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Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2021

Schedule of fair value measurement inputs and valuation techniques

The following tables present the Company’s financial instruments carried at fair value on a recurring basis as of March 31, 2021 and December 31, 2020, on the consolidated balance sheets by the valuation hierarchy, as previously described:

Fair Value at March 31, 2021


(In Thousands)	Level 1		Level 2		Level 3		Total
Assets:
Residential whole loans, at fair value	$	—	$	—	$	1,320,199	$	1,320,199
Securities, at fair value	—		350,115		—		350,115
Total assets carried at fair value	$	—	$	350,115	$	1,320,199	$	1,670,314
Liabilities:
Agreements with non-mark-to-market collateral provisions	$	—	$	—	$	1,041,283	$	1,041,283
Agreements with mark-to-market collateral provisions	—		200,746		979,541		1,180,287
Securitized debt	—		753,008		—		753,008
Total liabilities carried at fair value	$	—	$	953,754	$	2,020,824	$	2,974,578

Fair Value at December 31, 2020


(In Thousands)	Level 1		Level 2		Level 3		Total
Assets:
Residential whole loans, at fair value	$	—	$	—	$	1,216,902	$	1,216,902
Securities, at fair value	—		399,999		—		399,999
Total assets carried at fair value	$	—	$	399,999	$	1,216,902	$	1,616,901
Liabilities:
Agreements with non-mark-to-market collateral provisions	$	—	$	—	$	1,159,213	$	1,159,213
Agreements with mark-to-market collateral provisions	—		213,915		1,124,162		1,338,077
Securitized debt	—		869,482		—		869,482
Total liabilities carried at fair value	$	—	$	1,083,397	$	2,283,375	$	3,366,772

The following tables present a summary of quantitative information about the significant unobservable inputs used in the fair value measurement of the Company’s residential whole loans held at fair value for which it has utilized Level 3 inputs to determine fair value as of March 31, 2021 and December 31, 2020:


	March 31, 2021
(Dollars in Thousands)	Fair Value (1)		Valuation Technique	Unobservable Input	Weighted Average (2)			Range

Residential whole loans, at fair value	$	798,185	Discounted cash flow	Discount rate	3.8		%	3.3-8.0%
				Prepayment rate	4.2		%	0.7-8.9%
				Default rate	3.4		%	0.0-17.9%
				Loss severity	12.1		%	0.0-100.0%

	$	409,546	Liquidation model	Discount rate	8.1		%	6.7-50.0%
				Annual change in home prices	6.2		%	4.2-10.4%
				Liquidation timeline (in years)	1.8			0.7-4.8
				Current value of underlying properties (3)	$	744		$5-$3,704
Total	$	1,207,731


	December 31, 2020
(Dollars in Thousands)	Fair Value (1)		Valuation Technique	Unobservable Input	Weighted Average (2)			Range

Residential whole loans, at fair value	$	789,576	Discounted cash flow	Discount rate	3.9		%	3.3-8.0%
				Prepayment rate	4.8		%	0.0-9.9%
				Default rate	3.8		%	0.0-18.9%
				Loss severity	12.7		%	0.0-100.0%

	$	427,061	Liquidation model	Discount rate	8.1		%	6.7-50.0%
				Annual change in home prices	3.6		%	0.0-6.5%
				Liquidation timeline (in years)	1.8			0.8-4.8
				Current value of underlying properties (3)	$	729		$12-$4,500
Total	$	1,216,637

(1) Excludes approximately $112.5 million and $265,000 of loans for which management considers the purchase price continues to reflect the fair value of such loans at March 31, 2021 and December 31, 2020, respectively.

(2) Amounts are weighted based on the fair value of the underlying loan.

(3) The simple average value of the properties underlying residential whole loans held at fair value valued via a liquidation model was approximately $403,000 and $380,000 as of March 31, 2021 and December 31, 2020, respectively.

Schedule of significant unobservable inputs used in fair value measurement of residential whole loans

The following table presents additional information for the three months ended March 31, 2021 and 2020 about the Company’s Residential whole loans, at fair value, which are classified as Level 3 and measured at fair value on a recurring basis:


	Residential Whole Loans, at Fair Value
	Three Months Ended March 31,
(In Thousands)	2021 (1)		2020
Balance at beginning of period	$	1,216,902	$	1,381,583
Purchases	—		—
Changes in fair value recorded in Net gain on residential whole loans measured at fair value through earnings	32,088		(74,556)
Repayments	(25,571)		(20,285)
Sales and repurchases	—		(305)
Transfer to REO	(15,422)		(42,645)
Balance at end of period	$	1,207,997	$	1,243,792

(1) Excluded from the table above are approximately $112.2 million of Residential whole loans, at fair value for which the closing of the purchase transaction had not occurred as of March 31, 2021.

The following table presents additional information for the three months ended March 31, 2021 about the Company’s financing agreements with non-mark-to-market collateral provisions, which are classified as Level 3 and measured at fair value on a recurring basis:


	Agreements with Non-mark-to-market Collateral Provisions
	Three Months Ended March 31,
(In Thousands)	2021
Balance at beginning of period	$	1,159,213
Issuances	—
Payment of principal	(117,695)
Changes in unrealized losses	(235)
Balance at end of period	$	1,041,283

The following table presents additional information for the three months ended March 31, 2021 about the Company’s financing agreements with mark-to-market collateral provisions, which are classified as Level 3 and measured at fair value on a recurring basis:


	Agreements with Mark-to-market Collateral Provisions
	Three Months Ended March 31,
(In Thousands)	2021
Balance at beginning of period	$	1,124,162
Issuances	91,997
Payment of principal	(236,618)
Changes in unrealized losses	—
Balance at end of period	$	979,541

Schedule of carrying value and fair value of financial instruments

The following table presents the carrying values and estimated fair values of the Company’s financial instruments at March 31, 2021 and December 31, 2020:


	March 31, 2021	March 31, 2021				December 31, 2020
	Level in Fair Value Hierarchy	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
(In Thousands)
Financial Assets:
Residential whole loans, at carrying value	3	$	3,869,056	$	4,072,021	$	4,108,499	$	4,282,401
Residential whole loans, at fair value	3	1,320,199		1,320,199		1,216,902		1,216,902
Securities, at fair value	2	350,115		350,115		399,999		399,999
Cash and cash equivalents	1	780,714		780,714		814,354		814,354
Restricted cash	1	5,150		5,150		7,165		7,165
Financial Liabilities (1):
Financing agreements with non-mark-to-market collateral provisions	3	1,041,283		1,041,283		1,159,213		1,159,213
Financing agreements with mark-to-market collateral provisions	3	979,541		979,541		1,124,162		1,124,162
Financing agreements with mark-to-market collateral provisions	2	200,746		200,746		213,915		213,915
Securitized debt (2)	2	1,548,920		1,552,493		1,514,509		1,519,567
Convertible senior notes	2	225,492		232,042		225,177		228,287
Senior notes (3)	1	—		—		100,000		100,031

(1)Carrying value of securitized debt, Convertible Senior Notes, Senior Notes and certain repurchase agreements is net of associated debt issuance costs.

(2)Includes Securitized debt that is carried at amortized cost basis and fair value.

(3)On January 6, 2021, the Company redeemed all of its outstanding Senior Notes (see Note 6).