STARWOOD PROPERTY TRUST INC

Previous wording

During 2023, inflation began to moderate as a result of the monetary policy tightening actions taken by the Federal Reserve, including repeatedly raising interest rates. While it is possible that the Federal Reserve may begin to lower interest rates later in 2024, interest rates may remain at or near recent highs or may increase, which creates further uncertainty for the economy and for our borrowers. Although our business model is such that rising interest rates will, all else equal, correlate to increases in our net income, elevated interest rates over time may adversely affect our existing borrowers and lead to nonperformance as higher costs may dampen consumer spending and slow income growth, which may negatively impact the collateral underlying certain of our loans. Additionally, higher interest rates could adversely affect the value of commercial real estate we own and that collateralizes our loans. It remains difficult to predict the full impact of recent events and any future changes in interest rates or inflation.

Current wording

During 2023, inflation began to moderate as a result of the monetary policy tightening actions taken by the Federal Reserve, including repeatedly raising interest rates. While the Federal Reserve began to lower interest rates in September 2024, interest rates may remain near recent highs which creates uncertainty for the economy and for our borrowers. Elevated interest rates over time may adversely affect our existing borrowers and lead to nonperformance as higher costs may dampen consumer spending and slow income growth, which may negatively impact the collateral underlying certain of our loans. Additionally, elevated interest rates could adversely affect the value of commercial real estate we own and that collateralizes our loans. It remains difficult to predict the full impact of recent events and any future changes in interest rates or inflation.

Previous wording

In addition, following the onset of the COVID-19 pandemic, the U.S. office sector has been adversely affected by the increase in remote working arrangements and, over the past several years, the retail sector has been adversely affected by electronic commerce. These negative factors have been considered in the determination of our current expected credit loss (“CECL”) allowance as discussed in Note 4 to the Condensed Consolidated Financial Statements.

Current wording

In addition, following the onset of the COVID-19 pandemic, the U.S. office sector has been adversely affected by the increase in remote working arrangements and, over the past several years, the retail sector has been adversely affected by electronic commerce. These negative factors have been considered in the determination of our current expected credit loss (“CECL”) allowance as discussed in Note 4 to the Condensed Consolidated Financial Statements. We may be required to record further increases to our CECL reserves in the future, depending on the performance of our portfolio and broader market conditions, and there may be volatility in the level of our CECL reserves, particularly if market conditions relevant to the office sector do not improve. Any such reserve increases are difficult to predict.

Previous wording

Developments During the Second Quarter of 2024

Current wording

Developments During the Third Quarter of 2024

Previous wording

•Originated or acquired $353.0 million of commercial loans during the quarter, including the following:

Current wording

•Originated or acquired $848.2 million of commercial loans during the quarter, including the following:

Previous wording

•Funded $112.5 million of previously originated commercial loan commitments and investment securities.

Current wording

•Funded $133.5 million of previously originated commercial loan commitments and investment securities.

Previous wording

•Received gross proceeds of $606.4 million ($230.8 million, net of debt repayments) from maturities and principal repayments on our commercial loans and investment securities.

Current wording

•Received gross proceeds of $1.1 billion ($356.2 million, net of debt repayments) from maturities and principal repayments on our commercial loans and investment securities.

Previous wording

•Acquired $236.6 million of infrastructure loans and funded $34.0 million of pre-existing infrastructure loan commitments.

Current wording

•Acquired $527.2 million of infrastructure loans and funded $8.3 million of pre-existing infrastructure loan commitments.

Previous wording

•Received proceeds of $209.8 million from principal repayments on our infrastructure loans and bonds.

Current wording

•Received proceeds of $409.5 million from principal repayments on our infrastructure loans and bonds.

Previous wording

•Originated commercial conduit loans of $293.3 million.

Current wording

•Originated commercial conduit loans of $614.9 million.

Previous wording

•Received proceeds of $218.6 million from sales of previously originated commercial conduit loans.

Current wording

•Received proceeds of $703.2 million from sales of previously originated or acquired commercial conduit loans.

Previous wording

•Acquired CMBS for a purchase price of $7.9 million, and sold CMBS for total gross proceeds of $2.6 million, of which $1.3 million related to non-controlling interests.

Current wording

•Acquired CMBS for a purchase price of $126.1 million, of which $3.8 million related to non-controlling interests, and sold CMBS for total gross proceeds of $7.1 million.

Previous wording

•Obtained one new special servicing assignment for a CMBS trust with a total unpaid principal balance of $1.1 billion, while $3.7 billion matured, bringing our total named special servicing portfolio to $96.1 billion as of March 31, 2024.

Current wording

•Obtained 16 new special servicing assignments for CMBS trusts with a total unpaid principal balance of $12.9 billion, while $3.6 billion matured, bringing our total named special servicing portfolio to $107.3 billion.

Previous wording

◦$83.7 million first mortgage and mezzanine loan to refinance the existing debt of three multifamily properties and two new modular multifamily developments located in Georgia, Tennessee and Florida, of which the Company funded $50.6 million

Current wording

◦$83.7 million first mortgage and mezzanine loan to refinance the existing debt of three multifamily properties and two new modular multifamily developments located in Georgia, Tennessee and Florida, of which the Company funded $55.7 million.

Previous wording

◦$46.5 million first mortgage and mezzanine loan to finance the construction of four industrial properties located in California, of which the Company funded $13.5 million.

Current wording

◦$46.5 million first mortgage and mezzanine loan to finance the construction of four industrial properties located in California, of which the Company funded $18.4 million.

Previous wording

•Funded $128.1 million of previously originated commercial loan commitments and investment securities.

Current wording

•Funded $364.2 million of previously originated commercial loan commitments and investment securities.

Previous wording

•Received gross proceeds of $909.4 million ($457.4 million, net of debt repayments) from maturities and principal repayments on our commercial loans and investment securities.

Current wording

•Received gross proceeds of $2.6 billion ($1.0 billion, net of debt repayments) from maturities and principal repayments on our commercial loans and investment securities.

Previous wording

•Acquired $120.2 million of infrastructure loans and funded $42.5 million of pre-existing infrastructure loan commitments.

Current wording

•Acquired $884.0 million of infrastructure loans and funded $84.8 million of pre-existing infrastructure loan commitments.

Previous wording

•Received proceeds of $266.4 million from principal repayments on our infrastructure loans and bonds and $47.1 million from the sale of an infrastructure loan.

Current wording

•Received proceeds of $885.7 million from principal repayments on our infrastructure loans and bonds and $47.1 million from the sale of an infrastructure loan.

Previous wording

•Sold the 16 retail properties which comprised our Property Segment's Master Lease Portfolio for net proceeds of $188.0 million, recognizing a net gain of $90.8 million.

Current wording

•In February 2024, we sold the 16 retail properties which comprised our Property Segment's Master Lease Portfolio for net proceeds of $188.0 million, recognizing a net gain of $90.8 million.

Previous wording

•Received proceeds of $139.8 million from sales of previously originated or acquired commercial conduit loans, and priced $224.8 million of previously originated or acquired commercial conduit loans in two securitizations that settled subsequent to June 30, 2024.

Current wording

•Received proceeds of $1.1 billion from sales of previously originated or acquired commercial conduit loans.

Previous wording

•Obtained six new special servicing assignments for CMBS trusts with a total unpaid principal balance of $5.1 billion, while $3.1 billion matured and $0.1 billion transferred, bringing our total named special servicing portfolio to $98.0 billion as of June 30, 2024.

Current wording

•Obtained 23 new special servicing assignments for CMBS trusts with a total unpaid principal balance of $19.1 billion, while $10.4 billion matured and $0.1 billion transferred, bringing our total named special servicing portfolio to $107.3 billion.

Previous wording

•Issued $600.0 million of 7.25% Senior Notes due 2029 (the “2029 Senior Notes”) and swapped the notes to a floating rate of SOFR + 3.25%.

Current wording

•In March 2024, we issued $600.0 million of 7.25% Senior Notes due 2029 (the “2029 Senior Notes”) and swapped the notes to a floating rate of SOFR + 3.25%

Previous wording

The following table compares our summarized results of operations for the three months ended June 30, 2024 and March 31, 2024 and for the six months ended June 30, 2024 and 2023 by business segment (amounts in thousands):

Current wording

The following table compares our summarized results of operations for the three months ended September 30, 2024 and June 30, 2024 and for the nine months ended September 30, 2024 and 2023 by business segment (amounts in thousands):

Previous wording

For the three months ended June 30, 2024, net interest income of our Commercial and Residential Lending Segment decreased $18.1 million to $171.6 million, compared to $189.7 million for the three months ended March 31, 2024. This decrease reflects the decrease in interest income, partially offset by the decrease in interest expense on our secured financing facilities, both as discussed in the sections above.

Current wording

For the three months ended September 30, 2024, net interest income of our Commercial and Residential Lending Segment decreased $2.1 million to $169.5 million, compared to $171.6 million for the three months ended June 30, 2024. This decrease reflects the decrease in interest income, partially offset by the decrease in interest expense on our secured financing facilities, both as discussed in the sections above.

Previous wording

During both the three months ended June 30, 2024 and March 31, 2024, the Commercial and Residential Lending Segment’s weighted average secured borrowing rate, inclusive of the amortization of deferred financing fees was 7.6%. Interest rate hedges had the effect of reducing these weighted average borrowing costs to 6.7% during both the three months ended June 30, 2024 and March 31, 2024, respectively.

Current wording

During the three months ended September 30, 2024 and June 30, 2024, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 7.5% and 7.6%, respectively. Interest rate hedges had the effect of reducing these weighted average borrowing costs to 6.6% and 6.7% during the three months ended September 30, 2024 and June 30, 2024, respectively.

Previous wording

For the three months ended June 30, 2024, other income of our Commercial and Residential Lending Segment increased $36.2 million to $62.6 million compared to $26.4 million for the three months ended March 31, 2024. This increase was primarily due to (i) an $88.4 million favorable change in fair value of residential loans and (ii) a $48.7 million favorable change in foreign currency gain (loss), partially offset by (iii) a $101.8 million decreased gain on derivatives. The decreased gain on derivatives in the second quarter of 2024 reflects a $52.9 million decreased gain on interest rate swaps principally related to residential loans, which partially offsets the favorable change in fair value of those loans, and a $48.9 million unfavorable change in gain (loss) on foreign currency hedges. The interest rate swaps are used primarily to hedge our interest rate risk on residential loans held-for-sale and to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The favorable change in foreign currency gain (loss) and the unfavorable change in gain (loss) on foreign currency hedges reflect the weakening of the U.S. dollar against the pound sterling (“GBP”) and Australian dollar (“AUD”), partially offset by a strengthening against the Euro (“EUR”), in the second quarter of 2024, compared to a strengthening of the U.S. dollar against each of those currencies in the first quarter of 2024.

Current wording

For the three months ended September 30, 2024, other income of our Commercial and Residential Lending Segment decreased $14.5 million to $48.1 million compared to $62.6 million for the three months ended June 30, 2024. This decrease was primarily due to (i) a $117.6 million unfavorable change in gain (loss) on derivatives, partially offset by (ii) a $52.1 million increase in foreign currency gain, (iii) a $48.0 million favorable change in fair value of residential loans and (iv) a $3.2 million favorable change in fair value of primarily RMBS investment securities. The unfavorable change in gain (loss) on derivatives in the third quarter of 2024 reflects a $62.2 million unfavorable change in gain (loss) on interest rate swaps principally related to residential loans, which is partially offset by the favorable change in fair value of those loans, and a $55.4 million increased loss on foreign currency hedges. The interest rate swaps are used primarily to hedge our interest rate risk on residential loans held-for-sale and to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The increased foreign currency gain and the increased loss on foreign currency hedges reflect the weakening of the U.S. dollar against the pound sterling (“GBP”), Euro (“EUR”) and Australian dollar (“AUD”) in the third quarter of 2024, compared to a lesser weakening of the U.S. dollar against the GBP and AUD, partially offset by a strengthening against the EUR, in the second quarter of 2024.

Previous wording

For the three months ended June 30, 2024, revenues of our Infrastructure Lending Segment decreased $1.7 million to $65.2 million, compared to $66.9 million for the three months ended March 31, 2024. This was primarily due to a decrease in interest income from loans of $2.2 million reflecting lower average loan balances and interest rates, the effects of which were partially offset by higher prepayment related income.

Current wording

For the three months ended September 30, 2024, revenues of our Infrastructure Lending Segment increased $0.2 million to $65.4 million, compared to $65.2 million for the three months ended June 30, 2024. This was primarily due to a $0.5 million increase in interest income on cash balances, partially offset by a decrease in interest income from loans of $0.3 million reflecting lower average loan balances, the effect of which was partially offset by higher prepayment related income.

Previous wording

For the three months ended June 30, 2024, costs and expenses of our Infrastructure Lending Segment decreased $4.0 million to $41.8 million, compared to $45.8 million for the three months ended March 31, 2024. The decrease was primarily due to decreases of $1.7 million in general and administrative expenses, $1.2 million in credit loss provision and $1.1 million in interest expense associated with the various secured financing facilities used to fund this segment’s investment portfolio. The decrease in interest expense was primarily due to lower average borrowings outstanding.

Current wording

For the three months ended September 30, 2024, costs and expenses of our Infrastructure Lending Segment increased $2.6 million to $44.4 million, compared to $41.8 million for the three months ended June 30, 2024. The increase was primarily due to increases of $1.7 million in credit loss provision and $0.5 million in interest expense associated with the various secured financing facilities used to fund this segment’s investment portfolio.

Previous wording

For the three months ended June 30, 2024, net interest income of our Infrastructure Lending Segment decreased $1.1 million to $26.5 million, compared to $27.6 million for the three months ended March 31, 2024. The decrease reflects the decrease in interest income, partially offset by the decrease in interest expense on the secured financing facilities, both as discussed in the sections above.

Current wording

For the three months ended September 30, 2024, net interest income of our Infrastructure Lending Segment decreased $0.8 million to $25.7 million, compared to $26.5 million for the three months ended June 30, 2024. The decrease reflects the decrease in interest income from loans and increase in interest expense on the secured financing facilities, both as discussed in the sections above.

Previous wording

During the three months ended June 30, 2024 and March 31, 2024, the weighted average unlevered yield on the Infrastructure Lending Segment’s loans and investment securities, excluding those for which interest income is not recognized, was 10.3% and 10.4%, respectively.

Current wording

During the three months ended September 30, 2024 and June 30, 2024, the weighted average unlevered yield on the Infrastructure Lending Segment’s loans and investment securities, excluding those for which interest income is not recognized, was 10.4% and 10.3%, respectively.

Previous wording

For the three months ended June 30, 2024, revenues of our Investing and Servicing Segment increased $13.5 million to $55.6 million, compared to $42.1 million for the three months ended March 31, 2024. The increase in revenues is primarily due to a $7.0 million increase in servicing fees and a $5.3 million increase in interest income from CMBS investments and conduit loans. The increase in servicing fees is primarily due to higher loan modification and assumption fees. The increase in interest income is primarily due to higher interest recoveries on CMBS investments and higher average conduit loan balances due to increased origination and securitization activity.

Current wording

For the three months ended September 30, 2024, revenues of our Investing and Servicing Segment decreased $3.3 million to $52.3 million, compared to $55.6 million for the three months ended June 30, 2024. The decrease in revenues is primarily due to a $4.6 million decrease in servicing fees, partially offset by a $1.0 million increase in interest income from conduit loans and CMBS investments. The decrease in servicing fees is primarily due to lower loan modification and assumption fees. The increase in interest income is primarily due to higher average conduit loan balances due to increased origination and securitization activity.

Previous wording

For the three months ended June 30, 2024 and March 31, 2024, corporate expenses decreased $3.8 million to $104.9 million, compared to $108.7 million for the three months ended March 31, 2024. This decrease is primarily due to a $15.5 million decrease in management fees, primarily reflecting lower incentive fees, partially offset by a $10.7 million increase in interest expense, primarily reflecting higher average unsecured senior note balances.

Current wording

For the three months ended September 30, 2024, corporate expenses decreased $4.0 million to $100.9 million, compared to $104.9 million for the three months ended June 30, 2024. This decrease is primarily due to a $3.1 million decrease in management fees, primarily reflecting lower incentive fees.

Previous wording

For the three months ended June 30, 2024, corporate other loss decreased $4.7 million to $9.2 million, compared to $13.9 million for the three months ended March 31, 2024. This was due to a decreased loss on our fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.

Current wording

For the three months ended September 30, 2024, corporate other income (loss) improved $37.9 million to income of $28.7 million, compared to a loss of $9.2 million for the three months ended June 30, 2024. This was due to a favorable change in gain (loss) on our fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.

Previous wording

Our consolidated income taxes principally relate to the taxable nature of our loan servicing and loan securitization businesses which are housed in taxable REIT subsidiaries (“TRSs”). For the three months ended June 30, 2024, our income tax provision increased $14.7 million to $15.9 million compared to $1.2 million for the three months ended March 31, 2024 due to higher taxable income of our TRSs in the second quarter of 2024 compared to the first quarter of 2024.

Current wording

Our consolidated income taxes principally relate to the taxable nature of our loan servicing and loan securitization businesses which are housed in taxable REIT subsidiaries (“TRSs”). For the three months ended September 30, 2024, our income tax provision decreased $5.5 million to $10.4 million compared to $15.9 million for the three months ended June 30, 2024 due to lower taxable income of our TRSs in the third quarter of 2024 compared to the second quarter of 2024.

Previous wording

For the six months ended June 30, 2024, revenues of our Commercial and Residential Lending Segment decreased $17.3 million to $824.1 million, compared to $841.4 million for the six months ended June 30, 2023. This decrease was primarily due to decreases in interest income from loans of $16.5 million and investment securities of $5.5 million, partially offset by a $3.6 million increase in rental income from foreclosed properties. The decrease in interest income from loans reflects (i) an $11.4 million decrease from commercial loans, reflecting lower average balances, partially offset by the effects of higher average index rates and prepayment related income, and (ii) a $5.1 million decrease from residential loans principally due to lower average balances. The decrease in interest income from investment securities was primarily due to lower average commercial investment balances due to repayments.

Current wording

For the nine months ended September 30, 2024, revenues of our Commercial and Residential Lending Segment decreased $68.5 million to $1.2 billion, compared to $1.3 billion for the nine months ended September 30, 2023. This decrease was primarily due to decreases in interest income from loans of $63.9 million and investment securities of $12.3 million, partially offset by a $5.4 million increase in rental income from foreclosed properties. The decrease in interest income from loans reflects (i) a $56.2 million decrease from commercial loans, reflecting lower average balances and additional loans placed on nonaccrual, partially offset by the effects of higher average index rates and prepayment related income, and (ii) a $7.7 million decrease from residential loans principally due to lower average balances. The decrease in interest income from investment securities was primarily due to lower average commercial investment balances due to repayments.

Previous wording

For the six months ended June 30, 2024, costs and expenses of our Commercial and Residential Lending Segment decreased $86.4 million to $575.9 million, compared to $662.3 million for the six months ended June 30, 2023. This decrease was primarily due to decreases of $71.0 million in credit loss provision and $24.1 million in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio, partially offset by an $8.1 million increase in general and administrative expenses, primarily for compensation and professional fees. The decrease in credit loss provision was primarily due to a lesser deterioration in modeled macroeconomic forecasts in the first half of 2024 compared to the first half of 2023, despite us selecting the most unfavorable modeled macroeconomic forecast for office and retail loans in the first half of 2024. The decrease in interest expense was primarily due to lower average borrowings outstanding due to paydowns from net loan repayments and excess cash balances, partially offset by the effect of higher average index rates.

Current wording

For the nine months ended September 30, 2024, costs and expenses of our Commercial and Residential Lending Segment decreased $112.1 million to $870.4 million, compared to $982.5 million for the nine months ended September 30, 2023. This decrease was primarily due to decreases of (i) $62.3 million in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio and (ii) $57.4 million in credit loss provision, partially offset by (iii) a $6.9 million increase in general and administrative expenses, primarily for compensation and professional fees. The decrease in interest expense was primarily due to lower average borrowings outstanding due to paydowns from net loan repayments and excess cash balances, partially offset by the effect of higher average index rates. The decrease in credit loss provision was primarily due to (i) a lesser deterioration in modeled macroeconomic forecasts in the nine months of 2024 compared to the nine months of 2023 and (ii) the nonrecurrence of a $14.7 million realized credit loss on a commercial loan in the 2023 period, the effects of which were partially offset by (iii) selecting the most unfavorable modeled macroeconomic forecast for office and retail loans in the 2024 period and (iv) including future funding now considered probable in the 2024 period under a loan guarantee arrangement (see Note 22 to the Condensed Consolidated Financial Statements).

Previous wording

During the six months ended June 30, 2024 and 2023, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities, excluding retained RMBS and loans for which interest income is not recognized, were as follows:

Current wording

During the nine months ended September 30, 2024 and 2023, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities, excluding retained RMBS and loans for which interest income is not recognized, were as follows:

Previous wording

The weighted average unlevered yield on our commercial loans increased primarily due to higher average index rates and prepayment related income. The unlevered yield on our residential loans increased slightly.

Current wording

The weighted average unlevered yield on our commercial loans increased primarily due to higher average index rates and prepayment related income. The unlevered yield on our residential loans was relatively unchanged.

Previous wording

During the six months ended June 30, 2024 and 2023, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 7.6% and 7.2%, respectively. The increase in borrowing rates primarily reflects higher average index rates. Interest rate hedges had the effect of adjusting these weighted average borrowing costs to 6.7% and 6.4% during the six months ended June 30, 2024 and 2023, respectively.

Current wording

During the nine months ended September 30, 2024 and 2023, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 7.6% and 7.1%, respectively. The increase in borrowing rates primarily reflects higher average index rates. Interest rate hedges had the effect of adjusting these weighted average borrowing costs to 6.7% and 6.5% during the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

For the six months ended June 30, 2024, other income of our Commercial and Residential Lending Segment increased $61.4 million to $89.0 million, compared to $27.6 million for the six months ended June 30, 2023. This increase primarily reflects (i) an $87.1 million increased gain on derivatives, (ii) a $64.0 million favorable change in fair value of residential loans, (iii) the non-recurrence of a $23.8 million impairment loss on a foreclosed vacant building in the first half of 2023 and (iv) a $6.6 million increase in earnings from unconsolidated entities primarily due to an observable price change in an equity investment, partially offset by (v) a $73.2 million unfavorable change in foreign currency gain (loss) and (vi) a $48.6 million unfavorable change in fair value of primarily RMBS investment securities. The increased gain on derivatives during the six months ended June 30, 2024 reflects (i) a $77.5 million favorable change in gain (loss) on foreign currency hedges and (ii) a $9.6 million increased gain on interest rate swaps principally related to residential loans. The interest rate swaps are used primarily to hedge our interest rate risk on residential loans held-for-sale and to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The unfavorable change in foreign currency gain (loss) and the favorable change in gain (loss) on foreign currency hedges reflect the strengthening of the U.S. dollar against the GBP, EUR and AUD during the first half of 2024, compared to a weakening of the U.S. dollar against the GBP and EUR, partially offset by a strengthening against the AUD, in the first half of 2023.

Current wording

For the nine months ended September 30, 2024, other income of our Commercial and Residential Lending Segment increased $115.2 million to $137.1 million, compared to $21.9 million for the nine months ended September 30, 2023. This increase primarily reflects (i) a $228.2 million favorable change in fair value of residential loans, (ii) a $42.1 million favorable change in foreign currency gain (loss), (iii) the non-recurrence of a $23.8 million impairment loss on a foreclosed vacant building in the 2023 period and (iv) a $6.7 million increase in earnings from unconsolidated entities primarily due to an observable price change in an equity investment, partially offset by (v) a $121.0 million unfavorable change in gain (loss) on derivatives, and (vi) a $67.1 million unfavorable change in fair value of primarily RMBS investment securities. The unfavorable change in gain (loss) on derivatives during the nine months ended September 30, 2024 reflects (i) a $93.8 million decreased gain on interest rate swaps principally related to residential loans and (ii) a $27.2 million unfavorable change in gain (loss) on foreign currency hedges. The interest rate swaps are used primarily to hedge our interest rate risk on residential loans held-for-sale and to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The favorable change in foreign currency gain (loss) and the unfavorable change in gain (loss) on foreign currency hedges reflect the weakening of the U.S. dollar against the GBP, EUR and AUD during the nine months of 2024, compared to a strengthening of the U.S. dollar against the EUR and AUD, partially offset by a weakening against the GBP, in the nine months of 2023.