REDWOOD TRUST INCRWT
REDWOOD TRUST INC Fair Value Disclosure
Fair Value of Financial Instruments
We estimate fair values for financial assets or liabilities based on available inputs observed in the marketplace as well as unobservable inputs. We primarily use two pricing valuation techniques: market comparable pricing and discounted cash flow analysis. Market comparable pricing is used to determine the fair value of certain instruments by incorporating known inputs and performance metrics, such as observed prepayment rates, delinquencies, severities, credit support, recent transaction prices, pending transactions, or prices of other similar instruments. Discounted cash flow analysis techniques generally consist of developing an estimate of future cash flows that are expected to occur over the life of an instrument and then discounting those cash flows at a rate of return that results in an estimate of fair value. After considering all available indications of the appropriate rate of return that market participants would require, we consider the reasonableness of the range indicated by the results to determine an estimate that is most representative of fair value. We also consider counterparty credit quality and risk as part of our fair value assessments.
We maintain policies that specify the methodologies we use to value different types of financial instruments. Significant changes to the valuation methodologies are reviewed by members of the Pricing Committee, which is comprised of several members of senior management, to confirm the changes are appropriate and reasonable. Valuations based on information from external sources are generally performed on an instrument-by-instrument basis with the resulting amounts analyzed individually against internal calculations as well as in the aggregate by product type classification. Our Pricing Committee then independently reviews all fair value estimates to ensure they are reasonable.
For financial reporting purposes, we follow a fair value hierarchy established under GAAP that is used to determine the fair value of financial instruments. 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 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.
The following describes the valuation methodologies used for the financial instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the Level 1, Level 2, and Level 3 valuation hierarchy. We generally use both market comparable information and discounted cash flow modeling techniques to determine the fair value of our Level 3 assets and liabilities. Use of these techniques requires the determination of relevant inputs and assumptions, some of which represent significant unobservable inputs as indicated in the preceding table.
Securitized Residential Consumer loans, Residential Investor loans and HEI
We have elected to account for most of our consolidated securitization entities as CFEs in accordance with GAAP. A CFE is a variable interest entity that holds financial assets and issues beneficial interests in those assets, and these beneficial interests have contractual recourse only to the related assets of the CFE. Accounting guidance for CFEs allows companies to elect to measure both the financial assets and financial liabilities of a CFE using the more observable of the fair value of the financial assets or fair value of the financial liabilities. Pursuant to this guidance, we use the fair value of the ABS issued by the CFEs (which we determined to be more observable) to determine the fair value of the loans or HEI held at these entities, whereby the net assets we consolidate in our financial statements related to these entities represent the fair value of our retained interests in the CFEs. These financial assets and liabilities are classified within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs.
Unsecuritized Residential Consumer Loans
Fair values for our unsecuritized residential consumer loans are determined using models that incorporate various pricing inputs, including information derived from whole loan sales and securitizations that have occurred in the market. Certain significant inputs in certain of which are considered unobservable and are therefore Level 3 in nature. Significant pricing inputs obtained from market whole loan transaction activity include indicative spreads to indexed TBA prices and indexed swap rates. Significant pricing inputs obtained from market securitization activity include indicative spreads to indexed TBA prices and swap rates for senior and subordinate MBS, IO MBS discount rates, senior credit support levels, and assumed future prepayment rates.
Unsecuritized Residential Investor Loans
Fair values for our unsecuritized residential investor loans are determined using models that incorporate various pricing inputs, certain of which are considered unobservable and are therefore Level 3 in nature. Significant pricing inputs obtained from market whole loan transaction activity include indicative credit spreads to indexed treasury prices and swap rates or absolute yields. Prices for most of our residential investor bridge loans are determined using discounted cash flow modeling, which incorporates a primary significant unobservable input of market discount rates (incorporating indicative credit spreads where applicable). Cash flows for performing loans are generally based on contractual loan terms. Delinquent loans are generally valued at a dollar price that is informed by various market data inputs, including the fair value of the collateral securing the loan.
Real Estate Securities
Real estate securities include residential consumer, multifamily, and other mortgage-backed securities that are generally illiquid in nature and trade infrequently. Significant inputs in the valuation analysis for these assets are predominantly Level 3 in nature, due to the lack of readily available market quotes and related inputs. For real estate securities, we utilize both market comparable pricing and discounted cash flow analysis valuation techniques. Relevant market indicators that are factored into the analysis include bid/ask spreads, the amount and timing of credit losses, interest rates, and collateral prepayment rates. Securities priced using discounted cash flow models use significant unobservable inputs such as a discount rate, prepayment rate, default rate and loss severity.
Derivative Assets and Liabilities
Our derivative instruments may include swaps, swaptions, TBAs, interest rate futures, loan purchase and interest rate lock commitments, and forward sale commitments. Fair values of derivative instruments are determined using quoted prices from active markets, when available, or from valuation models and are supported by valuations provided by dealers active in derivative markets. Fair values of TBAs and interest rate futures are generally obtained using quoted prices from active markets. Our derivative valuation models for swaps and swaptions require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, prepayment rates, and correlations of certain inputs. Model inputs can generally be verified and model selection does not involve significant management judgment. LPC, and IRLC fair values for residential consumer and residential investor term loans are estimated based on the fair values of the underlying loans (as described in "Residential consumer loans" and "Residential investor loans" above). In addition, fair values for LPCs and IRLCs are estimated based on the probability that the mortgage loan will be purchased or originated (the "Pull-through rate"). Derivative instruments are classified within the fair value hierarchy based on the observability of the significant inputs used in their valuation. TBAs and interest rate futures are generally classified within Level 1, as their fair values are based on quoted prices in active markets. Swaps and swaptions are generally classified within Level 2, as their valuations are based on observable market inputs, including yield curves and volatility assumptions. LPCs and IRLCs are generally classified within Level 3 due to the use of significant unobservable inputs, including pull-through rate assumptions and loan-level valuation inputs.
Servicing Investments
Fair values for servicing investments are determined through internal pricing models that estimate future cash flows and utilize certain significant inputs that are considered unobservable and are therefore Level 3 in nature. Our estimations of cash flows include the combined cash flows of all of the components that comprise the servicing investments: existing advances, the requirement to purchase future advances, the recovery of advances, and the right to a portion of the associated mortgage servicing fee ("mortgage servicing income"). The valuation technique is based on discounted cash flows models that utilize certain significant unobservable inputs including discount rates, assumed future prepayment rates on the serviced loans, and the expected remaining life of mortgage servicing income.
Home Equity Investments (HEI)
Fair values for unsecuritized HEI contracts are determined through internal pricing models that estimate future cash flows and utilize certain significant unobservable inputs such as forecasted home price appreciation, prepayment rates and discount rates, and are therefore Level 3 in nature. The valuation technique is based on discounted cash flows.
Strategic Investments
Strategic investments are measured at fair value under the fair value option. These investments are in early-stage start-up companies and generally take the form of equity or debt with conversion features and do not have readily determinable fair values. These Level 3 investments are initially recorded at cost and their fair values are adjusted based on observable price changes, such as follow-on capital raises or secondary sales, and will also evaluate impacts to valuation from changing market conditions and underlying business performance. Refer to Note 12 for information on our Strategic investments not measured at fair value under the fair value option.
ABS Issued
ABS issued includes asset-backed securities issued through the Sequoia, CAFL and HEI securitization entities, as well as securities issued by certain third-party Freddie Mac K-Series and SLST securitization entities that we consolidate. Significant inputs in the valuation analysis are predominantly Level 3, due to the nature of these instruments and the lack of readily available market quotes. For ABS issued, we utilize both market comparable pricing and discounted cash flow analysis valuation techniques. Relevant market indicators factored into the analysis include bid/ask spreads, the amount and timing of collateral credit losses, interest rates, and collateral prepayment rates. Fair values incorporate market indicators as well as other significant unobservable inputs to generate discounted cash flows. These cash flow models use significant unobservable inputs such as discount rate, prepayment rate, default rate, and loss severity.
The following table presents the assets and liabilities that are reported at fair value on our consolidated balance sheets on a recurring basis at December 31, 2025 and 2024, as well as the fair value hierarchy of the valuation inputs used to measure fair value.
Table 6.1 – Assets and Liabilities Measured at Fair Value on a Recurring Basis
| December 31, 2025 | Fair Value | Fair Value Measurements Using | ||||||||||||||||||||||||
| (In Thousands) | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Residential consumer loans | $ | 17,935,761 | $ | — | $ | — | $ | 17,935,761 | ||||||||||||||||||
| Residential investor loans | 3,602,250 | — | — | 3,602,250 | ||||||||||||||||||||||
| HEI | 329,883 | — | — | 329,883 | ||||||||||||||||||||||
| Real estate securities: | ||||||||||||||||||||||||||
| Trading | 135,459 | — | — | 135,459 | ||||||||||||||||||||||
| AFS | 287,557 | — | — | 287,557 | ||||||||||||||||||||||
| Servicing investments | 302,230 | — | — | 302,230 | ||||||||||||||||||||||
| Strategic investments | 6,310 | — | — | 6,310 | ||||||||||||||||||||||
| Derivative assets | 105,597 | 56,458 | 31,119 | 18,020 | ||||||||||||||||||||||
| Total Assets | $ | 22,705,047 | $ | 56,458 | $ | 31,119 | $ | 22,617,470 | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| ABS issued | $ | 17,433,600 | $ | — | $ | — | $ | 17,433,600 | ||||||||||||||||||
| Derivative liabilities | 28,150 | 26,973 | — | 1,177 | ||||||||||||||||||||||
| Non-controlling interest | 92,644 | — | — | 92,644 | ||||||||||||||||||||||
| Total Liabilities | $ | 17,554,394 | $ | 26,973 | $ | — | $ | 17,527,421 | ||||||||||||||||||
| December 31, 2024 | Fair Value | Fair Value Measurements Using | ||||||||||||||||||||||||
| (In Thousands) | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Residential consumer loans | $ | 11,077,823 | $ | — | $ | — | $ | 11,077,823 | ||||||||||||||||||
| Residential investor loans | 4,587,090 | — | — | 4,587,090 | ||||||||||||||||||||||
| Consolidated agency multifamily loans | 424,597 | — | — | 424,597 | ||||||||||||||||||||||
| HEI | 589,785 | — | — | 589,785 | ||||||||||||||||||||||
| Real estate securities: | ||||||||||||||||||||||||||
| Trading | 193,749 | — | — | 193,749 | ||||||||||||||||||||||
| AFS | 211,474 | — | — | 211,474 | ||||||||||||||||||||||
| Servicing investments | 297,683 | — | — | 297,683 | ||||||||||||||||||||||
| Strategic investments | 3,460 | — | — | 3,460 | ||||||||||||||||||||||
| Derivative assets | 46,003 | 16,446 | 23,738 | 5,819 | ||||||||||||||||||||||
| Total Assets | $ | 17,431,664 | $ | 16,446 | $ | 23,738 | $ | 17,391,480 | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| ABS issued | $ | 12,879,530 | $ | — | $ | — | $ | 12,879,530 | ||||||||||||||||||
| Derivative liabilities | 23,660 | 23,164 | — | 496 | ||||||||||||||||||||||
| Non-controlling interest | 99,510 | — | — | 99,510 | ||||||||||||||||||||||
| Total Liabilities | $ | 13,002,700 | $ | 23,164 | $ | — | $ | 12,979,536 | ||||||||||||||||||
The following table presents additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2025.
Table 6.2 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
| Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential Consumer Loans | Residential Investor Loans | Consolidated Agency Multifamily Loans | HEI | Real Estate Trading Securities | Real Estate AFS Securities | Servicing Investments | Strategic Investments | Derivatives, net (1) | ||||||||||||||||||||||||||||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance - December 31, 2024 | $ | 11,077,823 | $ | 4,587,090 | $ | 424,597 | $ | 589,785 | $ | 193,749 | $ | 211,474 | $ | 297,683 | $ | 3,460 | $ | 5,323 | ||||||||||||||||||||||||||||||||||||||
| Acquisitions | 14,692,367 | 42,539 | — | — | 74,494 | 182,850 | 2,410 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Originations | — | 1,845,096 | — | 12,967 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales | (3,968,157) | (2,050,098) | — | (262,447) | (31,839) | (102,378) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Transfer to fair value option | — | — | — | — | — | — | — | 1,150 | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Principal paydowns | (3,009,235) | (1,464,144) | (430,230) | (32,423) | (490) | (15,391) | (5,491) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Consolidation of securitized bridge loans (2) | — | 805,008 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Deconsolidation of securitized re-performing loans | (1,239,652) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Gains (losses) in net income, net | 387,047 | (26,471) | 5,633 | 21,794 | (100,455) | 7,735 | 7,987 | 1,700 | 129,734 | |||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gains in OCI, net | — | — | — | — | — | 3,267 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Other settlements, net (3) | (4,432) | (136,770) | — | 207 | — | — | (359) | — | (118,214) | |||||||||||||||||||||||||||||||||||||||||||||||
Ending balance - December 31, 2025 | $ | 17,935,761 | $ | 3,602,250 | $ | — | $ | 329,883 | $ | 135,459 | $ | 287,557 | $ | 302,230 | $ | 6,310 | $ | 16,843 | ||||||||||||||||||||||||||||||||||||||
Change in unrealized gains or (losses) for the period included in earnings for assets held at the end of the reporting period (4) | $ | 279,385 | $ | 41,594 | $ | — | $ | 21,295 | $ | (99,271) | $ | 9,041 | $ | 9,842 | $ | 1,700 | $ | 16,843 | ||||||||||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||
| ABS Issued | Non-controlling interest | |||||||||||||
| (In Thousands) | ||||||||||||||
Beginning balance - December 31, 2024 | $ | 12,879,530 | $ | 99,510 | ||||||||||
| Acquisitions | 8,667,333 | — | ||||||||||||
| Consolidation | 567,890 | 21,739 | ||||||||||||
| Sales | (4,404) | (46,449) | ||||||||||||
| Principal paydowns | (4,090,889) | — | ||||||||||||
| Deconsolidation of ABS | (988,446) | — | ||||||||||||
| Losses (gains) in net income (loss), net | 402,586 | 22,357 | ||||||||||||
| Other settlements, net | — | (4,512) | ||||||||||||
Ending balance - December 31, 2025 | $ | 17,433,600 | $ | 92,645 | ||||||||||
Change in unrealized losses (gains) for the period included in earnings for liabilities held at the end of the reporting period (4) | $ | 192,096 | $ | 18,262 | ||||||||||
Footnotes to table 6.2
(1)For the purpose of this presentation, derivative assets and liabilities, which consist of loan purchase commitments, are presented on a net basis.
(2)In the fourth quarter of 2024, we completed our first CAFL securitization sponsored by one of our joint ventures that we consolidate under GAAP as we are the primary beneficiary. During the year ended December 31, 2025, we transferred $178 million of residential investor bridge loans to the joint venture under the replenishment feature of this securitization. During the year ended December 31, 2025, we completed our second and third CAFL securitizations sponsored by one of our joint ventures that we consolidate under GAAP as we are the primary beneficiary, and transferred $627 million of residential investor bridge loans to the joint ventures related to these securitizations, of which $294 million were consolidated at the issuance of these securitizations, and $333 million were transferred to the securitizations subsequent to issuance. See Note 16 for additional information on our principles of consolidation.
(3)Other settlements, net: for residential consumer and residential investor loans, primarily represents the transfer of loans to REO; for HEI, represents the share of HEI disposition fees paid to our third party originators for our purchased HEI portfolio; for derivatives, represents the transfer of the fair value of loan purchase and interest rate lock commitments at the time loans are acquired to the basis of residential consumer and investor loans.
(4)All changes in unrealized gains or (losses) are included in net income, with the exception of Real Estate AFS Securities, which are included in comprehensive income.
The following table provides quantitative information about the significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value for the years ended December 31, 2025.
Table 6.3 – Fair Value Methodology for Level 3 Financial Instruments
| December 31, 2025 | Fair Value (1) | Input Values | ||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands, except Input Values) | Unobservable Input | Range | Weighted Average (2) | |||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
Residential consumer loans (4) | $ | 17,935,761 | Senior credit spread to TBA price (3) | $ | 0.88 | - | $ | 1.88 | $ | 1.01 | ||||||||||||||||||||||||||||
Senior credit spread to Swap rate (3) | 140 | - | 222 | bps | 210 | bps | ||||||||||||||||||||||||||||||||
| Subordinate credit spread to Swap rate | 150 | - | 675 | bps | 236 | bps | ||||||||||||||||||||||||||||||||
Senior credit support (3) | 7 | - | 13 | % | 7 | % | ||||||||||||||||||||||||||||||||
IO discount rate (3) | 20 | - | 23 | % | 21 | % | ||||||||||||||||||||||||||||||||
| Liability price | $ | 19 | - | $ | 105 | $ | 99 | |||||||||||||||||||||||||||||||
| Residential investor loans: | ||||||||||||||||||||||||||||||||||||||
Residential investor term loans (4) | 2,188,331 | Whole loan spread (3) | 230 | - | 230 | bps | 230 | bps | ||||||||||||||||||||||||||||||
| Liability price | $ | 92 | - | $ | 103 | $ | 95 | |||||||||||||||||||||||||||||||
Residential investor bridge loans (4) | 1,413,919 | Whole loan discount rate | 7 | - | 9 | % | 8 | % | ||||||||||||||||||||||||||||||
| Liability Price | $ | 97 | - | $ | 163 | $ | 138 | |||||||||||||||||||||||||||||||
| Dollar price of loans | $ | 30 | - | $ | 101 | $ | 74 | |||||||||||||||||||||||||||||||
| HEI | 329,883 | Discount rate | 9 | - | 9 | % | 9 | % | ||||||||||||||||||||||||||||||
| Prepayment rate (Annual CPR) | 8 | - | 15 | % | 14 | % | ||||||||||||||||||||||||||||||||
| Home price appreciation (depreciation) | 4 | - | 4 | % | 4 | % | ||||||||||||||||||||||||||||||||
Liability price (4) | $ | 151 | - | $ | 151 | $ | 151 | |||||||||||||||||||||||||||||||
| Real estate securities - trading and AFS securities | 423,016 | Discount rate | — | - | 22 | % | 7 | % | ||||||||||||||||||||||||||||||
| Prepayment rate (Annual CPR) | — | - | 35 | % | 6 | % | ||||||||||||||||||||||||||||||||
| Default rate | — | - | 81 | % | 46 | % | ||||||||||||||||||||||||||||||||
| Loss severity | — | - | 40 | % | 17 | % | ||||||||||||||||||||||||||||||||
| Servicing investments | 302,230 | Prepayment rate (Annual CPR) | 2 | - | 29 | % | 9 | % | ||||||||||||||||||||||||||||||
| Prepayment yield (Annual CPY) | 50 | - | 100 | % | 76 | % | ||||||||||||||||||||||||||||||||
| Discount rate | 8 | - | 12 | % | 11 | % | ||||||||||||||||||||||||||||||||
Derivative assets, net (5) | 16,843 | Senior credit spread to TBA price (3) | $ | 0.88 | - | $ | 1.88 | $ | 1.01 | |||||||||||||||||||||||||||||
Senior credit spread to Swap rate (3) | 140 | - | 222 | bps | 201 | bps | ||||||||||||||||||||||||||||||||
| Subordinate credit spread to Swap rate | 150 | - | 725 | bps | 273 | bps | ||||||||||||||||||||||||||||||||
Senior credit support (3) | 7 | - | 13 | % | 8 | % | ||||||||||||||||||||||||||||||||
IO discount rate (3) | 15 | - | 23 | % | 19 | % | ||||||||||||||||||||||||||||||||
| Pull-through rate | 2 | - | 100 | % | 67 | % | ||||||||||||||||||||||||||||||||
| Strategic investments | 6,310 | Transaction Price | $ | 200 | - | $ | 3,000 | $ | 789 | |||||||||||||||||||||||||||||
| Total Assets | $ | 22,616,293 | ||||||||||||||||||||||||||||||||||||
| December 31, 2025 | Fair Value (1) | Input Values | ||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands, except Input Values) | Unobservable Input | Range | Weighted Average (2) | |||||||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||
ABS issued (4) | $ | 17,433,600 | Discount rate | — | - | 28 | % | — | % | |||||||||||||||||||||||||||||
| Prepayment rate (annual CPR) | — | - | 69 | % | 10 | % | ||||||||||||||||||||||||||||||||
| Default rate | — | - | 10 | % | — | % | ||||||||||||||||||||||||||||||||
| Loss severity | — | - | 50 | % | 1 | % | ||||||||||||||||||||||||||||||||
Non-controlling interests (6) | 92,644 | Discount rate | 12 | - | 15 | % | 14 | % | ||||||||||||||||||||||||||||||
| Total Liabilities | $ | 17,526,244 | ||||||||||||||||||||||||||||||||||||
(1)The predominant valuation technique used to determine our Level 3 fair value assets and liabilities is based on the discounted cash flow model.
(2)The weighted average input values for all loan types are based on unpaid principal balance ("UPB"). The weighted average input values for all other assets and liabilities are based on relative fair value.
(3)Values represent pricing inputs used in a securitization pricing model. Credit spreads represent spreads to applicable swap rates unless specified otherwise.
(4)The fair value of the loans and HEI held by consolidated entities is based on the fair value of the ABS issued by these entities and the securities and other investments we own in those entities, which we determined were more readily observable in accordance with accounting guidance for Collateralized Financing Entities ("CFE"). At December 31, 2025, the fair value of securities we owned at the consolidated Sequoia and CAFL Term was $722 million and $330 million, respectively. At December 31, 2025, the fair value of our securities in the four CAFL Bridge loan securitizations accounted for under the CFE election and our HEI securitization entities was $50 million and $25 million, respectively.
(5)For the purpose of this presentation, derivative assets and liabilities, which consist of loan purchase commitments, are presented on a net basis.
(6)Of the total $120 million payable to non-controlling interests, $93 million is measured at fair value on a recurring basis.
Assets and Liabilities Not Measured at Fair Value
The following table summarizes the fair values of assets and liabilities that are not measured at fair value at December 31, 2025 and December 31, 2024.
Table 6.4 – Carrying Values and Estimated Fair Values of Assets and Liabilities
| December 31, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||
| Level in Fair Value Hierarchy | Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | ||||||||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
Residential investor loans held-for-sale (1) | 3 | $ | 14,414 | $ | 14,414 | $ | — | $ | — | |||||||||||||||||||||||
| Cash and cash equivalents | 1 | 255,664 | 255,664 | 245,165 | 245,165 | |||||||||||||||||||||||||||
| Restricted cash | 1 | 193,446 | 193,446 | 67,762 | 67,762 | |||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||
| Debt obligation facilities and other financing | 2 | $ | 4,045,578 | $ | 4,046,266 | $ | 2,818,292 | $ | 2,819,393 | |||||||||||||||||||||||
| ABS issued, net | 3 | 58,431 | 58,386 | 390,674 | 392,344 | |||||||||||||||||||||||||||
| Convertible notes, net | 1 | 292,993 | 299,045 | 365,739 | 365,455 | |||||||||||||||||||||||||||
| Trust preferred securities and subordinated notes, net | 3 | 138,906 | 80,910 | 138,860 | 93,465 | |||||||||||||||||||||||||||
| Senior Notes | 1 | 321,905 | 335,904 | 139,989 | 146,716 | |||||||||||||||||||||||||||
Guarantee obligations (2) | 3 | 1,267 | 2,627 | 2,806 | 3,204 | |||||||||||||||||||||||||||
(1)Residential investor loans reported at lower of cost or market for which the carrying value approximates fair value at December 31, 2025
(2)These liabilities are included in Accrued expenses and other liabilities on our consolidated balance sheets.
During the year ended December 31, 2025, we elected the fair value option for $74 million of securities, $14.6 billion (principal balance) of residential consumer loans, and $1.9 billion (principal balance) of residential investor loans. Additionally, during the year ended December 31, 2025, we elected the fair value option for $13 million of newly originated HEI.
Nonrecurring Fair Values
We measure the fair value of certain assets and liabilities on a nonrecurring basis when events or changes in circumstances indicate that the carrying value may be impaired. Adjustments to fair value generally result from the write-down of asset values due to impairment. REO in Other Assets and Liabilities are classified as Level 3 in the fair value hierarchy based upon fair value determinations using appraisals, broker price opinions, comparable properties or other indications of value, net of expected sales costs.
Refer to Note 15 for further information on our REO.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Mar 3, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Mar 1, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Feb 24, 2017 | |
| 2015 | Feb 26, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.