Valuation (Tables)

12 Months Ended

Dec. 31, 2014

The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at December 31, 2014:



Description	Level 1		Level 2		Level 3		Total
Assets:	(In thousands)
Cash and cash equivalents	$	114,140	$	—	$	—	$	114,140
Investments, at fair value-
Agency residential mortgage-backed securities	$	—	$	1,258,699	$	31,385	$	1,290,084
U.S. Treasury securities	—		1,636		—		1,636
Private label residential mortgage-backed securities	—		284,748		274,369		559,117
Private label commercial mortgage-backed securities	—		—		53,311		53,311
Commercial mortgage loans	—		—		28,309		28,309
Residential mortgage loans	—		—		27,482		27,482
Other asset-backed securities and loans	—		—		146,288		146,288
Corporate debt	—		—		42,708		42,708
Real estate owned	—		—		8,635		8,635
Private corporate investments	—		—		14,512		14,512
Total investments, at fair value	—		1,545,083		626,999		2,172,082
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	—		—		11,387		11,387
Credit default swaps on corporate bond indices	—		35,865		—		35,865
Credit default swaps on asset-backed indices	—		1,881		—		1,881
Interest rate swaps	—		28,654		—		28,654
Total return swaps	—		8		—		8
Swaptions	—		344		—		344




Description	Level 1			Level 2			Level 3			Total
Liabilities:	(In thousands)
Financial derivatives–assets, at fair value- (continued)
Options	—			645			—			645
Futures	261			—			—			261
Forwards	—			884			—			884
Warrants	—			—			100			100
Total financial derivatives–assets, at fair value	261			68,281			11,487			80,029
Repurchase agreements	—			172,001			—			172,001
Total investments and financial derivatives–assets, at fair value and repurchase agreements	$	261		$	1,785,365		$	638,486		$	2,424,112
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—		$	(1,209,539	)	$	—		$	(1,209,539	)
Government debt	—			(55,315		)	—			(55,315		)
Common stock	(26,516		)	—			—			(26,516		)
Total investments sold short, at fair value	(26,516		)	(1,264,854		)	—			(1,291,370		)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	—			(28,588		)	—			(28,588		)
Credit default swaps on corporate bonds	—			(2,953		)	—			(2,953		)
Credit default swaps on asset-backed indices	—			(4,410		)	—			(4,410		)
Credit default swaps on asset-backed securities	—			—			(239		)	(239		)
Interest rate swaps	—			(29,405		)	—			(29,405		)
Total return swaps	—			(21		)	—			(21		)
Options	—			(146		)	—			(146		)
Swaptions	—			(137		)	—			(137		)
Futures	(81		)	—			—			(81		)
Forwards	—			(136		)	—			(136		)
Total financial derivatives–liabilities, at fair value	(81		)	(65,796		)	(239		)	(66,116		)
Securitized debt⁽¹⁾	—			—			(774		)	(774		)
Total investments sold short, financial derivatives–liabilities, and securitized debt, at fair value	$	(26,597	)	$	(1,330,650	)	$	(1,013	)	$	(1,358,260	)


(1)	The asset subject to the resecuritization had a fair value of $2.2 million as of December 31, 2014, which is included on the Consolidated Schedule of Investments under Principal and Interest – Private Label Securities.

The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at December 31, 2013:



(In thousands)
Description	Level 1			Level 2			Level 3			Total
Assets:
Cash and cash equivalents	$	183,489		$	—		$	—		$	183,489
Investments, at fair value-
Agency residential mortgage-backed securities	$	—		$	989,842		$	40,504		$	1,030,346
Private label residential mortgage-backed securities	—			—			580,772			580,772
Private label commercial mortgage-backed securities	—			—			32,994			32,994
Commercial mortgage loans	—			—			23,887			23,887
Residential mortgage loans	—			—			24,062			24,062
Other asset-backed securities	—			—			38,069			38,069
Total investments, at fair value	—			989,842			740,288			1,730,130
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	—			—			16,646			16,646
Credit default swaps on corporate bond indices	—			14,273			—			14,273
Credit default swaps on asset-backed indices	—			4,937			—			4,937
Interest rate swaps	—			23,553			—			23,553
Total return swaps	—			4			—			4
Options	—			251			—			251
Total financial derivatives–assets, at fair value	—			43,018			16,646			59,664
Repurchase agreements	—			27,962			—			27,962
Total investments and financial derivatives–assets, at fair value and repurchase agreements	$	—		$	1,060,822		$	756,934		$	1,817,756
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—		$	(811,957	)	$	—		$	(811,957	)
Government debt	—			(27,288		)	—			(27,288		)
Common stock	(6,369		)	—			—			(6,369		)
Total investments sold short, at fair value	(6,369		)	(839,245		)	—			(845,614		)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	—			(24,949		)	—			(24,949		)
Credit default swaps on asset-backed indices	—			(11,866		)	—			(11,866		)
Credit default swaps on asset-backed securities	—			—			(350		)	(350		)
Interest rate swaps	—			(5,064		)	—			(5,064		)
Total return swaps	—			(67		)	—			(67		)
Options	—			(84		)	—			(84		)
Futures	(2,373		)	—			—			(2,373		)
Forwards	—			(38		)	—			(38		)
Total financial derivatives–liabilities, at fair value	(2,373		)	(42,068		)	(350		)	(44,791		)
Securitized debt⁽¹⁾	—			—			(983		)	(983		)
Total investments sold short, financial derivatives–liabilities, and securitized debt, at fair value	$	(8,742	)	$	(881,313	)	$	(1,333	)	$	(891,388	)


(1)	The asset subject to the resecuritization had a fair value of $2.3 million as of December 31, 2013, which is included on the Consolidated Schedule of Investments under Principal and Interest – Private Label Securities.

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, 2014:



	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⁾	$	201,373	Market Quotes	Non Binding Third-Party Valuation	$	1.83		$	119.58		$	73.58
Other asset-backed securities	123,029		Market Quotes	Non Binding Third-Party Valuation	$	21.50		$	137.00		$	94.91
Private label residential mortgage-backed securities	72,222		Discounted Cash Flows	Yield	3.0		%	13.6		%	7.0		%
				Projected Collateral Prepayments	6.7		%	100.0		%	45.6		%
				Projected Collateral Losses	0.0		%	44.5		%	11.3		%
				Projected Collateral Recoveries	0.0		%	22.4		%	8.0		%
				Projected Collateral Scheduled Amortization	0.0		%	86.4		%	35.1		%
											100.0		%
Private label commercial mortgage-backed securities	12,392		Discounted Cash Flows	Yield	12.0		%	51.1		%	23.7		%
				Projected Collateral Losses	0.1		%	2.5		%	0.7		%
				Projected Collateral Recoveries	0.9		%	13.5		%	6.2		%
				Projected Collateral Scheduled Amortization	85.3		%	99.0		%	93.1		%
											100.0		%
Corporate debt, non-exchange traded corporate equity, and warrants	45,668		Discounted Cash Flows	Yield	7.5		%	24.3		%	13.3		%
				Non Binding Third-Party Valuation	$	73.00		$	108.00		$	95.08
Other asset-backed securities and loans	23,259		Discounted Cash Flows	Yield	—		%	14.4		%	9.1		%
				Projected Collateral Prepayments	62.7		%	62.7		%	62.7		%
				Projected Collateral Losses	4.0		%	4.0		%	4.0		%
				Projected Collateral Recoveries	1.7		%	1.7		%	1.7		%
				Projected Collateral Scheduled Amortization	31.6		%	31.6		%	31.6		%
											100.0		%
Private label commercial mortgage-backed securities	40,919		Market Quotes	Non Binding Third-Party Valuation	$	5.62		$	103.25		$	66.56
Performing commercial mortgage loans	21,328		Discounted Cash Flows	Yield	9.2		%	13.1		%	10.3		%
Non-performing commercial mortgage loans	6,981		Discounted Cash Flows	Yield	15.3		%	20.1		%	16.4		%
				Months to Resolution	0.5			10.5			8.2
Non-performing residential mortgage loan pools and real estate owned	36,117		Discounted Cash Flows	Yield	6.1		%	12.0		%	7.3		%
				Months to Resolution	4.1			79.1			24.6
Agency interest only residential mortgage-backed securities	22,928		Market Quotes	Non Binding Third-Party Valuation	$	3.62		$	24.86		$	11.38
Agency interest only residential mortgage-backed securities	8,457		Option Adjusted Spread ("OAS")	LIBOR OAS⁽²⁾	(154		)	1,796			359
				Projected Collateral Prepayments	50.2		%	100.0		%	75.5		%
				Projected Collateral Scheduled Amortization	0.0		%	49.8		%	24.5		%
											100.0		%



(continued)	Fair Value	Valuation Technique	Unobservable Input	Range				Weighted Average
Description	Fair Value	Valuation Technique	Unobservable Input	Min		Max		Weighted Average
	(In thousands)
Credit default swaps on asset-backed securities	11,148	Net Discounted Cash Flows	Projected Collateral Prepayments	17.8	%	55.8	%	32.5	%
			Projected Collateral Losses	16.5	%	37.7	%	29.7	%
			Projected Collateral Recoveries	7.7	%	18.5	%	12.8	%
			Projected Collateral Scheduled Amortization	15.9	%	43.4	%	25.0	%
								100.0	%
Non-exchange traded preferred equity investment in commercial mortgage-related private partnership	6,241	Discounted Cash Flows	Yield	10.0	%	10.0	%	10.0	%
			Expected Holding Period (Months)	17		17		17
Non-exchange traded preferred and common equity investment in mortgage-related entities	5,411	Recent Transactions	Transaction Price	N/A		N/A		N/A


(1)	Includes securitized debt with a fair value of $0.8 million as of December 31, 2014.


(2)	Shown in basis points.

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, 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⁾	$	550,701	Market Quotes	Non Binding Third-Party Valuation	$	1.80		$	110.35		$	78.09
Private label residential mortgage-backed securities	67,158		Discounted Cash Flows	Yield	3.8		%	20.5		%	8.0		%
				Projected Collateral Prepayments	6.9		%	64.5		%	29.7		%
				Projected Collateral Losses	4.3		%	35.2		%	17.4		%
				Projected Collateral Recoveries	0.3		%	17.1		%	9.1		%
				Projected Collateral Scheduled Amortization	14.1		%	87.3		%	43.8		%
											100.0		%
Private label commercial mortgage-backed securities	3,480		Discounted Cash Flows	Yield	9.2		%	18.2		%	13.5		%
				Projected Collateral Losses	0.2		%	0.2		%	0.2		%
				Projected Collateral Recoveries	15.4		%	15.4		%	15.4		%
				Projected Collateral Scheduled Amortization	84.4		%	84.4		%	84.4		%
											100.0		%
Private label commercial mortgage-backed securities and commercial mortgage loans	34,489		Market Quotes	Non Binding Third-Party Valuation	$	14.25		$	102.89		$	74.24
Performing commercial mortgage loans	8,788		Discounted Cash Flows	Yield	12.7		%	12.8		%	12.7		%
Non-performing commercial mortgage loans	10,123		Discounted Cash Flows	Yield	15.0		%	15.0		%	15.0		%
				Months to Resolution	5			7			6
Non-performing residential mortgage loan pools	24,062		Discounted Cash Flows	Yield	7.4		%	7.4		%	7.4		%
				Months to Resolution	16.3			16.3			16.3
Agency interest only residential mortgage-backed securities	38,783		Market Quotes	Non Binding Third-Party Valuation	$	6.26		$	33.77		$	14.53
Agency interest only residential mortgage-backed securities	1,721		Option Adjusted Spread ("OAS")	LIBOR OAS⁽²⁾	349			645			422
				Projected Collateral Prepayments	49.0		%	58.1		%	51.2		%
				Projected Collateral Scheduled Amortization	41.9		%	51.0		%	48.8		%
											100.0		%
Credit default swaps on asset-backed securities	16,296		Net Discounted Cash Flows	Projected Collateral Prepayments	19.3		%	59.0		%	29.9		%
				Projected Collateral Losses	15.5		%	47.8		%	34.8		%
				Projected Collateral Recoveries	8.2		%	15.2		%	13.1		%
				Projected Collateral Scheduled Amortization	15.7		%	41.2		%	22.2		%
											100.0		%


(1)	Includes securitized debt with a fair value of $1.0 million as of December 31, 2013.


(2)	Shown in basis points.

Fair Value Measurement Using Significant Unobservable Inputs

Level 3—Fair Value Measurement Using Significant Unobservable Inputs:

Year Ended December 31, 2014



(In thousands)	Beginning Balance as of December 31, 2013			Accreted Discounts / (Amortized Premiums)			Net Realized Gain/ (Loss)			Change in Net Unrealized Gain/(Loss)			Purchases/ Payments		Sales/ Issuances			Transfers Into Level 3		Transfers Out of Level 3			Ending Balance as of December 31, 2014
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	40,504		$	(8,738	)	$	1,404		$	(2,078	)	$	8,448	$	(8,155	)	$	—	$	—		$	31,385
Private label residential mortgage-backed securities	580,772			20,544			38,600			(18,406		)	382,956		(445,349		)	—		(284,748		)	274,369
Private label commercial mortgage-backed securities	32,994			1,328			7,055			(357		)	116,128		(103,837		)	—		—			53,311
Commercial mortgage loans	23,887			2,739			3,156			(632		)	41,856		(42,697		)	—		—			28,309
Residential mortgage loans	24,062			1,267			1,424			84			14,863		(14,218		)	—		—			27,482
Other asset-backed securities and loans	38,069			(3,761		)	342			(2,409		)	148,009		(33,962		)	—		—			146,288
Corporate debt	—			(70		)	—			(877		)	43,808		(153		)	—		—			42,708
Real estate owned	—			—			172			(113		)	11,247		(2,671		)	—		—			8,635
Private corporate investments	—			—			—			(205		)	14,717		—			—		—			14,512
Total investments, at fair value	740,288			13,309			52,153			(24,993		)	782,032		(651,042		)	—		(284,748		)	626,999
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	16,646			—			(4,596		)	4,547			464		(5,674		)	—		—			11,387
Warrants	—			—			—			—			100		—			—		—			100
Total financial derivatives– assets, at fair value	16,646			—			(4,596		)	4,547			564		(5,674		)	—		—			11,487
Total investments and financial derivatives–assets, at fair value	$	756,934		$	13,309		$	47,557		$	(20,446	)	$	782,596	$	(656,716	)	$	—	$	(284,748	)	$	638,486
Liabilities:
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(350	)	$	—		$	(78	)	$	111		$	—	$	78		$	—	$	—		$	(239	)
Total financial derivatives– liabilities, at fair value	(350		)	—			(78		)	111			—		78			—		—			(239		)
Securitized debt:
Securitized debt	(983		)	(15		)	—			(22		)	246		—			—		—			(774		)
Total securitized debt	(983		)	(15		)	—			(22		)	246		—			—		—			(774		)
Total financial derivatives– liabilities and securitized debt, at fair value	$	(1,333	)	$	(15	)	$	(78	)	$	89		$	246	$	78		$	—	$	—		$	(1,013	)

Year Ended December 31, 2012



(In thousands)	Ending 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 Into Level 3		Transfers Out of Level 3		Ending Balance as of December 31, 2012
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	5,337	$	(2,277	)	$	111		$	(568	)	$	5,201	$	(1,160	)	$	—	$	—	$	6,644
Private label residential mortgage-backed securities	417,533		21,896			15,657			69,286			323,554		(319,560		)	—		—		528,366
Private label commercial mortgage-backed securities	16,093		570			7,619			(255		)	110,752		(115,452		)	—		—		19,327
Commercial mortgage loans	4,400		87			—			413			4,646		—			—		—		9,546
Total investments, at fair value	443,363		20,276			23,387			68,876			444,153		(436,172		)	—		—		563,883
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	61,498		—			(1,164		)	3,218			10,840		(38,361		)	—		—		36,031
Total financial derivatives– assets, at fair value	61,498		—			(1,164		)	3,218			10,840		(38,361		)	—		—		36,031
Total investments and financial derivatives–assets, at fair value	$	504,861	$	20,276		$	22,223		$	72,094		$	454,993	$	(474,533	)	$	—	$	—	$	599,914
Liabilities:
Financial derivatives– liabilities, at fair value-
Credit default swaps on asset-backed securities	$	—	$	—		$	(79	)	$	(1	)	$	—	$	79		$	—	$	—	$	(1	)
Total financial derivatives– liabilities, at fair value	—		—			(79		)	(1		)	—		79			—		—		(1		)
Securitized debt:
Securitized debt	—		(55		)	—			(23		)	265		(1,522		)	—		—		(1,335		)
Total securitized debt	—		(55		)	—			(23		)	265		(1,522		)	—		—		(1,335		)
Total financial derivatives– liabilities and securitized debt, at fair value	$	—	$	(55	)	$	(79	)	$	(24	)	$	265	$	(1,443	)	$	—	$	—	$	(1,336	)

Level 3—Fair Value Measurement Using Significant Unobservable Inputs:

Year Ended December 31, 2013



(In thousands)	Ending 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 Into Level 3		Transfers Out of Level 3		Ending Balance as of December 31, 2013
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	6,644		$	(5,929	)	$	833		$	3,323		$	42,051	$	(6,418	)	$	—	$	—	$	40,504
Private label residential mortgage-backed securities	528,366			26,119			43,823			12,643			524,864		(456,043		)	—		—		580,772
Private label commercial mortgage-backed securities	19,327			402			1,030			3,069			92,929		(83,763		)	—		—		32,994
Commercial mortgage loans	9,546			171			844			652			19,587		(6,913		)	—		—		23,887
Residential mortgage loans	—			—			—			—			24,062		—			—		—		24,062
Other asset-backed securities	—			(641		)	647			(690		)	56,436		(17,683		)	—		—		38,069
Total investments, at fair value	563,883			20,122			47,177			18,997			660,929		(570,820		)	—		—		740,288
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	36,031			—			(2,826		)	1,070			204		(17,833		)	—		—		16,646
Total financial derivatives– assets, at fair value	36,031			—			(2,826		)	1,070			204		(17,833		)	—		—		16,646
Total investments and financial derivatives–assets, at fair value	$	599,914		$	20,122		$	44,351		$	20,067		$	661,133	$	(588,653	)	$	—	$	—	$	756,934
Liabilities:
Financial derivatives– liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(1	)	$	—		$	(78	)	$	(349	)	$	—	$	78		$	—	$	—	$	(350	)
Total financial derivatives– liabilities, at fair value	(1		)	—			(78		)	(349		)	—		78			—		—		(350		)
Securitized debt:
Securitized debt	(1,335		)	(38		)	—			20			370		—			—		—		(983		)
Total securitized debt	(1,335		)	(38		)	—			20			370		—			—		—		(983		)
Total financial derivatives– liabilities and securitized debt, at fair value	$	(1,336	)	$	(38	)	$	(78	)	$	(329	)	$	370	$	78		$	—	$	—	$	(1,333	)

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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- 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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