Valuation

The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at June 30, 2015:



Description	Level 1		Level 2		Level 3		Total
Assets:	(In thousands)
Cash equivalents	$	50,000	$	—	$	—	$	50,000
Investments, at fair value-
Agency residential mortgage-backed securities	$	—	$	1,119,020	$	30,385	$	1,149,405
Private label residential mortgage-backed securities	—		225,753		160,046		385,799
Private label commercial mortgage-backed securities	—		—		49,834		49,834
Commercial mortgage loans	—		—		55,310		55,310
Residential mortgage loans	—		—		20,929		20,929
Collateralized loan obligations	—		—		98,388		98,388
Consumer loans and asset-backed securities backed by consumer loans	—		—		52,457		52,457
Corporate debt	—		—		26,278		26,278
Real estate owned	—		—		9,502		9,502
Private corporate equity investments	—		—		22,349		22,349
Total investments, at fair value	—		1,344,773		525,478		1,870,251
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	—		—		9,449		9,449
Credit default swaps on corporate bond indices	—		61,542		—		61,542
Credit default swaps on asset-backed indices	—		2,594		—		2,594
Interest rate swaps	—		15,021		—		15,021
Total return swaps	—		1		247		248



Description	Level 1			Level 2			Level 3			Total
Assets (continued):	(In thousands)
Swaptions	$	—		$	719		$	—		$	719
Options	—			564			—			564
Futures	236			—			—			236
Forwards	—			1,192			—			1,192
Warrants	—			—			100			100
Total financial derivatives–assets, at fair value	236			81,633			9,796			91,665
Repurchase agreements	—			53,788			—			53,788
Total investments and financial derivatives–assets, at fair value and repurchase agreements	$	236		$	1,480,194		$	535,274		$	2,015,704
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—		$	(1,119,975	)	$	—		$	(1,119,975	)
Government debt	—			(63,409		)	—			(63,409		)
Total investments sold short, at fair value	—			(1,183,384		)	—			(1,183,384		)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	—			(24,400		)	—			(24,400		)
Credit default swaps on corporate bonds	—			(320		)	—			(320		)
Credit default swaps on asset-backed indices	—			(6,507		)	—			(6,507		)
Credit default swaps on asset-backed securities	—			—			(280		)	(280		)
Interest rate swaps	—			(9,303		)	—			(9,303		)
Total return swaps	—			(16		)	(1,903		)	(1,919		)
Options	—			(1,334		)	—			(1,334		)
Swaptions	—			(664		)	—			(664		)
Futures	(633		)	—			—			(633		)
Forwards	—			(205		)	—			(205		)
Loan purchase commitments	—			—			—			—
Total financial derivatives–liabilities, at fair value	(633		)	(42,749		)	(2,183		)	(45,565		)
Securitized debt⁽¹⁾	—			—			(655		)	(655		)
Total investments sold short, financial derivatives–liabilities, and securitized debt, at fair value	$	(633	)	$	(1,226,133	)	$	(2,838	)	$	(1,229,604	)


(1)	The asset subject to the resecuritization had a fair value of $2.1 million as of June 30, 2015, which is included on the Consolidated Schedule of Investments under Principal and Interest – Private Label Securities.

There were no transfers of financial instruments between Level 1 and Level 2 during the six month period ended June 30, 2015.

As of June 30, 2015, the Company had residential mortgage loans that were in the process of foreclosure with a fair value of $12.0 million.

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, 2015:



	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⁾	$	107,222	Market Quotes	Non Binding Third-Party Valuation	$	1.79		$	117.41		$	68.87
Collateralized loan obligations	87,996		Market Quotes	Non Binding Third-Party Valuation	$	22.15		$	134.50		$	95.92
Private label residential mortgage-backed securities	52,169		Discounted Cash Flows	Yield	6.2		%	45.8		%	11.3		%
				Projected Collateral Prepayments	7.2		%	75.4		%	36.8		%
				Projected Collateral Losses	2.8		%	31.6		%	15.7		%
				Projected Collateral Recoveries	3.2		%	18.4		%	10.8		%
				Projected Collateral Scheduled Amortization	7.5		%	70.8		%	36.7		%
											100.0		%
Private label commercial mortgage-backed securities	17,456		Discounted Cash Flows	Yield	11.7		%	36.9		%	20.2		%
				Projected Collateral Losses	0.0		%	4.3		%	1.1		%
				Projected Collateral Recoveries	0.0		%	18.2		%	4.5		%
				Projected Collateral Scheduled Amortization	77.5		%	100.0		%	94.4		%
											100.0		%
Corporate debt and non-exchange traded corporate equity	24,023		Market Quotes	Non Binding Third-Party Valuation	$	4.33		$	150.00		$	74.47
Corporate debt and warrants	8,500		Discounted Cash Flows	Yield	15.0		%	15.0		%	15.0		%
Collateralized loan obligations	10,392		Discounted Cash Flows	Yield	6.7		%	60.4		%	28.6		%
				Projected Collateral Prepayments	40.7		%	70.4		%	54.3		%
				Projected Collateral Losses	1.9		%	26.6		%	13.3		%
				Projected Collateral Recoveries	0.9		%	10.9		%	5.7		%
				Projected Collateral Scheduled Amortization	20.4		%	34.1		%	26.7		%
											100.0		%
Consumer loans and asset-backed securities backed by consumer loans	52,457		Discounted Cash Flows	Yield	6.8		%	17.0		%	11.6		%
Private label commercial mortgage-backed securities	32,378		Market Quotes	Non Binding Third-Party Valuation	$	5.60		$	98.06		$	51.82
Performing commercial mortgage loans	43,900		Discounted Cash Flows	Yield	9.8		%	17.8		%	11.9		%
Non-performing commercial mortgage loans	11,410		Discounted Cash Flows	Yield	12.4		%	16.1		%	14.0		%
				Months to Resolution	3.0			10.5			7.3
Non-performing residential mortgage loan pools and real estate owned	30,431		Discounted Cash Flows	Yield	6.1		%	12.0		%	7.3		%
				Months to Resolution	4.1			109.7			27.4



(continued)	Fair Value			Valuation Technique	Unobservable Input	Range						Weighted Average
Description	Fair Value			Valuation Technique	Unobservable Input	Min			Max			Weighted Average
	(In thousands)
Agency interest only residential mortgage-backed securities	$	26,390		Market Quotes	Non Binding Third-Party Valuation	$	3.33		$	23.21		$	12.05
Agency interest only residential mortgage-backed securities	3,995			Option Adjusted Spread ("OAS")	LIBOR OAS⁽²⁾	(186		)	780			596
					Projected Collateral Prepayments	21.4		%	100.0		%	68.0		%
					Projected Collateral Scheduled Amortization	0.0		%	78.6		%	32.0		%
												100.0		%
Credit default swaps on asset-backed securities	9,169			Net Discounted Cash Flows	Projected Collateral Prepayments	26.1		%	57.1		%	31.4		%
					Projected Collateral Losses	15.4		%	36.4		%	28.1		%
					Projected Collateral Recoveries	7.0		%	17.4		%	12.9		%
					Projected Collateral Scheduled Amortization	16.5		%	31.9		%	27.6		%
												100.0		%
Total return swaps	(1,656		)	Market Quotes	Non Binding Third-Party Valuation ⁽³⁾	$	50.33		$	100.75		$	60.90
Non-exchange traded equity investments in commercial mortgage-related private partnerships	10,966			Discounted Cash Flows	Yield	10.0		%	16.0		%	12.0		%
					Expected Holding Period (Months)	12.0			20.9			14.3
Non-exchange traded preferred and common equity investment in mortgage-related entities	5,238			Recent Transactions	Transaction Price/Enterprise Value	N/A			N/A			N/A


(1)	Includes securitized debt with a fair value of $0.7 million as of June 30, 2015.


(2)	Shown in basis points.


(3)	Represents valuations on underlying assets.

Third-party non-binding valuations are validated by comparing such valuations to internally generated prices based on the Company's models and to recent trading activity in the same or similar instruments.

For those instruments valued using discounted and net discounted cash flows, collateral prepayments, losses, recoveries, and scheduled amortization are projected over the remaining life of the collateral and expressed as a percentage of the collateral's current principal balance. Averages are weighted based on the fair value of the related instrument. In the case of credit default swaps on asset-backed securities, averages are weighted based on each instrument's bond equivalent value. Bond equivalent value represents the investment amount of a corresponding position in the reference obligation, calculated as the difference between the outstanding principal balance of the underlying reference obligation and the fair value, inclusive of accrued interest, of the derivative contract. For those assets valued using the LIBOR Option Adjusted Spread ("OAS") valuation methodology, cash flows are projected using the Company's models over multiple interest rate scenarios, and these projected cash flows are then discounted using the LIBOR rates implied by each interest rate scenario. The LIBOR OAS of an asset is then computed as the unique constant yield spread that, when added to all LIBOR rates in each interest rate scenario generated by the model, will equate (a) the expected present value of the projected asset cash flows over all model scenarios to (b) the actual current market price of the asset. LIBOR OAS is therefore model-dependent. Generally speaking, LIBOR OAS measures the additional yield spread over LIBOR that an asset provides at its current market price after taking into account any interest rate options embedded in the asset. The Company considers the expected timeline to resolution in the determination of fair value for its non-performing commercial and residential loans.

Material changes in any of the inputs above in isolation could result in a significant change to reported fair value measurements. Additionally, fair value measurements are impacted by the interrelationships of these inputs. For example, for instruments subject to prepayments and credit losses, such as non-Agency RMBS and consumer loans and ABS backed by consumer loans, a higher expectation of collateral prepayments will generally be accompanied by a lower expectation of collateral losses. Conversely, higher losses will generally be accompanied by lower prepayments. Because the Company's credit default swaps on asset-backed security holdings represent credit default swap contracts whereby the Company has purchased credit protection, such credit default swaps on asset-backed securities generally have the directionally opposite sensitivity to prepayments, losses, and recoveries as compared to the Company's long securities holdings. Prepayments do not represent a significant input for the Company's commercial mortgage-backed securities and commercial mortgage loans. Losses and recoveries do not represent a significant input for the Company's Agency RMBS interest only securities, given the guarantee of the issuing government agency or government-sponsored enterprise.

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



(In thousands)
Description	Level 1			Level 2			Level 3			Total
Assets:
Cash equivalents⁽²⁾	$	100,000		$	—		$	—		$	100,000
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
Collateralized loan obligations⁽²⁾	—			—			121,994			121,994
Consumer loans and asset-backed securities backed by consumer loans⁽²⁾	—			—			24,294			24,294
Corporate debt	—			—			42,708			42,708
Real estate owned	—			—			8,635			8,635
Private corporate equity 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
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		)



Description	Level 1			Level 2			Level 3			Total
Financial derivatives–liabilities, at fair value (continued)-
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.


(2)	Conformed to current period presentation.

There were no transfers of financial instruments between Level 1 and Level 2 during the year ended December 31, 2014.

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
Collateralized loan obligations⁽³⁾	121,674		Market Quotes	Non Binding Third-Party Valuation	21.50			137.00			94.85
Asset-backed securities backed by consumer loans⁽³⁾	1,344		Market Quotes	Non Binding Third-Party Valuation	100.00			100.00			100.00
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



	Fair Value		Valuation Technique	Unobservable Input	Range						Weighted Average
Description	Fair Value		Valuation Technique	Unobservable Input	Min			Max			Weighted Average
(continued)	(In thousands)
Collateralized loan obligations⁽³⁾	$	320	Discounted Cash Flows	Yield	14.4		%	14.4		%	14.4		%
				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		%
Consumer loans and asset-backed securities backed by consumer loans⁽³⁾	22,950		Discounted Cash Flows	Yield	0.0		%	12.0		%	9.1		%
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		%
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.


(3)	Conformed to current period presentation.

For those instruments valued using discounted and net discounted cash flows, collateral prepayments, losses, recoveries, and scheduled amortization are projected over the remaining life of the collateral and expressed as a percentage of the collateral's current principal balance. Averages are weighted based on the fair value of the related instrument. In the case of credit default swaps on asset-backed securities, averages are weighted based on each instrument's bond equivalent value. Bond equivalent value represents the investment amount of a corresponding position in the reference obligation, calculated as the difference between the outstanding principal balance of the underlying reference obligation and the fair value, inclusive of accrued interest, of the derivative contract. For those assets valued using the LIBOR Option Adjusted Spread valuation methodology, cash flows are projected using the Company's models over multiple interest rate scenarios, and these projected cash flows are then discounted using the LIBOR rates implied by each interest rate scenario. The LIBOR OAS of an asset is then computed as the unique constant yield spread that, when added to all LIBOR rates in each interest rate scenario generated by the model, will equate (a) the expected present value of the projected asset cash flows over all model scenarios to (b) the actual current market price of the asset. LIBOR OAS is therefore model-dependent. Generally speaking, LIBOR OAS measures the additional yield spread over LIBOR that an asset provides at its current market price after taking into account any interest rate options embedded in the asset.

Material changes in any of the inputs above in isolation could result in a significant change to reported fair value measurements. Additionally, fair value measurements are impacted by the interrelationships of these inputs. For example, a higher expectation of collateral prepayments will generally be accompanied by a lower expectation of collateral losses. Conversely, higher losses will generally be accompanied by lower prepayments. Because the Company's credit default swaps on asset-backed security holdings represent credit default swap contracts whereby the Company has purchased credit protection, such default swaps on asset-backed securities generally have the directionally opposite sensitivity to prepayments, losses, and recoveries as compared to the Company's long securities holdings. Prepayments do not represent a significant input for the Company's commercial mortgage-backed securities and commercial mortgage loans. Losses and recoveries do not represent a significant input for the Company's Agency RMBS interest only securities, given the guarantee of the issuing government agency or government-sponsored enterprise.

The tables below include a roll-forward of the Company's financial instruments for the three and six month periods ended June 30, 2015 and 2014 (including the change in fair value), for financial instruments classified by the Company within Level 3 of the valuation hierarchy.

Level 3—Fair Value Measurement Using Significant Unobservable Inputs:

Three Month Period Ended June 30, 2015



(In thousands)	Ending Balance as of March 31, 2015		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 June 30, 2015
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	26,335	$	(1,941	)	$	—		$	1,604		$	6,317	$	(1,930	)	$	—	$	—		$	30,385
Private label residential mortgage-backed securities	169,371		1,824			4,423			(40		)	40,761		(55,420		)	20,165		(21,038		)	160,046
Private label commercial mortgage-backed securities	52,214		556			(91		)	(792		)	4,538		(6,591		)	—		—			49,834
Commercial mortgage loans	38,918		736			—			(637		)	26,519		(10,226		)	—		—			55,310
Residential mortgage loans	30,845		405			1,422			(215		)	3,782		(15,310		)	—		—			20,929
Collateralized loan obligations	88,847		149			(819		)	252			39,110		(29,151		)	—		—			98,388
Consumer loans and asset-backed securities backed by consumer loans	34,773		(1,701		)	—			225			25,082		(5,922		)	—		—			52,457
Corporate debt	31,836		16			(78		)	(1,809		)	1,025		(4,712		)	—		—			26,278
Real estate owned	9,070		—			164			(10		)	2,774		(2,496		)	—		—			9,502
Private corporate equity investments	21,300		—			115			268			1,116		(450		)	—		—			22,349
Total investments, at fair value	503,509		44			5,136			(1,154		)	151,024		(132,208		)	20,165		(21,038		)	525,478
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	10,809		—			(1,563		)	1,056			3		(856		)	—		—			9,449
Total return swaps	118		—			285			130			21		(307		)	—		—			247
Warrants	100		—			—			—			—		—			—		—			100
Total financial derivatives– assets, at fair value	11,027		—			(1,278		)	1,186			24		(1,163		)	—		—			9,796
Total investments and financial derivatives–assets, at fair value	$	514,536	$	44		$	3,858		$	32		$	151,048	$	(133,371	)	$	20,165	$	(21,038	)	$	535,274



(In thousands)	Ending Balance as of March 31, 2015			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 June 30, 2015
(continued)
Liabilities:
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(239	)	$	—	$	(23	)	$	(41	)	$	—		$	23	$	—	$	—	$	(280	)
Total return swaps	(307		)	—		353			(1,596		)	(353		)	—		—		—		(1,903		)
Total financial derivatives– liabilities, at fair value	(546		)	—		330			(1,637		)	(353		)	23		—		—		(2,183		)
Securitized debt:
Securitized debt	(669		)	—		—			1			13			—		—		—		(655		)
Total securitized debt	(669		)	—		—			1			13			—		—		—		(655		)
Total financial derivatives– liabilities and securitized debt, at fair value	$	(1,215	)	$	—	$	330		$	(1,636	)	$	(340	)	$	23	$	—	$	—	$	(2,838	)

All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at June 30, 2015, as well as Level 3 financial instruments disposed of by the Company during the three month period ended June 30, 2015. For Level 3 financial instruments held by the Company at June 30, 2015, change in net unrealized gain (loss) of $(0.6) million, $1.2 million, $(1.7) million, and $1 thousand, for the three month period ended June 30, 2015 relate to investments, financial derivatives–assets, financial derivatives–liabilities, and securitized debt, respectively.

As of June 30, 2015, the Company transferred $21.0 million of non-Agency RMBS from Level 3 to Level 2. These assets were transferred from Level 3 to Level 2 based on an increased volume of observed trading of these and similar assets. This increase in observed trading activity has led to greater price transparency for these assets, thereby making a Level 2 designation appropriate in the Company's view. However, changes in the volume of observable inputs for these assets, such as a decrease in the volume of observed trading, could impact price transparency, and thereby cause a change in the level designation for these assets in future periods.

In addition, as of June 30, 2015, the Company transferred $20.2 million of non-Agency RMBS from Level 2 to Level 3. These securities have exhibited indications of a reduced level of price transparency. Examples of such indications include wider spreads relative to similar securities and a reduction in observable transactions involving these and similar securities. Changes in these indications could impact price transparency, and thereby cause a change in the level designation in future periods.

Three Month Period Ended June 30, 2014



(In thousands)	Ending Balance as of March 31, 2014		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 June 30, 2014
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	41,375	$	(2,045	)	$	135		$	(728	)	$	—	$	(2,497	)	$	—	$	—	$	36,240
Private label residential mortgage-backed securities	490,083		5,203			7,718			3,516			64,639		(85,257		)	—		—		485,902
Private label commercial mortgage-backed securities	32,645		147			3,518			(1,979		)	28,400		(34,684		)	—		—		28,047
Commercial mortgage loans	44,005		521			871			169			3,980		(12,131		)	—		—		37,415
Residential mortgage loans	23,566		—			359			1,214			1,695		(3,463		)	—		—		23,371
Collateralized loan obligations	47,458		(812		)	450			(492		)	40,300		(5,589		)	—		—		81,315
Real estate owned	97		—			(10		)	(13		)	1,658		(91		)	—		—		1,641
Total investments, at fair value	679,229		3,014			13,041			1,687			140,672		(143,712		)	—		—		693,931



(In thousands)	Ending Balance as of March 31, 2014			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 June 30, 2014
(continued)
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	15,174			—			(467		)	586		417		(1,548		)	—		—		14,162
Total financial derivatives– assets, at fair value	15,174			—			(467		)	586		417		(1,548		)	—		—		14,162
Total investments and financial derivatives–assets, at fair value	$	694,403		$	3,014		$	12,574		$	2,273	$	141,089	$	(145,260	)	$	—	$	—	$	708,093
Liabilities:
Financial derivatives– liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(350	)	$	—		$	(20	)	$	—	$	—	$	20		$	—	$	—	$	(350	)
Total financial derivatives– liabilities, at fair value	(350		)	—			(20		)	—		—		20			—		—		(350		)
Securitized debt:
Securitized debt	(983		)	(5		)	—			1		62		—			—		—		(925		)
Total securitized debt	(983		)	(5		)	—			1		62		—			—		—		(925		)
Total financial derivatives– liabilities and securitized debt, at fair value	$	(1,333	)	$	(5	)	$	(20	)	$	1	$	62	$	20		$	—	$	—	$	(1,275	)

All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at June 30, 2014, as well as Level 3 financial instruments disposed of by the Company during the three month period ended June 30, 2014. For Level 3 financial instruments held by the Company at June 30, 2014, change in net unrealized gain (loss) of $6.0 million, $0.6 million, and $1 thousand for the three month period ended June 30, 2014 relate to investments, financial derivatives–assets, and securitized debt, respectively.

Six Month Period Ended June 30, 2015



(In thousands)	Ending Balance as of December 31, 2014			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 June 30, 2015
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	31,385		$	(3,947	)	$	472		$	1,508		$	7,506		$	(6,539	)	$	—	$	—		$	30,385
Private label residential mortgage-backed securities	274,369			4,692			11,397			(3,889		)	58,464			(113,848		)	6,490		(77,629		)	160,046
Private label commercial mortgage-backed securities	53,311			1,928			523			(2,692		)	20,132			(23,368		)	—		—			49,834
Commercial mortgage loans	28,309			1,275			—			(620		)	50,810			(24,464		)	—		—			55,310
Residential mortgage loans	27,482			848			1,664			(70		)	9,758			(18,753		)	—		—			20,929
Collateralized loan obligations	123,338			(4,473		)	(48		)	(1,453		)	49,587			(68,563		)	—		—			98,388
Consumer loans and asset-backed securities backed by consumer loans	22,950			(3,419		)	—			776			41,139			(8,989		)	—		—			52,457
Corporate debt	42,708			47			108			(2,390		)	12,630			(26,825		)	—		—			26,278
Real estate owned	8,635			—			248			527			5,245			(5,153		)	—		—			9,502
Private corporate equity investments	14,512			—			116			498			7,688			(465		)	—		—			22,349
Total investments, at fair value	626,999			(3,049		)	14,480			(7,805		)	262,959			(296,967		)	6,490		(77,629		)	525,478
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	11,387			—			(1,162		)	701			25			(1,502		)	—		—			9,449
Total return swaps	—			—			285			248			21			(307		)	—		—			247
Warrants	100			—			—			—			—			—			—		—			100
Total financial derivatives– assets, at fair value	11,487			—			(877		)	949			46			(1,809		)	—		—			9,796
Total investments and financial derivatives–assets, at fair value	$	638,486		$	(3,049	)	$	13,603		$	(6,856	)	$	263,005		$	(298,776	)	$	6,490	$	(77,629	)	$	535,274
Liabilities:
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(239	)	$	—		$	(42	)	$	(41	)	$	—		$	42		$	—	$	—		$	(280	)
Total return swaps	—			—			353			(1,903		)	(353		)	—			—		—			(1,903		)
Total financial derivatives– liabilities, at fair value	(239		)	—			311			(1,944		)	(353		)	42			—		—			(2,183		)
Securitized debt:
Securitized debt	(774		)	(2		)	—			20			101			—			—		—			(655		)
Total securitized debt	(774		)	(2		)	—			20			101			—			—		—			(655		)
Total financial derivatives– liabilities and securitized debt, at fair value	$	(1,013	)	$	(2	)	$	311		$	(1,924	)	$	(252	)	$	42		$	—	$	—		$	(2,838	)

All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at June 30, 2015, as well as Level 3 financial instruments disposed of by the Company during the six month period ended June 30, 2015. For Level 3 financial instruments held by the Company at June 30, 2015, change in net unrealized gain (loss) of $(1.0) million, $1.0 million, $(1.9) million, and $20 thousand, for the six month period ended June 30, 2015 relate to investments, financial derivatives–assets, financial derivatives–liabilities, and securitized debt, respectively.

As of June 30, 2015, the Company transferred $77.6 million of non-Agency RMBS from Level 3 to Level 2. These assets were transferred from Level 3 to Level 2 based on an increased volume of observed trading of these and similar assets. This increase in observed trading activity has led to greater price transparency for these assets, thereby making a Level 2 designation appropriate in the Company's view. However, changes in the volume of observable inputs for these assets, such as a decrease in the volume of observed trading, could impact price transparency, and thereby cause a change in the level designation for these assets in future periods.

In addition, as of June 30, 2015, the Company transferred $6.5 million of non-Agency RMBS from Level 2 to Level 3. Since year end, these securities have exhibited indications of a reduced level of price transparency. Examples of such indications include wider spreads relative to similar securities and a reduction in observable transactions involving these and similar securities. Changes in these indications could impact price transparency, and thereby cause a change in the level designation in future periods.

Six Month Period Ended June 30, 2014



(In thousands)	Ending 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 June 30, 2014
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	40,504		$	(4,334	)	$	170		$	23		$	2,554	$	(2,677	)	$	—	$	—	$	36,240
Private label residential mortgage-backed securities	580,772			10,589			31,178			(9,336		)	154,223		(281,524		)	—		—		485,902
Private label commercial mortgage-backed securities	32,994			352			4,391			(464		)	66,169		(75,395		)	—		—		28,047
Commercial mortgage loans	23,887			1,084			872			(291		)	24,004		(12,141		)	—		—		37,415
Residential mortgage loans	24,062			—			377			954			1,695		(3,717		)	—		—		23,371
Collateralized loan obligations	38,069			(654		)	354			56			54,187		(10,697		)	—		—		81,315
Real estate owned	—			—			(10		)	(17		)	1,759		(91		)	—		—		1,641
Total investments, at fair value	740,288			7,037			37,332			(9,075		)	304,591		(386,242		)	—		—		693,931
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	16,646			—			724			(625		)	456		(3,039		)	—		—		14,162
Total financial derivatives– assets, at fair value	16,646			—			724			(625		)	456		(3,039		)	—		—		14,162
Total investments and financial derivatives–assets, at fair value	$	756,934		$	7,037		$	38,056		$	(9,700	)	$	305,047	$	(389,281	)	$	—	$	—	$	708,093
Liabilities:
Financial derivatives– liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(350	)	$	—		$	(39	)	$	—		$	—	$	39		$	—	$	—	$	(350	)
Total financial derivatives– liabilities, at fair value	(350		)	—			(39		)	—			—		39			—		—		(350		)
Securitized debt:
Securitized debt	(983		)	(12		)	—			(16		)	86		—			—		—		(925		)
Total securitized debt	(983		)	(12		)	—			(16		)	86		—			—		—		(925		)
Total financial derivatives– liabilities and securitized debt, at fair value	$	(1,333	)	$	(12	)	$	(39	)	$	(16	)	$	86	$	39		$	—	$	—	$	(1,275	)

All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at June 30, 2014, as well as Level 3 financial instruments disposed of by the Company during the six month period ended June 30, 2014. For Level 3 financial instruments held by the Company at June 30, 2014, change in net unrealized gain (loss) of $6.2 million, $(1.5) million, and $(16) thousand for the six month period ended June 30, 2014 relate to investments, financial derivatives–assets, and securitized debt, respectively.