v3.26.3
Fair Value of Financial Instruments
 9 Months Ended
Sep. 30, 2026
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments FAIR VALUE OF FINANCIAL INSTRUMENTS 
Fair value is defined as 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. Fair value is based on the assumptions
market participants would use when pricing an asset or liability and also considers all aspects of nonperformance
risk, including the entity’s own credit standing, when measuring fair value of a liability. ASC Topic 820 established
a valuation hierarchy of three levels as follows:
•Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities as of
the measurement date.
•Level 2 – Inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in
inactive markets for identical or similar assets or liabilities; or inputs either directly observable or
indirectly observable through correlation with market data at the measurement date and for the duration
of the instrument’s anticipated life.
•Level 3 – Unobservable inputs are supported by little or no market activity. The unobservable inputs
represent management’s best estimate of how market participants would price the asset or liability at
the measurement date. Consideration is given to the risk inherent in the valuation technique and the
risk inherent in the inputs to the model.
The following table presents the Company’s financial instruments that are measured at fair value on the
Company’s consolidated balance sheet by their valuation hierarchy levels as of the dates indicated: 
($s in
thousands)
September 30, 2026
December 31, 2025
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Assets:
 
 
 
MBS
$25,912,607
$—
$25,912,607
$—
$16,306,988
$—
$16,306,988
$—
TBA
securities (1)
—
—
—
—
7,841
—
7,841
—
Option on
U.S.
Treasury
futures
—
—
—
—
2,657
2,657
—
—
Mortgage
loans (2)
510
—
—
510
618
—
—
618
Total
$25,913,117
$—
$25,912,607
$510
$16,318,104
$2,657
$16,314,829
$618
Liabilities:
TBA
securities (1)
$78,100
$—
$78,100
$—
$785
$—
$785
$—
Interest rate
swaptions (3)
11,236
—
11,236
—
4,045
—
4,045
—
Total
$89,336
$—
$89,336
$—
$4,830
$—
$4,830
$—
(1)TBA securities are reflected on the consolidated balance sheet as derivative assets or liabilities at their implied fair value,
net of implied cost basis. Please refer to Note 5 for additional information.
(2)Mortgage loans are included on the consolidated balance sheets as a component of other assets.
(3)Interest rate swaptions are reflected on the consolidated balance sheet as derivative assets or liabilities at their fair value,
net of cost. Please refer to Note 5 for additional information.
The fair value measurements for the Company’s TBA securities and its MBS are considered Level 2
because there are substantially similar securities actively trading or for which there has been recent trading activity
in their respective markets. Fair value for Agency MBS and TBA securities is based on prices received from an
independent third-party pricing service. In valuing a security, the pricing service primarily uses a market approach,
which uses observable prices and other relevant information that is generated by market transactions of identical or
similar securities, but may use an income approach, which uses valuation techniques such as discounted cash flow
modeling. Examples of the observable inputs and assumptions used in the valuation techniques include market
interest rates, credit spreads, and projected prepayment speeds, among other things. The Company reviews the prices
it receives from the pricing service for reasonableness using other third-party pricing services. If the fair value of a
security is not available from a third-party pricing service, the Company may estimate the fair value of the security
through a variety of methods using observable market data.
The Company's mortgage loans held for investment are single-family mortgage loans, which were
originated or purchased by the Company prior to 2000, and for which the Company has elected the fair value option.
The fair value measurements for these mortgage loans are considered Level 3 because there has been no recent
trading activity of similar instruments upon which their fair value can be measured. The fair value for these Level 3
assets is measured by discounting the estimated future cash flows derived from cash flow models using certain
inputs such as the security’s credit rating, coupon rate, estimated prepayment speeds, expected weighted average
life, collateral composition, and expected credit losses as well as certain other relevant information. The Company
used a constant prepayment rate assumption of 10%, default rate of 2%, loss severity of 20%, and a discount rate of
10% in measuring the fair value of its Level 3 assets as of September 30, 2026 and as of December 31, 2025.
The Company’s U.S. Treasury futures contracts are valued based on exchange pricing and are classified
accordingly as Level 1 measurements. Interest rate swaps are valued using the daily settlement price, or fair value,
determined by the clearing exchange based on a pricing model that references observable market inputs, including
current benchmark rates and the forward yield curve, and thus their fair values are considered Level 2
measurements. The carrying value of the U.S. Treasury futures contracts and interest rate swaps on the Company’s
consolidated balance sheets is $0 because the instruments require daily margin exchanges, which are considered by
the settlement agent to represent legal settlement of the contracts on a daily basis. Please see Note 1 and Note 5 for
additional information regarding the fair value of the Company’s derivative instruments.
The fair value measurement of interest rate swaptions is considered Level 2 because it is based on the fair
value of the underlying interest rate swap and time remaining until its expiration and is carried on the balance sheet
net of any deferred premium to be paid upon exercise or expiration. The fair value measurement of options on U.S.
Treasury futures is considered Level 1 because they are valued based on closing exchange prices on these contracts.
Options on U.S. Treasury futures are initially recorded on the balance sheet at the contract price paid and
subsequently adjusted for changes in fair value until exercise or expiration.
The Company’s repurchase agreements are reported at cost, which approximates fair value. Given their
short-term nature (less than one year) and the interest rates on outstanding amounts, which largely correspond to
prevailing rates observed in the repurchase agreement market, their inputs are considered Level 2.