v3.26.1
Fair Value Measurements
 3 Months Ended
Mar. 31, 2026
Fair Value Disclosures [Abstract]  
Fair Value Measurements Note 7. Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. U.S. GAAP has a three-level hierarchy that prioritizes and ranks
the level of market price observability used in measuring financial instruments at fair value. Market price observability is
impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the
state of the marketplace (including the existence and transparency of transactions between market participants). The
Company’s valuation techniques for financial instruments use observable and unobservable inputs. Investments with
readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in an
orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in
measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Investments measured and reported at fair value are classified and disclosed into one of the following categories:
Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the
ability to access.
Level 2 — Pricing inputs are other than quoted prices in active markets, including, but not limited to, quoted prices for
similar assets and liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets
that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates,
yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated
inputs.
Level 3 — One or more pricing inputs is significant to the overall valuation and unobservable. Significant unobservable
inputs are based on the best information available in the circumstances, to the extent observable inputs are not available,
including the Company’s own assumptions used in determining the fair value of financial instruments. Fair value for
these investments is determined using valuation methodologies that consider a range of factors including, but not limited
to, the price at which the investment was acquired, the nature of the investment, local market conditions, trading values
on public exchanges for comparable securities, current and projected operating performance, and financing transactions
subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant
management judgment.
Valuation techniques of Level 3 investments vary by instrument type, but are generally based on an income, market or
cost-based approach. The income approach predominantly considers discounted cash flows which is the measure of
expected future cash flows in a default scenario, implied by the value of the underlying collateral, where applicable, and
current performance whereas the market-based approach predominantly considers pull-through rates, industry multiples
and the UPB. Fair value measurements of loans are sensitive to changes in assumptions regarding prepayments,
probability of default, loss severity in the event of default, forecasts of home prices, and significant activity or
developments in the real estate market.
Contingent consideration primarily consists of CVRs issued pursuant to the UDF IV Merger. Pursuant to the Contingent
Value Rights Agreement, dated as of March 13, 2025, by and among the Company and Computershare Inc. and its
affiliate Computershare Trust Company, N.A., on the issuance date following the end of each CVR accrual period, the
Company will issue to the CVR holders, with respect to each CVR, a number of shares of Company common stock equal
to 60% of any cash proceeds received between October 1, 2024 and December 31, 2028 from select loans in excess of
the outstanding amounts of such loans and net of certain costs, divided by the Company’s tangible book value per share,
with cash being paid in lieu of any fractional shares of Company common stock otherwise due to such holder. In
addition, each CVR holder will be entitled to receive (i) an amount in cash equal to the amount of any dividends or other
distributions paid with respect to the number of whole shares of Company common stock received by such holder in
respect of such holder’s CVRs and having a record date on or after the Effective Time and a payment date prior to the
issuance date of such shares of Company common stock (the “Catch-up Dividend Amount”) or (ii) a number of shares of
Company common stock equal to (A) the Catch-up Dividend Amount, divided by (B) the most recently publicly reported
tangible book value per share of Company common stock immediately preceding the issuance date of such shares of
Company common stock and (y) the amount of any dividends or other distributions payable with respect to such shares
of Company common stock and having a record date prior to the issuance date of such Company common stock and a
payment date on or after the relevant issuance date of such Company common stock. The fair value of the contingent
consideration in connection with the UDF IV Merger was determined using a discounted cash flow model which is based
on Level 3 inputs, including estimates of future cash proceeds generated from the underlying collateral of such loans and
discount rate. Fair value measurements of the contingent consideration liability are sensitive to changes in assumptions
related to future cash proceeds and discount rate.
As of March 31, 2026, the CVRs associated with the closing of the UDF IV Merger were valued at approximately $19.9
million or $1.56 per CVR.
In addition, the fair value of certain contingent consideration in connection with mergers and acquisitions was
determined using a Monte Carlo simulation model which considers various potential results based on Level 3 inputs,
including management’s latest estimates of future operating results. Fair value measurements of the contingent
consideration liability are sensitive to changes in assumptions related to earnings before tax, discount rate and risk-free
rate of return.
The final purchase price allocation associated with the closing of the Mosaic Mergers valued the contingent equity rights
at approximately $25.0 million or $0.83 per contingent equity right. On March 17, 2025, the contingent equity rights
expired with an aggregate consideration of zero.
In certain cases, the inputs used to measure fair value may be categorized into different levels of the fair value hierarchy.
In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant
to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment and considers factors specific to the investment.
The table below presents financial instruments carried at fair value on a recurring basis.
(in thousands)
Level 1
Level 2
Level 3
Total
March 31, 2026
Assets:
Money market funds (1)
$121,876
$—
$—
$121,876
Loans, net
—
—
462
462
Loans, held for sale
—
87,198
—
87,198
PPP loans (2)
—
266
—
266
MBS
—
31,649
—
31,649
Derivative instruments
—
4,104
—
4,104
Investment in unconsolidated joint ventures
—
—
5,517
5,517
Preferred equity investment (3)
—
—
72,651
72,651
Receivable from third party (2)
—
—
12,360
12,360
Total assets
$121,876
$123,217
$90,990
$336,083
Liabilities:
Derivative instruments
—
948
—
948
Contingent consideration
—
—
20,441
20,441
Total liabilities
$—
$948
$20,441
$21,389
December 31, 2025
Assets:
Money market funds (1)
$136,496
$—
$—
$136,496
Loans, net
—
—
737
737
Loans, held for sale
—
73,094
—
73,094
PPP loans (2)
—
208
—
208
MBS
—
34,501
—
34,501
Derivative instruments
—
6,740
—
6,740
Investment in unconsolidated joint ventures
—
—
5,737
5,737
Preferred equity investment (3)
—
—
79,887
79,887
Receivable from third party (2)
—
—
12,360
12,360
Total assets
$136,496
$114,543
$98,721
$349,760
Liabilities:
Derivative instruments
—
1,432
—
1,432
Contingent consideration
—
—
18,698
18,698
Total liabilities
$—
$1,432
$18,698
$20,130
(1) Money market funds are included in cash and cash equivalents on the consolidated balance sheets
(2) Asset is included in other assets on the consolidated balance sheets
(3) Preferred equity investment held through consolidated joint ventures is included in assets of consolidated VIEs on the consolidated balance sheets
The table below presents the valuation techniques and significant unobservable inputs used to value Level 3 financial
instruments, using third party information without adjustment.
(in thousands)
Fair Value
Predominant Valuation
Technique (1)
Type
Range
Weighted Average
March 31, 2026
Assets:
Investment in unconsolidated joint
ventures
$5,517
Income Approach
Discount rate
9.0%
9.0%
Preferred equity investment
72,651
Income Approach
Discount rate
12.0%
12.0%
Receivable from third party
12,360
Income Approach
Debt Yield | Capitalization
Rate
7.3% | 6.0%
7.3% | 6.0%
Total assets
$90,528
Liabilities:
Contingent consideration- Madison One (2)
$496
Monte Carlo Simulation
Model
Net income volatility | Risk-
adjusted discount rate
64.0% | 47.3%
64.0% | 47.3%
Contingent consideration - UDF
19,945
Distributable Cash Flow
Approach
Discount factor
18.5%
18.5%
Total liabilities
$20,441
December 31, 2025
Assets:
Investment in unconsolidated joint
ventures
$5,737
Income Approach
Discount rate
9.0%
9.0%
Preferred equity investment
79,887
Income Approach
Discount rate
12.0%
12.0%
Receivable from third party
12,360
Income Approach
Debt Yield | Capitalization
Rate
7.3% | 6.0%
7.3% | 6.0%
Total assets
$97,984
Liabilities:
Contingent consideration- Madison One (2)
$526
Monte Carlo Simulation
Model
Net income volatility | Risk-
adjusted discount rate
64.0% | 50.8%
64.0% | 50.8%
Contingent consideration - UDF
18,172
Distributable Cash Flow
Approach
Discount factor
18%
18%
Total liabilities
$18,698
(1) Prices are weighted based on the UPB of the loans and securities included in the range for each class.
(2) Contingent Consideration- Madison One refers to the contingent consideration in connection with the acquisition of Madison One Capital, M1 CUSO and Madison One
Lender Services (“Madison One”) on June 5, 2024.
Included within Level 3 assets of $91.0 million as of March 31, 2026 and $98.7 million as of December 31, 2025, is $0.5
million and $0.7 million, respectively, of transaction prices in which quantitative unobservable inputs are not developed
by the Company when measuring fair value.
The table below presents a summary of changes in fair value for Level 3 assets and liabilities.
Three Months Ended March 31,
(in thousands)
2026
2025
Assets:
Loans, net
Beginning balance
$737
$3,533
Purchases or Originations
122
—
Sales / Principal payments
(468)
(834)
Unrealized gains (losses), net
71
(681)
Ending balance
$462
$2,018
Loans, held for sale
Beginning balance
—
2,750
Unrealized gains (losses), net
—
10
Ending balance
$—
$2,760
Investment in unconsolidated joint ventures
Beginning balance
5,737
6,577
Unrealized gains (losses), net
(220)
(206)
Ending balance
$5,517
$6,371
Preferred equity investment (1)
Beginning balance
79,887
92,810
Unrealized gains (losses), net
(7,236)
—
Ending balance
$72,651
$92,810
Receivable from third party
Beginning balance
12,360
—
Ending balance
$12,360
$—
Total assets
Beginning balance
98,721
105,670
Purchases or Originations
122
—
Sales / Principal payments
(468)
(834)
Unrealized gains (losses), net
(7,385)
(877)
Ending balance
$90,990
$103,959
Liabilities:
Contingent consideration
Beginning balance
18,698
573
Unrealized (gains) losses, net
1,743
—
Mergers and acquisitions (2)
—
15,409
Ending balance
$20,441
$15,982
(1)Preferred equity investment held through consolidated joint ventures is included in assets of consolidated VIE's on the consolidated balance sheets.
(2)Includes assets acquired and liabilities assumed as a result of the UDF IV Merger in 2025. Refer to Note 5 for further details on assets acquired and liabilities assumed in
connection with the UDF IV Merger.
The Company’s policy is to recognize transfers in and transfers out as of the end of the period of the event or the date of
the change in circumstances that caused the transfer. Transfers between Level 2 and Level 3 generally relate to whether
there were changes in the significant relevant observable and unobservable inputs that are available for the fair value
measurements of such financial instruments.
Financial instruments not carried at fair value
The table below presents the carrying value and estimated fair value of financial instruments that are not carried at fair
value and are classified as Level 3.
March 31, 2026
December 31, 2025
(in thousands)
Carrying Value
Estimated
Fair Value
Carrying Value
Estimated
Fair Value
Assets:
Loans, net
$4,167,413
$3,883,760
$5,193,640
$5,022,286
Loans, held for sale
273,030
273,030
637,833
637,833
Servicing rights
123,687
141,334
126,279
143,179
Total assets
$4,564,130
$4,298,124
$5,957,752
$5,803,298
Liabilities:
Secured borrowings
2,321,443
2,321,443
2,788,926
2,788,926
Securitized debt obligations of consolidated VIEs, net
526,535
501,331
1,174,785
1,150,551
Senior secured notes, net
723,707
700,944
722,729
711,705
Guaranteed loan financing
501,736
527,111
524,091
550,556
Corporate debt, net
536,972
480,295
652,487
617,477
Total liabilities
$4,610,393
$4,531,124
$5,863,018
$5,819,215
As of both March 31, 2026 and December 31, 2025, other assets and accounts payable and accrued liabilities are not
carried at fair value but generally approximate fair value. Further details are presented in Note 18 – Other Assets and
Other Liabilities.