Other Assets

12 Months Ended

Dec. 31, 2022

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

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


(In Thousands)	December 31, 2022		December 31, 2021
Receivable for sale of unsettled residential whole loans	$	275,656	$	—
REO (1)	130,605		156,223
Goodwill	61,076		61,076
Intangibles, net (2)	12,200		21,400
Capital contributions made to loan origination partners	28,308		71,673
Other interest-earning assets	63,964		57,522
Interest receivable	68,704		50,191
Other loan related receivables	23,463		34,191
Lease Right-of-Use Asset (3)	39,459		39,370
Other	62,786		73,910
Total Other Assets	$	766,221	$	565,556

(1)Includes $11.3 million of REO that was held-for-investment at December 31, 2021.

(2)Net of aggregate accumulated amortization of $15.8 million and $6.6 million as of December 31, 2022 and 2021.

(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 December 31, 2022, the Company had 388 REO properties with an aggregate carrying value of $130.6 million. At December 31, 2021, the Company had 553 REO properties with an aggregate carrying value of $156.2 million.

At December 31, 2022, $130.1 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 $106.4 million of residential whole loans held at carrying value and $244.5 million of residential whole loans held at fair value at December 31, 2022.

The following table presents the activity in the Company’s REO for the years ended December 31, 2022 and 2021:


	For the Year Ended December 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	(4,255)		(4,772)
Transfer from residential whole loans (1)	82,911		72,304
Purchases and capital improvements, net	978		2,458
Disposals and other (2)	(105,252)		(163,466)
Balance at end of period	$	130,605	$	156,223

Number of properties	388		553

(1)Includes a net loss recorded on transfer of approximately $1.2 million and $700,000, respectively, for the years ended December 31, 2022 and 2021.

(2)During the year ended December 31, 2022, the Company sold 416 REO properties for consideration of $133.8 million, realizing net gains of approximately $28.7 million. During the year ended December 31, 2021, the Company sold 647 REO properties for consideration of $187.9 million, realizing net gains of approximately $23.5 million. 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 years ended December 31, 2022 and 2021 is summarized in the table below:


(Dollars in Thousands)	Acquisition Date July 1, 2021		Amortization Year Ended December 31, 2021		Carrying Value at December 31, 2021		Amortization Year Ended December 31, 2022		Carrying Value at December 31, 2022		Amortization Period (Years) (1)
Trademarks / Trade Names	$	4,000	$	(200)	$	3,800	$	(400)	$	3,400	10
Customer Relationships	16,000		(4,000)		12,000		(6,000)		6,000		4
Internally Developed Software	4,000		(400)		3,600		(800)		2,800		5
Non-Compete Agreements	4,000		(2,000)		2,000		(2,000)		—		1
Total Identified Intangibles	$	28,000	$	(6,600)	$	21,400	$	(9,200)	$	12,200

(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 December 31, 2022, the carrying value of these investments (including adjustments for impairments or mark-to-market changes) was $28.3 million, including $3.7 million of common equity (including partnership interests) and $24.6 million of preferred equity.

During the year ended December 31, 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 as of June 30, 2022. This impairment charge was recorded in Provision for credit losses on other assets in the consolidated statement of operations.

Further, for the year ended December 31, 2022, the Company recorded a valuation adjustment of $21.9 million against its investment in a loan origination partner that is accounted for at fair value through earnings. During the year ended December 31, 2021, the Company reversed $10.0 million of previously recorded impairment as two of the Company’s preferred equity investments were repaid in full. In addition, the Company recorded a gain of $24.0 million related to a preferred equity investment that had been previously impaired and that was required to be revalued during the period, as the investee company completed a capital transaction with an unrelated third party. The Company did not record any impairment charges to earnings on investments in loan origination partners during the year ended December 31, 2021. During the year ended December 31, 2020, the Company recorded impairment charges of $65.3 million on investments in certain loan origination partners following an evaluation of the anticipated impact of COVID-19 on economic conditions for the short to medium term. This activity was recorded in Other income in the consolidated statements of operations.

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 (see Note 15). 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 December 31, 2022, none of the Company’s Swaps were designated as hedges for accounting purposes.

In response to the turmoil in the financial markets resulting from COVID-19 experienced during the three months ended March 31, 2020, and given that management no longer considered those transactions to be effective hedges in the then prevailing interest rate environment, the Company unwound all of its then approximately $4.1 billion of Swap hedging transactions late in the first quarter of 2020 in order to recover previously posted margin. Consequently, during the year ended December 31, 2020, the Company concluded that it was appropriate to transfer from AOCI to earnings approximately $57.0 million of losses on Swaps that had previously been designated as hedges for accounting purposes, because the hedged transactions were no longer considered probable to occur.

At December 31, 2022 and 2021, the Company had restricted cash pledged as collateral against its Swap contracts of $60.8 million and $14.4 million, respectively.

At December 31, 2022, the Company had Swaps with an aggregate notional amount of $3.2 billion and an average maturity of approximately 42 months with a maximum term of approximately 78 months.

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


	December 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	550,010		1.01		4.30		—		—		—
Over 24 months to 36 months	775,000		1.75		4.30		450,010		0.90		0.05
Over 36 months to 48 months	450,000		1.12		4.30		—		—		—
Over 48 months to 60 months	1,075,000		1.86		4.30		450,000		1.12		0.05
Over 60 months to 72 months	—		—		—		—		—		—
Over 72 months to 84 months	310,000		2.95		4.30		—		—		—

Total Swaps	$	3,160,010	1.69	%	4.30	%	$	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.

TBA Securities

In order to economically hedge the risks arising from the investments in Agency eligible investor loans, the Company entered into short positions in certain TBA securities. The Company did not have any open short positions in TBA securities at December 31, 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

UMBS 2.5

180,000

January 13, 2022

UMBS 2.0

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 on the Company’s consolidated statements of operations.

Impact of Derivative Instruments on Earnings

The following table present the components of Net gain/(loss) on derivatives used for risk management purposes for the years ended December 31, 2022, 2021 and 2020, which is presented in Other income in the consolidated statements of operations:


	For the Year Ended December 31,
(In Thousands)	2022		2021		2020
Income on swap variable receive leg	$	52,395	$	34	$	933
Expense on swap fixed pay leg	(42,353)		(703)		(1,503)
Unrealized mark-to-market gain	208,712		70		5,708
Net price alignment expense on margin collateral received	(2,761)		—		—
Loss on unwind of swaps not designated as hedges for accounting purposes	—		—		(9,353)
Loss on terminated swaps designated as hedges for accounting purposes	—		—		(57,034)
Net gain on TBA short positions	39,186		2,025		—
Total Net gain/(loss) on derivatives used for risk management purposes	$	255,179	$	1,426	$	(61,249)

Impact of Derivative Hedging Instruments on AOCI

The following table presents the impact of the Company’s derivative hedging instruments on its AOCI for the years ended December 31, 2022, 2021 and 2020:


	For the Year Ended December 31,
(In Thousands)	2022		2021		2020
AOCI from derivative hedging instruments:
Balance at beginning of period	$	—	$	—	$	(22,675)
Net loss on Swaps	—		—		(50,127)
Reclassification adjustment for losses/gains related to hedging instruments included in net income	—		—		72,802
Balance at end of period	$	—	$	—	$	—