Valuation

The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at September 30, 2016:



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	$	—		$	958,193		$	19,824		$	978,017
U.S. Treasury securities	—			5,373			—			5,373
Private label residential mortgage-backed securities	—			73,470			81,945			155,415
Private label commercial mortgage-backed securities	—			—			36,945			36,945
Commercial mortgage loans	—			—			56,969			56,969
Residential mortgage loans	—			—			44,075			44,075
Collateralized loan obligations	—			—			28,403			28,403
Consumer loans and asset-backed securities backed by consumer loans	—			—			119,099			119,099
Corporate debt	—			—			56,317			56,317
Real estate owned	—			—			3,584			3,584
Private corporate equity investments	—			—			15,518			15,518
Total investments, at fair value	—			1,037,036			462,679			1,499,715
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	—			—			5,857			5,857
Credit default swaps on corporate bond indices	—			15,849			—			15,849
Credit default swaps on corporate bonds	—			2,759			—			2,759
Credit default swaps on asset-backed indices	—			20,972			—			20,972
Interest rate swaps	—			11,581			—			11,581
Total return swaps	—			1			196			197
Options	—			2			—			2
Futures	14			—			—			14
Warrants	—			—			7,586			7,586
Total financial derivatives–assets, at fair value	14			51,164			13,639			64,817
Repurchase agreements	—			165,048			—			165,048
Total investments and financial derivatives–assets, at fair value and repurchase agreements	$	14		$	1,253,248		$	476,318		$	1,729,580
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—		$	(511,754	)	$	—		$	(511,754	)
Government debt	—			(98,604		)	—			(98,604		)
Corporate debt	—			—			(39,187		)	(39,187		)
Common stock	(29,476		)	—			—			(29,476		)
Total investments sold short, at fair value	(29,476		)	(610,358		)	(39,187		)	(679,021		)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	—			(9,594		)	—			(9,594		)
Credit default swaps on corporate bonds	—			(6,896		)	—			(6,896		)
Credit default swaps on asset-backed indices	—			(3,085		)	—			(3,085		)
Credit default swaps on asset-backed securities	—			—			(262		)	(262		)



Description	Level 1			Level 2			Level 3			Total
(continued)	(In thousands)
Interest rate swaps	$	—		$	(18,299	)	$	—		$	(18,299	)
Total return swaps	—			(84		)	(1,223		)	(1,307		)
Options	—			(3		)	—			(3		)
Futures	(93		)	—			—			(93		)
Forwards	—			(277		)	—			(277		)
Total financial derivatives–liabilities, at fair value	(93		)	(38,238		)	(1,485		)	(39,816		)
Guarantees⁽¹⁾	—			—			(150		)	(150		)
Total investments sold short, financial derivatives–liabilities, and guarantees, at fair value	$	(29,569	)	$	(648,596	)	$	(40,822	)	$	(718,987	)


(1)	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, 2016.

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, 2016:



	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	$	51,029		Market Quotes	Non Binding Third-Party Valuation	$	2.17		$	116.28		$	69.15
Collateralized loan obligations	24,292			Market Quotes	Non Binding Third-Party Valuation	12.25			434.04			85.10
Corporate debt and non-exchange traded corporate equity	11,928			Market Quotes	Non Binding Third-Party Valuation	0.40			115.25			94.79
Private label commercial mortgage-backed securities	18,636			Market Quotes	Non Binding Third-Party Valuation	4.84			70.52			34.36
Agency interest only residential mortgage-backed securities	18,131			Market Quotes	Non Binding Third-Party Valuation	2.58			22.52			10.67
Total return swaps	(1,027		)	Market Quotes	Non Binding Third-Party Valuation ⁽¹⁾	50.70			100.25			87.07
Private label residential mortgage-backed securities	30,916			Discounted Cash Flows	Yield	2.0		%	21.5		%	10.6		%
					Projected Collateral Prepayments	0.0		%	75.4		%	10.6		%
					Projected Collateral Losses	2.7		%	50.8		%	40.7		%
					Projected Collateral Recoveries	0.0		%	52.6		%	41.8		%
					Projected Collateral Scheduled Amortization	0.0		%	62.5		%	6.9		%
												100.0		%
Private label commercial mortgage-backed securities	18,309			Discounted Cash Flows	Yield	8.3		%	36.4		%	21.9		%
					Projected Collateral Losses	0.9		%	4.6		%	2.8		%
					Projected Collateral Recoveries	4.6		%	30.9		%	13.6		%
					Projected Collateral Scheduled Amortization	65.0		%	94.4		%	83.6		%
												100.0		%
Corporate debt and warrants	10,276			Discounted Cash Flows	Yield	16.9		%	16.9		%	16.9		%



(continued)	Fair Value			Valuation Technique	Unobservable Input	Range				Weighted Average
Description	Fair Value			Valuation Technique	Unobservable Input	Min		Max		Weighted Average
	(In thousands)
Collateralized loan obligations	$	4,111		Discounted Cash Flows	Yield	14.6	%	35.1	%	21.0	%
					Projected Collateral Prepayments	27.9	%	60.0	%	50.3	%
					Projected Collateral Losses	5.8	%	22.6	%	9.8	%
					Projected Collateral Recoveries	1.5	%	11.3	%	4.7	%
					Projected Collateral Scheduled Amortization	28.5	%	50.1	%	35.2	%
										100.0	%
Consumer loans and asset-backed securities backed by consumer loans	119,099			Discounted Cash Flows	Yield	7.9	%	24.9	%	10.6	%
					Projected Collateral Prepayments	0.0	%	42.7	%	34.6	%
					Projected Collateral Losses	0.9	%	97.1	%	8.5	%
					Projected Collateral Scheduled Amortization	0.0	%	85.4	%	56.9	%
										100.0	%
Performing commercial mortgage loans	33,383			Discounted Cash Flows	Yield	8.0	%	17.2	%	11.2	%
Non-performing commercial mortgage loans and commercial real estate owned	25,311			Discounted Cash Flows	Yield	10.2	%	19.8	%	14.7	%
					Months to Resolution	6.0		38.1		20.2
Performing residential mortgage loans	40,576			Discounted Cash Flows	Yield	4.8	%	14.9	%	6.7	%
Non-performing residential mortgage loans and residential real estate owned	5,358			Discounted Cash Flows	Yield	7.0	%	9.0	%	8.3	%
					Months to Resolution	5.9		125.6		27.1
Credit default swaps on asset-backed securities	5,595			Net Discounted Cash Flows	Projected Collateral Prepayments	20.3	%	29.7	%	24.5	%
					Projected Collateral Losses	14.9	%	29.2	%	22.9	%
					Projected Collateral Recoveries	5.1	%	12.8	%	7.9	%
					Projected Collateral Scheduled Amortization	39.3	%	50.0	%	44.7	%
										100.0	%
Non-exchange traded equity investments in commercial mortgage-related private partnerships	3,030			Discounted Cash Flows	Yield	16.5	%	16.5	%	16.5	%
					Expected Holding Period (Months)	5.9		5.9		5.9
Agency interest only residential mortgage-backed securities	1,693			Option Adjusted Spread ("OAS")	LIBOR OAS⁽²⁾	441		1,220		692
					Projected Collateral Prepayments	17.8	%	100.0	%	74.5	%
					Projected Collateral Scheduled Amortization	0.0	%	82.2	%	25.5	%
										100.0	%
Non-exchange traded preferred and common equity investment in mortgage-related entities and warrants	15,000			Recent Transactions	Transaction Price	N/A		N/A		N/A
Guarantees	(150		)	Cash Flows	Expected Cash Flows⁽³⁾	N/A		N/A		N/A


(1)	Represents valuations on underlying assets.


(2)	Shown in basis points.


(3)	Represents transactions with a remaining term of less than one year.

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, 2015:



Description	Level 1		Level 2		Level 3		Total
Assets:	(In thousands)
Cash equivalents	$	160,000	$	—	$	—	$	160,000
Investments, at fair value-
Agency residential mortgage-backed securities	$	—	$	1,035,662	$	24,918	$	1,060,580
Private label residential mortgage-backed securities	—		138,482		116,435		254,917
Private label commercial mortgage-backed securities	—		—		34,145		34,145
Commercial mortgage loans	—		—		66,399		66,399
Residential mortgage loans	—		—		22,089		22,089
Collateralized loan obligations	—		—		45,974		45,974
Consumer loans and asset-backed securities backed by consumer loans	—		—		115,376		115,376
Corporate debt	—		—		27,028		27,028
Real estate owned	—		—		12,522		12,522
Private corporate equity investments	—		—		22,088		22,088
Total investments, at fair value	—		1,174,144		486,974		1,661,118



Description	Level 1			Level 2			Level 3			Total
(continued)	(In thousands)
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	$	—		$	—		$	6,332		$	6,332
Credit default swaps on corporate bond indices	—			137,643			—			137,643
Credit default swaps on corporate bonds	—			10			—			10
Credit default swaps on asset-backed indices	—			5,410			—			5,410
Interest rate swaps	—			9,943			—			9,943
Total return swaps	—			—			85			85
Options	112			2,050			—			2,162
Futures	32			—			—			32
Forwards	—			1,138			—			1,138
Warrants	—			—			150			150
Total financial derivatives–assets, at fair value	144			156,194			6,567			162,905
Repurchase agreements	—			105,700			—			105,700
Total investments and financial derivatives–assets, at fair value and repurchase agreements	$	144		$	1,436,038		$	493,541		$	1,929,723
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—		$	(612,777	)	$	—		$	(612,777	)
Government debt	—			(114,051		)	—			(114,051		)
Corporate debt	—			—			(448		)	(448		)
Common stock	(1,471		)	—			—			(1,471		)
Total investments sold short, at fair value	(1,471		)	(726,828		)	(448		)	(728,747		)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	—			(47,298		)	—			(47,298		)
Credit default swaps on corporate bonds	—			(683		)	—			(683		)
Credit default swaps on asset-backed indices	—			(365		)	—			(365		)
Credit default swaps on asset-backed securities	—			—			(221		)	(221		)
Interest rate swaps	—			(4,934		)	—			(4,934		)
Total return swaps	—			—			(4,662		)	(4,662		)
Options	—			(1,760		)	—			(1,760		)
Futures	(528		)	—			—			(528		)
Forwards	—			(13		)	—			(13		)
Mortgage loan purchase commitments	—			(8		)	—			(8		)
Total financial derivatives–liabilities, at fair value	(528		)	(55,061		)	(4,883		)	(60,472		)
Guarantees⁽¹⁾	—			—			(828		)	(828		)
Total investments sold short, financial derivatives–liabilities, and guarantees, at fair value	$	(1,999	)	$	(781,889	)	$	(6,159	)	$	(790,047	)


(1)	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 year ended December 31, 2015.

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, 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	$	89,549		Market Quotes	Non Binding Third-Party Valuation	$	1.81		$	151.86		$	68.47
Collateralized loan obligations	41,978			Market Quotes	Non Binding Third-Party Valuation	13.00			102.00			84.84
Corporate debt and non-exchange traded corporate equity	18,972			Market Quotes	Non Binding Third-Party Valuation	3.00			200.00			77.85
Private label commercial mortgage-backed securities	20,365			Market Quotes	Non Binding Third-Party Valuation	6.07			73.20			41.28
Agency interest only residential mortgage-backed securities	21,067			Market Quotes	Non Binding Third-Party Valuation	2.97			22.41			11.08
Total return swaps	(4,577		)	Market Quotes	Non Binding Third-Party Valuation (1)	36.38			99.88			56.38
Private label residential mortgage-backed securities	26,886			Discounted Cash Flows	Yield	3.4		%	27.1		%	19.9		%
					Projected Collateral Prepayments	5.4		%	74.6		%	46.3		%
					Projected Collateral Losses	2.9		%	24.5		%	11.4		%
					Projected Collateral Recoveries	0.3		%	13.0		%	8.0		%
					Projected Collateral Scheduled Amortization	8.6		%	88.6		%	34.3		%
												100.0		%
Private label commercial mortgage-backed securities	13,780			Discounted Cash Flows	Yield	19.2		%	25.0		%	22.1		%
					Projected Collateral Losses	0.7		%	2.3		%	1.6		%
					Projected Collateral Recoveries	1.5		%	14.3		%	8.4		%
					Projected Collateral Scheduled Amortization	83.4		%	97.6		%	90.0		%
												100.0		%
Corporate debt and warrants	13,920			Discounted Cash Flows	Yield	15.0		%	20.0		%	16.2		%
Collateralized loan obligations	3,996			Discounted Cash Flows	Yield	8.3		%	20.6		%	13.5		%
					Projected Collateral Prepayments	31.9		%	52.3		%	41.1		%
					Projected Collateral Losses	2.6		%	17.3		%	12.9		%
					Projected Collateral Recoveries	2.3		%	15.5		%	10.1		%
					Projected Collateral Scheduled Amortization	33.3		%	51.5		%	35.9		%
												100.0		%
Consumer loans and asset-backed securities backed by consumer loans⁽²⁾	115,376			Discounted Cash Flows	Yield	9.0		%	15.0		%	10.4		%
					Projected Collateral Prepayments	0.0		%	40.9		%	30.9		%
					Projected Collateral Losses	1.0		%	33.8		%	7.3		%
					Projected Collateral Scheduled Amortization	57.3		%	80.8		%	61.8		%
												100.0		%
Performing commercial mortgage loans	43,847			Discounted Cash Flows	Yield	9.8		%	17.6		%	11.9		%



(continued)	Fair Value			Valuation Technique	Unobservable Input	Range				Weighted Average
Description	Fair Value			Valuation Technique	Unobservable Input	Min		Max		Weighted Average
	(In thousands)
Non-performing commercial mortgage loans and commercial real estate owned	$	30,984		Discounted Cash Flows	Yield	10.2	%	19.4	%	13.7	%
					Months to Resolution	4.0		24.0		9.3
Performing residential mortgage loans	13,848			Discounted Cash Flows	Yield	5.5	%	8.0	%	6.5	%
Non-performing residential mortgage loans and residential real estate owned	12,331			Discounted Cash Flows	Yield	5.7	%	7.9	%	7.3	%
					Months to Resolution	3.4		113.6		20.6
Credit default swaps on asset-backed securities	6,111			Net Discounted Cash Flows	Projected Collateral Prepayments	26.6	%	44.1	%	32.6	%
					Projected Collateral Losses	15.0	%	33.7	%	26.5	%
					Projected Collateral Recoveries	6.8	%	16.9	%	12.0	%
					Projected Collateral Scheduled Amortization	24.5	%	33.1	%	28.9	%
										100.0	%
Non-exchange traded preferred equity investment in commercial mortgage-related private partnership	10,558			Discounted Cash Flows	Yield	14.0	%	16.5	%	14.7	%
					Expected Holding Period (Months)	14.3		27.0		23.5
Agency interest only residential mortgage-backed securities	3,851			Option Adjusted Spread ("OAS")	LIBOR OAS⁽²⁾	441		1,672		622
					Projected Collateral Prepayments	18.0	%	100.0	%	70.4	%
					Projected Collateral Scheduled Amortization	0.0	%	82.0	%	29.6	%
										100.0	%
Non-exchange traded preferred and common equity investment in mortgage-related entities	2,738			Enterprise Value	Equity Multiple⁽³⁾	2.7x		2.7x		2.7x
Non-exchange traded preferred and common equity investment in mortgage-related entities	2,630			Recent Transactions	Transaction Price	N/A		N/A		N/A
Guarantees	(828		)	Cash Flows	Expected Cash Flows⁽⁴⁾	N/A		N/A		N/A


(1)	Represents valuations on underlying assets.


(2)	Shown in basis points.


(3)	Represent an estimation of where market participants might value an enterprise.


(4)	Represents transactions with a remaining term of less than one year.

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, 2016 and 2015 (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, 2016



(In thousands)	Ending Balance as of June 30, 2016			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, 2016
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	20,506		$	(1,821	)	$	(77	)	$	(169	)	$	1,385	$	—		$	—	$	—		$	19,824
Private label residential mortgage-backed securities	112,511			256			(958		)	6,086			—		(23,652		)	1,517		(13,815		)	81,945
Private label commercial mortgage-backed securities	34,942			429			87			(292		)	5,335		(3,556		)	—		—			36,945
Commercial mortgage loans	49,466			801			72			(1,140		)	13,226		(5,456		)	—		—			56,969
Residential mortgage loans	46,649			67			(78		)	(66		)	24,002		(26,499		)	—		—			44,075
Collateralized loan obligations	33,109			(890		)	(703		)	2,844			4,241		(10,198		)	—		—			28,403
Consumer loans and asset-backed securities backed by consumer loans	154,395			(2,919		)	204			(2,290		)	51,775		(82,066		)	—		—			119,099
Corporate debt	36,974			(52		)	(1,942		)	3,753			83,700		(66,116		)	—		—			56,317
Real estate owned	4,162			—			53			(214		)	1,942		(2,359		)	—		—			3,584
Private corporate equity investments	19,418			—			733			349			5,100		(10,082		)	—		—			15,518
Total investments, at fair value	512,132			(4,129		)	(2,609		)	8,861			190,706		(229,984		)	1,517		(13,815		)	462,679
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	6,068			—			604			(221		)	65		(659		)	—		—			5,857
Total return swaps	824			—			3,222			(628		)	954		(4,176		)	—		—			196
Warrants	100			—			—			—			7,486		—			—		—			7,586
Total financial derivatives– assets, at fair value	6,992			—			3,826			(849		)	8,505		(4,835		)	—		—			13,639
Total investments and financial derivatives–assets, at fair value	$	519,124		$	(4,129	)	$	1,217		$	8,012		$	199,211	$	(234,819	)	$	1,517	$	(13,815	)	$	476,318
Liabilities:
Investments sold short, at fair value
Corporate debt	$	(9,947	)	$	—		$	(122	)	$	(7	)	$	20,974	$	(50,085	)	$	—	$	—		$	(39,187	)
Total investments sold short, at fair value	(9,947		)	—			(122		)	(7		)	20,974		(50,085		)	—		—			(39,187		)



(In thousands)	Ending Balance as of June 30, 2016			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, 2016
(continued)
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(234	)	$	—	$	18		$	(67	)	$	47	$	(26	)	$	—	$	—	$	(262	)
Total return swaps	(1,016		)	—		(2,143		)	(207		)	1,890		253			—		—		(1,223		)
Total financial derivatives– liabilities, at fair value	(1,250		)	—		(2,125		)	(274		)	1,937		227			—		—		(1,485		)
Guarantees:
Guarantees	(312		)	—		—			162			—		—			—		—		(150		)
Total guarantees	(312		)	—		—			162			—		—			—		—		(150		)
Total investments sold short, financial derivatives– liabilities, and guarantees, at fair value	$	(11,509	)	$	—	$	(2,247	)	$	(119	)	$	22,911	$	(49,858	)	$	—	$	—	$	(40,822	)

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, 2016, as well as Level 3 financial instruments disposed of by the Company during the three month period ended September 30, 2016. For Level 3 financial instruments held by the Company at September 30, 2016, change in net unrealized gain (loss) of $0.6 million, $(34) thousand, $0.4 million, $(1.1) million, and $0.2 million, for the three month period ended September 30, 2016 relate to investments, investments sold short, financial derivatives–assets, financial derivatives–liabilities, and guarantees, respectively.

During the three month period ended September 30, 2016, the Company transferred $13.8 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, during the three month period ended September 30, 2016, the Company transferred $1.5 million of non-Agency RMBS from Level 2 to Level 3. Since June 30, 2016, 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, 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 September 30, 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	(13		)	—			—			(1,216		)	—			—			—		—			(1,229		)
Total guarantees	(13		)	—			—			(1,216		)	—			—			—		—			(1,229		)
Total financial derivatives– liabilities and securitized debt, and guarantees, at fair value	$	(2,851	)	$	(3	)	$	836		$	(2,349	)	$	(715	)	$	33		$	—	$	—		$	(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 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.

During the three month period 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, during the three month period 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.

Nine Month Period Ended September 30, 2016



(In thousands)	Ending Balance as of December 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 September 30, 2016
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	24,918		$	(5,766	)	$	(168	)	$	(849	)	$	1,689	$	—		$	—	$	—		$	19,824
Private label residential mortgage-backed securities	116,435			1,518			(1,305		)	2,995			7,439		(34,904		)	8,360		(18,593		)	81,945
Private label commercial mortgage-backed securities	34,145			1,315			409			(4,132		)	13,179		(7,971		)	—		—			36,945
Commercial mortgage loans	66,399			2,073			254			(917		)	26,650		(37,490		)	—		—			56,969
Residential mortgage loans	22,089			315			787			61			56,068		(35,245		)	—		—			44,075
Collateralized loan obligations	45,974			(3,759		)	98			3,261			5,418		(22,589		)	—		—			28,403
Consumer loans and asset-backed securities backed by consumer loans	115,376			(8,515		)	210			(2,839		)	140,731		(125,864		)	—		—			119,099
Corporate debt	27,028			(99		)	(1,687		)	1,652			136,020		(106,597		)	—		—			56,317
Real estate owned	12,522			—			2,291			(545		)	12,614		(23,298		)	—		—			3,584
Private corporate equity investments	22,088			—			704			(182		)	11,617		(18,709		)	—		—			15,518
Total investments, at fair value	486,974			(12,918		)	1,593			(1,495		)	411,425		(412,667		)	8,360		(18,593		)	462,679
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	6,332			—			1,068			(476		)	77		(1,144		)	—		—			5,857
Total return swaps	85			—			3,119			111			1,377		(4,496		)	—		—			196
Warrants	150			—			(50		)	—			7,486		—			—		—			7,586
Total financial derivatives– assets, at fair value	6,567			—			4,137			(365		)	8,940		(5,640		)	—		—			13,639
Total investments and financial derivatives–assets, at fair value	$	493,541		$	(12,918	)	$	5,730		$	(1,860	)	$	420,365	$	(418,307	)	$	8,360	$	(18,593	)	$	476,318
Liabilities:
Investments sold short, at fair value
Corporate debt	$	(448	)	$	(8	)	$	409		$	(566	)	$	32,230	$	(70,804	)	$	—	$	—		$	(39,187	)
Total investments sold short, at fair value	(448		)	(8		)	409			(566		)	32,230		(70,804		)	—		—			(39,187		)



(In thousands)	Ending Balance as of December 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 September 30, 2016
(continued)
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(221	)	$	—		$	(61	)	$	(42	)	$	47	$	15		$	—	$	—	$	(262	)
Total return swaps	(4,662		)	—			(6,508		)	3,438			6,576		(67		)	—		—		(1,223		)
Total financial derivatives– liabilities, at fair value	(4,883		)	—			(6,569		)	3,396			6,623		(52		)	—		—		(1,485		)
Guarantees:
Guarantees	(828		)	—			—			678			—		—			—		—		(150		)
Total guarantees	(828		)	—			—			678			—		—			—		—		(150		)
Total investments sold short, financial derivatives– liabilities, and guarantees, at fair value	$	(6,159	)	$	(8	)	$	(6,160	)	$	3,508		$	38,853	$	(70,856	)	$	—	$	—	$	(40,822	)

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, 2016, as well as Level 3 financial instruments disposed of by the Company during the nine month period ended September 30, 2016. For Level 3 financial instruments held by the Company at September 30, 2016, change in net unrealized gain (loss) of $(10.4) million, $(0.3) million, $(0.3) million, $(1.2) million, and $0.7 million, for the nine month period ended September 30, 2016 relate to investments, investments sold short, financial derivatives–assets, financial derivatives–liabilities, and guarantees, respectively.

During the nine month period ended September 30, 2016, the Company transferred $18.6 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, during the nine month period ended September 30, 2016, the Company transferred $8.4 million of non-Agency RMBS from Level 2 to Level 3. Since December 31, 2015, 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, 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 and securitized debt, 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.

During the nine month period 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, during the nine month period ended September 30, 2015, the Company transferred $9.7 million of non-Agency RMBS from Level 2 to Level 3. Following December 2014, 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.