For financial reporting purposes, we follow a fair value hierarchy established under GAAP that is used to determine the fair value of financial instruments. This hierarchy prioritizes relevant market inputs in order to determine an “exit price” at the measurement date, or the price at which an asset could be sold or a liability could be transferred in an orderly process that is not a forced liquidation or distressed sale. Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets. Level 2 inputs are observable inputs other than quoted prices for an asset or liability that are obtained through corroboration with observable market data. Level 3 inputs are unobservable inputs (e.g., our own data or assumptions) that are used when there is little, if any, relevant market activity for the asset or liability required to be measured at fair value.

In certain cases, inputs used to measure fair value fall into different levels of the fair value hierarchy. In such cases, the level at which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input requires judgment and considers factors specific to the asset or liability being measured.

As of March 31, 2023, our valuation policy and processes had not changed from those described in our consolidated financial statements for the year ended December 31, 2022 included in the Annual Report on Form 10-K. Included in Note 11 — Fair Value Measurements to the Consolidated Financial Statements for the year ended December 31, 2022 included in the Annual Report on Form 10-K is a detailed description of our other financial instruments measured at fair value and their significant inputs, as well as the general classification of such instruments pursuant to the Level 1, Level 2, and Level 3 valuation hierarchy.

The fair value of cash, restricted cash, principal and interest receivable, other assets (excluding investment in majority-owned affiliate), notes payable, securities sold under agreements to repurchase, amounts due to broker and accrued expenses (including those payable to an affiliate and management fees payable to an affiliate), and interest payable approximate their carrying values due to the nature of these assets and liabilities.

The Company’s “investment in majority-owned affiliate” included in other assets (see Note 14 — Other Assets) and a portion of “non-recourse securitization obligations, collateralized by residential mortgage loans” are held at amortized cost. The fair value of these assets and liabilities is disclosed further below in the section titled “Assets and Liabilities Held at Amortized Cost - Fair Value Disclosure”.


	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets, at fair value
Residential mortgage loans	$	—	$	539,879	$	4,557	$	544,436
Residential mortgage loans in securitization trusts	—		1,023,085		5,683		1,028,768
Commercial mortgage loans	—		9,460		—		9,460

Investments in securities
Non-Agency RMBS (1)	—		73,709		—		73,709
Whole Pool Agency RMBS	—		449,178		—		449,178
AOMT CMBS (1)	—		6,480		—		6,480
U.S Treasury Securities	399,632		—		—		399,632
Total assets, at fair value	$	399,632	$	2,101,791	$	10,240	$	2,511,663

Liabilities, at fair value
Unrealized depreciation on futures contracts	$	6,909	$	—	$	—	$	6,909
Unrealized depreciation on TBAs	1,508		—		—		1,508
Non-recourse securitization obligation, collateralized by residential mortgage loans (2)	—		550,540		—		550,540
Total liabilities, at fair value	$	8,417	$	550,540	$	—	$	558,957

(1) Non‑Agency RMBS held as of March 31, 2023 included both retained tranches of securitizations in which the Company participated and additional AOMT securities purchased in secondary market transactions. All AOMT CMBS held as of March 31, 2023 were comprised of a small-balance commercial loan securitization issuance in which the Company participated.

Transfers from Level 2 to Level 3 were comprised of residential loans more than 90 days overdue (including those in foreclosure). Transfers between Levels are deemed to take place on the first day of the reporting period in which the transfer has taken place. These transfers were not material.

We use third‑party valuation firms who utilize proprietary methodologies to value our residential and commercial loans. These firms generally use both market comparable information and discounted cash flow modeling techniques to determine the fair value of our Level 3 assets. Use of these techniques requires determination of relevant input and assumptions, some of which represent significant unobservable inputs such as anticipated credit losses, prepayment rates, default rates, or other valuation assumptions. Accordingly, a significant increase or decrease in any of these inputs in isolation may result in a significantly lower or higher fair value measurement.


				Input Values
Asset	Fair Value		Unobservable Input	Range	Average
	($ in thousands)
Residential mortgage loans, at fair value	$	4,557	Prepayment rate (annual CPR)	5.82% - 27.05%	13.28%
			Default rate	0.10% - 3.99%	1.26%
			Loss severity	10.00% - 12.86%	10.51%
			Expected remaining life	2.16 - 6.35 years	4.78 years

Residential mortgage loans in securitization trust, at fair value	$	5,683	Prepayment rate (annual CPR)	3.29% - 14.24%	8.95%
			Default rate	0.93% - 36.37%	16.80%
			Loss severity	(0.08)% - 46.26%	10.25%
			Expected remaining life	1.42 - 4.08 years	2.46 years

To determine the fair value of the Company’s non-recourse securitization obligations, collateralized by residential mortgage loans, net, held at amortized cost, the Company uses the same method of valuation as described in the Annual Report on Form 10-K, Note 11 — Fair Value for both the portion of the obligation measured at fair value and the portion of the obligation held at amortized cost, for which fair value is disclosed below.

As of March 31, 2023, the total amortized cost basis and fair value of our non-recourse securitization obligations was $1.1 billion and $924.2 million, respectively, a difference of approximately $142.1 million (which includes AOMT 2022-1 and AOMT 2022-4, which are marked to fair value; and AOMT 2021-7, and AOMT 2021-4, which are carried at amortized cost, as the fair value option was not elected at the time of the creation of these obligations). The difference between the amortized cost and fair value solely attributable to AOMT 2021-4 and 2021-7 is approximately $89.3 million. The difference between the amortized cost basis value and the fair value is derived from the difference between the period-end market pricing of the underlying bonds, as referred to above, and the amortized cost of the obligation. The fair value of the non-recourse securitization debt is not indicative of the amounts at which we could settle this debt.

As of December 31, 2022, the total amortized cost basis and fair value of our non-recourse securitization obligations was $1.1 billion and $914.3 million, respectively, a difference of approximately $170.9 million (which includes AOMT 2022-1 and AOMT 2022-4, which are marked to fair value; and AOMT 2021-7, and AOMT 2021-4, which are carried at amortized cost, as the fair value option was not elected at the time of the creation of these obligations). The difference between the amortized cost and fair value solely attributable to AOMT 2021-4 and 2021-7 is approximately $90.3 million. The difference between the amortized cost basis value and the fair value is derived from the difference between the period-end market pricing of the underlying bonds, as referred to above, and the amortized cost of the obligation. The fair value of the non-recourse securitization debt is not indicative of the amounts at which we could settle this debt.

To determine the fair value of the Company’s investment in majority-owned affiliate, which is held at amortized cost and is included in “other assets”, the Company uses the prices of the underlying bonds in the investment to determine fair value. The Company utilizes PriceServe, Bank of America’s independent fixed income pricing service, as the primary valuation source for these bonds. PriceServe obtains its price quotes from actual sales or quotes for sale of the same or similar securities and/or provides model‑based valuations that consider inputs derived from recent market activity including default rates, conditional prepayment rates, loss severity, expected yield to maturity, baseline discount margin/yield, recovery assumptions, tranche type, collateral coupon, age and loan size, and other inputs specific to each security. We believe that these quotes are most reflective of the price that would be achieved if the bonds were sold to an independent third party on the date of the condensed consolidated financial statements.


	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets, at fair value
Residential mortgage loans	$	—	$	763,786	$	7,196	$	770,982
Residential mortgage loans in securitization trusts	—		1,018,686		8,756		1,027,442
Commercial mortgage loans	—		9,458		—		9,458
Investments in securities
Non-Agency RMBS (1)	—		61,960		—		61,960
Whole Pool Agency RMBS	—		993,378		—		993,378
AOMT CMBS (1)	—		6,111		—		6,111
Unrealized appreciation on futures contracts	2,211		—		—		2,211
Unrealized appreciation on TBAs	12,545		—		—		12,545
Total assets, at fair value	$	14,756	$	2,853,379	$	15,952	$	2,884,087

Liabilities, at fair value
Non-recourse securitization obligation, collateralized by residential mortgage loans (2)	$	—	$	530,560	$	—	$	530,560
Total liabilities, at fair value	$	—	$	530,560	$	—	$	530,560

(1) Non‑Agency RMBS held as of December 31, 2022 included both retained tranches of AOMT securitizations in which the Company participated, additional AOMT securities purchased in secondary market transactions, and other RMBS purchased in secondary market transactions. All AOMT CMBS held as of December 31, 2022 was comprised of a small-balance commercial loan securitization issuance in which the Company participated.

Transfers from Level 2 to Level 3 were comprised of residential loans more than 90 days overdue (including those in foreclosure) and commercial mortgage loans in special servicing or otherwise considered “non‑performing” by the Company’s third‑party valuation providers. Transfers between Levels are deemed to take place on the first day of the reporting period in which the transfer has taken place. These transfers were not material.


				Input Values
Asset	Fair Value		Unobservable Input	Range	Average
	($ in thousands)
Residential mortgage loans, at fair value	$	7,196	Prepayment rate (annual CPR)	4.92% - 14.99%	9.39%
			Default rate	4.56% - 24.36%	11.43%
			Loss severity	(0.25)% - 12.54%	7.84%
			Expected remaining life	0.62 - 3.43 years	2.75 years

Residential mortgage loans in securitization trust, at fair value	$	8,756	Prepayment rate (annual CPR)	3.24% - 14.55%	7.84%
			Default rate	7.42% - 35.78%	19.07%
			Loss severity	—% - 10.00%	9.23%
			Expected remaining life	1.42 - 3.72 years	2.32 years