Valuation

The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at December 31, 2016:



Description	Level 1			Level 2			Level 3			Total
Assets:	(In thousands)
Cash equivalents	$	90,000		$	—		$	—		$	90,000
Investments, at fair value-
Agency residential mortgage-backed securities	$	—		$	868,345		$	29,622		$	897,967
U.S. Treasury securities	—			5,419			—			5,419
Private label residential mortgage-backed securities	—			53,525			90,083			143,608
Private label commercial mortgage-backed securities	—			—			43,268			43,268
Commercial mortgage loans	—			—			61,129			61,129
Residential mortgage loans	—			—			84,290			84,290
Collateralized loan obligations	—			—			44,956			44,956
Consumer loans and asset-backed securities backed by consumer loans	—			—			114,472			114,472
Corporate debt	—			55,091			25,004			80,095
Real estate owned	—			—			3,349			3,349
Private corporate equity investments	4,396			—			22,077			26,473
Total investments, at fair value	4,396			982,380			518,250			1,505,026
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	—			—			5,326			5,326
Credit default swaps on corporate bond indices	—			2,744			—			2,744
Credit default swaps on corporate bonds	—			2,360			—			2,360
Credit default swaps on asset-backed indices	—			16,713			—			16,713
Interest rate swaps	—			8,102			—			8,102
Total return swaps	—			—			155			155
Options	42			2			—			44
Futures	29			—			—			29
Forwards	—			16			—			16
Warrants	—			—			106			106
Total financial derivatives–assets, at fair value	71			29,937			5,587			35,595
Repurchase agreements	—			184,819			—			184,819
Total investments and financial derivatives–assets, at fair value and repurchase agreements	$	4,467		$	1,197,136		$	523,837		$	1,725,440
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—		$	(404,728	)	$	—		$	(404,728	)
Government debt	—			(132,442		)	—			(132,442		)
Corporate debt	—			(39,572		)	—			(39,572		)
Common stock	(8,154		)	—			—			(8,154		)
Total investments sold short, at fair value	(8,154		)	(576,742		)	—			(584,896		)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	—			(2,840		)	—			(2,840		)
Credit default swaps on corporate bonds	—			(6,654		)	—			(6,654		)
Credit default swaps on asset-backed indices	—			(2,899		)	—			(2,899		)
Credit default swaps on asset-backed securities	—			—			(256		)	(256		)



Description	Level 1			Level 2			Level 3			Total
(continued)	(In thousands)
Interest rate swaps	$	—		$	(5,162	)	$	—		$	(5,162	)
Total return swaps	—			(55		)	(249		)	(304		)
Options	—			—			—			—
Futures	(69		)	—			—			(69		)
Forwards	—			(472		)	—			(472		)
Mortgage loan purchase commitments	—			(31		)	—			(31		)
Total financial derivatives–liabilities, at fair value	(69		)	(18,113		)	(505		)	(18,687		)
Total investments sold short and financial derivatives–liabilities, at fair value	$	(8,223	)	$	(594,855	)	$	(505	)	$	(603,583	)

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, 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	$	47,024		Market Quotes	Non Binding Third-Party Valuation	$	2.00		$	101.02		$	67.51
Collateralized loan obligations	37,517			Market Quotes	Non Binding Third-Party Valuation	9.42			100.25			83.36
Corporate debt and non-exchange traded corporate equity	19,017			Market Quotes	Non Binding Third-Party Valuation	1.88			102.25			87.14
Private label commercial mortgage-backed securities	27,283			Market Quotes	Non Binding Third-Party Valuation	5.17			77.75			40.88
Agency interest only residential mortgage-backed securities	23,322			Market Quotes	Non Binding Third-Party Valuation	2.47			20.17			11.65
Total return swaps	(94		)	Market Quotes	Non Binding Third-Party Valuation ⁽¹⁾	98.25			99.50			98.77
Private label residential mortgage-backed securities	43,059			Discounted Cash Flows	Yield	0.6		%	20.5		%	11.0		%
					Projected Collateral Prepayments	0.0		%	81.0		%	10.0		%
					Projected Collateral Losses	1.4		%	51.2		%	41.4		%
					Projected Collateral Recoveries	0.4		%	53.6		%	41.2		%
					Projected Collateral Scheduled Amortization	0.0		%	90.7		%	7.4		%
												100.0		%
Private label commercial mortgage-backed securities	15,985			Discounted Cash Flows	Yield	8.8		%	57.0		%	23.6		%
					Projected Collateral Losses	0.1		%	5.3		%	2.2		%
					Projected Collateral Recoveries	0.9		%	20.5		%	10.7		%
					Projected Collateral Scheduled Amortization	77.8		%	99.0		%	87.1		%
												100.0		%
Corporate debt and warrants	10,080			Discounted Cash Flows	Yield	19.7		%	19.7		%	19.7		%



(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	$	7,439	Discounted Cash Flows	Yield	11.2	%	50.3	%	20.5	%
				Projected Collateral Prepayments	11.4	%	55.2	%	45.5	%
				Projected Collateral Losses	4.5	%	28.3	%	10.7	%
				Projected Collateral Recoveries	1.5	%	27.2	%	8.6	%
				Projected Collateral Scheduled Amortization	29.8	%	51.5	%	35.2	%
									100.0	%
Consumer loans and asset-backed securities backed by consumer loans	114,472		Discounted Cash Flows	Yield	8.5	%	25.0	%	10.9	%
				Projected Collateral Prepayments	0.0	%	45.4	%	25.6	%
				Projected Collateral Losses	3.3	%	97.4	%	9.9	%
				Projected Collateral Scheduled Amortization	0.0	%	87.7	%	64.5	%
									100.0	%
Performing commercial mortgage loans	32,557		Discounted Cash Flows	Yield	8.0	%	17.2	%	11.6	%
Non-performing commercial mortgage loans and commercial real estate owned	30,222		Discounted Cash Flows	Yield	10.2	%	27.8	%	16.3	%
				Months to Resolution	3.0		39.1		19.5
Performing residential mortgage loans	78,576		Discounted Cash Flows	Yield	5.0	%	13.5	%	6.6	%
Non-performing residential mortgage loans and residential real estate owned	7,413		Discounted Cash Flows	Yield	5.8	%	39.9	%	9.7	%
				Months to Resolution	1.8		162.9		41.9
Credit default swaps on asset-backed securities	5,070		Net Discounted Cash Flows	Projected Collateral Prepayments	19.3	%	29.8	%	22.7	%
				Projected Collateral Losses	15.3	%	27.6	%	22.2	%
				Projected Collateral Recoveries	4.7	%	15.3	%	8.7	%
				Projected Collateral Scheduled Amortization	43.2	%	50.2	%	46.4	%
									100.0	%
Non-exchange traded equity investments in commercial mortgage-related private partnerships	3,090		Discounted Cash Flows	Yield	16.5	%	16.5	%	16.5	%
				Expected Holding Period (Months)	2.9		2.9		2.9
Agency interest only residential mortgage-backed securities	6,300		Option Adjusted Spread ("OAS")	LIBOR OAS⁽²⁾	142		2,831		568
				Projected Collateral Prepayments	0.0	%	100.0	%	62.6	%
				Projected Collateral Losses	0.0	%	15.7	%	1.0	%
				Projected Collateral Scheduled Amortization	0.0	%	88.1	%	36.4	%
									100.0	%
Non-exchange traded preferred and common equity investment in mortgage-related entity	2,500		Enterprise Value	Equity Multiple⁽³⁾	1.3x		1.3x		1.3x
Non-exchange traded preferred equity investment in mortgage-related entity	12,500		Recent Transactions	Transaction Price	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.

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.

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 years ended December 31, 2016, 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:

Year Ended December 31, 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 December 31, 2016
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	24,918		$	(7,998	)	$	(536	)	$	845		$	12,665	$	(272	)	$	—	$	—		$	29,622
Private label residential mortgage-backed securities	116,435			1,896			(2,748		)	3,972			30,065		(55,407		)	10,041		(14,171		)	90,083
Private label commercial mortgage-backed securities	34,145			1,627			1,008			(6,081		)	24,488		(11,919		)	—		—			43,268
Commercial mortgage loans	66,399			2,463			1,920			(1,434		)	39,684		(47,903		)	—		—			61,129
Residential mortgage loans	22,089			467			774			(800		)	102,224		(40,464		)	—		—			84,290
Collateralized loan obligations	45,974			(3,829		)	71			2,471			27,862		(27,593		)	—		—			44,956
Consumer loans and asset-backed securities backed by consumer loans	115,376			(10,668		)	(164		)	(7,818		)	174,664		(156,918		)	—		—			114,472
Corporate debt	27,028			(60		)	(8,326		)	6,864			26,851		(27,353		)	—		—			25,004
Real estate owned	12,522			—			2,256			(458		)	17,526		(28,497		)	—		—			3,349
Private corporate equity investments	22,088			—			(144		)	1,032			24,117		(25,016		)	—		—			22,077
Total investments, at fair value	486,974			(16,102		)	(5,889		)	(1,407		)	480,146		(421,342		)	10,041		(14,171		)	518,250
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	6,332			—			1,042			(667		)	148		(1,529		)	—		—			5,326
Total return swaps	85			—			3,070			70			57		(3,127		)	—		—			155
Warrants	150			—			(50		)	6			7,486		(7,486		)	—		—			106
Total financial derivatives– assets, at fair value	6,567			—			4,062			(591		)	7,691		(12,142		)	—		—			5,587
Total investments and financial derivatives–assets, at fair value	$	493,541		$	(16,102	)	$	(1,827	)	$	(1,998	)	$	487,837	$	(433,484	)	$	10,041	$	(14,171	)	$	523,837
Liabilities:
Investments sold short, at fair value
Corporate debt	$	(448	)	$	(1	)	$	362		$	(228	)	$	315	$	—		$	—	$	—		$	—
Total investments sold short, at fair value	(448		)	(1		)	362			(228		)	315		—			—		—			—



(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 December 31, 2016
(continued)
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(221	)	$	—		$	(323	)	$	(36	)	$	324	$	—		$	—	$	—	$	(256	)
Total return swaps	(4,662		)	—			(7,534		)	4,413			8,214		(680		)	—		—		(249		)
Total financial derivatives– liabilities, at fair value	(4,883		)	—			(7,857		)	4,377			8,538		(680		)	—		—		(505		)
Guarantees:
Guarantees	(828		)	—			—			828			—		—			—		—		—
Total guarantees	(828		)	—			—			828			—		—			—		—		—
Total investments sold short, financial derivatives– liabilities, and guarantees, at fair value	$	(6,159	)	$	(1	)	$	(7,495	)	$	4,977		$	8,853	$	(680	)	$	—	$	—	$	(505	)

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 December 31, 2016, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2016. For Level 3 financial instruments held by the Company at December 31, 2016, change in net unrealized gain (loss) of $(14.7) million, $(0.8) million, and $(0.2) million for the year ended December 31, 2016 relate to investments, financial derivatives–assets, and financial derivatives–liabilities, respectively.

During the year ended December 31, 2016, the Company transferred $14.2 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/or 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 year ended December 31, 2016, the Company transferred $10.0 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.

There were no transfers of financial instruments between Level 1 and Level 2 during the year ended December 31, 2016.

Year Ended December 31, 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 December 31, 2015
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	31,385		$	(8,355	)	$	223		$	81		$	6,977	$	(5,393	)	$	—	$	—		$	24,918
Private label residential mortgage-backed securities	274,369			8,593			20,648			(16,429		)	62,994		(191,902		)	6,687		(48,525		)	116,435
Private label commercial mortgage-backed securities	53,311			3,076			2,000			(4,183		)	21,382		(41,441		)	—		—			34,145
Commercial mortgage loans	28,309			1,895			1,114			(142		)	69,778		(34,555		)	—		—			66,399
Residential mortgage loans	27,482			1,363			2,372			(505		)	19,555		(28,178		)	—		—			22,089
Collateralized loan obligations	121,994			(21,110		)	46			(4,033		)	59,102		(110,025		)	—		—			45,974
Consumer loans and asset-backed securities backed by consumer loans	24,294			(6,197		)	—			283			139,373		(42,377		)	—		—			115,376
Corporate debt	42,708			60			(4,028		)	(6,882		)	28,942		(33,772		)	—		—			27,028
Real estate owned	8,635			—			1,168			381			14,155		(11,817		)	—		—			12,522
Private corporate equity investments	14,512			—			116			(306		)	8,347		(581		)	—		—			22,088
Total investments, at fair value	626,999			(20,675		)	23,659			(31,735		)	430,605		(500,041		)	6,687		(48,525		)	486,974
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	$	11,387		$	—		$	(2,964	)	$	2,098		$	28	$	(4,217	)	$	—	$	—		$	6,332
Total return swaps	—			—			113			85			—		(113		)	—		—			85
Warrants	100			—			—			—			50		—			—		—			150
Total financial derivatives– assets, at fair value	11,487			—			(2,851		)	2,183			78		(4,330		)	—		—			6,567
Total investments and financial derivatives–assets, at fair value	$	638,486		$	(20,675	)	$	20,808		$	(29,552	)	$	430,683	$	(504,371	)	$	6,687	$	(48,525	)	$	493,541
Liabilities:
Investments sold short, at fair value
Corporate debt	$	—		$	(2	)	$	197		$	228		$	1,372	$	(2,243	)	$	—	$	—		$	(448	)
Total investments sold short, at fair value	—			(2		)	197			228			1,372		(2,243		)	—		—			(448		)
Financial derivatives– liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(239	)	$	—		$	(102	)	$	35		$	—	$	85		$	—	$	—		$	(221	)
Total return swaps	—			—			2,516			(4,662		)	14		(2,530		)	—		—			(4,662		)
Total financial derivatives– liabilities, at fair value	(239		)	—			2,414			(4,627		)	14		(2,445		)	—		—			(4,883		)
Securitized debt:
Securitized debt	(774		)	(15		)	—			26			763		—			—		—			—
Total securitized debt	(774		)	(15		)	—			26			763		—			—		—			—
Guarantees:
Guarantees	—			—			—			(828		)	—		—			—		—			(828		)
Total guarantees	—			—			—			(828		)	—		—			—		—			(828		)
Total financial derivatives– liabilities and securitized debt, at fair value	$	(1,013	)	$	(17	)	$	2,611		$	(5,201	)	$	2,149	$	(4,688	)	$	—	$	—		$	(6,159	)

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 December 31, 2015, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2015. For Level 3 financial instruments held by the Company at December 31, 2015, change in net unrealized gain (loss) of $(20.7) million, $7 thousand, $(4.6) million, and $(0.8) million, for the year ended December 31, 2015 relate to investments, financial derivatives–assets, financial derivatives–liabilities, and guarantees, respectively.

During the year ended December 31, 2015, the Company transferred $48.5 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/or 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 year ended December 31, 2015, the Company transferred $6.7 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.

There were no transfers of financial instruments between Level 1 and Level 2 during the year ended December 31, 2015.

Year Ended December 31, 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 December 31, 2014
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	40,504	$	(8,738	)	$	1,404		$	(2,078	)	$	8,448	$	(8,155	)	$	—	$	—		$	31,385
Private label residential mortgage-backed securities	580,772		20,544			38,600			(18,406		)	382,956		(445,349		)	—		(284,748		)	274,369
Private label commercial mortgage-backed securities	32,994		1,328			7,055			(357		)	116,128		(103,837		)	—		—			53,311
Commercial mortgage loans	23,887		2,739			3,156			(632		)	41,856		(42,697		)	—		—			28,309
Residential mortgage loans	24,062		1,267			1,424			84			14,863		(14,218		)	—		—			27,482
Collateralized loan obligations	38,069		(2,577		)	342			(1,879		)	118,607		(30,568		)	—		—			121,994
Consumer loans and asset-backed securities backed by consumer loans	—		(1,184		)	—			(530		)	29,402		(3,394		)	—		—			24,294
Corporate debt	—		(70		)	—			(877		)	43,808		(153		)	—		—			42,708
Real estate owned	—		—			172			(113		)	11,247		(2,671		)	—		—			8,635
Private corporate equity investments	—		—			—			(205		)	14,717		—			—		—			14,512
Total investments, at fair value	740,288		13,309			52,153			(24,993		)	782,032		(651,042		)	—		(284,748		)	626,999
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	$	16,646	$	—		$	(4,596	)	$	4,547		$	464	$	(5,674	)	$	—	$	—		$	11,387
Warrants	—		—			—			—			100		—			—		—			100
Total financial derivatives– assets, at fair value	16,646		—			(4,596		)	4,547			564		(5,674		)	—		—			11,487
Total investments and financial derivatives–assets, at fair value	$	756,934	$	13,309		$	47,557		$	(20,446	)	$	782,596	$	(656,716	)	$	—	$	(284,748	)	$	638,486



(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 December 31, 2014
(continued)
Liabilities:
Financial derivatives– liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(350	)	$	—		$	(78	)	$	111		$	—	$	78	$	—	$	—	$	(239	)
Total financial derivatives– liabilities, at fair value	(350		)	—			(78		)	111			—		78		—		—		(239		)
Securitized debt:
Securitized debt	(983		)	(15		)	—			(22		)	246		—		—		—		(774		)
Total securitized debt	(983		)	(15		)	—			(22		)	246		—		—		—		(774		)
Total financial derivatives– liabilities and securitized debt, at fair value	$	(1,333	)	$	(15	)	$	(78	)	$	89		$	246	$	78	$	—	$	—	$	(1,013	)

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 December 31, 2014, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2014. For Level 3 financial instruments held by the Company at December 31, 2014, change in net unrealized gain (loss) of $6.3 million, $(1.6) million, $(0.1) million, and $(22) thousand for the year ended December 31, 2014 relate to investments, financial derivatives–assets, financial derivatives–liabilities, and securitized debt, respectively.

For the year ended December 31, 2014, the Company transferred $284.7 million of non-Agency RMBS from Level 3 to Level 2. The decision to transfer these assets from Level 3 to Level 2 was based on observed market developments, including an increased volume of buying and selling of these and/or similar assets, greater consensus among market participants on price based on market quotes, and generally tighter credit spreads driven by improved performance in the underlying collateral as well as increased demand from investors seeking higher yielding assets. These factors have led to greater price transparency for these assets, thereby making a Level 2 designation appropriate in the Company's view. However, changes in observed market developments could impact future price transparency, and thereby cause a change in the level designation in subsequent periods.

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