DERIVATIVE INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2014

Summarizes Fair Value Information about Derivative Assets Liabilities

The table below summarizes fair value information about our derivative assets and liabilities as of September 30, 2014 and December 31, 2013:

Derivatives Instruments	Balance Sheet Location	September 30, 2014		December 31, 2013
Assets:		(dollars in thousands)
Interest rate swaps	Interest rate swaps, at fair value	$	198,066	$	559,044
Interest rate swaptions	Other derivative contracts, at fair value		12,268		110,361
TBA derivatives	Other derivative contracts, at fair value		459		20,693
MBS options	Other derivative contracts, at fair value		-		12,184
Futures contracts	Other derivative contracts, at fair value		6,680		3,487
		$	217,473	$	705,769
Liabilities:
Interest rate swaps	Interest rate swaps, at fair value		857,658		1,141,828
Interest rate swaptions	Other derivative contracts, at fair value		-		24,662
TBA derivatives	Other derivative contracts, at fair value		-		13,779
MBS options	Other derivative contracts, at fair value		-		16,638
Futures contracts	Other derivative contracts, at fair value		-		439
		$	857,658	$	1,197,346

Offsetting of Derivative Assets and Liabilities

The following tables present information about  derivative assets and liabilities that are subject to such provisions and can potentially be offset on our Consolidated Statements of Financial Condition as of September 30, 2014 and December 31, 2013, respectively.

			Amounts Eligible for Offset
September 30, 2014	Gross Amounts		Financial Instruments			Cash Collateral			Net Amounts
Assets:	(dollars in thousands)
Interest rate swaps, at fair value	$	198,066	$	(138,466	)	$	(6,600)		$	53,300
Interest rate swaptions, at fair value		12,268		-			-			12,268
TBA derivatives, at fair value		459		-			-			459
MBS options, at fair value		-		-			-			-
Futures contracts, at fair value		6,680		-			-			6,680
Liabilities:
Interest rate swaps, at fair value	$	857,658	$	(138,466	)	$	(343,206	)	$	375,986
Interest rate swaptions, at fair value		-		-			-			-
TBA derivatives, at fair value		-		-			-			-
MBS options, at fair value		-		-			-			-
Futures contracts, at fair value		-		-			-			-

			Amounts Eligible for Offset
December 31, 2013	Gross Amounts		Financial Instruments			Cash Collateral		Net Amounts
Assets:	(dollars in thousands)
Interest rate swaps, at fair value	$	559,044	$	(408,553	)	$	-	$	150,491
Interest rate swaptions, at fair value		110,361		(24,662	)		-		85,699
TBA derivatives, at fair value		20,693		(9,775	)		-		10,918
MBS options, at fair value		12,184		(3,292	)		-		8,892
Futures contracts, at fair value		3,487		(439	)		-		3,048
Liabilities:
Interest rate swaps, at fair value	$	1,141,828	$	(408,553	)	$	-	$	733,275
Interest rate swaptions, at fair value		24,662		(24,662	)		-		-
TBA derivatives, at fair value		13,779		(9,775	)		-		4,004
MBS options, at fair value		16,638		(3,292	)		-		13,346
Futures contracts, at fair value		439		(439	)		-		-

Schedule of Derivative Instruments in Statement of Operations and Comprehensive Income Loss

The effect of interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss) is as follows:

	Location on Consolidated Statements of Comprehensive Income (Loss)
	Realized Gains (Losses) on Interest Rate Swaps(1)			Realized Gains (Losses) on Termination of Interest Rate Swaps			Unrealized Gains (Losses) on Interest Rate Swaps
	(dollars in thousands)
Quarter Ended:
September 30, 2014	$	(169,083	)	$	-		$	98,593
September 30, 2013	$	(227,909	)	$	(36,658	)	$	6,343
Nine Months Ended:
September 30, 2014	$	(650,452	)	$	(779,333	)	$	(75,287	)
September 30, 2013	$	(666,112	)	$	(88,685	)	$	1,441,099

(1)   Interest expense related to the Company’s interest rate swaps is recorded in Realized gains (losses) on interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss).

Effect of Other Derivative Contracts on the Consolidated Statements of Operations and Comprehensive Income (Loss)

The effect of other derivative contracts on the Company’s Consolidated Statements of Comprehensive Income (Loss) is as follows:

Derivative Instruments	Realized Gain (Loss)			Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Trading Assets
(dollars in thousands)
Quarter Ended September 30, 2014
Net TBA derivatives (1)	$	(1,864	)	$	6,992		$	5,128
Net interest rate swaptions		(30,432	)		26,518			(3,914	)
Futures contracts		(2,991	)		6,455			3,464
							$	4,678
Quarter Ended September 30, 2013
Net TBA derivatives (1)	$	42,506		$	(58,403	)	$	(15,897	)
Net interest rate swaptions		59,941			(119,046	)		(59,105	)
Futures contracts		(5,239	)		(25,628	)		(30,867	)
							$	(105,869	)
Nine Months Ended September 30, 2014
Net TBA derivatives (1)	$	(46,747	)	$	(8,046	)	$	(54,793	)
Net interest rate swaptions		(102,413	)		(24,613	)		(127,026	)
Futures contracts		(15,466	)		3,631			(11,835	)
							$	(193,654	)
Nine Months Ended September 30, 2013
Net TBA derivatives (1)	$	51,846		$	(60,278	)	$	(8,432	)
Net interest rate swaptions		60,506			(74,547	)		(14,041	)
Futures contracts		(8,298	)		(30,642	)		(38,940	)
							$	(61,413	)

(1)   Includes options on TBA securities.

Interest Rate Swaps

Summary of Certain Characteristics of Derivatives

The following table summarizes certain characteristics of the Company’s interest rate swaps at September 30, 2014 and December 31, 2013:

September 30, 2014
Maturity	Current Notional (1)		Weighted Average Pay Rate (2) (3)			Weighted Average Receive Rate (2)			Weighted Average Years to Maturity (2)
(dollars in thousands)
0 - 3 years	$	2,202,522		1.47	%		0.16	%		2.84
3 - 6 years		11,013,000		2.06	%		0.22	%		5.34
6 - 10 years		13,204,000		2.65	%		0.22	%		8.71
Greater than 10 years		5,051,800		3.58	%		0.19	%		19.78
Total / Weighted Average	$	31,471,322		2.48	%		0.21	%		8.61

(1)   Notional amount includes $800.0 million in forward starting pay fixed swaps.

(2)   Excludes forward starting swaps.

(3)   Weighted average fixed rate on forward starting pay fixed swaps was 3.24%.

December 31, 2013
Maturity	Current Notional		Weighted Average Pay Rate			Weighted Average Receive Rate			Weighted Average Years to Maturity
(dollars in thousands)
0 - 3 years	$	24,286,000		1.83	%		0.18	%		1.98
3 - 6 years		8,865,410		2.02	%		0.19	%		4.19
6 - 10 years		15,785,500		2.37	%		0.23	%		7.66
Greater than 10 years		3,490,000		3.62	%		0.20	%		19.93
Total / Weighted Average	$	52,426,910		2.14	%		0.20	%		5.26

Interest Rate Swaption

Summary of Certain Characteristics of Derivatives

The following table summarizes certain characteristics of the Company’s interest rate swaptions at September 30, 2014 and December 31, 2013:

September 30, 2014	Current Underlying Notional		Weighted Average Underlying Pay Rate	Weighted Average Underlying Receive Rate	Weighted Average Underlying Years to Maturity		Weighted Average Months to Expiration
	(dollars in thousands)
Long	$	1,900,000	3.13%	3M LIBOR		10.02		4.82
Short	$	-	-	-		-		-

December 31, 2013	Current Underlying Notional		Weighted Average Underlying Pay Rate	Weighted Average Underlying Receive Rate	Weighted Average Underlying Years to Maturity		Weighted Average Months to Expiration
	(dollars in thousands)
Long	$	5,150,000	3.07%	3M LIBOR		10.10		4.26
Short	$	1,000,000	3M LIBOR	2.83%		5.96		23.71

TBA Derivatives

Summary of Certain Characteristics of Derivatives

The following table summarizes certain characteristics of the Company’s TBA derivatives as of September 30, 2014 and December 31, 2013:

September 30, 2014
Purchase and sale contracts for derivative TBAs	Notional			Implied Cost Basis			Implied Market Value			Net Carrying Value
(dollars in thousands)
Purchase contracts	$	-		$	-		$	-		$	-
Sale contracts		(500,000	)		(493,193	)		(492,734	)		459
Net TBA derivatives	$	(500,000	)	$	(493,193	)	$	(492,734	)	$	459

December 31, 2013
Purchase and sale contracts for derivative TBAs	Notional			Implied Cost Basis			Implied Market Value			Net Carrying Value
(dollars in thousands)
Purchase contracts	$	2,625,000		$	2,733,682		$	2,722,324		$	(11,358	)
Sale contracts		(3,875,000	)		(3,923,213	)		(3,904,941	)		18,272
Net TBA derivatives	$	(1,250,000	)	$	(1,189,531	)	$	(1,182,617	)	$	6,914