v3.25.4
Fair Value Measurements
 12 Months Ended
Dec. 31, 2025
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
Definition and Hierarchy

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable or unobservable:

•Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity.

•Unobservable inputs are inputs that reflect the reporting entity’s own assumptions

A fair value hierarchy for inputs is implemented in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs are used when available. The availability of valuation techniques and the ability to attain observable inputs can vary from investment to investment and are affected by a wide variety of factors, including the type of investment, whether the investment is newly issued and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the transaction.

The fair value hierarchy is categorized into three broad levels based on the inputs as follows:

Level 1 - Valuations based on unadjusted, quoted prices in active markets for identical assets and liabilities.

Level 2 - Valuations based on quoted prices in an inactive market, or whose values are based on models - but the inputs to those models are observable either directly or indirectly for substantially the full term of the assets and liabilities. Level 2 inputs include the following:
a)    Quoted prices for similar assets and liabilities in active markets (e.g. restricted stock);

b)    Quoted prices for identical or similar assets and liabilities in non‑active markets (e.g. corporate and municipal bonds);

c)    Pricing models whose inputs are observable for substantially the full term of the assets and liabilities (e.g. over‑the‑counter derivatives); and

d)    Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability, (e.g. residential and commercial mortgage‑related assets, including whole loan securities and derivatives).

Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Valuation of these assets is typically based on the Company’s Manager’s own assumptions or expectations based on the best information available. The degree of judgment exercised by the Company’s Manager in determining fair value is greatest for investments categorized in Level 3.

The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the actual level is determined based on the level of inputs that is most significant to the fair value measurement in its entirety.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the investments existed. Accordingly, the degree of judgment exercised by the Company’s Manager in determining fair value is greatest for investments categorized in Level 3. Transfers, if any, between levels are determined by the Company on the first day of the reporting period.

Valuation Techniques and Inputs

Following are descriptions of the valuation methodologies used to measure the Company’s assets and liabilities measured at fair value:

Investment Securities - U.S. Government and Agency Securities (“U.S. Treasury Securities” and “whole pool agency RMBS”) are valued based on unadjusted, quoted prices for identical or similar assets or liabilities in an active market. U.S. Treasury Securities are generally categorized as Level 1 securities while whole pool agency RMBS are generally classified as Level 2 securities.

Futures Contracts - Futures contracts that are traded on an exchange are valued at their last reported sales price as of the valuation date. Listed futures contracts are categorized in Level 1 of the fair value hierarchy.

Non‑Agency Residential Mortgage‑Backed Securities (“Non‑Agency”) - The Company utilizes PriceServe, Bank of America’s independent fixed income pricing service, as the primary valuation source for the investments. 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 and prepayment assumptions which can incorporate historical collateral performance, sector level market projections and market conventions. Assumptions can also be adjusted as needed to reflect updated collateral performance data, a changing economic environment, and as market views dictate. These quotes are most reflective of the price that would be achieved if the security was sold to an independent third party on the date of the consolidated financial statements. Non‑Agencies are categorized in Level 2 of the fair value hierarchy.

Commercial Mortgage Loans - Commercial mortgage loans, including in Other Assets, are recognized at fair value. The fair value of commercial mortgage loans at fair value is predominately based on trading activity observed in the marketplace, provided by a third‑party pricing service. The pricing service obtains comparative pricing from banks, brokers, hedge funds, REITs and from its own brokerage business. The pricing service also maintains a spread matrix created from trading levels observed in the secondary market and from indications of holding values in client investments. The spreads are meant to depict the required spread demanded by investors in the current environment. The performing commercial mortgage loans are generally categorized as Level 2 securities in the fair value hierarchy, while non-performing loans are categorized as Level 3 given their limited marketability and availability of observable valuation inputs.

Residential Mortgage Loans (including Residential Mortgage Loans in Securitization Trusts) - The Company recognizes residential mortgage loans at fair value. The fair value of the residential mortgage loans is predominantly based on trading activity observed in the marketplace, provided by a third‑party pricing service. The third‑party pricing service obtains comparative pricing from banks, brokers, hedge funds, REITs and from its own brokerage business. The third‑party pricing service also maintains a spread matrix created from trading levels observed in the secondary market and from indications of holding values in client investments. The spreads are meant to depict the required spread demanded by investors in the current environment. The matrix is segregated by loan structure type (hybrid arm, fixed rate, home equity line of credit, second lien, pay option arm, etc.), delinquency status, and loan to value strata. Significant matrix inputs are analyzed at the loan level. The performing residential mortgage loans are categorized as Level 2 in the fair value hierarchy, while non‑performing loans
are categorized as Level 3 given their limited marketability and availability of observable valuation inputs. Both Level 2 and Level 3 loans matrix inputs include collateral behavioral models including prepayment rates, default rates, loss severity, and discount rates.

Non-recourse securitization obligations, collateralized by residential mortgage loans - The portion of this obligation for which we have elected the fair value option uses the prices of the underlying bonds securing the related residential mortgage loans in securitization trusts to determine fair value. The Company utilizes PriceServe, which 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 consolidated financial statements. The portion of this liability for which we have elected the fair value option is categorized as Level 2 in the fair value hierarchy.

Other assets and liabilities - The fair value of cash, restricted cash, principal and interest receivable, other assets (principally consisting of prepaid assets), notes payable, securities sold under obligation 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.

Valuation Processes

The Company’s Manager establishes valuation processes and procedures to ensure that the valuation techniques are fair and consistent, and valuation inputs are verifiable. The valuation committee of the Company’s Manager (the “Committee”) oversees the valuation process of the Company’s investments. The Committee is comprised of various personnel of the Company’s Manager, including those that are separate from the Company’s portfolio management and trading functions. The Committee is responsible for developing the Company’s written valuation processes and procedures, conducting periodic reviews of the valuation policies, and evaluating the overall fairness and consistent application of the valuation policies. The Committee meets on a monthly basis, or more frequently as needed, to review the valuations of the Company’s investments. If a security does not have a pricing source which is available or reliable, the Company’s Manager considers all appropriate factors relevant to determine the fair value of the security. Valuations determined by the Company’s Manager are required to be supported by market data, third‑party pricing sources, and industry accepted pricing models.
The following table sets forth information about the Company’s financial assets and liabilities measured at fair value as of December 31, 2025:

Level 1Level 2Level 3Total
(in thousands)
Assets, at fair value
Residential mortgage loans$— $293,141 $993 $294,134 
Residential mortgage loans in securitization trusts— 2,046,609 30,167 2,076,776 
Investments in securities
AOMT RMBS (1)
— 82,140 — 82,140 
Whole Pool Agency RMBS— 197,865 — 197,865 
Unrealized depreciation on TBAs
240 — — 240 
Other Assets, at fair value (2)
— 9,893 1,897 11,790 
Total assets, at fair value$240 $2,629,648 $33,057 $2,662,945 
Liabilities, at fair value
Non-recourse securitization obligation, collateralized by residential mortgage loans (3)
$— $1,572,934 $— $1,572,934 
Unrealized depreciation on futures contracts
32 — — 32 
Total liabilities, at fair value$32 $1,572,934 $— $1,572,966 

(1)     Non‑Agency RMBS held as of December 31, 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. All AOMT CMBS held as of December 31, 2025 was comprised of a small-balance commercial loan securitization issuance in which the Company participated.

(2)     Includes Commercial Loans, AOMT CMBS assets, and loans held for sale. All AOMT CMBS held as of December 31, 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 in “Assets and Liabilities Held at Amortized Cost - Fair Value Disclosure” 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) 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.

The following table presents additional information for the years ended December 31, 2025 and December 31, 2024 about the Company’s Level 3 assets measured at fair value on a recurring basis:

December 31, 2025December 31, 2024
(in thousands)
Balance at beginning of period$32,074 $19,299 
Loans held for sale1,897 — 
Loans sold (5,397)(8,689)
Transfers to performing loans(8,582)(3,570)
Principal payments(304)(776)
Changes in fair value recorded in Net unrealized gain (loss) on mortgage loans(4,224)813 
Additions to non-performing loans17,593 24,997 
Balance at end of period$33,057 $32,074 
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 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, 2025:

Input Values
AssetFair ValueUnobservable InputRangeAverage
Residential mortgage loans, at fair value$993 Prepayment rate (annual CPR)
—% - —%
—%
Default rate
—% - —%
—%
Loss severity
(9.30)% - (9.30)%
(9.30)%
Expected remaining life
2.6 - 2.6 years
2.67 years
Residential mortgage loans in securitization trust, at fair value$30,167 Prepayment rate (annual CPR)
2.92% - 21.31%
10.05%
Default rate
0.38% - 26.12%
14.40%
Loss severity
(23.91)% - 28.63%
(3.21)%
Expected remaining life
0.6 - 10.75 years
3.56 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 obligations, collateralized by residential mortgage loans, net, held at amortized cost, the Company uses the same method of valuation as described previously in the discussion of Valuation Techniques and Inputs 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, as below.

As of December 31, 2025, the total amortized cost basis and fair value of our non-recourse securitization obligations was $1.95 billion and $1.87 billion, respectively, a difference of approximately $79.0 million (which includes AOMT 2022-1, AOMT 2022-4, AOMT 2023-4, AOMT 2024-4, AOMT 2024-10, and AOMT 2025-10 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 fair value solely attributable to AOMT 2021-4 and 2021-7 is approximately $48.8 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.

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 (which includes AOMT 2022-1, AOMT 2022-4, and AOMT 2023-4, 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 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 consolidated financial statements.
The amortized cost and fair value of these investments as of December 31, 2025 was approximately $25.5 million and $20.5 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.
Senior Unsecured Notes

The Company’s Senior Unsecured Notes trade actively in the secondary market. To determine the fair value of the Company’s Senior Unsecured Notes, the Company multiplies the number of outstanding Senior Unsecured Notes by their closing price as of December 31, 2025. The fair value of the Senior Unsecured Notes as of December 31, 2025 and December 31, 2024 was $93.9 million and $50.8 million, respectively.

The Company holds the Senior Unsecured Notes on its balance sheet at their balance net of amortized discount and debt issuance cost. The carrying value of the Senior Unsecured Notes as of December 31, 2025 and December 31, 2024 was $89.0 million and $47.7 million. The difference between the balance net of amortized discount and debt issuance cost and the fair value as of December 31, 2025 and December 31, 2024 is $4.9 million and $3.0 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 (1):

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 
U.S. Treasury Securities
— — — — 
Unrealized depreciation on futures contracts
987 — — 987 
Unrealized depreciation on TBAs
528 — — 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)     Non‑Agency 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. All AOMT CMBS held as of December 31, 2024 was comprised of a small-balance commercial loan securitization issuance in which the Company participated.

(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 in “Assets and Liabilities Held at Amortized Cost - Fair Value Disclosure” 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.

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 assets. Use of these techniques requires determination of relevant inputs 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
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