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Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2020

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, 2020
	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)	—	8,172,182	—	—	8,172,182
Derivative assets	—	10,004	—	—	10,004
Other assets (4)	—	—	23,098	16,408	39,506
Total assets	—	8,182,186	23,098	16,408	8,221,692
Liabilities:
Derivative liabilities	—	6,344	—	—	6,344
Total liabilities	—	6,344	—	—	6,344


	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

(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 before August 24, 2015 were accounted for as hybrid financial instruments with an embedded derivative. The hybrid financial instruments consisted of debt host contracts classified as Level 2 and embedded derivatives classified as Level 3. We did not hold any GSE CRTs accounted for as hybrid financial instruments as of December 31, 2020. 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.

(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, 2020 and December 31, 2019, the weighted average remaining term of our investments in unconsolidated ventures is 1.5 years and 2.2 years, respectively.

(4)Includes $44.7 million of a loan participation interest as of December 31, 2019 and $23.1 million of a commercial loan as of December 31, 2020. We elected the fair value option for our commercial loan as of January 1, 2020 and valued the loan based on a third party appraisal as of December 31, 2020. We sold our loan participation interest on April 1, 2020.

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, 2020	December 31, 2019
Beginning balance	10,281	22,771


Sales and settlements	31,354	—
Total net credit derivative gains (losses) included in net income:
Realized credit derivative gains (losses), net	(31,354)	—
Unrealized credit derivative gains (losses), net (1)	(10,281)	(12,490)

Ending balance	—	10,281

(1)Included in realized and unrealized credit derivative income (loss), net in the consolidated statements of operations is $12.5 million in net unrealized losses attributable to assets still held as of December 31, 2019, 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, 2020	December 31, 2019
Beginning balance	44,654	54,981
Purchases/Advances	—	7,962
Repayments	(19,269)	(18,289)
Sales	(21,577)	—
Total net gains and losses included in net income:
Realized losses	(3,808)	—
Ending balance	—	44,654

Realized losses on our loan participation interest are included in gain (loss) on investments, net in our consolidated statements of operations.

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


			Year Ended
$ in thousands			December 31, 2020
Beginning balance			24,055
Cumulative effect of adoption of new accounting principle			342
Repayments			(136)
Total net unrealized losses included in net income:
Unrealized losses			(1,163)
Ending balance			23,098

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

Schedule of Fair Value Measurement of Commercial Loan

The following table summarizes the significant unobservable input used in the fair value measurement of our commercial loan:

Fair Value at

Valuation

Unobservable

$ in thousands

December 31, 2020

Technique

Input

Rate

Commercial Loan

23,098

Discounted Cash Flow

Discount rate

29.9

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, 2020 and December 31, 2019:


	December 31, 2020		December 31, 2019
$ in thousands	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value
Financial Assets:
Commercial loan, held-for-investment (1)	N/A	N/A	24,055	24,397
FHLBI stock	—	—	74,250	74,250
Total	—	—	98,305	98,647
Financial Liabilities:
Repurchase agreements	7,228,699	7,228,719	17,532,303	17,534,344
Secured loans	—	—	1,650,000	1,650,000
Total	7,228,699	7,228,719	19,182,303	19,184,344

(1)The carrying value and estimated fair value of our commercial loan as of December 31, 2020 are not applicable for disclosure in this table because we elected the fair value option for our commercial loan on January 1, 2020.