Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2022

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

A three-level valuation hierarchy exists for disclosure of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. The three levels are defined as follows:

•Level 1 Inputs – Quoted prices for identical instruments in active markets.

•Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

•Level 3 Inputs – Instruments with primarily unobservable value drivers.

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

	June 30, 2022
	Fair Value Measurements Using:
$ in thousands	Level 1	Level 2	Level 3 (2)	NAV as a practical expedient (3)	Total at Fair Value
Assets:
Mortgage-backed securities (1)	—	3,915,165	—	—	3,915,165
Derivative assets	—	4,289	—	—	4,289
Other assets	—	—	23,478	3,622	27,100
Total assets	—	3,919,454	23,478	3,622	3,946,554
Liabilities:
Derivative liabilities	—	37,284	—	—	37,284
Total liabilities	—	37,284	—	—	37,284

	December 31, 2021
	Fair Value Measurements Using:
$ in thousands	Level 1	Level 2	Level 3 (2)	NAV as a practical expedient (3)	Total at Fair Value
Assets:
Mortgage-backed securities (1)	—	7,804,259	—	—	7,804,259
Derivative assets	—	270	—	—	270
Other assets	—	—	23,515	12,476	35,991
Total assets	—	7,804,529	23,515	12,476	7,840,520
Liabilities:
Derivative liabilities	—	14,356	—	—	14,356
Total liabilities	—	14,356	—	—	14,356

(1)For more detail about the fair value of our MBS, refer to Note 4 - "Mortgage-Backed Securities."

(2)Amounts reflect our commercial loan investment for which we have elected the fair value option and valued using a third party appraisal.

(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 June 30, 2022 and December 31, 2021, our unconsolidated ventures were in liquidation and plan to sell or settle their remaining investments as expeditiously as possible.

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

	Three Months Ended June 30,		Six Months Ended June 30,
$ in thousands	2022	2021	2022	2021
Beginning balance	23,391	20,000	23,515	23,098
Unrealized gains (losses)	87	822	(37)	(2,276)
Ending balance	23,478	20,822	23,478	20,822

Unrealized gains and losses on our commercial loan investment are included in gain (loss) on investments, net in our condensed consolidated statements of operations.

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	June 30, 2022	Technique	Input	Rate
Commercial Loan	23,478	Discounted Cash Flow	Discount rate	18.5	%

	Fair Value at	Valuation	Unobservable
$ in thousands	December 31, 2021	Technique	Input	Rate
Commercial Loan	23,515	Discounted Cash Flow	Discount rate	18.8	%

The following table presents the carrying value and estimated fair value of our financial instruments that are not carried at fair value on the condensed consolidated balance sheets at June 30, 2022 and December 31, 2021.

	June 30, 2022		December 31, 2021
$ in thousands	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value
Financial Liabilities
Repurchase agreements	3,262,530	3,261,968	6,987,834	6,987,806
Total	3,262,530	3,261,968	6,987,834	6,987,806

The following describes our methods for estimating the fair value for financial instruments not carried at fair value on the condensed consolidated balance sheets.

•The estimated fair value of repurchase agreements is a Level 3 fair value measurement based on an expected present value technique. This method discounts future estimated cash flows using rates we determined best reflect current market interest rates that would be offered for repurchase agreements with similar characteristics and credit quality.