitizations (see Note 7 for further discussion of the Company's residential loan securitizations).
Three Months Ended March 31, 2024
Residential loans
Residential loansConsolidated SLSTResidential loans held in securitization trustsMulti-family loansEquity investmentsTotal
Balance at beginning of period$827,535 $754,860 $1,501,908 $95,792 $147,116 $3,327,211 
Total losses (realized/unrealized)
Included in earnings(2,924)(138)(1,773)(2,137)(2,037)(9,009)
Transfers out (1)
(18,180)— (2,886)— — (21,066)
Transfer to securitization trust, net (2)
(370,804)— 370,804 — — — 
Paydowns/Distributions(62,718)(16,596)(152,806)(1,750)(7,136)(241,006)
Sales(22,204)— (6,708)— — (28,912)
Purchases290,024 — 15,711 — — 305,735 
Balance at the end of period$640,729 $738,126 $1,724,250 $91,905 $137,943 $3,332,953 

(1)Transfers out of Level 3 assets represents the transfer of residential loans to real estate owned, single-family rental properties and other assets.
(2)During the three months ended March 31, 2024, the Company transferred certain residential loans into residential loan securitizations (see Note 7 for further discussion of the Company's residential loan securitizations).

The following table details changes in valuation for the Level 3 liabilities for the three months ended March 31, 2025 and 2024, respectively (dollar amounts in thousands):

Level 3 Liabilities:
Consolidated SLST CDOs
 Three Months Ended March 31,
 20252024
Balance at beginning of period$811,591 $593,737 
Total gains (realized/unrealized)
Included in earnings 8,637 1,396 
Paydowns(14,955)(12,506)
Balance at the end of period$805,273 $582,627 
The following table discloses quantitative information regarding the significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value (dollar amounts in thousands, except input values):

March 31, 2025Fair ValueValuation Technique Unobservable InputWeighted Average Range
Assets
Residential loans:
Residential loans and residential loans held in securitization trusts (1)
$2,779,673Discounted cash flowLifetime CPR8.6%—-49.8%
Lifetime CDR0.6%—-30.2%
Loss severity11.6%—-96.8%
Yield7.4%5.0%-32.9%
$174,345Liquidation modelAnnual home price appreciation/(depreciation)0.5%—-9.7%
Liquidation timeline (months)181-54
Property value$2,106,041$6,000-$12,750,000
Yield7.6%7.5%-26.8%
Consolidated SLST (4)
$959,250Liability priceN/A
Total$3,913,268
Multi-family loans (1) (2)
$87,222Discounted cash flowDiscount rate12.5%11.0%-14.0%
Months to assumed redemption24
< 1
-48
Loss severity—
Equity investments (1) (3)
$53,251Discounted cash flowDiscount rate16.0%15.0%-17.5%
Months to assumed redemption183-47
Loss severity—
$1,111
Direct Capitalization
Capitalization Rate
6.0%6.0%-6.0%
Mortgage servicing rights (1)
$20,297Discounted cash flow
Lifetime voluntary prepayment rate
10.5%1.0%-26.6%
Lifetime CDR2.2%—-41.1%
Yield12.6%12.0%-14.0%
Liabilities
Consolidated SLST CDOs (4) (5)
$805,273Discounted cash flowYield5.5%4.5%-12.8%
Collateral prepayment rate6.2%2.7%-7.2%
Collateral default rate1.3%—-7.4%
Loss severity20.3%10.0%-78.2%

(1)Weighted average amounts are calculated based on the weighted average fair value of the assets.
(2)As of March 31, 2025, the Company has reduced the fair value of one multi-family loan to zero as a result of developments with respect to the property, its financing and market conditions. Unobservable inputs do not include inputs related to this multi-family loan. As of March 31, 2025, the Company had one multi-family loan mature on April 1, 2025, which was repaid in full on its maturity date.
(3)Equity investments do not include equity ownership interests in an entity that originates residential loans. The fair value of this investment is determined using weighted multiples of origination volume and earnings before taxes, depreciation and amortization and NAV of the entity.
(4)In accordance with the practical expedient in ASC 810, the Company determines the fair value of the residential loans held in Consolidated SLST based on the fair value of the CDOs issued by Consolidated SLST, including investment securities we own, as the fair value of these instruments is more observable. At March 31, 2025, the fair value of investment securities we own in Consolidated SLST amounts to $148.1 million.
(5)Weighted average yield calculated based on the weighted average fair value of the CDOs issued by Consolidated SLST, including investment securities we own. Weighted average collateral prepayment rate, weighted average collateral default rate, and weighted average loss severity are calculated based on the weighted average unpaid balance of the CDOs issued by Consolidated SLST, including investment securities we own.

The following table details the changes in unrealized gains (losses) included in earnings for the three months ended March 31, 2025 and 2024, respectively, for our Level 3 assets and liabilities held as of March 31, 2025 and 2024, respectively (dollar amounts in thousands):

 Three Months Ended March 31,
 20252024
Assets
Residential loans:
Residential loans (1)
$(2,342)$(8,303)
Consolidated SLST (1)
12,895 506 
Residential loans held in securitization trusts (1)
23,905 (4,362)
Multi-family loans (1)
410 (4,777)
Equity investments (2)
(1,363)(6,161)
Mortgage servicing rights (1)
(706)— 
Liabilities
Consolidated SLST CDOs (1)
(9,631)(542)

(1)Presented in unrealized gains (losses), net on the Company's condensed consolidated statements of operations.
(2)Presented in income (loss) from equity investments on the Company's condensed consolidated statements of operations.
The following table presents the carrying value and estimated fair value of the Company’s financial instruments at March 31, 2025 and December 31, 2024, respectively (dollar amounts in thousands):
  March 31, 2025December 31, 2024
 Fair Value
Hierarchy Level		Carrying
Value		Estimated
Fair Value		Carrying
Value		Estimated
Fair Value
Financial Assets:     
Cash and cash equivalentsLevel 1$177,072 $177,072 $167,422 $167,422 
Residential loansLevel 33,913,268 3,913,268 3,841,738 3,841,738 
Investment securities available for saleLevel 24,646,812 4,646,812 3,828,544 3,828,544 
Multi-family loansLevel 387,222 87,222 86,192 86,192 
Equity investmentsLevel 393,999 93,999 113,492 113,492 
Derivative assetsLevel 23,530 3,530 56 56 
Derivative assets in disposal group held for saleLevel 2222 222 67 67 
Mortgage servicing rights
Level 3
20,297 20,297 21,003 21,003 
Financial Liabilities:     
Repurchase agreementsLevel 24,485,716 4,485,716 4,012,225 4,012,225 
Collateralized debt obligations:
Residential loan securitizations at amortized cost, netLevel 3757,673 740,808 842,764 818,482 
Residential loan securitizations at fair value
Level 2
1,554,353 1,554,353 1,253,332 1,253,332 
Consolidated SLSTLevel 3805,273 805,273 811,591 811,591 
Non-Agency RMBS re-securitizationLevel 269,515 69,515 70,757 70,757 
Subordinated debenturesLevel 345,000 38,976 45,000 38,918 
Senior unsecured notes:
Senior unsecured notes at amortized cost, net
Level 299,087 99,488 98,886 98,632 
Senior unsecured notes at fair value
Level 2139,761 139,761 60,310 60,310 
Mortgages payable on real estateLevel 3365,455 353,914 366,606 347,915 
Mortgages payable on real estate in disposal group held for saleLevel 389,364 89,364 93,370 93,370 
In addition to the methodology to determine the fair value of the Company’s financial assets and liabilities reported at fair value, as previously described, the following methods and assumptions were used by the Company in arriving at the fair value of the Company’s other financial instruments in the table immediately above:

a.Cash and cash equivalents – Estimated fair value approximates the carrying value of such assets.

b.Repurchase agreements – The fair value of these repurchase agreements approximates cost as they are short term in nature.

c.Residential loan securitizations at amortized cost, net – The fair value of these CDOs is based on discounted cash flows as well as market pricing on comparable obligations.

d.Subordinated debentures – The fair value of these subordinated debentures is based on discounted cash flows using management’s estimate for market yields.

e.Senior unsecured notes – The fair value of senior unsecured notes reported at amortized cost, net is determined using pricing models that consider observable market data to determine the fair value of identical or similar securities.

f.Mortgages payable on real estate – The fair value of consolidated variable-rate mortgages payable approximates the carrying value of such liabilities. The fair value of consolidated fixed-rate mortgages payable is estimated based upon discounted cash flows at current borrowing rates.