v3.25.2
Fair Value Measurements
 6 Months Ended
Jun. 30, 2025
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
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 June 30, 2025, our valuation policy and processes had not changed from those described in our consolidated financial statements for the year ended December 31, 2024 included in the Annual Report on Form 10-K. Included in Note 10 — Fair Value Measurements to the Consolidated Financial Statements for the year ended December 31, 2024 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 investments in majority-owned affiliates (“MOAs”)), 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 “investments in majority-owned affiliates” included in other assets (see Note 13 — Other Assets) and a portion of “non-recourse securitization obligation, 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”

The following table sets forth information about the Company’s financial assets and liabilities measured at fair value as of June 30, 2025:

Level 1Level 2Level 3Total
(in thousands)
Assets, at fair value
Residential mortgage loans$— $199,043 $1,622 $200,665 
Residential mortgage loans in securitization trusts— 1,872,751 29,970 1,902,721 
Investments in securities
AOMT RMBS (1)
— 104,332 — 104,332 
Whole Pool Agency RMBS— 257,552 — 257,552 
U.S Treasury Securities— — — — 
Other Assets, at fair value (2)
— 10,498 — 10,498 
Unrealized appreciation on futures contracts— — — — 
Unrealized appreciation on TBAs— — — — 
Total assets, at fair value$— $2,444,176 $31,592 $2,475,768 
Liabilities, at fair value
Non-recourse securitization obligation, collateralized by residential mortgage loans (3)
$— $1,401,980 $— $1,401,980 
Unrealized depreciation on futures contracts1,147 — — 1,147 
Unrealized depreciation on TBAs3,208 — — 3,208 
Total liabilities, at fair value$4,355 $1,401,980 $— $1,406,335 

(1)     AOMT RMBS held as of June 30, 2025 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.

(2)     Includes Commercial Loans and AOMT commercial mortgage backed securities (“CMBS)” assets. All AOMT CMBS held as of June 30, 2025 was comprised of a small-balance commercial loan securitization issuance in which the Company participated.

(3)     Only the portion subject to fair value measurement, as adjusted for fair value, is presented above. See below for the disclosure of the full debt at fair value.

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 deemed 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.
The following table sets forth information regarding the Company’s significant Level 3 inputs as of June 30, 2025:

Input Values
AssetFair Value Unobservable InputRangeAverage
(in thousands)
Residential mortgage loans, at fair value$1,622 Prepayment rate (annual CPR)
13% - 13%
13.28%
Default rate
15% - 15%
15.34%
Loss severity
(25.00)% - 10.00%
(7.81)%
Expected remaining life
1.33 - 4.08 years
2.83 years
Residential mortgage loans in securitization trust, at fair value$29,970 Prepayment rate (annual CPR)
5.51% - 22.76%
10.44%
Default rate
7.36% - 39.21%
16.35%
Loss severity
(25.00)% - 25.00%
0.28%
Expected remaining life
1.33 - 11.82 years
4.90 years

Assets and Liabilities Held at Amortized Cost — Fair Value Disclosure

Portion of Non-Recourse Securitization Obligations, Collateralized by Residential Mortgage Loans — Held at Amortized Cost

To determine the fair value of the Company’s non-recourse securitization obligation, 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 10 — Fair Value Measurements 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 June 30, 2025, the total amortized cost basis and fair value of our non-recourse securitization obligations was $1.79 billion and $1.71 billion, respectively, a difference of approximately $80.3 million (we have elected to hold our non-recourse securitization obligations at fair value, with the exception of 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 $61.8 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, 2024, the total amortized cost basis and fair value of our non-recourse securitization obligations was $1.65 billion and $1.52 billion, respectively, a difference of approximately $124.3 million (we have elected to hold our non-recourse securitization obligations at fair value, with the exception of 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 fair value solely attributable to AOMT 2021-4 and 2021-7 is approximately $68.8 million less than the amortized cost. 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.

Investments in Majority-Owned Affiliates

To determine the fair value of the Company’s investments in majority-owned affiliates, which are held at amortized cost and included in “other assets”, the Company uses the prices of the underlying bonds in the investments 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.
The amortized cost and fair value of this investment as of June 30, 2025 was approximately $21.0 million and $16.9 million, respectively. The amortized cost and fair value of these investments as of December 31, 2024 was approximately $20.6 million and $16.6 million, respectively.
The following table sets forth information about the Company’s financial assets and liabilities measured at fair value as of December 31, 2024:

Level 1Level 2Level 3Total
(in thousands)
Assets, at fair value
Residential mortgage loans$— $183,064 $— $183,064 
Residential mortgage loans in securitization trusts— 1,664,921 32,074 1,696,995 
Investments in securities
AOMT RMBS (1)
— 98,791 — 98,791 
Whole Pool Agency RMBS— 201,452 — 201,452 
Unrealized appreciation on futures contracts987 — — 987 
Unrealized appreciation on TBAs528 — — 528 
Other Assets, at fair value (2)
— 10,807 — 10,807 
Total assets, at fair value$1,515 $2,159,035 $32,074 $2,192,624 
Liabilities, at fair value
Non-recourse securitization obligation, collateralized by residential mortgage loans (3)
$— $1,524,828 $— $1,524,828 
Total liabilities, at fair value$— $1,524,828 $— $1,524,828 

(1)     AOMT RMBS held as of December 31, 2024 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.

(2)     Includes Commercial Loans and AOMT CMBS assets. All AOMT CMBS held as of December 31, 2024 was comprised of a small-balance commercial loan securitization issuance in which the Company participated.

(3)     Only the portion subject to fair value measurement, as adjusted for fair value, is presented above. See below for the disclosure of the full debt at fair value.

All unrealized gains and losses arising from valuation changes in residential and commercial mortgage loans, TBAs, and futures contracts are recognized in net income for the periods presented.

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. Transfers between Level 2 and Level 3 were immaterial for the year ended December 31, 2024.
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.

The following table sets forth information regarding the Company’s significant Level 3 inputs as of December 31, 2024:

Input Values
AssetFair ValueUnobservable InputRangeAverage
(in thousands)
Residential mortgage loans in securitization trust, at fair value$32,074 Prepayment rate (annual CPR)
3.64% - 19.83%
8.48%
Default rate
6.94% - 42.76%
16.77%
Loss severity
(23.04)% - 16.94%
(1.96)%
Expected remaining life
1.33 - 5.92 years
2.68 years