Valuation

The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at June 30, 2018:



Description	Level 1			Level 2			Level 3		Total
	(In thousands)
Assets:
Cash equivalents	$	6,833		$	—		$	—	$	6,833
Investments, at fair value-
Agency residential mortgage-backed securities	$	—		$	1,259,669		$	5,889	$	1,265,558
U.S. Treasury securities	—			70,468			—		70,468
Private label residential mortgage-backed securities	—			179,707			96,396		276,103
Private label commercial mortgage-backed securities	—			24,475			8,761		33,236
Commercial mortgage loans	—			—			104,951		104,951
Residential mortgage loans	—			—			293,472		293,472
Collateralized loan obligations	—			204,212			6,109		210,321
Consumer loans and asset-backed securities backed by consumer loans	—			—			199,254		199,254
Corporate debt	—			72,288			8,850		81,138
Secured notes	—			—			11,126		11,126
Real estate owned	—			—			34,339		34,339
Corporate equity investments	737			—			44,768		45,505
Total investments, at fair value	737			1,810,819			813,915		2,625,471
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	—			—			2,591		2,591
Credit default swaps on corporate bond indices	—			816			—		816
Credit default swaps on corporate bonds	—			7,029			—		7,029
Credit default swaps on asset-backed indices	—			3,720			—		3,720
Interest rate swaps	—			15,770			—		15,770
Futures	674			—			—		674
Forwards	—			69			—		69
Total financial derivatives–assets, at fair value	674			27,404			2,591		30,669
Repurchase agreements, at fair value	—			214,411			—		214,411
Total investments, financial derivatives–assets, and repurchase agreements, at fair value	$	1,411		$	2,052,634		$	816,506	$	2,870,551
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—		$	(618,665	)	$	—	$	(618,665	)
Government debt	—			(179,086		)	—		(179,086		)
Corporate debt	—			(50,711		)	—		(50,711		)
Common stock	(33,684		)	—			—		(33,684		)
Total investments sold short, at fair value	(33,684		)	(848,462		)	—		(882,146		)



Description	Level 1			Level 2			Level 3			Total
(continued)	(In thousands)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	$	—		$	(7,234	)	$	—		$	(7,234	)
Credit default swaps on corporate bonds	—			(10,461		)	—			(10,461		)
Credit default swaps on asset-backed indices	—			(963		)	—			(963		)
Interest rate swaps	—			(6,490		)	—			(6,490		)
Total return swaps	—			(314		)	—			(314		)
Futures	(155		)	—			—			(155		)
Forwards	—			(58		)	—			(58		)
Total financial derivatives–liabilities, at fair value	(155		)	(25,520		)	—			(25,675		)
Other secured borrowings, at fair value	—			—			(101,100		)	(101,100		)
Total investments sold short, financial derivatives–liabilities, and other secured borrowings, at fair value	$	(33,839	)	$	(873,982	)	$	(101,100	)	$	(1,008,921	)

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, 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	$	31,830	Market Quotes	Non Binding Third-Party Valuation	$	3.50		$	172.06		$	81.00
Corporate debt and non-exchange traded corporate equity	4,402		Market Quotes	Non Binding Third-Party Valuation	8.50			99.75			73.32
Private label commercial mortgage-backed securities	6,641		Market Quotes	Non Binding Third-Party Valuation	5.18			95.27			86.02
Agency interest only residential mortgage-backed securities	609		Market Quotes	Non Binding Third-Party Valuation	3.71			4.98			4.35
Private label residential mortgage-backed securities	64,566		Discounted Cash Flows	Yield	3.0		%	40.0		%	8.5		%
				Projected Collateral Prepayments	1.4		%	89.2		%	46.5		%
				Projected Collateral Losses	0.5		%	20.0		%	9.1		%
				Projected Collateral Recoveries	0.0		%	13.9		%	7.3		%
				Projected Collateral Scheduled Amortization	9.5		%	92.0		%	37.1		%
											100.0		%
Private label commercial mortgage-backed securities	2,120		Discounted Cash Flows	Yield	6.7		%	35.5		%	23.0		%
				Projected Collateral Prepayments	0.0		%	—		%	—		%
				Projected Collateral Losses	2.9		%	3.0		%	2.9		%
				Projected Collateral Recoveries	6.8		%	10.9		%	9.3		%
				Projected Collateral Scheduled Amortization	86.3		%	90.2		%	87.8		%
											100.0		%
Corporate debt, non-exchange traded corporate equity, and secured notes	17,032		Discounted Cash Flows	Yield	14.3		%	15.0		%	14.8		%



(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	$	6,109		Discounted Cash Flows	Yield	8.3		%	90.3		%	25.4		%
					Projected Collateral Prepayments	7.9		%	91.2		%	65.3		%
					Projected Collateral Losses	1.8		%	48.2		%	20.0		%
					Projected Collateral Recoveries	3.1		%	43.9		%	13.9		%
					Projected Collateral Scheduled Amortization	—		%	3.7		%	0.8		%
												100.0		%
Consumer loans and asset-backed securities backed by consumer loans	199,254			Discounted Cash Flows	Yield	7.0		%	21.8		%	9.2		%
					Projected Collateral Prepayments	1.3		%	49.1		%	36.5		%
					Projected Collateral Losses	2.9		%	40.9		%	8.5		%
					Projected Collateral Scheduled Amortization	47.4		%	90.9		%	55.0		%
												100.0		%
Performing commercial mortgage loans	98,126			Discounted Cash Flows	Yield	8.0		%	17.1		%	10.9		%
Non-performing commercial mortgage loans and commercial real estate owned	40,270			Discounted Cash Flows	Yield	11.5		%	18.5		%	14.3		%
					Months to Resolution	6.0			11.0			7.4
Performing residential mortgage loans	173,871			Discounted Cash Flows	Yield	3.6		%	11.9		%	5.7		%
Securitized residential mortgage loans⁽¹⁾	107,856			Discounted Cash Flows	Yield	5.1		%	5.1		%	5.1		%
Non-performing residential mortgage loans and residential real estate owned	12,639			Discounted Cash Flows	Yield	4.4		%	45.8		%	9.1		%
					Months to Resolution⁽²⁾	4.9			57.3			31.7
Credit default swaps on asset-backed securities	2,591			Net Discounted Cash Flows	Projected Collateral Prepayments	20.1		%	27.6		%	22.9		%
					Projected Collateral Losses	13.1		%	24.6		%	18.8		%
					Projected Collateral Recoveries	6.1		%	14.8		%	9.8		%
					Projected Collateral Scheduled Amortization	45.9		%	52.8		%	48.5		%
												100.0		%
Agency interest only residential mortgage-backed securities	5,280			Option Adjusted Spread ("OAS")	LIBOR OAS⁽³⁾	70			3,521			613
					Projected Collateral Prepayments	48.0		%	100.0		%	63.7		%
					Projected Collateral Scheduled Amortization	0.0		%	52.0		%	36.3		%
												100.0		%
Non-exchange traded common equity investment in mortgage-related entity	2,814			Enterprise Value	Equity Price-to-Book⁽⁴⁾	1.8x			1.8x			1.8x
Non-exchange traded preferred equity investment in mortgage-related entity	28,009			Enterprise Value	Equity Price-to-Book⁽⁴⁾	1.0x			1.0x			1.0x
Non-controlling equity interest in limited liability company	5,284			Market Quotes	Non Binding Third-Party Valuation of the Underlying Assets⁽⁵⁾	$	97.47		$	97.47		$	97.47
Non-controlling equity interest in limited liability company	7,203			Discounted Cash Flows	Yield⁽⁵⁾	9.8%			12.7%			10.3%
Other secured borrowings, at fair value⁽¹⁾	(101,100		)	Discounted Cash Flows	Yield	3.9%			3.9%			3.9%


(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.

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, 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	)

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		%
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



(continued)	Fair Value			Valuation Technique	Unobservable Input	Range						Weighted Average
Description	Fair Value			Valuation Technique	Unobservable Input	Min			Max			Weighted Average
	(In thousands)
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)	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.

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 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 tables below include a roll-forward of the Company's financial instruments for the three- and six-month periods ended June 30, 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 June 30, 2018



(In thousands)	Ending Balance as of March 31, 2018			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, 2018
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	6,128		$	(547	)	$	18		$	(41	)	$	1,533	$	(569	)	$	—	$	(633	)	$	5,889
Private label residential mortgage-backed securities	111,862			(1,889		)	211			(1,845		)	13,596		(10,999		)	3,073		(17,613		)	96,396
Private label commercial mortgage-backed securities	13,709			28			(104		)	784			—		(4,194		)	—		(1,462		)	8,761
Commercial mortgage loans	109,294			226			553			610			20,132		(25,864		)	—		—			104,951
Residential mortgage loans	240,781			(464		)	637			(267		)	76,785		(24,000		)	—		—			293,472
Collateralized loan obligations	27,479			(377		)	2			300			11,442		(7,889		)	—		(24,848		)	6,109
Consumer loans and asset-backed securities backed by consumer loans	148,422			(6,955		)	450			3,782			83,069		(29,514		)	—		—			199,254
Corporate debt	18,000			59			96			(761		)	448		(1,944		)	—		(7,048		)	8,850
Secured notes	—			92			—			(234		)	11,268		—			—		—			11,126
Real estate owned	29,110			—			10			(1		)	5,472		(252		)	—		—			34,339
Corporate equity investments	50,869			—			1,182			(1		)	—		(7,282		)	—		—			44,768
Total investments, at fair value	755,654			(9,827		)	3,055			2,326			223,745		(112,507		)	3,073		(51,604		)	813,915
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	3,069			—			161			(478		)	22		(183		)	—		—			2,591
Total financial derivatives– assets, at fair value	3,069			—			161			(478		)	22		(183		)	—		—			2,591
Total investments and financial derivatives–assets, at fair value	$	758,723		$	(9,827	)	$	3,216		$	1,848		$	223,767	$	(112,690	)	$	3,073	$	(51,604	)	$	816,506
Liabilities:
Other secured borrowings, at fair value	$	(113,775	)	$	—		$	—		$	414		$	12,261	$	—		$	—	$	—		$	(101,100	)
Total other secured borrowings, at fair value	$	(113,775	)	$	—		$	—		$	414		$	12,261	$	—		$	—	$	—		$	(101,100	)

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, 2018, as well as Level 3 financial instruments disposed of by the Company during the three-month period ended June 30, 2018. For Level 3 financial instruments held by the Company at June 30, 2018, change in net unrealized gain (loss) of $1.6 million, $(0.5) million, and $0.4 million, for the three-month period ended June 30, 2018 relate to investments, financial derivatives–assets, and other secured borrowings, at fair value, respectively.

At June 30, 2018, the Company transferred $51.6 million of securities from Level 3 to Level 2 and $3.1 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 third-party pricing sources.

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
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	)

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. At 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 third-party pricing sources.

Six-Month Period Ended June 30, 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 June 30, 2018
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	6,173		$	(1,172	)	$	57		$	229		$	2,635	$	(957	)	$	—	$	(1,076	)	$	5,889
Private label residential mortgage-backed securities	101,297			156			2,719			(986		)	24,623		(29,439		)	9,301		(11,275		)	96,396
Private label commercial mortgage-backed securities	12,347			(163		)	1,618			1,043			8,046		(13,890		)	—		(240		)	8,761
Commercial mortgage loans	108,301			844			884			449			24,119		(29,646		)	—		—			104,951
Residential mortgage loans	182,472			(1,179		)	583			(920		)	149,825		(37,309		)	—		—			293,472
Collateralized loan obligations	24,911			78			3			527			21,537		(16,099		)	—		(24,848		)	6,109
Consumer loans and asset-backed securities backed by consumer loans	135,258			(12,851		)	950			7,585			125,203		(56,891		)	—		—			199,254
Corporate debt	23,947			(56		)	148			(396		)	905		(8,650		)	—		(7,048		)	8,850
Secured notes	—			92			—			(234		)	11,268		—			—		—			11,126
Real estate owned	26,277			—			(447		)	615			9,570		(1,676		)	—		—			34,339
Corporate equity investments	37,465			—			1,182			4,325			9,078		(7,282		)	—		—			44,768
Total investments, at fair value	658,448			(14,251		)	7,697			12,237			386,809		(201,839		)	9,301		(44,487		)	813,915
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	3,140			—			247			(549		)	45		(292		)	—		—			2,591
Total financial derivatives– assets, at fair value	3,140			—			247			(549		)	45		(292		)	—		—			2,591
Total investments and financial derivatives–assets, at fair value	$	661,588		$	(14,251	)	$	7,944		$	11,688		$	386,854	$	(202,131	)	$	9,301	$	(44,487	)	$	816,506
Liabilities:
Other secured borrowings, at fair value	$	(125,105	)	$	—		$	—		$	1,198		$	22,807	$	—		$	—	$	—		$	(101,100	)
Total other secured borrowings, at fair value	$	(125,105	)	$	—		$	—		$	1,198		$	22,807	$	—		$	—	$	—		$	(101,100	)

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, 2018, as well as Level 3 financial instruments disposed of by the Company during the six-month period ended June 30, 2018. For Level 3 financial instruments held by the Company at June 30, 2018, change in net unrealized gain (loss) of $10.5 million, $(0.5) million, and $1.2 million, for the six-month period ended June 30, 2018 relate to investments, financial derivatives–assets, and other secured borrowings, at fair value, respectively.

At June 30, 2018, the Company transferred $44.5 million of securities from Level 3 to Level 2 and $9.3 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 third-party pricing sources.

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	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	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	)

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. At 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 third-party pricing sources.

There were no transfers of financial instruments between Level 1 and Level 2 during the three- or six-month periods ended June 30, 2018 and 2017.

Not included in the disclosures above are the Company's other financial instruments, which are carried at cost and include, Cash, Due from brokers, Due to brokers, Reverse repurchase agreements, Other secured borrowings, and the Company's unsecured long-term debt, or the "Senior Notes," which is reflected on the Consolidated Statement of Assets, Liabilities, and Equity in Senior notes, net. Cash includes cash held in various accounts including an interest bearing overnight account for which fair value equals the carrying value; such assets are considered Level 1 assets. Due from brokers and Due to brokers include collateral transferred to or received from counterparties, along with receivables and payables for open and/or closed derivative positions. These receivables and payables are short term in nature and any collateral transferred consists primarily of cash; carrying value of these items approximates fair value and such items are considered Level 1 assets and liabilities. The Company's reverse repurchase agreements and Other secured borrowings are carried at cost, which approximates fair value due to their short term nature. Reverse repurchase agreements and Other secured borrowings are considered Level 2 assets and liabilities based on the adequacy of the associated collateral and their short term nature. The Company estimates the fair value of the Senior Notes at $84.4 million and $85.6 million as of June 30, 2018 and December 31, 2017, respectively. The Senior Notes are considered Level 3 liabilities given the relative unobservability of the most significant inputs to valuation estimation as well as the lack of trading activity of these instruments.