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Other Assets

6 Months Ended

Jun. 30, 2022

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

The following table presents the components of the Company’s Other assets at June 30, 2022 and December 31, 2021:


(In Thousands)	June 30, 2022		December 31, 2021

REO (1)	$	135,847	$	156,223
Goodwill	61,076		61,076
Intangibles, net (2)	14,800		21,400
Capital contributions made to loan origination partners	31,999		71,673
Other interest-earning assets	53,540		57,522
Interest receivable	60,380		50,191
Other loan related receivables	32,344		34,191
Lease right-of-use asset (3)	38,740		39,370
Other	69,363		73,910
Total Other Assets	$	498,089	$	565,556

(1) Includes $2.3 million and $11.3 million of REO that is held-for-investment at June 30, 2022 and December 31, 2021, respectively.

(2) Net of aggregate accumulated amortization of $13.2 million and $6.6 million as of June 30, 2022 and December 31, 2021, respectively.

(3) 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 June 30, 2022, the Company had 438 REO properties with an aggregate carrying value of $135.8 million. At December 31, 2021, the Company had 553 REO properties with an aggregate carrying value of $156.2 million.

At June 30, 2022, $135.4 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 $71.3 million of residential whole loans held at carrying value and $305.8 million of residential whole loans held at fair value at June 30, 2022.

The following table presents the activity in the Company’s REO for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars In Thousands)	2022		2021		2022		2021
Balance at beginning of period	$	145,568	$	220,393	$	156,223	$	249,699
Adjustments to record at lower of cost or fair value	(324)		(68)		(772)		(943)
Transfer from residential whole loans (1)	23,138		18,302		45,217		38,370
Purchases and capital improvements, net	277		406		629		624
Disposals and other (2)	(32,812)		(34,271)		(65,450)		(82,988)
Balance at end of period	$	135,847	$	204,762	$	135,847	$	204,762

Number of properties	438		766		438		766

(1)Includes a net loss recorded on transfer of approximately $9,000 for the three months ended June 30, 2022 and a net gain recorded on transfer of approximately $22,000 for the three months ended June 30, 2021; and a net gain recorded on transfer of approximately $400 for the six months ended June 30, 2022 and a net loss recorded on transfer of approximately $1.1 million for the six months ended June 30, 2021.

(2)During the three and six months ended June 30, 2022, the Company sold 124 and 259 REO properties for consideration of $39.6 million and $81.2 million, realizing net gains of approximately $7.3 million and $16.0 million, respectively. During the three and six months ended June 30, 2021, the Company sold 139 and 319 REO properties for consideration of $38.0 million and $88.6 million, realizing net gains of approximately $3.9 million and $6.1 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 of Lima One (see Note 15). 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 six months ended June 30, 2022 is summarized in the table below:


(Dollars in Thousands)	Carrying Value at December 31, 2021		Amortization Six Months Ended June 30, 2022		Carrying Value at June 30, 2022		Amortization Period (Years) (1)
Trademarks / Trade Names	$	3,800	$	(200)	$	3,600	10
Customer Relationships	12,000		(4,000)		8,000		4
Internally Developed Software	3,600		(400)		3,200		5
Non-Compete Agreements	2,000		(2,000)		—		1
Total Identified Intangibles	$	21,400	$	(6,600)	$	14,800

(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.

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 the Company sources residential mortgage loans through both flow arrangements and bulk purchases. At June 30, 2022, the carrying value of these investments (including adjustments for impairments or mark-to-market changes) was $32.0 million, including $8.9 million of common equity (including partnership interests) and $23.1 million of preferred equity. During the three and six months ended June 30, 2022, the Company recorded an impairment charge in earnings of $28.6 million against the carrying value of its investment in one loan origination partner, bringing the net carrying value of this investment to zero at June 30, 2022. The Company did not record any impairment charges to earnings on

investments in loan origination partners during the three and six months ended June 30, 2021. Further, for the three months ended June 30, 2022, the Company recorded a valuation adjustment of $10.6 million against an investment in a loan origination partner that is accounted for at fair value through earnings. 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. In addition, for certain partners options or warrants 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.

(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 the Secured Overnight Financing Rate (“SOFR”), on the notional amount of the Swap. At June 30, 2022, none of the Company’s Swaps were designated as hedges for accounting purposes.

The following table presents the assets pledged as collateral against the Company’s Swap contracts at June 30, 2022, and December 31, 2021:


(In Thousands)	June 30, 2022		December 31, 2021
Restricted Cash	$	70,216	$	14,446

At June 30, 2022, the Company had Swaps with an aggregate notional amount of $3.2 billion and an average maturity of approximately 48 months with a maximum term of approximately 84 months.

The following table presents information about the Company’s Swaps at June 30, 2022, and December 31, 2021:


	June 30, 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		1.50		—		—		—
Over 24 months to 36 months	1,225,010		1.44		1.50		450,010		0.90		0.05
Over 36 months to 48 months	—		—		—		—		—		—
Over 48 months to 60 months	1,525,000		1.64		1.50		450,000		1.12		0.05
Over 60 months to 72 months	—		—		—		—		—		—
Over 72 months to 84 months	310,000		2.95		1.50		—		—		—

Total Swaps	$	3,160,010	1.69	%	1.50	%	$	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 daily based on SOFR.

During the three and six months ended June 30, 2022, the Company recorded net gains on Swaps of approximately $27.5 million and $102.7 million, which includes net swap expense of $4.3 million and $9.8 million, respectively. 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 and six months ended June 30, 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 Company did not have any open short positions in TBA securities at June 30, 2022. The table below summarizes open short positions in TBA securities as of December 31, 2021, which had an aggregate value of $(1.3) million and were included in Other assets/liabilities on the Company’s consolidated balance sheets.

December 31, 2021

(Dollars in Thousands)

Notional Amount

Settlement Date

TBA Security

FNCL 2.5

180,000

January 13, 2022

FNCL 2

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 and six months ended June 30, 2022, the Company recorded realized and unrealized changes in fair value on TBA short positions of $20.3 million and $39.2 million, respectively. For the three and six months ended June 30, 2021, the Company recorded realized and unrealized changes in fair value on TBA short positions of $1.1 million.