Valuation (Tables)

6 Months Ended

Jun. 30, 2013

The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at June 30, 2013:



(In thousands)
Description	Level 1			Level 2			Level 3			Total
Assets:
Cash and cash equivalents	$	201,795		$	—		$	—		$	201,795
Investments at fair value-
Agency residential mortgage-backed securities	$	—		$	914,219		$	27,397		$	941,616
Private label residential mortgage-backed securities	—			—			694,510			694,510
Private label commercial mortgage-backed securities	—			—			23,906			23,906
Commercial mortgage loans	—			—			7,563			7,563
Other asset-backed securities	—			—			39,840			39,840
Common stock	2,987			—			—			2,987
Total investments at fair value	2,987			914,219			793,216			1,710,422
Financial derivatives-assets at fair value-
Credit default swaps on asset-backed securities	—			—			21,134			21,134
Credit default swaps on corporate indices	—			127			—			127
Credit default swaps on asset-backed indices	—			9,618			—			9,618
Interest rate swaps	—			15,967			—			15,967
Total return swaps	—			126			—			126
Unrealized appreciation on futures contracts	5			—			—			5
Total financial derivatives-assets at fair value	5			25,838			21,134			46,977
Repurchase agreements	—			41,188			—			41,188
Total investments, financial derivatives-assets at fair value, and repurchase agreements	$	2,992		$	981,245		$	814,350		$	1,798,587
Liabilities:
Investments sold short at fair value-
U.S. Treasury and Agency residential mortgage-backed securities	$	—		$	(602,822	)	$	—		$	(602,822	)
Common stock	(6,100		)	—			—			(6,100		)
Total investments sold short at fair value	(6,100		)	(602,822		)	—			(608,922		)
Financial derivatives-liabilities at fair value-
Credit default swaps on corporate indices	—			(4,236		)	—			(4,236		)
Credit default swaps on asset-backed indices	—			(13,543		)	—			(13,543		)
Credit default swaps on asset-backed securities	—			—			(541		)	(541		)
Interest rate swaps	—			(22		)	—			(22		)
Total return swaps	—			(118		)	—			(118		)
Unrealized depreciation on futures contracts	(83		)	—			—			(83		)
Total financial derivatives-liabilities at fair value	(83		)	(17,919		)	(541		)	(18,543		)
Securitized debt	—			—			(1,168		)	(1,168		)
Total investments sold short, financial derivatives-liabilities at fair value, and securitized debt	$	(6,183	)	$	(620,741	)	$	(1,709	)	$	(628,633	)

The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at December 31, 2012:



(In thousands)
Description	Level 1			Level 2			Level 3			Total
Assets:
Cash and cash equivalents	$	59,084		$	—		$	—		$	59,084
Investments at fair value-
Agency residential mortgage-backed securities	$	—		$	811,233		$	6,644		$	817,877
Private label residential mortgage-backed securities	—			—			528,366			528,366
Private label commercial mortgage-backed securities	—			—			19,327			19,327
Commercial mortgage loans	—			—			9,546			9,546
Total investments at fair value	—			811,233			563,883			1,375,116
Financial derivatives-assets at fair value-
Credit default swaps on asset-backed securities	—			—			36,031			36,031
Credit default swaps on asset-backed indices	—			12,468			—			12,468
Interest rate swaps	—			5			—			5
Total financial derivatives-assets at fair value	—			12,473			36,031			48,504
Repurchase agreements	—			13,650			—			13,650
Total investments, financial derivatives-assets at fair value, and repurchase agreements	$	—		$	837,356		$	599,914		$	1,437,270
Liabilities:
Investments sold short at fair value-
U.S. Treasury and Agency residential mortgage-backed securities	$	—		$	(622,301	)	$	—		$	(622,301	)
Financial derivatives-liabilities at fair value-
Credit default swaps on corporate indices	—			(484		)	—			(484		)
Credit default swaps on asset-backed indices	—			(13,468		)	—			(13,468		)
Credit default swaps on asset-backed securities	—			—			(1		)	(1		)
Interest rate swaps	—			(1,124		)	—			(1,124		)
Total return swaps	—			(65		)	—			(65		)
Unrealized depreciation on futures contracts	(70		)	—			—			(70		)
Total financial derivatives-liabilities at fair value	(70		)	(15,141		)	(1		)	(15,212		)
Securitized debt	—			—			(1,335		)	(1,335		)
Total investments sold short and financial derivatives-liabilities at fair value	$	(70	)	$	(637,442	)	$	(1,336	)	$	(638,848	)

Schedule Of Significant Unobservable Inputs, Qualitative Information

The following table identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of December 31, 2012:



	Fair Value as of December 31, 2012		Valuation Technique	Unobservable Input	Range				Weighted Average
Description	Fair Value as of December 31, 2012		Valuation Technique	Unobservable Input	Min		Max		Weighted Average
	(In thousands)
Private label residential mortgage-backed securities⁽¹⁾	$	527,031	Discounted Cash Flows	Yield	2.6	%	29.1	%	7.8	%
				Projected Collateral Prepayments	0.7	%	64.6	%	22.7	%
				Projected Collateral Losses	3.7	%	79.7	%	28.0	%
				Projected Collateral Recoveries	0.0	%	41.0	%	21.4	%
				Projected Collateral Scheduled Amortization	4.1	%	90.4	%	27.9	%
									100.0	%
Credit default swaps on asset-backed securities	36,030		Net Discounted Cash Flows	Projected Collateral Prepayments	8.7	%	44.1	%	18.7	%
				Projected Collateral Losses	20.4	%	57.1	%	37.8	%
				Projected Collateral Recoveries	12.2	%	32.8	%	19.3	%
				Projected Collateral Scheduled Amortization	9.8	%	35.5	%	24.2	%
									100.0	%
Private label commercial mortgage-backed securities and Commercial mortgage loans	28,873		Discounted Cash Flows	Yield	5.2	%	17.9	%	9.5	%
				Projected Collateral Losses	0.0	%	25.1	%	3.9	%
				Projected Collateral Recoveries	0.0	%	88.9	%	20.5	%
				Projected Collateral Scheduled Amortization	0.0	%	100.0	%	75.6	%
									100.0	%
Agency interest only residential mortgage-backed securities	6,644		Option Adjusted Spread ("OAS")	LIBOR OAS ⁽²⁾	816		7,558		1,189
				Projected Collateral Prepayments	81.0	%	100.0	%	92.7	%
				Projected Collateral Scheduled Amortization⁽³⁾	0.0	%	19.0	%	7.3	%
									100.0	%


(1)	Includes securitized debt with a fair value of $1.3 million as of December 31, 2012.


(2)	Shown in basis points.


(3)	For simplicity of presentation, net negative amortization is disregarded.

The following table identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of June 30, 2013:



	Fair Value as of June 30, 2013		Valuation Technique	Unobservable Input	Range						Weighted Average
Description	Fair Value as of June 30, 2013		Valuation Technique	Unobservable Input	Min			Max			Weighted Average
	(In thousands)
Private label residential mortgage-backed securities and Other asset-backed securities⁽¹⁾	$	678,375	Market Quotes	Non Binding Indicative Price	$	29.00		$	149.87		$	80.52
Private label residential mortgage-backed securities	54,807		Discounted Cash Flows	Yield	6.1		%	20.8		%	10.4		%
				Projected Collateral Prepayments	0.7		%	57.8		%	32.2		%
				Projected Collateral Losses	4.5		%	48.8		%	20.3		%
				Projected Collateral Recoveries	0.0		%	17.9		%	8.9		%
				Projected Collateral Scheduled Amortization	12.2		%	89.2		%	38.6		%
											100.0		%
Private label commercial mortgage-backed securities	11,717		Discounted Cash Flows	Yield	10.2		%	30.1		%	15.9		%
				Projected Collateral Losses	0.3		%	0.3		%	0.3		%
				Projected Collateral Recoveries	9.3		%	9.3		%	9.3		%
				Projected Collateral Scheduled Amortization	90.4		%	90.4		%	90.4		%
											100.0		%
Credit default swaps on asset-backed securities	20,593		Net Discounted Cash Flows	Projected Collateral Prepayments	19.5		%	55.6		%	26.7		%
				Projected Collateral Losses	18.0		%	52.3		%	40.1		%
				Projected Collateral Recoveries	7.3		%	14.6		%	12.7		%
				Projected Collateral Scheduled Amortization	15.6		%	36.6		%	20.5		%
											100.0		%
Private label commercial mortgage-backed securities and Performing commercial mortgage loans	17,202		Market Quotes	Non Binding Indicative Price	$	71.35		$	100.25		$	86.60
Non-performing commercial mortgage loans	2,550		Discounted Cash Flows	Yield	32.3		%	32.3		%	32.3		%
				Months to Resolution	12			12			12
Agency interest only residential mortgage-backed securities	22,814		Market Quotes	Non Binding Indicative Price	$	6.82		$	26.84		$	14.54
Agency interest only residential mortgage-backed securities	4,583		Option Adjusted Spread ("OAS")	LIBOR OAS⁽²⁾	462			1,173			639
				Projected Collateral Prepayments	54.8		%	86.2		%	70.9		%
				Projected Collateral Scheduled Amortization	13.8		%	45.2		%	29.1		%
											100.0		%


(1)	Includes securitized debt with a fair value of $1.2 million as of June 30, 2013.


(2)	Shown in basis points.

Fair Value Measurement Using Significant Unobservable Inputs

Level 3—Fair Value Measurement Using Significant Unobservable Inputs:

Three Month Period Ended June 30, 2013



(In thousands)	Beginning Balance as of March 31, 2013			Accreted Discounts / (Amortized Premiums)			Net Realized Gain/ (Loss)			Change in Net Unrealized Gain/(Loss)			Purchases/ Payments		Sales/ Issuances			Transfers In and/or Out of Level 3		Ending Balance as of June 30, 2013
Assets:
Investments at fair value-
Agency residential mortgage-backed securities	$	16,228		$	(1,132	)	$	—		$	68		$	12,233	$	—		$	—	$	27,397
Private label residential mortgage-backed securities	557,820			6,471			4,189			(6,636		)	184,029		(51,363		)	—		694,510
Private label commercial mortgage-backed securities	5,778			41			324			(771		)	24,826		(6,292		)	—		23,906
Commercial mortgage loans	9,713			19			482			(73		)	2,550		(5,128		)	—		7,563
Other asset-backed securities	11,638			(68		)	531			(820		)	36,307		(7,748		)	—		39,840
Total investments at fair value	601,177			5,331			5,526			(8,232		)	259,945		(70,531		)	—		793,216
Financial derivatives- assets at fair value-
Credit default swaps on asset-backed securities	26,398			—			(542		)	1,107			42		(5,871		)	—		21,134
Total financial derivatives- assets at fair value	26,398			—			(542		)	1,107			42		(5,871		)	—		21,134
Total investments and financial derivatives-assets at fair value	$	627,575		$	5,331		$	4,984		$	(7,125	)	$	259,987	$	(76,402	)	$	—	$	814,350
Liabilities:
Financial derivatives- liabilities at fair value-
Credit default swaps on asset-backed securities	$	(2	)	$	—		$	(29	)	$	(540	)	$	—	$	30		$	—	$	(541	)
Total financial derivatives- liabilities at fair value	(2		)	—			(29		)	(540		)	—		30			—		(541		)
Securitized debt:
Securitized debt	(1,205		)	(11		)	—			(63		)	111		—			—		(1,168		)
Total securitized debt	(1,205		)	(11		)	—			(63		)	111		—			—		(1,168		)
Total financial derivatives- liabilities at fair value and securitized debt	$	(1,207	)	$	(11	)	$	(29	)	$	(603	)	$	111	$	30		$	—	$	(1,709	)

Level 3—Fair Value Measurement Using Significant Unobservable Inputs:

Six Month Period Ended June 30, 2012



(In thousands)	Beginning Balance as of December 31, 2011		Accreted Discounts / (Amortized Premiums)			Net Realized Gain/ (Loss)			Change in Net Unrealized Gain/(Loss)			Purchases/ Payments		Sales/ Issuances			Transfers In and/or Out of Level 3		Ending Balance as of June 30, 2012
Assets:
Investments at fair value-
U.S. Treasury Agency residential mortgage-backed securities	$	5,337	$	(1,177	)	$	—		$	(365	)	$	872	$	—		$	—	$	4,667
Private label residential mortgage-backed securities	417,533		(9,288		)	7,049			25,136			158,618		(232,565		)	—		385,059
Private label commercial mortgage-backed securities	16,093		256			309			1,283			22,716		(12,252		)	—		28,405
Commercial mortgage loans	4,400		50			—			200			—		—			—		4,650
Total investments at fair value	443,363		8,417			7,358			26,254			182,206		(244,817		)	—		422,781
Financial derivatives- assets at fair value -
Credit default swaps on asset-backed securities	61,498		—			(5,477		)	8,107			226		(25,595		)	—		38,759
Total financial derivatives- assets at fair value	61,498		—			(5,477		)	8,107			226		(25,595		)	—		38,759
Total investments and financial derivatives- assets at fair value	$	504,861	$	8,417		$	1,881		$	34,361		$	182,432	$	(270,412	)	$	—	$	461,540
Liabilities:
Securitized debt	$	—	$	(29	)	$	—		$	21		$	115	$	(1,522	)	$	—	$	(1,415	)
Total securitized debt	$	—	$	(29	)	$	—		$	21		$	115	$	(1,522	)	$	—	$	(1,415	)

Level 3—Fair Value Measurement Using Significant Unobservable Inputs:

Three Month Period Ended June 30, 2012



(In thousands)	Beginning Balance as of March 31, 2012			Accreted Discounts / (Amortized Premiums)			Net Realized Gain/ (Loss)			Change in Net Unrealized Gain/(Loss)			Purchases/ Payments		Sales/ Issuances			Transfers In and/or Out of Level 3		Ending Balance as of June 30, 2012
Assets:
Investments at fair value-
Agency residential mortgage-backed securities	$	6,016		$	(553	)	$	—		$	(796	)	$	—	$	—		$	—	$	4,667
Private label residential mortgage-backed securities	408,230			4,914			848			7,475			59,941		(96,349		)	—		385,059
Private label commercial mortgage-backed securities	12,171			139			(35		)	(404		)	21,407		(4,873		)	—		28,405
Commercial mortgage loans	4,500			22			—			128			—		—			—		4,650
Total investments at fair value	430,917			4,522			813			6,403			81,348		(101,222		)	—		422,781
Financial derivatives- assets at fair value-
Credit default swaps on asset-backed securities	48,746			—			(734		)	1,308			103		(10,664		)	—		38,759
Total financial derivatives- assets at fair value	48,746			—			(734		)	1,308			103		(10,664		)	—		38,759
Total investments and financial derivatives-assets at fair value	$	479,663		$	4,522		$	79		$	7,711		$	81,451	$	(111,886	)	$	—	$	461,540
Liabilities:
Securitized debt	$	(1,485	)	$	(15	)	$	—		$	10		$	75	$	—		$	—	$	(1,415	)
Total securitized debt	$	(1,485	)	$	(15	)	$	—		$	10		$	75	$	—		$	—	$	(1,415	)

Level 3—Fair Value Measurement Using Significant Unobservable Inputs:

Six Month Period Ended June 30, 2013



(In thousands)	Beginning Balance as of December 31, 2012			Accreted Discounts / (Amortized Premiums)			Net Realized Gain/ (Loss)			Change in Net Unrealized Gain/(Loss)			Purchases/ Payments		Sales/ Issuances			Transfers In and/or Out of Level 3		Ending Balance as of June 30, 2013
Assets:
Investments at fair value-
Agency residential mortgage-backed securities	$	6,644		$	(2,003	)	$	—		$	306		$	22,450	$	—		$	—	$	27,397
Private label residential mortgage-backed securities	528,366			13,112			19,790			17,383			256,862		(141,003		)	—		694,510
Private label commercial mortgage-backed securities	19,327			98			(1,124		)	2,473			37,168		(34,036		)	—		23,906
Commercial mortgage loans	9,546			27			482			86			2,551		(5,129		)	—		7,563
Other asset-backed securities	—			(117		)	531			(927		)	48,101		(7,748		)	—		39,840
Total investments at fair value	563,883			11,117			19,679			19,321			367,132		(187,916		)	—		793,216
Financial derivatives- assets at fair value-
Credit default swaps on asset-backed securities	36,031			—			2,709			(4,492		)	91		(13,205		)	—		21,134
Total financial derivatives- assets at fair value	36,031			—			2,709			(4,492		)	91		(13,205		)	—		21,134
Total investments and financial derivatives-assets at fair value	$	599,914		$	11,117		$	22,388		$	14,829		$	367,223	$	(201,121	)	$	—	$	814,350
Liabilities:
Financial derivatives- liabilities at fair value-
Credit default swaps on asset-backed securities	$	(1	)	$	—		$	(57	)	$	(540	)	$	—	$	57		$	—	$	(541	)
Total financial derivatives- liabilities at fair value	(1		)	—			(57		)	(540		)	—		57			—		(541		)
Securitized debt:
Securitized debt	(1,335		)	(20		)	—			5			182		—			—		(1,168		)
Total securitized debt	(1,335		)	(20		)	—			5			182		—			—		(1,168		)
Total financial derivatives- liabilities at fair value and securitized debt	$	(1,336	)	$	(20	)	$	(57	)	$	(535	)	$	182	$	57		$	—	$	(1,709	)

- Definition

Tabular disclosure related to assets and liabilities by class, including financial instruments measured at fair value that are classified in shareholders' equity, if any, that are measured at fair value on a recurring and/or nonrecurring basis in periods after initial recognition. Disclosures include, but are not limited to: (a) the fair value measurements recorded and the reasons for the measurements and (b) the level within the fair value hierarchy in which the fair value measurements are categorized in their entirety (levels 1, 2, 3) as well as transfers between levels 1 and 2.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 157

-Paragraph 32

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 820

-SubTopic 10

-Section 50

-Paragraph 3

-URI http://asc.fasb.org/extlink&oid=7578670&loc=d3e19279-110258

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 820

-SubTopic 10

-Section 50

-Paragraph 1

-URI http://asc.fasb.org/extlink&oid=7578670&loc=d3e19190-110258

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 157

-Paragraph 6

-Footnote 4

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 820

-SubTopic 10

-Section 50

-Paragraph 2

-Subparagraph (a,b,bb)

-URI http://asc.fasb.org/extlink&oid=7578670&loc=d3e19207-110258

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 820

-SubTopic 10

-Section 50

-Paragraph 2C

-URI http://asc.fasb.org/extlink&oid=7578670&loc=SL7498348-110258

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 157

-Paragraph 33

-Subparagraph a, b

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

+ Details

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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