Valuation

The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at June 30, 2017:



Description	Level 1			Level 2			Level 3			Total
Assets:	(In thousands)
Cash equivalents	$	20,000		$	—		$	—		$	20,000
Investments, at fair value-
Agency residential mortgage-backed securities	$	—		$	1,008,975		$	4,896		$	1,013,871
U.S. Treasury securities	—			22,165			—			22,165
Private label residential mortgage-backed securities	—			55,427			79,123			134,550
Private label commercial mortgage-backed securities	—			20,036			13,809			33,845
Commercial mortgage loans	—			—			65,896			65,896
Residential mortgage loans	—			—			136,097			136,097
Collateralized loan obligations	—			79,614			42,536			122,150
Consumer loans and asset-backed securities backed by consumer loans	—			—			108,671			108,671
Corporate debt	—			74,049			20,535			94,584
Real estate owned	—			—			24,977			24,977
Corporate equity investments	1,625			—			35,698			37,323
Total investments, at fair value	1,625			1,260,266			532,238			1,794,129
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	—			—			5,107			5,107
Credit default swaps on corporate bond indices	—			880			—			880
Credit default swaps on corporate bonds	—			6,507			—			6,507
Credit default swaps on asset-backed indices	—			7,426			—			7,426
Interest rate swaps	—			6,611			—			6,611
Options	25			2			—			27
Futures	44			—			—			44
Total financial derivatives–assets, at fair value	69			21,426			5,107			26,602
Repurchase agreements	—			266,659			—			266,659
Total investments and financial derivatives–assets, at fair value and repurchase agreements	$	1,694		$	1,548,351		$	537,345		$	2,087,390
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—		$	(450,055	)	$	—		$	(450,055	)
Government debt	—			(172,480		)	—			(172,480		)
Corporate debt	—			(61,267		)	—			(61,267		)
Common stock	(3,432		)	—			—			(3,432		)
Total investments sold short, at fair value	(3,432		)	(683,802		)	—			(687,234		)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	—			(7,361		)	—			(7,361		)
Credit default swaps on corporate bonds	—			(11,885		)	—			(11,885		)
Credit default swaps on asset-backed indices	—			(1,770		)	—			(1,770		)
Credit default swaps on asset-backed securities	—			—			(207		)	(207		)



Description	Level 1			Level 2			Level 3			Total
(continued)	(In thousands)
Interest rate swaps	$	—		$	(4,413	)	$	—		$	(4,413	)
Total return swaps	—			(1		)	—			(1		)
Futures	(47		)	—			—			(47		)
Forwards	—			(1,319		)	—			(1,319		)
Total financial derivatives–liabilities, at fair value	(47		)	(26,749		)	(207		)	(27,003		)
Total investments sold short and financial derivatives–liabilities, at fair value	$	(3,479	)	$	(710,551	)	$	(207	)	$	(714,237	)

The following table identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of June 30, 2017:



	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	$	28,050	Market Quotes	Non Binding Third-Party Valuation	$	45.12		$	188.00		$	86.92
Collateralized loan obligations	39,195		Market Quotes	Non Binding Third-Party Valuation	37.54			438.51			112.64
Corporate debt and non-exchange traded corporate equity	13,506		Market Quotes	Non Binding Third-Party Valuation	1.38			99.50			82.85
Private label commercial mortgage-backed securities	7,992		Market Quotes	Non Binding Third-Party Valuation	5.38			41.43			23.46
Agency interest only residential mortgage-backed securities	1,644		Market Quotes	Non Binding Third-Party Valuation	16.52			19.74			18.12
Private label residential mortgage-backed securities	51,073		Discounted Cash Flows	Yield	2.8		%	39.3		%	10.0		%
				Projected Collateral Prepayments	0.0		%	83.3		%	11.0		%
				Projected Collateral Losses	0.5		%	54.6		%	43.5		%
				Projected Collateral Recoveries	1.4		%	49.0		%	38.9		%
				Projected Collateral Scheduled Amortization	0.0		%	58.1		%	6.6		%
											100.0		%
Private label commercial mortgage-backed securities	5,817		Discounted Cash Flows	Yield	3.4		%	52.7		%	18.0		%
				Projected Collateral Losses	1.2		%	8.2		%	3.8		%
				Projected Collateral Recoveries	6.6		%	19.1		%	12.4		%
				Projected Collateral Scheduled Amortization	72.8		%	92.1		%	83.8		%
											100.0		%
Corporate debt	6,170		Discounted Cash Flows	Yield	16.1		%	16.1		%	16.1		%
Collateralized loan obligations	3,341		Discounted Cash Flows	Yield	12.2		%	54.6		%	31.6		%
				Projected Collateral Prepayments	66.8		%	74.7		%	68.9		%
				Projected Collateral Losses	18.1		%	22.9		%	20.2		%
				Projected Collateral Recoveries	1.2		%	11.8		%	9.2		%
				Projected Collateral Scheduled Amortization	0.1		%	5.0		%	1.7		%
											100.0		%



(continued)	Fair Value		Valuation Technique	Unobservable Input	Range				Weighted Average
Description	Fair Value		Valuation Technique	Unobservable Input	Min		Max		Weighted Average
	(In thousands)
Consumer loans and asset-backed securities backed by consumer loans	$	108,671	Discounted Cash Flows	Yield	9.0	%	16.0	%	10.3	%
				Projected Collateral Prepayments	0.0	%	50.3	%	36.1	%
				Projected Collateral Losses	0.0	%	97.7	%	8.1	%
				Projected Collateral Scheduled Amortization	0.0	%	90.9	%	55.8	%
									100.0	%
Performing commercial mortgage loans	59,289		Discounted Cash Flows	Yield	8.0	%	15.4	%	10.9	%
Non-performing commercial mortgage loans and commercial real estate owned	30,952		Discounted Cash Flows	Yield	10.2	%	25.7	%	12.6	%
				Months to Resolution	6.0		15.0		10.0
Performing residential mortgage loans	129,468		Discounted Cash Flows	Yield	0.4	%	42.0	%	5.8	%
Non-performing residential mortgage loans and residential real estate owned	7,261		Discounted Cash Flows	Yield	2.6	%	40.7	%	11.2	%
				Months to Resolution	4.1		134.5		32.8
Credit default swaps on asset-backed securities	4,900		Net Discounted Cash Flows	Projected Collateral Prepayments	19.9	%	27.0	%	22.6	%
				Projected Collateral Losses	13.0	%	25.7	%	22.0	%
				Projected Collateral Recoveries	5.3	%	14.4	%	9.2	%
				Projected Collateral Scheduled Amortization	44.8	%	54.3	%	46.2	%
									100.0	%
Agency interest only residential mortgage-backed securities	3,252		Option Adjusted Spread ("OAS")	LIBOR OAS⁽¹⁾	417		1,950		839
				Projected Collateral Prepayments	9.2	%	100.0	%	68.1	%
				Projected Collateral Losses	0.0	%	7.7	%	0.4	%
				Projected Collateral Scheduled Amortization	0.0	%	90.8	%	31.5	%
									100.0	%
Non-exchange traded preferred and common equity investment in mortgage-related entity	2,500		Enterprise Value	Equity Multiple⁽²⁾	1.3x		1.3x		1.3x
Non-exchange traded preferred equity and debt investment in mortgage-related entity	22,500		Recent Transactions	Transaction Price	N/A		N/A		N/A
Non-controlling equity interest in limited liability company	5,591		Recent Transactions	Transaction Price	N/A		N/A		N/A
Non-controlling equity interest in limited liability company	5,966		Net Discounted Cash Flows	Yield	9.1	%	9.1	%	9.1	%


(1)	Shown in basis points.


(2)	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, 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⁽¹⁾	—		—		107,157		107,157
Corporate debt	—		55,091		25,004		80,095
Real estate owned	—		—		3,349		3,349
Corporate equity investments⁽¹⁾	4,396		—		29,392		33,788
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



Description	Level 1			Level 2			Level 3			Total
(continued)	(In thousands)
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		)
Interest rate swaps	—			(5,162		)	—			(5,162		)
Total return swaps	—			(55		)	(249		)	(304		)
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	)


(1)	Conformed to current period presentation.

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		%
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⁽²⁾	107,157			Discounted Cash Flows	Yield	9.0		%	25.0		%	11.0		%
					Projected Collateral Prepayments	0.0		%	45.4		%	25.6		%
					Projected Collateral Losses	3.3		%	97.4		%	9.4		%
					Projected Collateral Scheduled Amortization	0.0		%	87.7		%	65.0		%
												100.0		%
Performing commercial mortgage loans	32,557			Discounted Cash Flows	Yield	8.0		%	17.2		%	11.6		%



(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	$	30,222	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⁽³⁾	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⁽⁴⁾	1.3x		1.3x		1.3x
Non-controlling equity interest in limited liability company⁽²⁾	7,315		Net Discounted Cash Flows	Yield	8.5	%	8.5	%	8.5	%
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)	Conformed to current period presentation.


(3)	Shown in basis points.


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

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

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

The tables below include a roll-forward of the Company's financial instruments for the three and six month periods ended June 30, 2017 and 2016 (including the change in fair value), for financial instruments classified by the Company within Level 3 of the valuation hierarchy.

Level 3—Fair Value Measurement Using Significant Unobservable Inputs:

Three Month Period Ended June 30, 2017



(In thousands)	Ending Balance as of March 31, 2017		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, 2017
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	29,425	$	(2,320	)	$	(402	)	$	(163	)	$	(417	)	$	(126	)	$	—	$	(21,101	)	$	4,896
Private label residential mortgage-backed securities	80,332		(476		)	1,137			3,327			27,972			(9,733		)	16,089		(39,525		)	79,123
Private label commercial mortgage-backed securities	41,300		276			(3,338		)	4,991			20			(16,734		)	—		(12,706		)	13,809
Commercial mortgage loans	62,508		101			79			(56		)	4,500			(1,236		)	—		—			65,896
Residential mortgage loans	112,650		537			1,133			(481		)	37,048			(14,790		)	—		—			136,097
Collateralized loan obligations	70,561		(4,849		)	532			479			18,157			(23,233		)	—		(19,111		)	42,536
Consumer loans and asset-backed securities backed by consumer loans⁽¹⁾	107,842		(3,208		)	478			(555		)	25,594			(21,480		)	—		—			108,671
Corporate debt	59,609		154			216			29			36,397			(75,870		)	—		—			20,535
Real estate owned	25,390		—			365			(401		)	54			(431		)	—		—			24,977
Corporate equity investments⁽¹⁾	33,917		—			1,519			(994		)	6,775			(5,519		)	—		—			35,698
Total investments, at fair value	623,534		(9,785		)	1,719			6,176			156,100			(169,152		)	16,089		(92,443		)	532,238
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	5,828		—			331			(721		)	10			(341		)	—		—			5,107
Total return swaps	—		—			65			—			—			(65		)	—		—			—
Total financial derivatives– assets, at fair value	5,828		—			396			(721		)	10			(406		)	—		—			5,107
Total investments and financial derivatives–assets, at fair value	$	629,362	$	(9,785	)	$	2,115		$	5,455		$	156,110		$	(169,558	)	$	16,089	$	(92,443	)	$	537,345



(In thousands)	Ending Balance as of March 31, 2017			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, 2017
Liabilities:
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(218	)	$	—	$	(19	)	$	12	$	446	$	(428	)	$	—	$	—	$	(207	)
Total return swaps	—			—		(85		)	—		21		64			—		—		—
Total financial derivatives– liabilities, at fair value	(218		)	—		(104		)	12		467		(364		)	—		—		(207		)


(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 June 30, 2017, as well as Level 3 financial instruments disposed of by the Company during the three month period ended June 30, 2017. For Level 3 financial instruments held by the Company at June 30, 2017, change in net unrealized gain (loss) of $5.1 million, $(0.7) million, and $0.01 million for the three month period ended June 30, 2017 relate to investments, financial derivatives–assets, and financial derivatives–liabilities, respectively.

As of June 30, 2017, the Company modified its procedures to determine the level within the hierarchy for certain financial instruments. Under the revised procedure, the Company examines financial instruments individually rather than in cohorts of like instruments as it had previously. As of June 30, 2017, the Company transferred $92.4 million of securities from Level 3 to Level 2 and $16.1 million from Level 2 to Level 3. Transfers between these hierarchy levels were based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The leveling of each financial instrument is reassessed at the end of each period, and is based on pricing information received from multiple third-party pricing sources.

Three Month Period Ended June 30, 2016



(In thousands)	Ending Balance as of March 31, 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 June 30, 2016
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	22,306	$	(1,888	)	$	(82	)	$	(133	)	$	303	$	—		$	—	$	—		$	20,506
Private label residential mortgage-backed securities	113,382		1,109			(290		)	(1,310		)	1,687		(6,100		)	12,823		(8,790		)	112,511
Private label commercial mortgage-backed securities	35,350		431			—			(839		)	—		—			—		—			34,942
Commercial mortgage loans	56,365		727			(1		)	(671		)	—		(6,954		)	—		—			49,466
Residential mortgage loans	35,580		141			757			(147		)	17,101		(6,783		)	—		—			46,649
Collateralized loan obligations	34,415		(1,942		)	(279		)	145			1,178		(408		)	—		—			33,109
Consumer loans and asset-backed securities backed by consumer loans	143,854		(2,713		)	6			(655		)	37,046		(23,143		)	—		—			154,395
Corporate debt	24,552		(160		)	275			1,874			49,353		(38,920		)	—		—			36,974
Real estate owned	21,843		—			1,978			(1,750		)	884		(18,793		)	—		—			4,162
Private corporate equity investments	24,599		—			101			697			2,590		(8,569		)	—		—			19,418
Total investments, at fair value	512,246		(4,295		)	2,465			(2,789		)	110,142		(109,670		)	12,823		(8,790		)	512,132



(In thousands)	Ending Balance as of March 31, 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 June 30, 2016
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	6,227			—			373			(149		)	(24		)	(359		)	—		—			6,068
Total return swaps	1,074			—			3,412			(250		)	(3,146		)	(266		)	—		—			824
Warrants	100			—			—			—			—			—			—		—			100
Total financial derivatives– assets, at fair value	7,401			—			3,785			(399		)	(3,170		)	(625		)	—		—			6,992
Total investments and financial derivatives–assets, at fair value	$	519,647		$	(4,295	)	$	6,250		$	(3,188	)	$	106,972		$	(110,295	)	$	12,823	$	(8,790	)	$	519,124
Liabilities:
Investments sold short, at fair value
Corporate debt	$	(3,029	)	$	(9	)	$	171		$	(309	)	$	10,368		$	(17,139	)	$	—	$	—		$	(9,947	)
Total investments sold short, at fair value	(3,029		)	(9		)	171			(309		)	10,368			(17,139		)	—		—			(9,947		)
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(220	)	$	—		$	(63	)	$	24		$	—		$	25		$	—	$	—		$	(234	)
Total return swaps	(675		)	—			(2,115		)	(342		)	2,348			(232		)	—		—			(1,016		)
Total financial derivatives– liabilities, at fair value	(895		)	—			(2,178		)	(318		)	2,348			(207		)	—		—			(1,250		)
Guarantees:
Guarantees	(616		)	—			—			304			—			—			—		—			(312		)
Total guarantees	(616		)	—			—			304			—			—			—		—			(312		)
Total investments sold short, financial derivatives– liabilities, and guarantees, at fair value	$	(4,540	)	$	(9	)	$	(2,007	)	$	(323	)	$	12,716		$	(17,346	)	$	—	$	—		$	(11,509	)

All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at June 30, 2016, as well as Level 3 financial instruments disposed of by the Company during the three month period ended June 30, 2016. For Level 3 financial instruments held by the Company at June 30, 2016, change in net unrealized gain (loss) of $(2.2) million, $(0.03) million, $0.3 million, $(0.6) million, and $0.3 million, for the three month period ended June 30, 2016 relate to investments, investments sold short, financial derivatives–assets, financial derivatives–liabilities, and guarantees, respectively.

As of June 30, 2016, the Company transferred $8.8 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.

In addition, as of June 30, 2016, the Company transferred $12.8 million of non-Agency RMBS from Level 2 to Level 3. Since March 31, 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.

Six Month Period Ended June 30, 2017



(In thousands)	Ending Balance as of December 31, 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 June 30, 2017
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	29,622		$	(4,913	)	$	(437	)	$	65		$	1,785	$	(125	)	$	—	$	(21,101	)	$	4,896
Private label residential mortgage-backed securities	90,083			1,036			434			6,034			26,800		(29,349		)	11,348		(27,263		)	79,123
Private label commercial mortgage-backed securities	43,268			632			(2,996		)	6,402			20		(20,811		)	—		(12,706		)	13,809
Commercial mortgage loans	61,129			631			416			1,150			27,545		(24,975		)	—		—			65,896
Residential mortgage loans	84,290			678			1,081			(77		)	71,186		(21,061		)	—		—			136,097
Collateralized loan obligations	44,956			(6,032		)	1,453			3,011			56,869		(38,609		)	—		(19,112		)	42,536
Consumer loans and asset-backed securities backed by consumer loans⁽¹⁾	107,157			(6,264		)	(74		)	281			50,012		(42,441		)	—		—			108,671
Corporate debt	25,004			253			548			187			83,492		(88,949		)	—		—			20,535
Real estate owned	3,349			—			424			(295		)	24,211		(2,712		)	—		—			24,977
Corporate equity investments⁽¹⁾	29,392			—			1,519			(723		)	11,775		(6,265		)	—		—			35,698
Total investments, at fair value	518,250			(13,979		)	2,368			16,035			353,695		(275,297		)	11,348		(80,182		)	532,238
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	5,326			—			368			(218		)	68		(437		)	—		—			5,107
Total return swaps	155			—			222			(155		)	—		(222		)	—		—			—
Warrants	106			—			(100		)	(6		)	—		—			—		—			—
Total financial derivatives– assets, at fair value	5,587			—			490			(379		)	68		(659		)	—		—			5,107
Total investments and financial derivatives–assets, at fair value	$	523,837		$	(13,979	)	$	2,858		$	15,656		$	353,763	$	(275,956	)	$	11,348	$	(80,182	)	$	537,345
Liabilities:
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(256	)	$	—		$	(465	)	$	477		$	465	$	(428	)	$	—	$	—		$	(207	)
Total return swaps	(249		)	—			(292		)	250			304		(13		)	—		—			—
Total financial derivatives– liabilities, at fair value	(505		)	—			(757		)	727			769		(441		)	—		—			(207		)


(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 June 30, 2017, as well as Level 3 financial instruments disposed of by the Company during the six month period ended June 30, 2017. For Level 3 financial instruments held by the Company at June 30, 2017, change in net unrealized gain (loss) of $9.0 million, $(0.2) million, and $0.05 million for the six month period ended June 30, 2017 relate to investments, financial derivatives–assets, and financial derivatives–liabilities, respectively.

As of June 30, 2017, the Company modified certain of its procedures to determine the level within the hierarchy for certain financial instruments. Under the revised procedure, the Company examines financial instruments individually rather than in cohorts of like instruments as it had previously. As of June 30, 2017, the Company transferred $80.2 million of securities from Level 3 to Level 2 and $11.3 million from Level 2 to Level 3. Transfers between these hierarchy levels were based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The leveling of each financial instrument is reassessed at the end of each period, and is based on pricing information received from multiple third-party pricing sources.

Six Month Period Ended June 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 June 30, 2016
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	24,918		$	(3,945	)	$	(90	)	$	(679	)	$	302	$	—		$	—	$	—		$	20,506
Private label residential mortgage-backed securities	116,435			1,517			(283		)	(2,370		)	7,419		(12,461		)	11,261		(9,007		)	112,511
Private label commercial mortgage-backed securities	34,145			886			322			(3,840		)	7,844		(4,415		)	—		—			34,942
Commercial mortgage loans	66,399			1,272			182			223			13,424		(32,034		)	—		—			49,466
Residential mortgage loans	22,089			248			865			127			32,066		(8,746		)	—		—			46,649
Collateralized loan obligations	45,974			(2,869		)	801			417			1,178		(12,392		)	—		—			33,109
Consumer loans and asset-backed securities backed by consumer loans	115,376			(5,596		)	6			(549		)	88,956		(43,798		)	—		—			154,395
Corporate debt	27,028			(46		)	255			(2,102		)	52,320		(40,481		)	—		—			36,974
Real estate owned	12,522			—			2,238			(331		)	10,672		(20,939		)	—		—			4,162
Private corporate equity investments	22,088			—			(29		)	(531		)	6,517		(8,627		)	—		—			19,418
Total investments, at fair value	486,974			(8,533		)	4,267			(9,635		)	220,698		(183,893		)	11,261		(9,007		)	512,132
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	$	6,332		$	—		$	464		$	(255	)	$	12	$	(485	)	$	—	$	—		$	6,068
Total return swaps	85			—			(103		)	739			423		(320		)	—		—			824
Warrants	150			—			(50		)	—			—		—			—		—			100
Total financial derivatives– assets, at fair value	6,567			—			311			484			435		(805		)	—		—			6,992
Total investments and financial derivatives–assets, at fair value	$	493,541		$	(8,533	)	$	4,578		$	(9,151	)	$	221,133	$	(184,698	)	$	11,261	$	(9,007	)	$	519,124
Liabilities:
Investments sold short, at fair value
Corporate debt	$	(448	)	$	(8	)	$	531		$	(558	)	$	11,255	$	(20,719	)	$	—	$	—		$	(9,947	)
Total investments sold short, at fair value	(448		)	(8		)	531			(558		)	11,255		(20,719		)	—		—			(9,947		)
Financial derivatives– liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(221	)	$	—		$	(79	)	$	24		$	—	$	42		$	—	$	—		$	(234	)
Total return swaps	(4,662		)	—			(4,365		)	3,646			4,686		(321		)	—		—			(1,016		)
Total financial derivatives– liabilities, at fair value	(4,883		)	—			(4,444		)	3,670			4,686		(279		)	—		—			(1,250		)
Guarantees:
Guarantees	(828		)	—			—			516			—		—			—		—			(312		)
Total guarantees	(828		)	—			—			516			—		—			—		—			(312		)
Total financial derivatives– liabilities and guarantees, at fair value	$	(6,159	)	$	(8	)	$	(3,913	)	$	3,628		$	15,941	$	(20,998	)	$	—	$	—		$	(11,509	)

All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at June 30, 2016, as well as Level 3 financial instruments disposed of by the Company during the six month period ended June 30, 2016. For Level 3 financial instruments held by the Company at June 30, 2016, change in net unrealized gain (loss) of $(10.9) million, $(0.04) million, $0.9 million, $(0.1) million, and $0.5 million, for the six month period ended June 30, 2016 relate to investments, investments sold short, financial derivatives–assets, financial derivatives–liabilities, and guarantees, respectively.

As of June 30, 2016, the Company transferred $9.0 million of non-Agency RMBS from Level 3 to Level 2. These assets were transferred from Level 3 to Level 2 based on an increased volume of observed trading of these and similar assets. This increase in observed trading activity has led to greater price transparency for these assets, thereby making a Level 2 designation appropriate in the Company's view.

In addition, as of June 30, 2016, the Company transferred $11.3 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.

There were no transfers of financial instruments between Level 1 and Level 2 during the three or six month periods ended June 30, 2017 and 2016.