Valuation (Tables)

9 Months Ended

Sep. 30, 2013

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		)
Futures	(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	)

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



(In thousands)
Description	Level 1			Level 2			Level 3			Total
Assets:
Cash and cash equivalents	$	186,737		$	—		$	—		$	186,737
Investments at fair value-
Agency residential mortgage-backed securities	$	—		$	1,069,274		$	37,033		$	1,106,307
Private label residential mortgage-backed securities	—			—			651,982			651,982
Private label commercial mortgage-backed securities	—			—			33,271			33,271
Commercial mortgage loans	—			—			14,936			14,936
Other asset-backed securities	—			—			45,255			45,255
Total investments at fair value	—			1,069,274			782,477			1,851,751
Financial derivatives-assets at fair value-
Credit default swaps on asset-backed securities	—			—			17,615			17,615
Credit default swaps on asset-backed indices	—			9,184			—			9,184
Interest rate swaps	—			15,773			—			15,773
Total return swaps	—			15			—			15
Options	—			4			—			4
Futures	976			—			—			976
Total financial derivatives-assets at fair value	976			24,976			17,615			43,567
Repurchase agreements	—			40,994			—			40,994
Total investments, financial derivatives-assets at fair value, and repurchase agreements	$	976		$	1,135,244		$	800,092		$	1,936,312
Liabilities:
Investments sold short at fair value-
U.S. Treasury and Agency residential mortgage-backed securities	$	—		$	(860,128	)	$	—		$	(860,128	)
Financial derivatives-liabilities at fair value-
Credit default swaps on corporate indices	—			(9,679		)	—			(9,679		)
Credit default swaps on asset-backed indices	—			(19,310		)	—			(19,310		)
Credit default swaps on asset-backed securities	—			—			(319		)	(319		)
Interest rate swaps	—			(4,122		)	—			(4,122		)
Total return swaps	—			(22		)	—			(22		)
Options	—			(4		)	—			(4		)
Futures	(1		)	—			—			(1		)
Total financial derivatives-liabilities at fair value	(1		)	(33,137		)	(319		)	(33,457		)
Securitized debt	—			—			(1,038		)	(1,038		)
Total investments sold short, financial derivatives-liabilities at fair value, and securitized debt	$	(1	)	$	(893,265	)	$	(1,357	)	$	(894,623	)

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		Valuation Technique	Unobservable Input	Range				Weighted Average
Description	Fair Value		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 September 30, 2013:



	Fair Value		Valuation Technique	Unobservable Input	Range						Weighted Average
Description	Fair Value		Valuation Technique	Unobservable Input	Min			Max			Weighted Average
	(In thousands)
Private label residential mortgage-backed securities and Other asset-backed securities⁽¹⁾	$	618,124	Market Quotes	Non Binding Indicative Price	$	1.80		$	145.25		$	79.48
Private label residential mortgage-backed securities	78,075		Discounted Cash Flows	Yield	5.8		%	21.7		%	7.8		%
				Projected Collateral Prepayments	6.2		%	64.6		%	34.4		%
				Projected Collateral Losses	1.8		%	44.6		%	18.8		%
				Projected Collateral Recoveries	0.2		%	19.6		%	10.8		%
				Projected Collateral Scheduled Amortization	13.5		%	88.5		%	36.0		%
											100.0		%
Credit default swaps on asset-backed securities	17,296		Net Discounted Cash Flows	Projected Collateral Prepayments	19.2		%	57.0		%	28.5		%
				Projected Collateral Losses	17.1		%	49.4		%	36.8		%
				Projected Collateral Recoveries	8.0		%	15.4		%	13.1		%
				Projected Collateral Scheduled Amortization	16.0		%	40.5		%	21.6		%
											100.0		%
Private label commercial mortgage-backed securities and Performing commercial mortgage loans	38,221		Market Quotes	Non Binding Indicative Price	$	15.13		$	100.33		$	73.84
Non-performing commercial mortgage loans	9,986		Discounted Cash Flows	Yield	15.0		%	15.0		%	15.0		%
				Months to Resolution	8			10			9
Agency interest only residential mortgage-backed securities	32,385		Market Quotes	Non Binding Indicative Price	$	6.42		$	29.63		$	14.59
Agency interest only residential mortgage-backed securities	4,648		Option Adjusted Spread ("OAS")	LIBOR OAS⁽²⁾	408			649			619
				Projected Collateral Prepayments	76.8		%	100.0		%	92.4		%
				Projected Collateral Scheduled Amortization	0.0		%	23.2		%	7.6		%
											100.0		%


(1)	Includes securitized debt with a fair value of $1.0 million as of September 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 September 30, 2013



(In thousands)	Beginning Balance as of June 30, 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 September 30, 2013
Assets:
Investments at fair value-
Agency residential mortgage-backed securities	$	27,397		$	(1,844	)	$	—		$	875		$	10,605	$	—		$	—	$	37,033
Private label residential mortgage-backed securities	694,510			7,289			11,187			(5,865		)	106,194		(161,333		)	—		651,982
Private label commercial mortgage-backed securities	23,906			161			647			139			21,760		(13,342		)	—		33,271
Commercial mortgage loans	7,563			31			—			411			6,931		—			—		14,936
Other asset-backed securities	39,840			(658		)	38			60			8,334		(2,359		)	—		45,255
Total investments at fair value	793,216			4,979			11,872			(4,380		)	153,824		(177,034		)	—		782,477
Financial derivatives- assets at fair value-
Credit default swaps on asset-backed securities	21,134			—			(3,113		)	2,995			58		(3,459		)	—		17,615
Total financial derivatives- assets at fair value	21,134			—			(3,113		)	2,995			58		(3,459		)	—		17,615
Total investments and financial derivatives-assets at fair value	$	814,350		$	4,979		$	8,759		$	(1,385	)	$	153,882	$	(180,493	)	$	—	$	800,092
Liabilities:
Financial derivatives- liabilities at fair value-
Credit default swaps on asset-backed securities	$	(541	)	$	—		$	(2	)	$	222		$	—	$	2		$	—	$	(319	)
Total financial derivatives- liabilities at fair value	(541		)	—			(2		)	222			—		2			—		(319		)
Securitized debt:
Securitized debt	(1,168		)	(10		)	—			30			110		—			—		(1,038		)
Total securitized debt	(1,168		)	(10		)	—			30			110		—			—		(1,038		)
Total financial derivatives- liabilities at fair value and securitized debt	$	(1,709	)	$	(10	)	$	(2	)	$	252		$	110	$	2		$	—	$	(1,357	)

Level 3—Fair Value Measurement Using Significant Unobservable Inputs:

Nine Month Period Ended September 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 September 30, 2012
Assets:
Investments at fair value-
U.S. Treasury and Agency residential mortgage-backed securities	$	5,337	$	(1,177	)	$	111		$	(679	)	$	1,929	$	(1,160	)	$	—	$	3,827
Private label residential mortgage-backed securities	417,533		15,471			12,489			49,149			251,030		(287,747		)	—		457,925
Private label commercial mortgage-backed securities	16,093		527			3,213			990			79,911		(51,538		)	—		49,196
Commercial mortgage loans	4,400		71			—			179			—		—			—		4,650
Total investments at fair value	443,363		14,358			15,813			49,639			332,870		(340,445		)	—		515,598
Financial derivatives- assets at fair value -
Credit default swaps on asset-backed securities	61,498		—			(1,514		)	4,285			330		(33,139		)	—		31,460
Total financial derivatives- assets at fair value	61,498		—			(1,514		)	4,285			330		(33,139		)	—		31,460
Total investments and financial derivatives- assets at fair value	$	504,861	$	14,358		$	14,299		$	53,924		$	333,200	$	(373,584	)	$	—	$	547,058
Liabilities:
Securitized debt	$	—	$	(44	)	$	—		$	(30	)	$	157	$	(1,522	)	$	—	$	(1,439	)
Total securitized debt	$	—	$	(44	)	$	—		$	(30	)	$	157	$	(1,522	)	$	—	$	(1,439	)

Level 3—Fair Value Measurement Using Significant Unobservable Inputs:

Nine Month Period Ended September 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 September 30, 2013
Assets:
Investments at fair value-
Agency residential mortgage-backed securities	$	6,644		$	(3,846	)	$	—		$	1,180		$	33,055	$	—		$	—	$	37,033
Private label residential mortgage-backed securities	528,366			20,401			30,977			11,518			363,056		(302,336		)	—		651,982
Private label commercial mortgage-backed securities	19,327			258			(477		)	2,612			58,928		(47,377		)	—		33,271
Commercial mortgage loans	9,546			58			482			497			9,481		(5,128		)	—		14,936
Other asset-backed securities	—			(775		)	569			(866		)	56,435		(10,108		)	—		45,255
Total investments at fair value	563,883			16,096			31,551			14,941			520,955		(364,949		)	—		782,477
Financial derivatives- assets at fair value-
Credit default swaps on asset-backed securities	36,031			—			(404		)	(1,497		)	149		(16,664		)	—		17,615
Total financial derivatives- assets at fair value	36,031			—			(404		)	(1,497		)	149		(16,664		)	—		17,615
Total investments and financial derivatives-assets at fair value	$	599,914		$	16,096		$	31,147		$	13,444		$	521,104	$	(381,613	)	$	—	$	800,092
Liabilities:
Financial derivatives- liabilities at fair value-
Credit default swaps on asset-backed securities	$	(1	)	$	—		$	(59	)	$	(318	)	$	—	$	59		$	—	$	(319	)
Total financial derivatives- liabilities at fair value	(1		)	—			(59		)	(318		)	—		59			—		(319		)
Securitized debt:
Securitized debt	(1,335		)	(31		)	—			36			292		—			—		(1,038		)
Total securitized debt	(1,335		)	(31		)	—			36			292		—			—		(1,038		)
Total financial derivatives- liabilities at fair value and securitized debt	$	(1,336	)	$	(31	)	$	(59	)	$	(282	)	$	292	$	59		$	—	$	(1,357	)

Level 3—Fair Value Measurement Using Significant Unobservable Inputs:

Three Month Period Ended September 30, 2012



(In thousands)	Ending Balance as of June 30, 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 September 30, 2012
Assets:
Investments at fair value-
Agency residential mortgage-backed securities	$	4,667		$	(534	)	$	111	$	(314	)	$	1,057	$	(1,160	)	$	—	$	3,827
Private label residential mortgage-backed securities	385,059			6,182			5,440		24,013			92,412		(55,181		)	—		457,925
Private label commercial mortgage-backed securities	28,405			271			2,905		(293		)	57,195		(39,287		)	—		49,196
Commercial mortgage loans	4,650			21			—		(21		)	—		—			—		4,650
Total investments at fair value	422,781			5,940			8,456		23,385			150,664		(95,628		)	—		515,598
Financial derivatives- assets at fair value-
Credit default swaps on asset-backed securities	38,759			—			3,963		(3,823		)	105		(7,544		)	—		31,460
Total financial derivatives- assets at fair value	38,759			—			3,963		(3,823		)	105		(7,544		)	—		31,460
Total investments and financial derivatives-assets at fair value	$	461,540		$	5,940		$	12,419	$	19,562		$	150,769	$	(103,172	)	$	—	$	547,058
Liabilities:
Securitized debt	$	(1,415	)	$	(15	)	$	—	$	(51	)	$	42	$	—		$	—	$	(1,439	)
Total securitized debt	$	(1,415	)	$	(15	)	$	—	$	(51	)	$	42	$	—		$	—	$	(1,439	)

- 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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