Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2018

Schedule of Financial Instruments Measured at Fair Value on a Recurring Basis

The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017, respectively, on the Company’s condensed consolidated balance sheets (dollar amounts in thousands):



	Measured at Fair Value on a Recurring Basis at
	September 30, 2018								December 31, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets carried at fair value
Investment securities available for sale:
Agency RMBS	$	—	$	1,055,433	$	—	$	1,055,433	$	—	$	1,169,536	$	—	$	1,169,536
Non-Agency RMBS	—		98,244		—		98,244		—		102,125		—		102,125
CMBS	—		81,760		51,751		133,511		—		93,498		47,922		141,420
Multi-family loans held in securitization trusts	—		—		10,070,834		10,070,834		—		—		9,657,421		9,657,421
Residential mortgage loans, at fair value	—		—		181,910		181,910		—		—		87,153		87,153
Derivative assets:
Interest rate swaps	—		8,760		—		8,760		—		10,101		—		10,101
Investments in unconsolidated entities	—		—		35,061		35,061		—		—		42,823		42,823
Total	$	—	$	1,244,197	$	10,339,556	$	11,583,753	$	—	$	1,375,260	$	9,835,319	$	11,210,579
Liabilities carried at fair value
Multi-family collateralized debt obligations	$	—	$	—	$	9,504,313	$	9,504,313	$	—	$	—	$	9,189,459	$	9,189,459
Total	$	—	$	—	$	9,504,313	$	9,504,313	$	—	$	—	$	9,189,459	$	9,189,459

Changes in Valuation of Level 3 Assets

The following table details changes in valuation for the Level 3 assets for the nine months ended September 30, 2018 and 2017, respectively (amounts in thousands):

Level 3 Assets:



	Nine Months Ended September 30,
	2018			2017
Balance at beginning of period	$	9,835,319		$	7,061,842
Total (losses)/gains (realized/unrealized)
Included in earnings ⁽¹⁾	(280,300		)	38,978
Included in other comprehensive income	901			208
Contributions	—			1,300
Paydowns/Distributions	(133,101		)	(139,751		)
Sales	(7,105		)	(4,100		)
Purchases ⁽²⁾	923,842			1,598,018
Balance at the end of period	$	10,339,556		$	8,556,495


⁽¹⁾	Amounts included in interest income from multi-family loans held in securitization trusts, interest income from residential mortgage loans, realized gain on distressed residential mortgage loans, net gain on residential mortgage loans at fair value, unrealized gain on multi-family loans and debt held in securitization trusts, and other income.

⁽²⁾

During the nine months ended September 30, 2018 and 2017, the Company purchased PO securities, certain IOs and mezzanine CMBS securities issued from Freddie Mac-sponsored multi-family K-Series securitization trusts. The Company determined that the securitization trusts are VIEs and that the Company is the primary beneficiary of the VIEs. As a result, during the nine months ended September 30, 2018 and 2017, the Company consolidated assets of these Freddie Mac sponsored multi-family K-Series securitization trusts in the amounts of $0.8 billion and $1.5 billion, respectively (see Notes 2 and 7).

Changes in Valuation of Level 3 Liabilities

The following table details changes in valuation for the Level 3 liabilities for the nine months ended September 30, 2018 and 2017, respectively (amounts in thousands):

Level 3 Liabilities:



	Nine Months Ended September 30,
	2018			2017
Balance at beginning of period	$	9,189,459		$	6,624,896
Total gains (realized/unrealized)
Included in earnings ⁽¹⁾	(350,674		)	(1,389		)
Purchases ⁽²⁾	767,477			1,472,073
Paydowns	(101,949		)	(104,961		)
Balance at the end of period	$	9,504,313		$	7,990,619


⁽¹⁾	Amounts included in interest expense on Multi-Family CDOs and unrealized gain on multi-family loans and debt held in securitization trusts.

⁽²⁾

During the nine months ended September 30, 2018 and 2017, the Company purchased PO securities, certain IOs and mezzanine CMBS securities issued from Freddie Mac-sponsored multi-family K-Series securitization trusts. The Company determined that the securitization trusts are VIEs and that the Company is the primary beneficiary of the VIEs. As a result, during the nine months ended September 30, 2018 and 2017, the Company consolidated liabilities of these Freddie Mac sponsored multi-family K-Series securitization trusts in the amounts of $0.8 billion and $1.5 billion, respectively (see Notes 2 and 7).

Changes in Unrealized Gains (Losses) Included in Earnings for Level 3 Assets and Liabilities

The following table details the changes in unrealized gains (losses) included in earnings for our Level 3 multi-family loans and debt held in securitization trusts for the three and nine months ended September 30, 2018 and 2017, respectively (dollar amounts in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Change in unrealized (losses) gains – assets	$	(33,153	)	$	(19,767	)	$	(252,899	)	$	56,995
Change in unrealized gains (losses) – liabilities	45,456			22,120			284,766			(51,811		)
Net change in unrealized gains included in earnings for assets and liabilities	$	12,303		$	2,353		$	31,867		$	5,184

Schedule of Assets Measured at Fair Value on a Non-recurring Basis

The following table presents assets measured at fair value on a non-recurring basis as of September 30, 2018 and December 31, 2017, respectively, on the Company's condensed consolidated balance sheets (dollar amounts in thousands):



	Assets Measured at Fair Value on a Non-Recurring Basis at
	September 30, 2018								December 31, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Residential mortgage loans held in securitization trusts – impaired loans, net	$	—	$	—	$	6,336	$	6,336	$	—	$	—	$	10,317	$	10,317
Real estate owned held in residential securitization trusts	—		—		—		—		—		—		111		111

Schedule of Gains (Losses) Incurred for Assets Measured at Fair Value on a Non-recurring Basis

The following table presents gains (losses) incurred for assets measured at fair value on a non-recurring basis for the three and nine months ended September 30, 2018 and 2017, respectively, on the Company’s condensed consolidated statements of operations (dollar amounts in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018		2017
Residential mortgage loans held in securitization trusts – impaired loans, net	$	(17	)	$	199		$	93	$	(6	)
Real estate owned held in residential securitization trusts	—			(297		)	—		(303		)

Schedule of Carrying Value and Estimated Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value of the Company’s financial instruments at September 30, 2018 and December 31, 2017, respectively (dollar amounts in thousands):



		September 30, 2018				December 31, 2017
	Fair Value Hierarchy Level	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets:
Cash and cash equivalents	Level 1	$	57,471	$	57,471	$	95,191	$	95,191
Investment securities available for sale ⁽¹⁾	Level 2 or 3	1,287,188		1,287,188		1,413,081		1,413,081
Residential mortgage loans held in securitization trusts, net	Level 3	60,459		60,228		73,820		72,131
Distressed residential mortgage loans, at carrying value, net ⁽²⁾	Level 3	260,837		263,935		331,464		334,765
Residential mortgage loans, at fair value ⁽³⁾	Level 3	181,910		181,910		87,153		87,153
Multi-family loans held in securitization trusts	Level 3	10,070,834		10,070,834		9,657,421		9,657,421
Derivative assets	Level 2	8,760		8,760		10,101		10,101
Mortgage loans held for sale, net ⁽⁴⁾	Level 3	3,284		3,622		5,507		5,598
Mortgage loans held for investment ⁽⁴⁾	Level 3	1,760		1,760		1,760		1,900
Preferred equity and mezzanine loan investments ⁽⁵⁾	Level 3	198,277		199,885		138,920		140,129
Investments in unconsolidated entities ⁽⁶⁾	Level 3	43,736		43,795		51,143		51,212
Financial Liabilities:
Financing arrangements, portfolio investments	Level 2	1,130,659		1,130,659		1,276,918		1,276,918
Financing arrangements, residential mortgage loans	Level 2	177,226		177,226		149,063		149,063
Residential collateralized debt obligations	Level 3	56,504		54,228		70,308		66,865
Multi-family collateralized debt obligations	Level 3	9,504,313		9,504,313		9,189,459		9,189,459
Securitized debt	Level 3	53,597		57,236		81,537		87,891
Subordinated debentures	Level 3	45,000		44,988		45,000		45,002
Convertible notes	Level 2	130,251		137,923		128,749		140,060


⁽¹⁾	Includes $51.8 million and $47.9 million of investment securities for sale held in securitization trusts as of September 30, 2018 and December 31, 2017, respectively.

⁽²⁾

Includes distressed residential mortgage loans held in securitization trusts with a carrying value amounting to approximately $96.5 million and $121.8 million at September 30, 2018 and December 31, 2017, respectively, and distressed residential mortgage loans with a carrying value amounting to approximately $164.3 million and $209.7 million at September 30, 2018 and December 31, 2017, respectively.


⁽³⁾	Includes distressed residential mortgage loans with a carrying value amounting to $112.5 million and $36.9 million at September 30, 2018 and December 31, 2017, respectively, and second mortgages with a carrying value amounting to $69.4 million and $50.2 million at September 30, 2018 and December 31, 2017, respectively.


⁽⁴⁾	Included in receivables and other assets in the accompanying condensed consolidated balance sheets.


⁽⁵⁾	Includes preferred equity and mezzanine loan investments accounted for as loans (see Note 9).


⁽⁶⁾	Includes investments in unconsolidated entities accounted for under the fair value option with a carrying value of $35.1 million and $42.8 million at September 30, 2018 and December 31, 2017, respectively (see Note 8).