Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2019

Schedule of Fair Values Measured on Recurring Basis

The following tables present our assets and liabilities measured at fair value on a recurring basis.



	December 31, 2019
	Fair Value Measurements Using:
$ in thousands	Level 1	Level 2	Level 3	NAV as a practical expedient ⁽³⁾	Total at Fair Value
Assets:
Mortgage-backed and credit risk transfer securities ⁽¹⁾⁽²⁾	—	21,761,505	10,281	—	21,771,786
Derivative assets	—	18,533	—	—	18,533
Other assets⁽⁴⁾	—	—	44,654	21,998	66,652
Total assets	—	21,780,038	54,935	21,998	21,856,971
Liabilities:
Derivative liabilities	—	352	—	—	352
Total liabilities	—	352	—	—	352



	December 31, 2018
	Fair Value Measurements Using:
$ in thousands	Level 1	Level 2	Level 3	NAV as a practical expedient ⁽³⁾	Total at Fair Value
Assets:
Mortgage-backed and credit risk transfer securities ⁽¹⁾⁽²⁾	—	17,373,871	22,771	—	17,396,642
Derivative assets	—	15,089	—	—	15,089
Other assets⁽⁴⁾	—	—	54,981	24,012	78,993
Total assets	—	17,388,960	77,752	24,012	17,490,724
Liabilities:
Derivative liabilities	7,836	15,554	—	—	23,390
Total liabilities	7,836	15,554	—	—	23,390


(1)	For more detail about the fair value of our MBS and GSE CRTs, refer to Note 4 - “Mortgage-Backed and Credit Risk Transfer Securities.”

(2)

Our GSE CRTs purchased prior to August 24, 2015 are accounted for as hybrid financial instruments with an embedded derivative. The hybrid financial instruments consist of debt host contracts classified as Level 2 and embedded derivatives classified as Level 3. As of December 31, 2019, the net embedded derivative asset position of $10.3 million includes $19.5 million of embedded derivatives in an asset position and $9.2 million of embedded derivatives in a liability position. As of December 31, 2018, the net embedded derivative asset position of $22.8 million includes $28.8 million of embedded derivatives in an asset position and $6.0 million of embedded derivatives in a liability position.

(3)

Investments in unconsolidated ventures are valued using the net asset value (“NAV”) as a practical expedient and are not subject to redemption, although investors may sell or transfer their interest at the approval of the general partner of the underlying funds. As of December 31, 2019 and December 31, 2018, the weighted average remaining term of investments in unconsolidated ventures is 2.2 years and 2.6 years, respectively.

(4)

Includes $44.7 million and $55.0 million of a loan participation interest as of December 31, 2019 and December 31, 2018, respectively. The loan participation interest is transferable and bears interest at a variable rate based on LIBOR plus a spread and resets daily. As a result, the cost of the loan participation interest approximates its fair value.

Schedule of Net Derivative Asset (Liability) Level 3 Roll Forward

The following table shows a reconciliation of the beginning and ending fair value measurements of our GSE CRT embedded derivatives, which we have valued utilizing Level 3 inputs:



	Years Ended
$ in thousands	December 31, 2019		December 31, 2018
Beginning balance	22,771		45,400
Unrealized gains/(losses), net ⁽¹⁾	(12,490	)	(22,629	)
Ending balance	10,281		22,771

(1)

Included in realized and unrealized credit derivative income (loss), net in the consolidated statements of operations are $12.5 million in net unrealized losses and $22.6 million in net unrealized losses attributable to assets still held as of December 31, 2019 and December 31, 2018, respectively.

Schedule of Loan Participation Interest Level 3 Roll Forward

The following table shows a reconciliation of the beginning and ending fair value measurements of our loan participation interest, which we have valued utilizing Level 3 inputs:



	Year Ended
$ in thousands	December 31, 2019		December 31, 2018
Beginning balance	54,981		—
Purchases/Advances	7,962		54,981
Repayments	(18,289	)	—
Ending balance	44,654		54,981

Schedule of Net Derivative Asset (Liability), Fair Value Inputs

The following tables summarize significant unobservable inputs used in the fair value measurement of our GSE CRT embedded derivatives:



	Fair Value at
$ in thousands	December 31, 2019	Valuation Technique	Unobservable Input	Range	Weighted Average
GSE CRT Embedded Derivatives	10,281	Market Comparables, Vendor Pricing	Weighted average life	1.1 - 4.2 years	2.9	years



	Fair Value at
$ in thousands	December 31, 2018	Valuation Technique	Unobservable Input	Range	Weighted Average
GSE CRT Embedded Derivatives	22,771	Market Comparables, Vendor Pricing	Weighted average life	2.9 - 5.9 years	4.3 years

Schedule of Carrying Values and Estimated Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value of our financial instruments that are not carried at fair value on the consolidated balance sheets at December 31, 2019 and December 31, 2018:



	December 31, 2019		December 31, 2018
$ in thousands	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value
Financial Assets:
Commercial loans, held-for-investment	24,055	24,397	31,582	31,826
FHLBI stock	74,250	74,250	74,250	74,250
Total	98,305	98,647	105,832	106,076
Financial Liabilities:
Repurchase agreements	17,532,303	17,534,344	13,602,484	13,602,050
Secured loans	1,650,000	1,650,000	1,650,000	1,650,000
Total	19,182,303	19,184,344	15,252,484	15,252,050