XML 32 R18.htm IDEA: XBRL DOCUMENT v3.25.3
Derivative Instruments
 9 Months Ended
Sep. 30, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
10. Derivative Instruments

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, TBAs, 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 purchase options on U.S. Treasury futures or invest in other types of mortgage derivative securities. Additionally, Constructive may enter into IRLCs related to the origination of business purpose loans. The Company elected not to apply hedge accounting for its derivative instruments.
The following table summarizes the Company's derivative instruments as of September 30, 2025 and December 31, 2024, respectively (dollar amounts in thousands):
Fair Value
Type of Derivative InstrumentConsolidated Balance Sheet LocationSeptember 30, 2025December 31, 2024
Interest rate caps
Other assets$150 $56 
OptionsOther assets79 — 
IRLCs
Other assets2,383 — 
Interest rate swapsOther assets— — 
Futures
Other assets— — 
Total derivative assets (1)
$2,612 $56 
Futures
Other liabilities$— $— 
TBAs
Other liabilities(121)— 
Credit default swaps
Other liabilities— — 
Interest rate swapsOther liabilities— — 
Total derivative liabilities
$(121)$— 
(1)Excludes interest rate cap contracts held by certain Consolidated Real Estate VIEs included in other assets in disposal group held for sale as of December 31, 2024 (see Note 9).
The Company elects to net the fair value of its derivative contracts by counterparty when appropriate and accounts for the receipt or payment of variation margin as a direct reduction of 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 September 30, 2025 and December 31, 2024, respectively (dollar amounts in thousands):
September 30, 2025
Gross Amount of Recognized Assets (Liabilities)Gross Amounts Offset in Balance SheetsVariation MarginNet Amounts of Assets (Liabilities) Presented in Balance Sheets
Derivative assets
Interest rate caps$150 $— $— $150 
Options79 — — 79 
IRLCs
2,383 — — 2,383 
Interest rate swaps3,402 (3,402)— — 
Futures
3,494 (139)(3,355)— 
Total derivative assets$9,508 $(3,541)$(3,355)$2,612 
Derivative liabilities
Credit default swaps
$(10,268)$— $10,268 $— 
TBAs
(121)— — (121)
Interest rate swaps(56,064)3,402 52,662 — 
Futures
(4,704)139 4,565 — 
Total derivative liabilities$(71,157)$3,541 $67,495 $(121)

December 31, 2024
Gross Amount of Recognized Assets (Liabilities)Gross Amounts Offset in Balance SheetsVariation MarginNet Amounts of Assets (Liabilities) Presented in Balance Sheets
Derivative assets
Interest rate caps$56 $— $— $56 
Interest rate swaps63,942 (10,134)(53,808)— 
Futures
952 (658)(294)— 
Total derivative assets$64,950 $(10,792)$(54,102)$56 
Derivative liabilities
Credit default swaps
$(9,120)$— $9,120 $— 
Interest rate swaps(10,134)10,134 — — 
Futures
(658)658 — — 
Total derivative liabilities$(19,912)$10,792 $9,120 $— 
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 futures determined by the respective central clearing houses, 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 September 30, 2025 and December 31, 2024, respectively (dollar amounts in thousands):


Initial Margin Collateral
Consolidated Balance Sheet Location
September 30, 2025December 31, 2024
Agency RMBS
Investment securities available for sale, at fair value
$68,231 $33,399 
Restricted cash
Other assets
69,016 68,253 
Total initial margin collateral
$137,247 $101,652 

Margin excess related to settlement of variation margin in the amount of approximately $11.5 million and $11.1 million as of September 30, 2025 and December 31, 2024, 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 $13.3 million and $8.1 million as of September 30, 2025 and December 31, 2024, respectively, is included in other liabilities on the accompanying condensed consolidated balance sheets.
The tables below summarize the notional activity of derivative instruments for the three and nine months ended September 30, 2025 and 2024, respectively (dollar amounts in thousands):

Notional Amount For the Three Months Ended September 30, 2025
Type of Derivative InstrumentJune 30, 2025Additions
Terminations/Pair-Offs
September 30, 2025
Interest rate caps$45,142 $— $— $45,142 
Options— 349 (185)164 
TBAs
10,000 130,000 (110,000)30,000 
Interest rate swaps4,867,217 1,117,681 (1,205,090)4,779,808 
Credit default swaps
475,000 — — 475,000 
Futures
247,500 1,051,727 (673,500)625,727 

Notional Amount For the Three Months Ended September 30, 2024
Type of Derivative InstrumentJune 30, 2024
Additions
Terminations
September 30, 2024
Interest rate caps$263,142 $— $— $263,142 
Options80 — (80)— 
Interest rate swaps2,972,030 881,235 (550,952)3,302,313 
Credit default swaps
400,000 — — 400,000 
Futures
67,000 — (67,000)— 

Notional Amount For the Nine Months Ended September 30, 2025
Type of Derivative InstrumentDecember 31, 2024
Additions
Terminations/Pair-Offs
September 30, 2025
Interest rate caps$45,142 $45,142 $(45,142)$45,142 
Options— 601 (437)164 
TBAs
— 150,000 (120,000)30,000 
Interest rate swaps4,134,267 3,373,016 (2,727,475)4,779,808 
Credit default swaps
400,000 75,000 — 475,000 
Futures
406,100 1,521,127 (1,301,500)625,727 

Notional Amount For the Nine Months Ended September 30, 2024
Type of Derivative InstrumentDecember 31, 2023
Additions/Transfers In (1)
Terminations/Transfers Out (1)
September 30, 2024
Interest rate caps$550,025 $177,044 $(463,927)$263,142 
Options— 382 (382)— 
Interest rate swaps2,778,015 1,974,659 (1,450,361)3,302,313 
Credit default swaps
— 400,000 — 400,000 
Futures
— 498,950 (498,950)— 

(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 table presents the components of realized gains (losses), net and unrealized gains (losses), net related to derivative instruments, which are included in (losses) gains on derivative instruments, net in the condensed consolidated statements of operations for the three and nine months ended September 30, 2025 and 2024, respectively (dollar amounts in thousands):
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2025202420252024
Type of Derivative InstrumentRealized 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)
$— $9 $— $(209)$— $54 $— $3,044 
Options(517)(408)(772)(7)2,125 (408)(2,261)— 
IRLCs
— (1,940)— — — (1,940)— — 
TBAs
484 (226)— — 480 (121)— — 
Interest rate swaps1,804 (5,868)(835)(55,611)33,219 (106,470)16,591 (7,760)
Credit default swaps
(1,240)210 (1,022)(720)(3,454)(542)(3,056)(1,023)
Futures
(10,145)4,831 (1,729)265 (8,213)(1,504)(1,493)— 
Total$(9,614)$(3,392)$(4,358)$(56,282)$24,157 $(110,931)$9,781 $(5,739)
(1)Includes interest rate caps held by certain Consolidated Real Estate VIEs included in other assets in disposal group held for sale (see Note 9).

The following tables present information about an interest rate cap contract related to a variable-rate mortgage payable on real estate that is not included in disposal group held for sale as of September 30, 2025 and December 31, 2024, respectively (dollar amounts in thousands):

September 30, 2025
Financing Type
SOFR Strike Price
Notional Amount
Expiration Date
Mortgage payable on real estate
3.22%
45,142 
January 1, 2026

December 31, 2024
Financing Type
SOFR Strike Price
Notional Amount
Expiration Date
Mortgage payable on real estate
3.22%
45,142 
January 1, 2025


The following table presents information about the Company's TBA purchase and sale contracts as of September 30, 2025 (dollar amounts in thousands). The Company did not own TBAs as of December 31, 2024.

Notional Amount (1)
Cost Basis (2)
Fair Value (3)
Net Carrying Value (4)
Purchase contracts
$40,000 $40,845 $40,724 $(121)
Sale contracts
(10,000)(10,081)(10,081)— 
Total TBAs$30,000 $30,764 $30,643 $(121)

(1)Notional amount represents the par value (or principal balance) of the underlying Agency RMBS.
(2)Cost basis represents the forward price to be paid for the underlying Agency RMBS.
(3)Fair value represents the current fair value of the TBA (or of the underlying Agency RMBS) as of period end.
(4)Net carrying value represents the difference between the fair value and the cost basis as of period end.
The following tables present information about the Company's interest rate swaps whereby it receives floating rate payments in exchange for fixed rate payments as of September 30, 2025 and December 31, 2024, respectively (dollar amounts in thousands):

September 30, 2025
Swap MaturitiesNotional AmountWeighted Average Fixed Interest RateWeighted Average Variable Interest Rate
2025$71,885 4.97 %4.51 %
202630,660 4.37 %4.44 %
2027688,633 3.94 %4.42 %
20281,697,021 3.75 %4.35 %
2029270,275 3.91 %4.39 %
20301,155,582 3.75 %4.36 %
2033199,590 3.73 %4.34 %
2034178,224 3.86 %4.39 %
2035300,878 4.00 %4.38 %
2045134,010 4.01 %4.36 %
Total$4,726,758 3.84 %4.37 %

December 31, 2024
Swap MaturitiesNotional AmountWeighted Average Fixed Interest RateWeighted Average Variable Interest Rate
2025$1,377,250 4.53 %4.89 %
2026159,120 4.10 %4.53 %
2027622,123 3.98 %4.75 %
2028510,325 3.90 %4.93 %
2029614,585 3.86 %4.71 %
2033319,590 4.00 %4.83 %
2034178,224 3.86 %4.83 %
2044300,000 3.34 %4.80 %
Total$4,081,217 4.09 %4.82 %
The following tables present information about the Company's interest rate swaps whereby it receives fixed rate payments in exchange for floating rate payments as of September 30, 2025 and December 31, 2024, respectively (dollar amounts in thousands):

September 30, 2025
Swap MaturitiesNotional AmountWeighted Average Fixed Interest RateWeighted Average Variable Interest Rate
2028$9,550 3.48 %4.37 %
203343,500 3.64 %4.34 %
Total$53,050 3.61 %4.35 %

December 31, 2024
Swap MaturitiesNotional AmountWeighted Average Fixed Interest RateWeighted Average Variable Interest Rate
2028$9,550 3.48 %5.15 %
203343,500 3.64 %5.01 %
Total$53,050 3.61 %5.04 %
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.