Valuation (Tables)

3 Months Ended

Mar. 31, 2018

The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at March 31, 2018:



Description	Level 1			Level 2			Level 3		Total
	(In thousands)
Assets:
Cash equivalents	$	1,348		$	—		$	—	$	1,348
Investments, at fair value-
Agency residential mortgage-backed securities	$	—		$	1,115,438		$	6,128	$	1,121,566
U.S. Treasury securities	—			2,200			—		2,200
Private label residential mortgage-backed securities	—			177,114			111,862		288,976
Private label commercial mortgage-backed securities	—			19,457			13,709		33,166
Commercial mortgage loans	—			—			109,294		109,294
Residential mortgage loans	—			—			240,781		240,781
Collateralized loan obligations	—			199,677			27,479		227,156
Consumer loans and asset-backed securities backed by consumer loans	—			—			148,422		148,422
Corporate debt	—			74,198			18,000		92,198
Real estate owned	—			—			29,110		29,110
Corporate equity investments	—			—			50,869		50,869
Total investments, at fair value	—			1,588,084			755,654		2,343,738
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	—			—			3,069		3,069
Credit default swaps on corporate bond indices	—			1,143			—		1,143
Credit default swaps on corporate bonds	—			5,999			—		5,999
Credit default swaps on asset-backed indices	—			4,269			—		4,269
Interest rate swaps	—			15,532			—		15,532
Total return swaps	—			18			—		18
Forwards	—			8			—		8
Total financial derivatives–assets, at fair value	—			26,969			3,069		30,038
Repurchase agreements, at fair value	—			132,538			—		132,538
Total investments, financial derivatives–assets, and repurchase agreements, at fair value	$	—		$	1,747,591		$	758,723	$	2,506,314
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—		$	(499,620	)	$	—	$	(499,620	)
Government debt	—			(107,156		)	—		(107,156		)
Corporate debt	—			(46,944		)	—		(46,944		)
Common stock	(38,242		)	—			—		(38,242		)
Total investments sold short, at fair value	(38,242		)	(653,720		)	—		(691,962		)



Description	Level 1			Level 2			Level 3			Total
(continued)	(In thousands)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	$	—		$	(9,679	)	$	—		$	(9,679	)
Credit default swaps on corporate bonds	—			(14,772		)	—			(14,772		)
Credit default swaps on asset-backed indices	—			(2,200		)	—			(2,200		)
Interest rate swaps	—			(7,153		)	—			(7,153		)
Total return swaps	—			(1		)	—			(1		)
Futures	(1,023		)	—			—			(1,023		)
Forwards	—			(97		)	—			(97		)
Total financial derivatives–liabilities, at fair value	(1,023		)	(33,902		)	—			(34,925		)
Other secured borrowings, at fair value	—			—			(113,775		)	(113,775		)
Total investments sold short, financial derivatives–liabilities, and other secured borrowings, at fair value	$	(39,265	)	$	(687,622	)	$	(113,775	)	$	(840,662	)

The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at December 31, 2017:



Description	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash equivalents	$	26,500	$	—	$	—	$	26,500
Investments, at fair value-
Agency residential mortgage-backed securities	$	—	$	989,341	$	6,173	$	995,514
Private label residential mortgage-backed securities	—		158,369		101,297		259,666
Private label commercial mortgage-backed securities	—		28,398		12,347		40,745
Commercial mortgage loans	—		—		108,301		108,301
Residential mortgage loans	—		—		182,472		182,472
Collateralized loan obligations	—		185,905		24,911		210,816
Consumer loans and asset-backed securities backed by consumer loans	—		—		135,258		135,258
Corporate debt	—		51,246		23,947		75,193
Real estate owned	—		—		26,277		26,277
Corporate equity investments	—		—		37,465		37,465
Total investments, at fair value	—		1,413,259		658,448		2,071,707



Description	Level 1			Level 2			Level 3			Total
(continued)	(In thousands)
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	$	—		$	—		$	3,140		$	3,140
Credit default swaps on corporate bond indices	—			1,429			—			1,429
Credit default swaps on corporate bonds	—			8,888			—			8,888
Credit default swaps on asset-backed indices	—			5,393			—			5,393
Interest rate swaps	—			9,266			—			9,266
Options	3			1			—			4
Futures	45			—			—			45
Total financial derivatives–assets, at fair value	48			24,977			3,140			28,165
Repurchase agreements, at fair value	—			155,949			—			155,949
Total investments, financial derivatives–assets, and repurchase agreements, at fair value	$	48		$	1,594,185		$	661,588		$	2,255,821
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—		$	(460,189	)	$	—		$	(460,189	)
Government debt	—			(90,149		)	—			(90,149		)
Corporate debt	—			(55,211		)	—			(55,211		)
Common stock	(36,691		)	—			—			(36,691		)
Total investments sold short, at fair value	(36,691		)	(605,549		)	—			(642,240		)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	—			(12,367		)	—			(12,367		)
Credit default swaps on corporate bonds	—			(15,930		)	—			(15,930		)
Credit default swaps on asset-backed indices	—			(980		)	—			(980		)
Interest rate swaps	—			(6,015		)	—			(6,015		)
Futures	(508		)	—			—			(508		)
Forwards	—			(473		)	—			(473		)
Total financial derivatives–liabilities, at fair value	(508		)	(35,765		)	—			(36,273		)
Other secured borrowings, at fair value	—			—			(125,105		)	(125,105		)
Total investments sold short, financial derivatives–liabilities, and other secured borrowings, at fair value	$	(37,199	)	$	(641,314	)	$	(125,105	)	$	(803,618	)

Schedule Of Significant Unobservable Inputs, Qualitative Information

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, 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	$	40,870	Market Quotes	Non Binding Third-Party Valuation	$	45.00		$	183.00		$	81.63
Collateralized loan obligations	10,288		Market Quotes	Non Binding Third-Party Valuation	85.00			435.00			138.94
Corporate debt and non-exchange traded corporate equity	6,797		Market Quotes	Non Binding Third-Party Valuation	8.88			105.63			82.94
Private label commercial mortgage-backed securities	7,577		Market Quotes	Non Binding Third-Party Valuation	5.31			60.55			36.19
Agency interest only residential mortgage-backed securities	1,225		Market Quotes	Non Binding Third-Party Valuation	10.14			18.21			15.25
Private label residential mortgage-backed securities	60,427		Discounted Cash Flows	Yield	0.5		%	26.5		%	9.8		%
				Projected Collateral Prepayments	2.1		%	84.7		%	38.3		%
				Projected Collateral Losses	0.9		%	18.2		%	8.6		%
				Projected Collateral Recoveries	0.3		%	31.5		%	11.3		%
				Projected Collateral Scheduled Amortization	12.5		%	90.2		%	41.8		%
											100.0		%
Private label commercial mortgage-backed securities	4,770		Discounted Cash Flows	Yield	4.3		%	42.5		%	18.6		%
				Projected Collateral Losses	1.1		%	5.2		%	2.5		%
				Projected Collateral Recoveries	2.8		%	17.1		%	8.5		%
				Projected Collateral Scheduled Amortization	80.1		%	96.1		%	89.0		%
											100.0		%
Corporate debt and non-exchange traded corporate equity	20,301		Discounted Cash Flows	Yield	3.0		%	16.1		%	10.6		%
Collateralized loan obligations	14,623		Discounted Cash Flows	Yield	7.1		%	62.2		%	15.2		%
				Projected Collateral Prepayments	22.5		%	92.9		%	77.9		%
				Projected Collateral Losses	1.9		%	40.2		%	10.3		%
				Projected Collateral Recoveries	3.4		%	37.2		%	9.5		%
				Projected Collateral Scheduled Amortization	—		%	4.1		%	2.3		%
											100.0		%
Consumer loans and asset-backed securities backed by consumer loans	135,258		Discounted Cash Flows	Yield	7.0		%	18.9		%	9.5		%
				Projected Collateral Prepayments	2.2		%	50.1		%	33.5		%
				Projected Collateral Losses	0.4		%	28.6		%	8.2		%
				Projected Collateral Scheduled Amortization	46.8		%	95.2		%	58.3		%
											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)
Performing commercial mortgage loans	$	84,377		Discounted Cash Flows	Yield	8.0		%	15.4		%	10.7		%
Non-performing commercial mortgage loans and commercial real estate owned	49,610			Discounted Cash Flows	Yield	11.4		%	36.5		%	17.7		%
					Months to Resolution	4.0			17.0			9.5
Performing residential mortgage loans	42,030			Discounted Cash Flows	Yield	1.6		%	18.8		%	6.2		%
Securitized residential mortgage loans⁽¹⁾	132,424			Discounted Cash Flows	Yield	3.5		%	3.5		%	3.5		%
Non-performing residential mortgage loans and residential real estate owned	8,609			Discounted Cash Flows	Yield	2.8		%	34.5		%	8.9		%
					Months to Resolution⁽²⁾	1.9			40.5			25.6
Credit default swaps on asset-backed securities	3,140			Net Discounted Cash Flows	Projected Collateral Prepayments	19.8		%	26.5		%	22.4		%
					Projected Collateral Losses	14.6		%	23.8		%	19.7		%
					Projected Collateral Recoveries	5.8		%	14.3		%	10.6		%
					Projected Collateral Scheduled Amortization	45.5		%	51.0		%	47.3		%
												100.0		%
Agency interest only residential mortgage-backed securities	4,948			Option Adjusted Spread ("OAS")	LIBOR OAS⁽³⁾	381			3,521			730
					Projected Collateral Prepayments	51.2		%	100.0		%	69.1		%
					Projected Collateral Scheduled Amortization	0.0		%	48.8		%	30.9		%
												100.0		%
Non-exchange traded common equity investment in mortgage-related entity	2,814			Enterprise Value	Equity Price-to-Book⁽⁴⁾	2.0x			2.0x			2.0x
Non-exchange traded preferred equity investment in mortgage-related entity	20,774			Enterprise Value	Equity Price-to-Book⁽⁴⁾	0.9x			0.9x			0.9x
Non-controlling equity interest in limited liability company	5,033			Market Quotes	Non Binding Third-Party Valuation of the Underlying Assets⁽⁵⁾	$	96.91		$	96.91		$	96.91
Non-controlling equity interest in limited liability company	5,693			Discounted Cash Flows	Yield⁽⁵⁾	9.1%			9.1%			9.1%
Other secured borrowings, at fair value⁽¹⁾	(125,105		)	Discounted Cash Flows	Yield	2.8%			2.8%			2.8%


(1)

The following table identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of March 31, 2018:



	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	$	49,982	Market Quotes	Non Binding Third-Party Valuation	$	3.50		$	172.00		$	80.46
Collateralized loan obligations	21,352		Market Quotes	Non Binding Third-Party Valuation	85.00			425.00			120.95
Corporate debt and non-exchange traded corporate equity	6,934		Market Quotes	Non Binding Third-Party Valuation	8.88			112.50			85.34
Private label commercial mortgage-backed securities	9,886		Market Quotes	Non Binding Third-Party Valuation	5.00			95.23			76.78
Agency interest only residential mortgage-backed securities	1,623		Market Quotes	Non Binding Third-Party Valuation	2.70			17.17			10.94
Private label residential mortgage-backed securities	61,880		Discounted Cash Flows	Yield	3.3		%	31.7		%	9.9		%
				Projected Collateral Prepayments	1.7		%	86.8		%	45.9		%
				Projected Collateral Losses	1.4		%	17.6		%	9.2		%
				Projected Collateral Recoveries	0.0		%	14.0		%	6.6		%
				Projected Collateral Scheduled Amortization	10.8		%	90.5		%	38.3		%
											100.0		%
Private label commercial mortgage-backed securities	3,823		Discounted Cash Flows	Yield	5.0		%	40.7		%	17.9		%
				Projected Collateral Prepayments	0.0		%	39.2		%	14.9		%
				Projected Collateral Losses	1.2		%	8.7		%	4.2		%
				Projected Collateral Recoveries	3.3		%	10.7		%	7.5		%
				Projected Collateral Scheduled Amortization	41.4		%	95.5		%	73.4		%
											100.0		%
Corporate debt and non-exchange traded corporate equity	14,174		Discounted Cash Flows	Yield	3.0		%	14.0		%	7.8		%



(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	$	6,127		Discounted Cash Flows	Yield	7.6		%	90.5		%	26.4		%
					Projected Collateral Prepayments	22.2		%	94.6		%	70.4		%
					Projected Collateral Losses	1.5		%	40.9		%	15.4		%
					Projected Collateral Recoveries	2.6		%	36.9		%	12.6		%
					Projected Collateral Scheduled Amortization	—		%	4.1		%	1.6		%
												100.0		%
Consumer loans and asset-backed securities backed by consumer loans	148,422			Discounted Cash Flows	Yield	7.0		%	19.7		%	9.4		%
					Projected Collateral Prepayments	0.0		%	47.1		%	34.9		%
					Projected Collateral Losses	0.2		%	42.5		%	8.6		%
					Projected Collateral Scheduled Amortization	48.9		%	99.8		%	56.5		%
												100.0		%
Performing commercial mortgage loans	85,004			Discounted Cash Flows	Yield	8.0		%	16.3		%	10.8		%
Non-performing commercial mortgage loans and commercial real estate owned	52,530			Discounted Cash Flows	Yield	12.6		%	19.8		%	15.4		%
					Months to Resolution	5.0			14.0			8.3
Performing residential mortgage loans	107,791			Discounted Cash Flows	Yield	1.2		%	14.6		%	5.8		%
Securitized residential mortgage loans⁽¹⁾	120,332			Discounted Cash Flows	Yield	4.0		%	4.0		%	4.0		%
Non-performing residential mortgage loans and residential real estate owned	13,528			Discounted Cash Flows	Yield	3.3		%	26.3		%	9.7		%
					Months to Resolution⁽²⁾	1.0			52.3			29.6
Credit default swaps on asset-backed securities	3,069			Net Discounted Cash Flows	Projected Collateral Prepayments	19.6		%	27.5		%	22.7		%
					Projected Collateral Losses	13.4		%	24.7		%	19.2		%
					Projected Collateral Recoveries	4.8		%	15.6		%	10.4		%
					Projected Collateral Scheduled Amortization	44.7		%	52.2		%	47.7		%
												100.0		%
Agency interest only residential mortgage-backed securities	4,505			Option Adjusted Spread ("OAS")	LIBOR OAS⁽³⁾	267			3,521			610
					Projected Collateral Prepayments	48.6		%	100.0		%	64.4		%
					Projected Collateral Scheduled Amortization	0.0		%	51.4		%	35.6		%
												100.0		%
Non-exchange traded common equity investment in mortgage-related entity	2,814			Enterprise Value	Equity Price-to-Book⁽⁴⁾	1.9x			1.9x			1.9x
Non-exchange traded preferred equity investment in mortgage-related entity	27,401			Enterprise Value	Equity Price-to-Book⁽⁴⁾	1.0x			1.0x			1.0x
Non-controlling equity interest in limited liability company	9,806			Market Quotes	Non Binding Third-Party Valuation of the Underlying Assets⁽⁵⁾	$	85.00		$	97.47		$	91.44
Non-controlling equity interest in limited liability company	7,740			Discounted Cash Flows	Yield⁽⁵⁾	9.4%			12.6%			10.1%
Other secured borrowings, at fair value⁽¹⁾	(113,775		)	Discounted Cash Flows	Yield	3.6%			3.6%			3.6%


(1)	Securitized residential mortgage loans and Other secured borrowings, at fair value, represent financial assets and liabilities of the Company's CFE as discussed in Note 2.


(2)	Excludes certain loans that are re-performing.


(3)	Shown in basis points.


(4)	Represent an estimation of where market participants might value an enterprise on a price-to-book basis.


(5)	Represents the significant unobservable inputs used to fair value the financial instruments of the limited liability company. The fair value of such financial instruments is the largest component of the valuation of the limited liability company as a whole.

Fair Value Measurement Using Significant Unobservable Inputs

The tables below include a roll-forward of the Company's financial instruments for the three month periods ended March 31, 2018 and 2017 (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 March 31, 2018



(In thousands)	Ending Balance as of December 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 March 31, 2018
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	6,173		$	(600	)	$	39		$	264		$	1,101	$	(388	)	$	—	$	(461	)	$	6,128
Private label residential mortgage-backed securities	101,297			106			2,288			293			20,660		(21,574		)	11,561		(2,769		)	111,862
Private label commercial mortgage-backed securities	12,347			(183		)	1,554			121			9,624		(7,366		)	—		(2,388		)	13,709
Commercial mortgage loans	108,301			618			330			(161		)	3,988		(3,782		)	—		—			109,294
Residential mortgage loans	182,472			(715		)	(54		)	(653		)	73,040		(13,309		)	—		—			240,781
Collateralized loan obligations	24,911			455			2			226			10,095		(8,210		)	—		—			27,479
Consumer loans and asset-backed securities backed by consumer loans	135,258			(5,896		)	501			3,804			42,133		(27,378		)	—		—			148,422
Corporate debt	23,947			(114		)	52			364			456		(6,705		)	—		—			18,000
Real estate owned	26,277			—			(456		)	615			4,098		(1,424		)	—		—			29,110
Corporate equity investments	37,465			—			—			4,326			9,078		—			—		—			50,869
Total investments, at fair value	658,448			(6,329		)	4,256			9,199			174,273		(90,136		)	11,561		(5,618		)	755,654
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	3,140			—			86			(71		)	24		(110		)	—		—			3,069
Total financial derivatives– assets, at fair value	3,140			—			86			(71		)	24		(110		)	—		—			3,069
Total investments and financial derivatives–assets, at fair value	$	661,588		$	(6,329	)	$	4,342		$	9,128		$	174,297	$	(90,246	)	$	11,561	$	(5,618	)	$	758,723
Liabilities:
Other secured borrowings, at fair value	$	(125,105	)	$	—		$	—		$	784		$	10,546	$	—		$	—	$	—		$	(113,775	)
Total other secured borrowings, at fair value	$	(125,105	)	$	—		$	—		$	784		$	10,546	$	—		$	—	$	—		$	(113,775	)

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 March 31, 2018, as well as Level 3 financial instruments disposed of by the Company during the three month period ended March 31, 2018. For Level 3 financial instruments held by the Company at March 31, 2018, change in net unrealized gain (loss) of $8.6 million, $(0.1) million, and $0.8 million, for the three month period ended March 31, 2018 relate to investments, financial derivatives–assets, and other secured borrowings, at fair value, 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 procedures, the Company examines financial instruments individually rather than in cohorts of like instruments as it had previously. As of March 31, 2018, the Company transferred $5.6 million of securities from Level 3 to Level 2 and $11.6 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 third-party pricing sources.

Three Month Period Ended March 31, 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 March 31, 2017
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	29,622		$	(2,592	)	$	(35	)	$	228		$	2,202	$	—		$	—	$	—		$	29,425
Private label residential mortgage-backed securities	90,083			1,478			(703		)	2,893			8,049		(19,527		)	3,473		(5,414		)	80,332
Private label commercial mortgage-backed securities	43,268			356			342			1,411			—		(4,077		)	—		—			41,300
Commercial mortgage loans	61,129			530			337			1,206			23,045		(23,739		)	—		—			62,508
Residential mortgage loans	84,290			140			(51		)	404			34,138		(6,271		)	—		—			112,650
Collateralized loan obligations	44,956			(1,183		)	920			2,532			38,712		(15,376		)	—		—			70,561
Consumer loans and asset-backed securities backed by consumer loans⁽¹⁾	107,157			(3,057		)	(552		)	837			24,418		(20,961		)	—		—			107,842
Corporate debt	25,004			100			331			158			47,094		(13,078		)	—		—			59,609
Real estate owned	3,349			—			60			106			24,157		(2,282		)	—		—			25,390
Corporate equity investments⁽¹⁾	29,392			—			—			271			5,000		(746		)	—		—			33,917
Total investments, at fair value	518,250			(4,228		)	649			10,046			206,815		(106,057		)	3,473		(5,414		)	623,534
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	5,326			—			37			502			59		(96		)	—		—			5,828
Total return swaps	155			—			157			(155		)	—		(157		)	—		—			—
Warrants	106			—			(100		)	(6		)	—		—			—		—			—
Total financial derivatives– assets, at fair value	5,587			—			94			341			59		(253		)	—		—			5,828
Total investments and financial derivatives–assets, at fair value	$	523,837		$	(4,228	)	$	743		$	10,387		$	206,874	$	(106,310	)	$	3,473	$	(5,414	)	$	629,362
Liabilities:
Financial derivatives– liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(256	)	$	—		$	(446	)	$	466		$	18	$	—		$	—	$	—		$	(218	)
Total return swaps	(249		)	—			(206		)	248			283		(76		)	—		—			—
Total financial derivatives– liabilities, at fair value	$	(505	)	$	—		$	(652	)	$	714		$	301	$	(76	)	$	—	$	—		$	(218	)


(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 March 31, 2017, as well as Level 3 financial instruments disposed of by the Company during the three month period ended March 31, 2017. For Level 3 financial instruments held by the Company at March 31, 2017, change in net unrealized gain (loss) of $6.9 million, $0.5 million, and $0.5 million, for the three month period ended March 31, 2017 relate to investments, financial derivatives–assets, and financial derivatives–liabilities, respectively.

As of March 31, 2017, the Company transferred $5.4 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 led to greater price transparency for these assets, thereby making a Level 2 designation appropriate in the Company's view.

In addition, as of March 31, 2017, the Company transferred $3.5 million of non-Agency RMBS from Level 2 to Level 3. Since December 31, 2016, these securities 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 month periods ended March 31, 2018 and 2017.

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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