Other Assets

3 Months Ended

Mar. 31, 2022

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Assets

Other Assets

The following table presents the components of the Company’s Other assets at March 31, 2022 and December 31, 2021:

(In Thousands)	March 31, 2022		December 31, 2021
Treasury Bills (1)	$	299,998	$	—
REO (2)	145,568		156,223
Goodwill	61,076		61,076
Intangibles, net (3)	18,100		21,400
Capital contributions made to loan origination partners	70,783		71,673
Other interest-earning assets	53,636		57,522
Interest receivable	57,090		50,191
Other loan related receivables	49,612		34,191
Lease right-of-use asset (4)	39,243		39,370
Other	62,237		73,910
Total Other Assets	$	857,343	$	565,556

(1) Held on a short-term basis in connection with managing the Company’s REIT compliance. Classified as Level 1 in the fair value hierarchy.

(2) Includes $6.5 million and $11.3 million of REO that is held-for-investment at March 31, 2022 and December 31, 2021, respectively.

(3) Net of aggregate accumulated amortization of $9.9 million and $6.6 million as of March 31, 2022 and December 31, 2021, respectively.

(4) An estimated incremental borrowing rate of 7.5% was used in connection with the Company’s primary operating lease (see Notes 2 and 9).

(a) Real Estate Owned

At March 31, 2022, the Company had 492 REO properties with an aggregate carrying value of $145.6 million. At December 31, 2021, the Company had 553 REO properties with an aggregate carrying value of $156.2 million.

At March 31, 2022, $144.5 million of residential real estate property was held by the Company that was acquired either through a completed foreclosure proceeding or from completion of a deed-in-lieu of foreclosure or similar legal agreement. In addition, formal foreclosure proceedings were in process with respect to $76.3 million of residential whole loans held at carrying value and $330.6 million of residential whole loans held at fair value at March 31, 2022.

The following table presents the activity in the Company’s REO for the three months ended March 31, 2022 and 2021:

	Three Months Ended March 31,
(Dollars In Thousands)	2022		2021
Balance at beginning of period	$	156,223	$	249,699
Adjustments to record at lower of cost or fair value	(448)		(874)
Transfer from residential whole loans (1)	22,079		20,068
Purchases and capital improvements, net	353		217
Disposals and other (2)	(32,639)		(48,717)
Balance at end of period	$	145,568	$	220,393
Number of properties	492		835

(1)Includes a net loss recorded on transfer of approximately $100,000 and a net gain recorded on transfer of approximately $1.1 million for the three months ended March 31, 2022 and 2021, respectively.

(2)During the three months ended March 31, 2022 and 2021, the Company sold 135 and 177 REO properties for consideration of $41.5 million and $50.6 million, realizing net gains of approximately $8.7 million and $2.2 million, respectively. These amounts are included in Other Income, net on the Company’s consolidated statements of operations.

(b) Goodwill and Intangible Assets

On July 1, 2021, the Company completed the acquisition from affiliates of Magnetar Capital of their ownership interests in Lima One Holdings, LLC, the parent company of Lima One Capital, LLC (collectively, “Lima One”), a leading originator and servicer of business purpose loans. In connection with the acquisition of Lima One, the Company identified and recorded goodwill of $61.1 million and finite-lived intangible assets totaling $28.0 million.

The amortization period for each of the finite lived intangible assets and the activity for the three months ended March 31, 2022 is summarized in the table below:

(Dollars in Thousands)	Carrying Value at December 31, 2021		Amortization  Three Months Ended March 31, 2022		Carrying Value at March 31, 2022		Amortization Period (Years) (1)
Trademarks / Trade Names	$	3,800	$	(100)	$	3,700	10
Customer Relationships	12,000		(2,000)		10,000		4
Internally Developed Software	3,600		(200)		3,400		5
Non-Compete Agreements	2,000		(1,000)		1,000		1
Total Identified Intangibles	$	21,400	$	(3,300)	$	18,100

(1) Amortization is calculated on a straight-line basis over the amortization period, except for Customer Relationships, where amortization is calculated based on expected levels of customer attrition.

(c) Capital Contributions Made to Loan Origination Partners

The Company has made investments in several loan originators as part of its strategy to be a reliable source of capital to select partners from whom it sources residential mortgage loans through both flow arrangements and bulk purchases. To date, such contributions of capital include the following investments (based on their carrying value prior to any impairments or mark-to-market): $23.2 million of common equity (including partnership interests) and $78.8 million of preferred equity. In addition, for certain partners, options or warrants may have also been acquired that provide the Company the ability to increase the level of its investment if certain conditions are met. At the end of each reporting period, or earlier if circumstances warrant, the Company evaluates whether the nature of its interests and other involvement with the investee entity requires the Company to apply equity method accounting or consolidate the results of the investee entity with the Company’s financial results. On July 1, 2021, the Company completed the acquisition of certain ownership interests in Lima One, which resulted in the Company owning all of Lima One’s outstanding ownership interests. Accordingly, the Company consolidated Lima One’s financial

results beginning on that date. For certain of the Company’s investments, the interests acquired to date by the Company generally do not have a readily determinable fair value. Consequently, the Company accounts for these interests (including any acquired options and warrants) in loan originators initially at cost. The carrying value of these investments will be adjusted if it is determined that an impairment has occurred or if there has been a subsequent observable transaction in either the investee company’s equity securities or a similar security that provides evidence to support an adjustment to the carrying value. The Company did not record any impairment charges to earnings on investments in loan origination partners during the three months ended March 31, 2022 and 2021.

(d) Derivative Instruments

Swaps

The Company’s derivative instruments include Swaps, which are used to economically hedge the interest rate risk associated with certain borrowings. Pursuant to these arrangements, the Company agreed to pay a fixed rate of interest and receive a variable interest rate, generally based on Secured Overnight Financing Rate (“SOFR”), on the notional amount of the Swap. At March 31, 2022, none of the Company’s Swaps are designated as hedges for accounting purposes.

The following table presents the assets pledged as collateral against the Company’s Swap contracts at March 31, 2022 and December 31, 2021:

(In Thousands)	March 31, 2022		December 31, 2021
Restricted Cash	$	54,804	$	14,446

At March 31, 2022, the Company had Swaps with an aggregate notional amount of $2.4 billion and an average maturity of approximately 46 months with a maximum term of approximately 59 months.

The following table presents information about the Company’s Swaps at March 31, 2022 and December 31, 2021:

	March 31, 2022						December 31, 2021
Maturity (1)	Notional Amount		Weighted Average Fixed-Pay Interest Rate		Weighted Average Variable Interest Rate (2)		Notional Amount		Weighted Average Fixed-Pay Interest Rate		Weighted Average Variable Interest Rate (2)
(Dollars in Thousands)
Within 30 days to 12 months	$	—	—	%	—	%	$	—	—	%	—	%
Over 12 months to 24 months	100,000		1.49		0.29		—		—		—
Over 24 months to 36 months	1,000,010		1.09		0.29		450,010		0.90		0.05
Over 36 months to 48 months	—		—		—		—		—		—
Over 48 months to 60 months	1,300,000		1.42		0.29		450,000		1.12		0.05
Total Swaps	$	2,400,010	1.29	%	0.29	%	$	900,010	1.01	%	0.05	%

(1)Each maturity category reflects contractual amortization and/or maturity of notional amounts.

(2)Reflects the benchmark variable rate due from the counterparty at the date presented, which rate adjusts annually based on SOFR. 

During the three months ended March 31, 2022, the Company recorded net gains on Swaps not designated in hedging relationships of approximately $75.2 million, which includes net swap expense of $5.5 million. These amounts are included in Other income, net on the Company’s consolidated statements of operations. The Company did not have any Swaps during the three months ended March 31, 2021.

TBA Securities

In order to economically hedge the risks arising from the investments in Agency eligible investor loans, the Company has entered into short positions in certain TBA securities. The table below summarizes open short positions in TBA securities as of March 31, 2022 and December 31, 2021, which had an aggregate value of $5.8 million and $(1.3) million, respectively, and were included in Other assets/liabilities on the Company’s consolidated balance sheets.

	March 31, 2022			December 31, 2021
(Dollars in Thousands)	Notional Amount		Settlement Date	Notional Amount		Settlement Date
TBA Security
FNCL 2.5	$	180,000	April 13, 2022	$	180,000	January 13, 2022
FNCL 2	$	130,000	April 13, 2022	$	130,000	January 13, 2022

TBA short positions are subject to margining requirements which serve to mitigate counterparty credit risk associated with these transactions. Open TBA positions are measured at fair value each reporting date, with realized and unrealized changes in the fair value of these positions recorded in Other income, net in the Company’s consolidated statements of operations. For the three months ended March 31, 2022, the Company recorded realized and unrealized changes in fair value on TBA short positions of $18.9 million. No TBA short positions had been entered into in the prior periods presented.