Valuation

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



Description	Level 1			Level 2			Level 3		Total
	(In thousands)
Assets:
Cash equivalents	$	8,502		$	—		$	—	$	8,502
Investments, at fair value-
Agency residential mortgage-backed securities	$	—		$	1,239,211		$	8,779	$	1,247,990
U.S. Treasury securities	—			4,230			—		4,230
Private label residential mortgage-backed securities	—			246,992			121,274		368,266
Private label commercial mortgage-backed securities	—			30,190			983		31,173
Commercial mortgage loans	—			—			125,808		125,808
Residential mortgage loans	—			—			392,460		392,460
Collateralized loan obligations	—			127,076			29,011		156,087
Consumer loans and asset-backed securities backed by consumer loans	—			—			204,504		204,504
Corporate debt	—			46,037			7,681		53,718
Secured notes	—			—			11,065		11,065
Real estate owned	—			—			34,944		34,944
Corporate equity investments	669			—			39,155		39,824
Total investments, at fair value	669			1,693,736			975,664		2,670,069
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	—			—			1,515		1,515
Credit default swaps on corporate bond indices	—			1,596			—		1,596
Credit default swaps on corporate bonds	—			5,406			—		5,406
Credit default swaps on asset-backed indices	—			3,063			—		3,063
Total return swaps	—			2			—		2
Interest rate swaps	—			17,918			—		17,918
Options	—			1			—		1
Futures	1,540			—			—		1,540
Forwards	—			297			—		297
Total financial derivatives–assets, at fair value	1,540			28,283			1,515		31,338
Repurchase agreements, at fair value	—			160,422			—		160,422
Total investments, financial derivatives–assets, and repurchase agreements, at fair value	$	2,209		$	1,882,441		$	977,179	$	2,861,829
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—		$	(562,098	)	$	—	$	(562,098	)
Government debt	—			(72,442		)	—		(72,442		)
Corporate debt	—			(37,402		)	—		(37,402		)
Common stock	(23,407		)	—			—		(23,407		)
Total investments sold short, at fair value	(23,407		)	(671,942		)	—		(695,349		)



Description	Level 1			Level 2			Level 3			Total
(continued)	(In thousands)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	$	—		$	(9,797	)	$	—		$	(9,797	)
Credit default swaps on corporate bonds	—			(7,218		)	—			(7,218		)
Credit default swaps on asset-backed indices	—			(718		)	—			(718		)
Interest rate swaps	—			(7,694		)	—			(7,694		)
Total return swaps	—			(1,740		)	—			(1,740		)
Futures	(1		)	—			—			(1		)
Forwards	—			(58		)	—			(58		)
Total financial derivatives–liabilities, at fair value	(1		)	(27,225		)	—			(27,226		)
Other secured borrowings, at fair value	—			—			(89,569		)	(89,569		)
Total investments sold short, financial derivatives–liabilities, and other secured borrowings, at fair value	$	(23,408	)	$	(699,167	)	$	(89,569	)	$	(812,144	)

The following table identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of September 30, 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	$	63,805	Market Quotes	Non Binding Third-Party Valuation	$	3.00		$	175.71		$	76.13
Collateralized loan obligations	22,934		Market Quotes	Non Binding Third-Party Valuation	61.00			96.25			68.09
Corporate debt, non-exchange traded corporate equity, and secured notes	14,981		Market Quotes	Non Binding Third-Party Valuation	9.88			91.00			61.00
Private label commercial mortgage-backed securities	539		Market Quotes	Non Binding Third-Party Valuation	5.11			6.16			5.74
Agency interest only residential mortgage-backed securities	2,510		Market Quotes	Non Binding Third-Party Valuation	2.10			16.68			15.91
Private label residential mortgage-backed securities	57,469		Discounted Cash Flows	Yield	3.0		%	53.9		%	9.5		%
				Projected Collateral Prepayments	18.3		%	90.2		%	56.4		%
				Projected Collateral Losses	0.0		%	50.2		%	8.4		%
				Projected Collateral Recoveries	1.7		%	11.9		%	8.0		%
				Projected Collateral Scheduled Amortization	7.7		%	54.9		%	27.2		%
											100.0		%
Private label commercial mortgage-backed securities	444		Discounted Cash Flows	Yield	9.0		%	26.0		%	18.5		%
				Projected Collateral Losses	1.6		%	1.6		%	1.6		%
				Projected Collateral Recoveries	1.5		%	1.5		%	1.5		%
				Projected Collateral Scheduled Amortization	96.9		%	96.9		%	96.9		%
											100.0		%
Corporate debt and non-exchange traded corporate equity	5,337		Discounted Cash Flows	Yield	17.1		%	17.1		%	17.1		%



(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	$	6,077		Discounted Cash Flows	Yield	8.5	%	17.6	%	11.7	%
					Projected Collateral Prepayments	90.2	%	94.1	%	91.5	%
					Projected Collateral Losses	0.9	%	6.4	%	4.7	%
					Projected Collateral Recoveries	2.7	%	3.3	%	3.0	%
					Projected Collateral Scheduled Amortization	—	%	3.8	%	0.8	%
										100.0	%
Consumer loans and asset-backed securities backed by consumer loans	204,504			Discounted Cash Flows	Yield	7.0	%	12.0	%	8.4	%
					Projected Collateral Prepayments	0.0	%	44.4	%	34.9	%
					Projected Collateral Losses	3.5	%	62.0	%	9.1	%
					Projected Collateral Scheduled Amortization	36.5	%	92.3	%	56.0	%
										100.0	%
Performing commercial mortgage loans	122,269			Discounted Cash Flows	Yield	8.0	%	21.4	%	10.9	%
Non-performing commercial mortgage loans and commercial real estate owned	37,097			Discounted Cash Flows	Yield	11.6	%	18.1	%	14.2	%
					Months to Resolution	4.0		9.0		6.5
Performing residential mortgage loans	284,719			Discounted Cash Flows	Yield	4.0	%	12.8	%	5.8	%
Securitized residential mortgage loans⁽¹⁾	94,965			Discounted Cash Flows	Yield	5.2	%	5.2	%	5.2	%
Non-performing residential mortgage loans and residential real estate owned	14,162			Discounted Cash Flows	Yield	4.6	%	20.9	%	9.0	%
					Months to Resolution⁽²⁾	15.2		47.3		28.9
Credit default swaps on asset-backed securities	1,515			Net Discounted Cash Flows	Projected Collateral Prepayments	—	%	42.0	%	36.7	%
					Projected Collateral Losses	10.6	%	16.5	%	13.2	%
					Projected Collateral Recoveries	9.7	%	18.2	%	16.7	%
					Projected Collateral Scheduled Amortization	30.9	%	37.7	%	33.4	%
										100.0	%
Agency interest only residential mortgage-backed securities	6,269			Option Adjusted Spread ("OAS")	LIBOR OAS⁽³⁾	211		3,521		753
					Projected Collateral Prepayments	38.4	%	100.0	%	66.6	%
					Projected Collateral Scheduled Amortization	0.0	%	61.6	%	33.4	%
										100.0	%
Non-exchange traded common equity investment in mortgage-related entity	2,814			Enterprise Value	Equity Price-to-Book⁽⁴⁾	1.5x		1.5x		1.5x
Non-exchange traded preferred equity investment in mortgage-related entity	27,357			Enterprise Value	Equity Price-to-Book⁽⁴⁾	1.0x		1.0x		1.0x
Non-controlling equity interest in limited liability company	7,412			Discounted Cash Flows	Yield⁽⁵⁾	10.6%		12.8%		10.9%
Other secured borrowings, at fair value⁽¹⁾	(89,569		)	Discounted Cash Flows	Yield	4.0%		4.0%		4.0%


(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 nine-month periods ended September 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 September 30, 2018



(In thousands)	Ending Balance as of June 30, 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 September 30, 2018
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	5,889		$	(509	)	$	(24	)	$	(67	)	$	773	$	(209	)	$	3,981	$	(1,055	)	$	8,779
Private label residential mortgage-backed securities	96,396			(206		)	335			(1,181		)	48,860		(16,726		)	3,942		(10,146		)	121,274
Private label commercial mortgage-backed securities	8,761			4			198			494			—		(2,415		)	—		(6,059		)	983
Commercial mortgage loans	104,951			(300		)	252			522			36,571		(16,188		)	—		—			125,808
Residential mortgage loans	293,472			(513		)	25			(400		)	117,101		(17,225		)	—		—			392,460
Collateralized loan obligations	6,109			302			(25		)	(491		)	24,115		(3,183		)	2,184		—			29,011
Consumer loans and asset-backed securities backed by consumer loans	199,254			(8,012		)	7,555			(7,615		)	54,503		(41,181		)	—		—			204,504
Corporate debt	8,850			13			87			(280		)	6,780		(7,769		)	—		—			7,681
Secured notes	11,126			405			—			(466		)	—		—			—		—			11,065
Real estate owned	34,339			—			(81		)	331			475		(120		)	—		—			34,944
Corporate equity investments	44,768			—			487			(377		)	—		(5,723		)	—		—			39,155
Total investments, at fair value	813,915			(8,816		)	8,809			(9,530		)	289,178		(110,739		)	10,107		(17,260		)	975,664
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	2,591			—			(986		)	1,307			27		(1,424		)	—		—			1,515
Total financial derivatives– assets, at fair value	2,591			—			(986		)	1,307			27		(1,424		)	—		—			1,515
Total investments and financial derivatives–assets, at fair value	$	816,506		$	(8,816	)	$	7,823		$	(8,223	)	$	289,205	$	(112,163	)	$	10,107	$	(17,260	)	$	977,179
Liabilities:
Other secured borrowings, at fair value	$	(101,100	)	$	—		$	—		$	(358	)	$	11,889	$	—		$	—	$	—		$	(89,569	)
Total other secured borrowings, at fair value	$	(101,100	)	$	—		$	—		$	(358	)	$	11,889	$	—		$	—	$	—		$	(89,569	)

All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at September 30, 2018, as well as Level 3 financial instruments disposed of by the Company during the three-month period ended September 30, 2018. For Level 3 financial instruments held by the Company at September 30, 2018, change in net unrealized gain (loss) of $(2.4) million, $(0.1) million, and $(0.4) million, for the three-month period ended September 30, 2018 relate to investments, financial derivatives–assets, and other secured borrowings, at fair value, respectively.

At September 30, 2018, the Company transferred $17.3 million of securities from Level 3 to Level 2 and $10.1 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 September 30, 2017



(In thousands)	Ending Balance as of June 30, 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 September 30, 2017
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	4,896		$	(377	)	$	(78	)	$	—		$	1,649		$	(28	)	$	772	$	(1,015	)	$	5,819
Private label residential mortgage-backed securities	79,123			261			1,018			409			3,040			(9,116		)	5,207		(6,294		)	73,648
Private label commercial mortgage-backed securities	13,809			(144		)	(752		)	934			2,100			(5,718		)	1,713		(310		)	11,632
Commercial mortgage loans	65,896			140			—			17			4,342			(2,500		)	—		—			67,895
Residential mortgage loans	136,097			(874		)	388			(1,013		)	37,170			(8,805		)	—		—			162,963
Collateralized loan obligations	42,536			346			61			(839		)	7,108			(13,416		)	—		(8,878		)	26,918
Consumer loans and asset-backed securities backed by consumer loans	108,671			(3,366		)	500			(528		)	33,125			(22,062		)	—		—			116,340
Corporate debt	20,535			(19		)	128			(415		)	409			(7,730		)	—		—			12,908
Real estate owned	24,977			—			—			49			1,137			(401		)	—		—			25,762
Corporate equity investments	35,698			—			329			(806		)	4,641			(2,535		)	—		—			37,327
Total investments, at fair value	532,238			(4,033		)	1,594			(2,192		)	94,721			(72,311		)	7,692		(16,497		)	541,212
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	5,107			—			603			(577		)	27			(630		)	—		—			4,530
Total return swaps	—			—			21			—			—			(21		)	—		—			—
Total financial derivatives– assets, at fair value	5,107			—			624			(577		)	27			(651		)	—		—			4,530
Total investments and financial derivatives–assets, at fair value	$	537,345		$	(4,033	)	$	2,218		$	(2,769	)	$	94,748		$	(72,962	)	$	7,692	$	(16,497	)	$	545,742
Liabilities:
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(207	)	$	—		$	(20	)	$	—		$	20		$	—		$	—	$	—		$	(207	)
Total return swaps	—			—			13			—			(13		)	—			—		—			—
Total financial derivatives– liabilities, at fair value	$	(207	)	$	—		$	(7	)	$	—		$	7		$	—		$	—	$	—		$	(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 September 30, 2017, as well as Level 3 financial instruments disposed of by the Company during the three-month period ended September 30, 2017. For Level 3 financial instruments held by the Company at September 30, 2017, change in net unrealized gain (loss) of $(2.9) million and $(0.6) million for the three-month period ended September 30, 2017 relate to investments and financial derivatives–assets, respectively.

At September 30, 2017, the Company transferred $16.5 million of securities from Level 3 to Level 2 and $7.7 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.

Nine-Month Period Ended September 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 September 30, 2018
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	6,173		$	(1,711	)	$	34		$	206		$	2,751	$	(1,166	)	$	3,981	$	(1,489	)	$	8,779
Private label residential mortgage-backed securities	101,297			1			2,836			(2,392		)	76,816		(43,723		)	7,139		(20,700		)	121,274
Private label commercial mortgage-backed securities	12,347			(225		)	1,815			2,111			1,480		(16,305		)	—		(240		)	983
Commercial mortgage loans	108,301			545			1,135			971			60,691		(45,835		)	—		—			125,808
Residential mortgage loans	182,472			(1,692		)	608			(1,319		)	266,925		(54,534		)	—		—			392,460
Collateralized loan obligations	24,911			345			826			(991		)	47,837		(30,309		)	—		(13,608		)	29,011
Consumer loans and asset-backed securities backed by consumer loans	135,258			(20,864		)	8,506			(30		)	179,706		(98,072		)	—		—			204,504
Corporate debt	23,947			—			235			(709		)	7,684		(16,419		)	—		(7,057		)	7,681
Secured notes	—			497			—			(700		)	11,268		—			—		—			11,065
Real estate owned	26,277			—			(527		)	945			10,045		(1,796		)	—		—			34,944
Corporate equity investments	37,465			—			1,669			3,948			9,078		(13,005		)	—		—			39,155
Total investments, at fair value	658,448			(23,104		)	17,137			2,040			674,281		(321,164		)	11,120		(43,094		)	975,664
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	3,140			—			(739		)	759			72		(1,717		)	—		—			1,515
Total financial derivatives– assets, at fair value	3,140			—			(739		)	759			72		(1,717		)	—		—			1,515
Total investments and financial derivatives–assets, at fair value	$	661,588		$	(23,104	)	$	16,398		$	2,799		$	674,353	$	(322,881	)	$	11,120	$	(43,094	)	$	977,179
Liabilities:
Other secured borrowings, at fair value	$	(125,105	)	$	—		$	—		$	840		$	34,696	$	—		$	—	$	—		$	(89,569	)
Total other secured borrowings, at fair value	$	(125,105	)	$	—		$	—		$	840		$	34,696	$	—		$	—	$	—		$	(89,569	)

All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at September 30, 2018, as well as Level 3 financial instruments disposed of by the Company during the nine-month period ended September 30, 2018. For Level 3 financial instruments held by the Company at September 30, 2018, change in net unrealized gain (loss) of $1.8 million, $(0.6) million, and $0.8 million, for the nine-month period ended September 30, 2018 relate to investments, financial derivatives–assets, and other secured borrowings, at fair value, respectively.

At September 30, 2018, the Company transferred $43.1 million of securities from Level 3 to Level 2 and $11.1 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.

Nine-Month Period Ended September 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 September 30, 2017
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	29,622		$	(7,233	)	$	(515	)	$	(140	)	$	3,962	$	(153	)	$	—	$	(19,724	)	$	5,819
Private label residential mortgage-backed securities	90,083			1,672			1,334			7,319			31,117		(37,278		)	15,043		(35,642		)	73,648
Private label commercial mortgage-backed securities	43,268			574			(3,434		)	7,873			2,120		(31,542		)	—		(7,227		)	11,632
Commercial mortgage loans	61,129			771			416			1,167			31,887		(27,475		)	—		—			67,895
Residential mortgage loans	84,290			(196		)	1,469			(1,090		)	108,356		(29,866		)	—		—			162,963
Collateralized loan obligations	44,956			(5,702		)	1,477			2,135			52,269		(54,305		)	—		(13,912		)	26,918
Consumer loans and asset-backed securities backed by consumer loans	107,157			(9,631		)	426			(247		)	83,138		(64,503		)	—		—			116,340
Corporate debt	25,004			236			676			(229		)	83,900		(96,679		)	—		—			12,908
Real estate owned	3,349			—			424			(246		)	25,348		(3,113		)	—		—			25,762
Corporate equity investments	29,392			—			1,848			(1,529		)	16,416		(8,800		)	—		—			37,327
Total investments, at fair value	518,250			(19,509		)	4,121			15,013			438,513		(353,714		)	15,043		(76,505		)	541,212
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	5,326			—			971			(796		)	95		(1,066		)	—		—			4,530
Total return swaps	155			—			243			(155		)	—		(243		)	—		—			—
Warrants	106			—			(100		)	(6		)	—		—			—		—			—
Total financial derivatives– assets, at fair value	5,587			—			1,114			(957		)	95		(1,309		)	—		—			4,530
Total investments and financial derivatives–assets, at fair value	$	523,837		$	(19,509	)	$	5,235		$	14,056		$	438,608	$	(355,023	)	$	15,043	$	(76,505	)	$	545,742
Liabilities:
Financial derivatives– liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(256	)	$	—		$	(485	)	$	477		$	485	$	(428	)	$	—	$	—		$	(207	)
Total return swaps	(249		)	—			(279		)	249			291		(12		)	—		—			—
Total financial derivatives– liabilities, at fair value	$	(505	)	$	—		$	(764	)	$	726		$	776	$	(440	)	$	—	$	—		$	(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 September 30, 2017, as well as Level 3 financial instruments disposed of by the Company during the nine-month period ended September 30, 2017. For Level 3 financial instruments held by the Company at September 30, 2017, change in net unrealized gain (loss) of $2.8 million, $(0.8) million, and $49 thousand, for the nine-month period ended September 30, 2017 relate to investments, financial derivatives–assets, and financial derivatives–liabilities, respectively.

At September 30, 2017, the Company transferred $76.5 million of securities from Level 3 to Level 2 and $15.0 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.

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 $85.6 million as of both September 30, 2018 and December 31, 2017. 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.