Valuation

The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at September 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	$	—	$	1,247,960		$	28,355	$	1,276,315
Private label residential mortgage-backed securities	—		153,526			150,457		303,983
Private label commercial mortgage-backed securities	—		—			42,515		42,515
Commercial mortgage loans	—		—			54,620		54,620
Residential mortgage loans	—		—			17,659		17,659
Collateralized loan obligations	—		—			56,803		56,803
Consumer loans and asset-backed securities backed by consumer loans	—		—			77,701		77,701
Corporate debt	—		—			28,247		28,247
Real estate owned	—		—			14,830		14,830
Private corporate equity investments	—		—			22,006		22,006
Total investments, at fair value	—		1,401,486			493,193		1,894,679
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	—		—			8,927		8,927
Credit default swaps on corporate bond indices	—		34,580			—		34,580
Credit default swaps on corporate bonds	—		1			—		1
Credit default swaps on asset-backed indices	—		2,971			—		2,971
Interest rate swaps	—		24,601			—		24,601
Total return swaps	—		5			176		181
Swaptions	—		362			—		362
Options	177		898			—		1,075
Futures	211		—			—		211
Forwards	—		974			—		974
Warrants	—		—			100		100
Mortgage loan purchase commitments	—		11			—		11
Total financial derivatives–assets, at fair value	388		64,403			9,203		73,994
Repurchase agreements	—		109,591			—		109,591
Total investments and financial derivatives–assets, at fair value and repurchase agreements	$	388	$	1,575,480		$	502,396	$	2,078,264
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—	$	(882,650	)	$	—	$	(882,650	)
Government debt	—		(105,105		)	—		(105,105		)
Total investments sold short, at fair value	—		(987,755		)	—		(987,755		)



Description	Level 1			Level 2			Level 3			Total
Liabilities (continued):	(In thousands)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	$	—		$	(32,108	)	$	—		$	(32,108	)
Credit default swaps on corporate bonds	—			(453		)	—			(453		)
Credit default swaps on asset-backed indices	—			(4,540		)	—			(4,540		)
Credit default swaps on asset-backed securities	—			—			(262		)	(262		)
Interest rate swaps	—			(27,638		)	—			(27,638		)
Total return swaps	—			(1		)	(3,055		)	(3,056		)
Options	(59		)	(1,200		)	—			(1,259		)
Swaptions	—			(265		)	—			(265		)
Futures	(1,203		)	—			—			(1,203		)
Forwards	—			(141		)	—			(141		)
Total financial derivatives–liabilities, at fair value	(1,262		)	(66,346		)	(3,317		)	(70,925		)
Securitized debt⁽¹⁾	—			—			(503		)	(503		)
Guarantees⁽²⁾	—			—			(1,229		)	(1,229		)
Total investments sold short, financial derivatives–liabilities, securitized debt, and guarantees, at fair value	$	(1,262	)	$	(1,054,101	)	$	(5,049	)	$	(1,060,412	)


(1)	The asset subject to the resecuritization had a fair value of $1.9 million as of September 30, 2015, which is included on the Consolidated Schedule of Investments under Principal and Interest – Private Label Securities Mortgage-related—Residential.


(2)	Included in Other liabilities on the Consolidated Statement of Assets, Liabilities, and Equity.

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

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, 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⁾	$	104,505	Market Quotes	Non Binding Third-Party Valuation	$	1.84		$	114.86		$	70.70
Collateralized loan obligations	51,520		Market Quotes	Non Binding Third-Party Valuation	$	14.00		$	127.50		$	89.83
Private label residential mortgage-backed securities	45,449		Discounted Cash Flows	Yield	4.0		%	56.2		%	13.4		%
				Projected Collateral Prepayments	5.3		%	78.0		%	37.1		%
				Projected Collateral Losses	1.1		%	31.2		%	13.5		%
				Projected Collateral Recoveries	1.4		%	19.0		%	8.1		%
				Projected Collateral Scheduled Amortization	0.0		%	70.7		%	41.3		%
											100.0		%
Private label commercial mortgage-backed securities	17,485		Discounted Cash Flows	Yield	12.1		%	38.0		%	23.6		%
				Projected Collateral Losses	0.2		%	100.0		%	16.5		%
				Projected Collateral Recoveries	0.0		%	13.2		%	4.8		%
				Projected Collateral Scheduled Amortization	0.0		%	98.4		%	78.7		%
											100.0		%
Corporate debt and non-exchange traded corporate equity	23,798		Market Quotes	Non Binding Third-Party Valuation	$	3.00		$	200.00		$	68.31



(continued)	Fair Value			Valuation Technique	Unobservable Input	Range						Weighted Average
Description	Fair Value			Valuation Technique	Unobservable Input	Min			Max			Weighted Average
	(In thousands)
Corporate debt and warrants	$	10,500		Discounted Cash Flows	Yield	15.0		%	15.0		%	15.0		%
Collateralized loan obligations	5,283			Discounted Cash Flows	Yield	12.0		%	33.6		%	17.6		%
					Projected Collateral Prepayments	50.9		%	70.1		%	58.5		%
					Projected Collateral Losses	2.4		%	8.1		%	4.3		%
					Projected Collateral Recoveries	1.4		%	4.8		%	2.9		%
					Projected Collateral Scheduled Amortization	25.0		%	45.1		%	34.3		%
												100.0		%
Consumer loans and asset-backed securities backed by consumer loans	77,701			Discounted Cash Flows	Yield	9.0		%	15.3		%	10.7		%
Private label commercial mortgage-backed securities	25,030			Market Quotes	Non Binding Third-Party Valuation	$	6.16		$	98.50		$	44.95
Performing commercial mortgage loans	48,342			Discounted Cash Flows	Yield	9.8		%	17.8		%	12.3		%
Non-performing commercial mortgage loans	6,278			Discounted Cash Flows	Yield	10.2		%	10.2		%	10.2		%
					Months to Resolution	11.2			11.2			11.2
Non-performing residential mortgage loan pools and real estate owned	32,489			Discounted Cash Flows	Yield	5.7		%	12.0		%	8.0		%
					Months to Resolution	4.0			116.7			32.5
Agency interest only residential mortgage-backed securities	22,943			Market Quotes	Non Binding Third-Party Valuation	$	3.16		$	23.81		$	10.70
Agency interest only residential mortgage-backed securities	5,412			Option Adjusted Spread ("OAS")	LIBOR OAS⁽²⁾	12			1,469			419
					Projected Collateral Prepayments	21.2		%	85.3		%	69.9		%
					Projected Collateral Scheduled Amortization	14.7		%	78.8		%	30.1		%
												100.0		%
Credit default swaps on asset-backed securities	8,665			Net Discounted Cash Flows	Projected Collateral Prepayments	26.5		%	43.7		%	31.7		%
					Projected Collateral Losses	17.2		%	35.0		%	27.0		%
					Projected Collateral Recoveries	7.0		%	17.8		%	12.8		%
					Projected Collateral Scheduled Amortization	24.8		%	32.6		%	28.5		%
												100.0		%
Total return swaps	(2,879		)	Market Quotes	Non Binding Third-Party Valuation ⁽³⁾	$	47.78		$	100.50		$	59.03
Non-exchange traded equity investments in commercial mortgage-related private partnerships	10,817			Discounted Cash Flows	Yield	16.5		%	12.3		%	13.4		%
					Expected Holding Period (Months)	8.7			17.1			10.9
Non-exchange traded preferred and common equity investment in mortgage-related entities	5,238			Recent Transactions	Enterprise Value	N/A			N/A			N/A
Guarantees	(1,229		)	Recent Transactions	Transaction Price	N/A			N/A			N/A


(1)	Includes securitized debt with a fair value of $0.5 million as of September 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



Description	Level 1			Level 2			Level 3			Total
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		)
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 Mortgage-related—Residential.


(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
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



	Fair Value		Valuation Technique	Unobservable Input	Range				Weighted Average
Description	Fair Value		Valuation Technique	Unobservable Input	Min		Max		Weighted Average
(continued)	(In thousands)
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 nine month periods ended September 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 September 30, 2015



(In thousands)	Ending Balance as of June 30, 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 September30, 2015
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	30,385		$	(2,249	)	$	—		$	(1,135	)	$	1,354		$	—		$	—	$	—		$	28,355
Private label residential mortgage-backed securities	160,046			2,682			4,139			(5,191		)	10,138			(27,217		)	20,154		(14,294		)	150,457
Private label commercial mortgage-backed securities	49,834			579			25			(151		)	1,250			(9,022		)	—		—			42,515
Commercial mortgage loans	55,310			(2		)	543			(192		)	4,305			(5,344		)	—		—			54,620
Residential mortgage loans	20,929			279			714			(9		)	3,902			(8,156		)	—		—			17,659
Collateralized loan obligations	98,388			(4,862		)	2,581			(2,678		)	5,946			(42,572		)	—		—			56,803
Consumer loans and asset-backed securities backed by consumer loans	52,457			(1,413		)	—			180			43,830			(17,353		)	—		—			77,701
Corporate debt	26,278			75			(28		)	(3,212		)	9,609			(4,475		)	—		—			28,247
Real estate owned	9,502			—			437			(299		)	8,007			(2,817		)	—		—			14,830
Private corporate equity investments	22,349			—			—			(285		)	—			(58		)	—		—			22,006
Total investments, at fair value	525,478			(4,911		)	8,411			(12,972		)	88,341			(117,014		)	20,154		(14,294		)	493,193
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	9,449			—			446			(310		)	10			(668		)	—		—			8,927
Total return swaps	247			—			51			(71		)	18			(69		)	—		—			176
Warrants	100			—			—			—			—			—			—		—			100
Total financial derivatives– assets, at fair value	9,796			—			497			(381		)	28			(737		)	—		—			9,203
Total investments and financial derivatives–assets, at fair value	$	535,274		$	(4,911	)	$	8,908		$	(13,353	)	$	88,369		$	(117,751	)	$	20,154	$	(14,294	)	$	502,396
Liabilities:
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(280	)	$	—		$	(18	)	$	18		$	—		$	18		$	—	$	—		$	(262	)
Total return swaps	(1,903		)	—			854			(1,152		)	(869		)	15			—		—			(3,055		)
Total financial derivatives– liabilities, at fair value	(2,183		)	—			836			(1,134		)	(869		)	33			—		—			(3,317		)
Securitized debt:
Securitized debt	(655		)	(3		)	—			1			154			—			—		—			(503		)
Total securitized debt	(655		)	(3		)	—			1			154			—			—		—			(503		)
Guarantees:
Guarantees⁽¹⁾	(13		)	—			—			(1,216		)	—			—			—		—			(1,229		)
Total guarantees	(13		)	—			—			(1,216		)	—			—			—		—			(1,229		)
Total financial derivatives– liabilities, securitized debt, and guarantees at fair value	$	(2,851	)	$	(3	)	$	836		$	(2,349	)	$	(715	)	$	33		$	—	$	—		$	(5,049	)

(1) Conformed to current period presentation.

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 September 30, 2015, as well as Level 3 financial instruments disposed of by the Company during the three month period ended September 30, 2015. For Level 3 financial instruments held by the Company at September 30, 2015, change in net unrealized gain (loss) of $(11.8) million, $(0.3) million, $(1.3) million, $1 thousand, and $(1.2) million for the three month period ended September 30, 2015 relate to investments, financial derivatives–assets, financial derivatives–liabilities, securitized debt, and guarantees, respectively.

For the three months ended September 30, 2015, the Company transferred $14.3 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, for the three months ended September 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 September 30, 2014



(In thousands)	Ending Balance as of June 30, 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 September 30, 2014
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	36,240	$	(2,188	)	$	286		$	492		$	4,695		$	(953	)	$	—	$	—	$	38,572
Private label residential mortgage-backed securities	485,902		4,770			3,684			(5,030		)	79,431			(66,687		)	—		—		502,070
Private label commercial mortgage-backed securities	28,047		145			1,089			(378		)	29,496			(12,082		)	—		—		46,317
Commercial mortgage loans	37,415		832			1,029			(382		)	8,113			(17,155		)	—		—		29,852
Residential mortgage loans	23,371		878			501			(131		)	(547		)	(6,925		)	—		—		17,147
Collateralized loan obligations	81,315		(2,791		)	(170		)	(637		)	43,353			(11,918		)	—		—		109,152
Real estate owned	1,641		—			18			229			6,033			(457		)	—		—		7,464
Private corporate equity investments	—		—			—			(239		)	7,925			—			—		—		7,686
Total investments, at fair value	693,931		1,646			6,437			(6,076		)	178,499			(116,177		)	—		—		758,260
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	14,162		—			(2,860		)	3,004			75			(1,593		)	—		—		12,788
Total financial derivatives– assets, at fair value	14,162		—			(2,860		)	3,004			75			(1,593		)	—		—		12,788
Total investments and financial derivatives–assets, at fair value	$	708,093	$	1,646		$	3,577		$	(3,072	)	$	178,574		$	(117,770	)	$	—	$	—	$	771,048



(In thousands)	Ending Balance as of June 30, 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 September 30, 2014
(continued)
Liabilities:
Financial derivatives– liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(350	)	$	—		$	(20	)	$	(28	)	$	—	$	20	$	—	$	—	$	(378	)
Total financial derivatives– liabilities, at fair value	(350		)	—			(20		)	(28		)	—		20		—		—		(378		)
Securitized debt:
Securitized debt	(925		)	(1		)	—			(2		)	58		—		—		—		(870		)
Total securitized debt	(925		)	(1		)	—			(2		)	58		—		—		—		(870		)
Total financial derivatives– liabilities and securitized debt, at fair value	$	(1,275	)	$	(1	)	$	(20	)	$	(30	)	$	58	$	20	$	—	$	—	$	(1,248	)

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 September 30, 2014, as well as Level 3 financial instruments disposed of by the Company during the three month period ended September 30, 2014. For Level 3 financial instruments held by the Company at September 30, 2014, change in net unrealized gain (loss) of $(2.9) million, $(0.7) million, $(29) thousand, and $(2) thousand for the three month period ended September 30, 2014 relate to investments, financial derivatives–assets, financial derivatives–liabilities, and securitized debt, respectively.

Nine Month Period Ended September 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 September 30, 2015
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	31,385		$	(6,196	)	$	472		$	373		$	8,860		$	(6,539	)	$	—	$	—		$	28,355
Private label residential mortgage-backed securities	274,369			7,524			16,855			(11,589		)	64,366			(163,848		)	9,667		(46,887		)	150,457
Private label commercial mortgage-backed securities	53,311			2,507			549			(2,844		)	21,382			(32,390		)	—		—			42,515
Commercial mortgage loans	28,309			1,273			542			(812		)	55,115			(29,807		)	—		—			54,620
Residential mortgage loans	27,482			1,127			2,378			(80		)	13,660			(26,908		)	—		—			17,659
Collateralized loan obligations	123,338			(9,335		)	2,533			(4,131		)	55,533			(111,135		)	—		—			56,803
Consumer loans and asset-backed securities backed by consumer loans	22,950			(4,832		)	—			956			84,969			(26,342		)	—		—			77,701
Corporate debt	42,708			121			80			(5,601		)	22,239			(31,300		)	—		—			28,247
Real estate owned	8,635			—			685			228			13,252			(7,970		)	—		—			14,830
Private corporate equity investments	14,512			—			116			213			7,689			(524		)	—		—			22,006
Total investments, at fair value	626,999			(7,811		)	24,210			(23,287		)	347,065			(436,763		)	9,667		(46,887		)	493,193
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	11,387			—			(717		)	392			35			(2,170		)	—		—			8,927
Total return swaps	—			—			336			176			39			(375		)	—		—			176
Warrants	100			—			—			—			—			—			—		—			100
Total financial derivatives– assets, at fair value	11,487			—			(381		)	568			74			(2,545		)	—		—			9,203
Total investments and financial derivatives–assets, at fair value	$	638,486		$	(7,811	)	$	23,829		$	(22,719	)	$	347,139		$	(439,308	)	$	9,667	$	(46,887	)	$	502,396
Liabilities:
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(239	)	$	—		$	(60	)	$	(23	)	$	—		$	60		$	—	$	—		$	(262	)
Total return swaps	—			—			1,207			(3,054		)	(1,223		)	15			—		—			(3,055		)
Total financial derivatives– liabilities, at fair value	(239		)	—			1,147			(3,077		)	(1,223		)	75			—		—			(3,317		)
Securitized debt:
Securitized debt	(774		)	(5		)	—			21			255			—			—		—			(503		)
Total securitized debt	(774		)	(5		)	—			21			255			—			—		—			(503		)
Guarantees:
Guarantees	—			—			—			(1,229		)	—			—			—		—			(1,229		)
Total guarantees	—			—			—			(1,229		)	—			—			—		—			(1,229		)
Total financial derivatives– liabilities, securitized debt, and guarantees at fair value	$	(1,013	)	$	(5	)	$	1,147		$	(4,285	)	$	(968	)	$	75		$	—	$	—		$	(5,049	)

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 September 30, 2015, as well as Level 3 financial instruments disposed of by the Company during the nine month period ended September 30, 2015. For Level 3 financial instruments held by the Company at September 30, 2015, change in net unrealized gain (loss) of $(21.8) million, $(71) thousand, $(3.0) million, $21 thousand, and $(1.2) million, for the nine month period ended September 30, 2015 relate to investments, financial derivatives–assets, financial derivatives–liabilities, securitized debt, and guarantees, respectively.

For the nine months ended September 30, 2015, the Company transferred $46.9 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, for the nine months ended September 30, 2015, the Company transferred $9.7 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.

Nine Month Period Ended September 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		$	(6,523	)	$	457		$	515		$	7,249	$	(3,630	)	$	—	$	—	$	38,572
Private label residential mortgage-backed securities	580,772			15,359			34,862			(14,366		)	233,654		(348,211		)	—		—		502,070
Private label commercial mortgage-backed securities	32,994			497			5,479			(842		)	95,665		(87,476		)	—		—		46,317
Commercial mortgage loans	23,887			1,916			1,901			(673		)	32,117		(29,296		)	—		—		29,852
Residential mortgage loans	24,062			878			878			823			1,148		(10,642		)	—		—		17,147
Collateralized loan obligations	38,069			(3,444		)	184			(581		)	97,539		(22,615		)	—		—		109,152
Real estate owned	—			—			7			212			7,792		(547		)	—		—		7,464
Private corporate equity investments	—			—			—			(239		)	7,925		—			—		—		7,686
Total investments, at fair value	740,288			8,683			43,768			(15,151		)	483,089		(502,417		)	—		—		758,260
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	16,646			—			(2,135		)	2,379			530		(4,632		)	—		—		12,788
Total financial derivatives– assets, at fair value	16,646			—			(2,135		)	2,379			530		(4,632		)	—		—		12,788
Total investments and financial derivatives–assets, at fair value	$	756,934		$	8,683		$	41,633		$	(12,772	)	$	483,619	$	(507,049	)	$	—	$	—	$	771,048
Liabilities:
Financial derivatives– liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(350	)	$	—		$	(59	)	$	(28	)	$	—	$	59		$	—	$	—	$	(378	)
Total financial derivatives– liabilities, at fair value	(350		)	—			(59		)	(28		)	—		59			—		—		(378		)



(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
(continued)
Securitized debt:
Securitized debt	$	(983	)	$	(14	)	$	—		$	(17	)	$	144	$	—	$	—	$	—	$	(870	)
Total securitized debt	(983		)	(14		)	—			(17		)	144		—		—		—		(870		)
Total financial derivatives– liabilities and securitized debt, at fair value	$	(1,333	)	$	(14	)	$	(59	)	$	(45	)	$	144	$	59	$	—	$	—	$	(1,248	)

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 September 30, 2014, as well as Level 3 financial instruments disposed of by the Company during the nine month period ended September 30, 2014. For Level 3 financial instruments held by the Company at September 30, 2014, change in net unrealized gain (loss) of $2.3 million, $(1.9) million, $(28) thousand, and $(17) thousand for the nine month period ended September 30, 2014 relate to investments, financial derivatives–assets, financial derivatives–liabilities, and securitized debt, respectively.