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Valuation

12 Months Ended

Dec. 31, 2020

The tables below reflect the value of the Company's Level 1, Level 2, and Level 3 financial instruments that are measured at fair value on a recurring basis as of December 31, 2020 and 2019:

December 31, 2020:


Description	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Securities, at fair value:
Agency RMBS	$	—	$	947,780	$	11,663	$	959,443
Non-Agency RMBS	—		76,276		127,838		204,114
CMBS	—		54,505		63,148		117,653
CLOs	—		70,171		111,100		181,271
Asset-backed securities, backed by consumer loans	—		—		44,925		44,925
Corporate debt securities	—		1,107		4,082		5,189
Corporate equity securities	—		—		1,590		1,590
Loans, at fair value:
Residential mortgage loans	—		—		1,187,069		1,187,069
Commercial mortgage loans	—		—		213,031		213,031
Consumer loans	—		—		47,525		47,525
Corporate loans	—		—		5,855		5,855
Investment in unconsolidated entities, at fair value	—		—		141,620		141,620
Financial derivatives–assets, at fair value:
Credit default swaps on asset-backed securities	—		—		347		347
Credit default swaps on asset-backed indices	—		2,184		—		2,184
Credit default swaps on corporate bond indices	—		3,420		—		3,420
Interest rate swaps	—		8,519		—		8,519
TBAs	—		962		—		962
Total return swaps	—		—		9		9
Warrants	—		36		—		36
Futures	2		—		—		2
Total assets	$	2	$	1,164,960	$	1,959,802	$	3,124,764


Description	Level 1		Level 2		Level 3		Total
(continued)	(In thousands)
Liabilities:
Securities sold short, at fair value:
Government debt	$	—	$	(38,424)	$	—	$	(38,424)
Corporate debt securities	—		(218)		—		(218)
Financial derivatives–liabilities, at fair value:
Credit default swaps on asset-backed indices	—		(130)		—		(130)
Credit default swaps on corporate bonds	—		(747)		—		(747)
Credit default swaps on corporate bond indices	—		(6,438)		—		(6,438)
Interest rate swaps	—		(15,174)		—		(15,174)
TBAs	—		(925)		—		(925)
Futures	(376)		—		—		(376)
Forwards	—		(279)		—		(279)
Total return swaps	—		—		(484)		(484)
Other secured borrowings, at fair value	—		—		(754,921)		(754,921)
Total liabilities	$	(376)	$	(62,335)	$	(755,405)	$	(818,116)

December 31, 2019:


Description	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Securities, at fair value:
Agency RMBS	$	—	$	1,917,059	$	19,904	$	1,936,963
Non-Agency RMBS	—		76,969		89,581		166,550
CMBS	—		95,063		29,805		124,868
CLOs	—		125,464		44,979		170,443
Asset-backed securities, backed by consumer loans	—		—		48,610		48,610
Corporate debt securities	—		—		1,113		1,113
Corporate equity securities	—		—		1,394		1,394
Loans, at fair value:
Residential mortgage loans	—		—		932,203		932,203
Commercial mortgage loans	—		—		274,759		274,759
Consumer loans	—		—		186,954		186,954
Corporate loans	—		—		18,510		18,510
Investment in unconsolidated entities, at fair value	—		—		71,850		71,850
Financial derivatives–assets, at fair value:
Credit default swaps on asset-backed securities	—		—		993		993
Credit default swaps on asset-backed indices	—		3,319		—		3,319
Credit default swaps on corporate bonds	—		2		—		2
Credit default swaps on corporate bond indices	—		5,599		—		5,599
Interest rate swaps	—		5,468		—		5,468
TBAs	—		596		—		596
Total return swaps	—		—		620		620
Futures	148		—		—		148
Forwards	—		43		—		43
Total assets	$	148	$	2,229,582	$	1,721,275	$	3,951,005


Description	Level 1		Level 2		Level 3		Total
(continued)	(In thousands)
Liabilities:
Securities sold short, at fair value:
Government debt	$	—	$	(72,938)	$	—	$	(72,938)
Corporate debt securities	—		(471)		—		(471)
Financial derivatives–liabilities, at fair value:
Credit default swaps on asset-backed indices	—		(250)		—		(250)
Credit default swaps on corporate bonds	—		(1,693)		—		(1,693)
Credit default swaps on corporate bond indices	—		(14,524)		—		(14,524)
Interest rate swaps	—		(8,719)		—		(8,719)
TBAs	—		(1,012)		—		(1,012)
Futures	(45)		—		—		(45)
Forwards	—		(169)		—		(169)
Total return swaps	—		(773)		(436)		(1,209)
Other secured borrowings, at fair value	—		—		(594,396)		(594,396)
Total liabilities	$	(45)	$	(100,549)	$	(594,832)	$	(695,426)

The following tables identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of December 31, 2020 and 2019:

December 31, 2020:


	Fair Value		Valuation Technique	Unobservable Input	Range						Weighted Average
Description					Min			Max
	(In thousands)
Non-Agency RMBS	$	70,619	Market Quotes	Non Binding Third-Party Valuation	$	9.53		$	204.61		$	85.70
	57,219		Discounted Cash Flows
	127,838			Yield(1)	0.7		%	52.6		%	7.4		%
				Projected Collateral Prepayments	—		%	99.1		%	45.3		%
				Projected Collateral Losses	0.4		%	72.6		%	18.4		%
				Projected Collateral Recoveries	—		%	79.1		%	16.8		%
Non-Agency CMBS	53,199		Market Quotes	Non Binding Third-Party Valuation	$	4.79		$	98.00		$	65.20
	9,949		Discounted Cash Flows
	63,148			Yield	3.7		%	26.3		%	8.7		%
				Projected Collateral Prepayments	—		%	—		%	—		%
				Projected Collateral Losses	0.7		%	10.7		%	3.6		%
				Projected Collateral Recoveries	72.4		%	96.1		%	90.6		%
CLOs	102,910		Market Quotes	Non Binding Third-Party Valuation	$	2.00		$	330.00		$	88.66
	8,190		Discounted Cash Flows
	111,100			Yield	3.4		%	35.4		%	10.5		%
				Projected Collateral Prepayments	41.2		%	97.7		%	65.7		%
				Projected Collateral Losses	1.7		%	28.9		%	11.2		%
				Projected Collateral Recoveries	0.6		%	15.2		%	7.9		%
Agency interest only RMBS	4,844		Market Quotes	Non Binding Third-Party Valuation	$	1.91		$	18.91		$	8.38
	6,819		Option Adjusted Spread ("OAS")
	11,663			LIBOR OAS(2)(3)	297			2,886			914
				Projected Collateral Prepayments	8.3		%	100.0		%	75.9		%
ABS backed by consumer loans	97		Market Quotes	Non Binding Third-Party Valuation	$	96.51		$	98.43		$	97.33
	44,828		Discounted Cash Flows
	44,925			Yield	12.6		%	27.5		%	15.6		%
				Projected Collateral Prepayments	0.0		%	11.6		%	7.7		%
				Projected Collateral Losses	1.0		%	21.1		%	17.1		%
Corporate debt and equity	5,672		Discounted Cash Flows	Yield	8.1		%	10.8		%	9.7		%
Performing and re-performing residential mortgage loans	338,265		Discounted Cash Flows	Yield	2.5		%	28.5		%	5.4		%
	15,659		Recent Transactions	Transaction Price	$	60.00		$	103.88		$	103.44
	353,924


	Fair Value		Valuation Technique	Unobservable Input	Range						Weighted Average
Description					Min			Max
(continued)	(In thousands)
Securitized residential mortgage loans(4)(5)	$	783,162	Market Quotes	Non Binding Third-Party Valuation	$	5.34		$	105.61		$	100.22
	18,182		Discounted Cash Flows
	801,343			Yield	—		%	38.7		%	4.4		%
Non-performing residential mortgage loans	31,802		Discounted Cash Flows	Yield	1.2		%	41.0		%	12.1		%
				Recovery Amount	0.9		%	1713.0		%	30.6		%
				Months to Resolution	0.0			106.6			30.0
Performing commercial mortgage loans	181,545		Discounted Cash Flows	Yield	3.7		%	9.7		%	8.1		%
Non-performing commercial mortgage loans	31,486		Discounted Cash Flows	Yield	8.6		%	14.6		%	10.8		%
				Recovery Amount	100.0		%	102.4		%	100.8		%
				Months to Resolution	1.8			5.8			3.7
Consumer loans	47,525		Discounted Cash Flows	Yield	7.8		%	28.1		%	11.2		%
				Projected Collateral Prepayments	0.0		%	36.0		%	17.3		%
				Projected Collateral Losses	0.9		%	86.6		%	9.4		%
Corporate loans	5,855		Market Quotes	Non Binding Third-Party Valuation	$	100.00		$	100.00		$	100.00
				Yield	21.1		%	21.1		%	21.1		%
Investment in unconsolidated entities	141,620		Enterprise Value	Equity Price-to-Book(6)	1.0x			6.2x			1.4x
Total return swaps—asset	9		Discounted Cash Flows	Yield	22.0		%	22.0		%	22.0		%
Credit default swaps on asset-backed securities	347		Net Discounted Cash Flows	Projected Collateral Prepayments	32.7		%	39.7		%	38.1		%
				Projected Collateral Losses	6.6		%	10.8		%	8.9		%
				Projected Collateral Recoveries	13.9		%	18.1		%	15.6		%
Total return swaps—liability	(484)		Discounted Cash Flows	Yield	16.8%			16.8%			16.8%
Other secured borrowings, at fair value(4)	(754,921)		Market Quotes	Non Binding Third-Party Valuation	$	85.37		$	105.61		$	102.04
				Yield	1.6%			3.0%			2.6%
				Projected Collateral Prepayments	—%			75.3%			48.7%

(1)For the range minimum, the range maximum, and the weighted average yield, excludes non-Agency RMBS with a negative yield, with a total fair value of $0.3 million. Including these securities the weighted average yield was 7.3%.

(2)Shown in basis points.

(3)For range minimum, range maximum, and the weighted average of LIBOR OAS, excludes Agency interest only securities with a negative LIBOR OAS, with a total fair value of $4.5 million. Including these securities the weighted average was 396 basis points.

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

(5)Includes $26.4 million of non-performing securitized residential mortgage loans.

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

December 31, 2019(1):


	Fair Value		Valuation Technique	Unobservable Input	Range						Weighted Average
Description					Min			Max
	(In thousands)
Non-Agency RMBS	$	38,754	Market Quotes	Non Binding Third-Party Valuation	$	6.68		$	144.79		$	86.21
	50,827		Discounted Cash Flows
	89,581			Yield(2)	0.5		%	65.1		%	8.1		%
				Projected Collateral Prepayments	0.8		%	76.5		%	53.1		%
				Projected Collateral Losses	0.1		%	48.9		%	17.7		%
				Projected Collateral Recoveries	—		%	32.4		%	6.5		%
Non-Agency CMBS	29,630		Market Quotes	Non Binding Third-Party Valuation	$	5.08		$	80.72		$	64.73
	175		Discounted Cash Flows
	29,805			Yield	3.7		%	15.7		%	7.6		%
				Projected Collateral Prepayments	—		%	100.0		%	0.6		%
				Projected Collateral Losses	—		%	3.0		%	0.2		%
				Projected Collateral Recoveries	—		%	10.6		%	2.0		%
CLOs	38,220		Market Quotes	Non Binding Third-Party Valuation	$	40.00		$	96.00		$	73.98
	6,759		Discounted Cash Flows
	44,979			Yield	3.2		%	41.9		%	14.0		%
				Projected Collateral Prepayments	48.5		%	88.3		%	83.2		%
				Projected Collateral Losses	4.7		%	36.4		%	8.8		%
				Projected Collateral Recoveries	3.7		%	15.1		%	5.7		%
Agency interest only RMBS	3,753		Market Quotes	Non Binding Third-Party Valuation	$	1.36		$	16.61		$	5.11
	16,151		Option Adjusted Spread ("OAS")
	19,904			LIBOR OAS(3)(4)	93			3,527			583
				Projected Collateral Prepayments	12.3		%	100.0		%	70.5		%
ABS backed by consumer loans	139		Market Quotes	Non Binding Third-Party Valuation	$	95.47		$	96.78		$	96.12
	48,471		Discounted Cash Flows
	48,610			Yield	3.8		%	34.2		%	12.7		%
				Projected Collateral Prepayments	0.0		%	11.2		%	9.7		%
				Projected Collateral Losses	0.6		%	18.0		%	15.4		%
Corporate debt and equity	2,507		Discounted Cash Flows	Yield	7.2		%	10.0		%	8.8		%
Performing and re-performing residential mortgage loans	289,672		Discounted Cash Flows	Yield	0.4		%	19.5		%	6.3		%
Securitized residential mortgage loans(5)(6)	621,762		Market Quotes	Non Binding Third-Party Valuation	$	2.56		$	100.45		$	98.23
	6,653		Discounted Cash Flows
	628,415			Yield	3.2		%	4.3		%	3.6		%


	Fair Value		Valuation Technique	Unobservable Input	Range						Weighted Average
Description					Min			Max
(Continued)	(In thousands)
Non-performing residential mortgage loans	$	14,116	Discounted Cash Flows	Yield	1.0		%	26.6		%	9.2		%
				Recovery Amount	28.0		%	464.3		%	94.3		%
				Months to Resolution	1.1			165.4			56.3
Performing commercial mortgage loans	248,214		Discounted Cash Flows	Yield	7.7		%	16.6		%	8.8		%
Non-performing commercial mortgage loans	26,545		Discounted Cash Flows	Yield	9.8		%	14.7		%	12.4		%
				Recovery Amount	100.0		%	100.0		%	100.0		%
				Months to Resolution	1.1			23.0			11.4
Consumer loans	186,954		Discounted Cash Flows	Yield	6.7		%	19.6		%	9.4		%
				Projected Collateral Prepayments	0.0		%	44.2		%	16.0		%
				Projected Collateral Losses	3.7		%	84.5		%	8.6		%
Corporate loans	6,010		Market Quotes	Non Binding Third-Party Valuation	$	100.00		$	100.00		$	100.00
	12,500		Discounted Cash Flows
	18,510			Yield	15.0		%	21.0		%	17.8		%
Investment in unconsolidated entities	71,850		Enterprise Value	Equity Price-to-Book(7)	1.0x			4.7x			1.4x
Total return swaps—asset	620		Discounted Cash Flows	Yield	8.5		%	27.7		%	11.5		%
Credit default swaps on asset-backed securities	993		Net Discounted Cash Flows	Projected Collateral Prepayments	35.4		%	42.0		%	37.3		%
				Projected Collateral Losses	4.2		%	12.4		%	10.2		%
				Projected Collateral Recoveries	10.0		%	18.2		%	15.3		%
Total return swaps—liability	(436)		Discounted Cash Flows	Yield	27.7%			27.7%			27.7%
Other secured borrowings, at fair value(5)	(594,396)		Market Quotes	Non Binding Third-Party Valuation	97.77			100.45			100.61
				Yield	2.9%			4.0%			3.3%
				Projected Collateral Prepayments	—%			96.6%			57.2%

(1)Conformed to current period presentation.

(2)For the range minimum, the range maximum, and the weighted average yield, excludes non-Agency RMBS with a negative yield, with a total fair value of $0.6 million. Including these securities the weighted average yield was 8.0%.

(3)Shown in basis points.

(4)For range minimum, range maximum, and the weighted average of LIBOR OAS, excludes Agency interest only securities with a negative LIBOR OAS, with a total fair value of $0.3 million. Including these securities the weighted average was 576 basis points.

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

(6)Includes $1.5 million of non-performing securitized residential mortgage loans.

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

Third-party non-binding valuations are validated by comparing such valuations to internally generated prices based on the Company's models and, when available, 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 ("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 Company considers the expected timeline to resolution in the determination of fair value for its non-performing commercial and residential mortgage 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 tables below includes a roll-forward of the Company's financial instruments for the years ended December 31, 2020 and 2019 (including the change in fair value), for financial instruments classified by the Company within Level 3 of the valuation hierarchy.

Year Ended December 31, 2020


(In thousands)	Beginning Balance as of December 31, 2019		Accreted Discounts / (Amortized Premiums)		Net Realized Gain/ (Loss)		Change in Net Unrealized Gain/(Loss)		Purchases/Payments(1)		Sales/Issuances(2)		Transfers Into Level 3		Transfers Out of Level 3		Ending Balance as of December 31, 2020
Assets:
Securities, at fair value:
Agency RMBS	$	19,904	$	(7,903)	$	722	$	3,175	$	8,307	$	(5,046)	$	1,083	$	(8,579)	$	11,663
Non-Agency RMBS	89,581		1,557		1,009		(1,283)		64,362		(40,841)		17,425		(3,972)		127,838
CMBS	29,805		813		62		(2,477)		52,915		(38,553)		20,583		—		63,148
CLOs	44,979		2,185		(8,862)		(13,132)		48,120		(6,747)		53,052		(8,495)		111,100
Asset-backed securities backed by consumer loans	48,610		(4,986)		(138)		(1,245)		30,899		(28,215)		—		—		44,925
Corporate debt securities	1,113		—		914		1,068		5,668		(4,681)		—		—		4,082
Corporate equity securities	1,394		—		7		(165)		366		(12)		—		—		1,590
Loans, at fair value:
Residential mortgage loans	932,203		(6,445)		(165)		11,593		594,397		(344,514)		—		—		1,187,069
Commercial mortgage loans	274,759		128		135		(166)		121,844		(183,669)		—		—		213,031
Consumer loans	186,954		(24,586)		(4,843)		(2,891)		141,245		(248,354)		—		—		47,525
Corporate loan	18,510		—		—		—		1,445		(14,100)		—		—		5,855
Investments in unconsolidated entities, at fair value	71,850		—		424		37,509		61,589		(29,752)		—		—		141,620
Financial derivatives–assets, at fair value:
Credit default swaps on asset-backed securities	993		—		(5,451)		5,402		24		(621)		—		—		347
Total return swaps	620		—		288		(611)		126		(414)		—		—		9
Total assets, at fair value	$	1,721,275	$	(39,237)	$	(15,898)	$	36,777	$	1,131,307	$	(945,519)	$	92,143	$	(21,046)	$	1,959,802
Liabilities:
Financial derivatives–liabilities, at fair value:
Total return swaps	$	(436)	$	—	$	(551)	$	(48)	$	592	$	(41)	$	—	$	—	$	(484)
Other secured borrowings, at fair value	(594,396)		—		—		(9,576)		305,828		(456,777)		—		—		(754,921)
Total liabilities, at fair value	$	(594,832)	$	—	$	(551)	$	(9,624)	$	306,420	$	(456,818)	$	—	$	—	$	(755,405)

(1)For Investments in unconsolidated entities, at fair value, amount represents contributions to investments in unconsolidated entities.

(2)For Investments in unconsolidated entities, at fair value, amount represents distributions from investments in unconsolidated entities.

All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at December 31, 2020, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2020. For Level 3 financial instruments held by the Company at December 31, 2020, change in net unrealized gain (loss) of $(33.3) million, $8.6 million, $37.1 million, $0.5 million, $(0.5) million, and $(9.6) million, for the year ended December 31, 2020 relate to securities, loans, investments in unconsolidated entities, financial derivatives–assets, financial derivatives–liabilities, and other secured borrowings, at fair value, respectively.

At December 31, 2020, the Company transferred $21.0 million of assets from Level 3 to Level 2 and $92.1 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.

Year Ended December 31, 2019


(In thousands)	Beginning Balance as of January 1, 2019		Accreted Discounts / (Amortized Premiums)		Net Realized Gain/ (Loss)		Change in Net Unrealized Gain/(Loss)		Purchases/ Payments(1)		Sales/ Issuances(2)		Transfers Into Level 3		Transfers Out of Level 3		Ending Balance as of December 31, 2019
Assets:
Securities, at fair value:
Agency RMBS	$	7,293	$	(3,464)	$	(1,787)	$	808	$	13,818	$	(1,306)	$	5,370	$	(828)	$	19,904
Non-Agency RMBS	91,291		270		5,636		(3,654)		21,512		(33,664)		15,354		(7,164)		89,581
CMBS	803		16		180		(246)		31,464		(5,271)		2,859		—		29,805
CLOs	14,915		(268)		(3,190)		2,329		25,531		(5,112)		11,984		(1,210)		44,979
Asset-backed securities backed by consumer loans	22,800		(2,520)		(891)		873		42,137		(13,789)		—		—		48,610
Corporate debt securities	6,318		22		(1,341)		188		11,024		(15,098)		—		—		1,113
Corporate equity securities	1,534		—		(1,807)		205		1,462		—		—		—		1,394
Loans, at fair value:
Residential mortgage loans	496,830		(6,081)		1,466		8,800		661,813		(230,625)		—		—		932,203
Commercial mortgage loans	195,301		(282)		2,412		(2,083)		175,689		(96,278)		—		—		274,759
Consumer loans	183,961		(28,521)		(6,291)		3,000		183,994		(149,189)		—		—		186,954
Corporate loan	—		36		—		(36)		18,510		—		—		—		18,510
Investment in unconsolidated entities, at fair value	72,298		—		1,545		8,664		42,173		(52,830)		—		—		71,850
Financial derivatives–assets, at fair value:
Credit default swaps on asset-backed securities	1,472		—		528		(479)		33		(561)		—		—		993
Total return swaps	—		—		160		620		—		(160)		—		—		620
Total assets, at fair value	$	1,094,816	$	(40,792)	$	(3,380)	$	18,989	$	1,229,160	$	(603,883)	$	35,567	$	(9,202)	$	1,721,275
Liabilities:
Financial derivatives–liabilities, at fair value:
Total return swaps	$	—	$	—	$	(15)	$	(436)	$	15	$	—	$	—	$	—	$	(436)
Other secured borrowings, at fair value	(297,948)		—		—		(502)		182,291		(478,237)		—		—		(594,396)
Total liabilities, at fair value	$	(297,948)	$	—	$	(15)	$	(938)	$	182,306	$	(478,237)	$	—	$	—	$	(594,832)

(1)For Investments in unconsolidated entities, at fair value, amount represents contributions to investments in unconsolidated entities.

(2)For Investments in unconsolidated entities, at fair value, amount represents distributions from investments in unconsolidated entities.

financial instruments held by the Company at December 31, 2019, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2019. For Level 3 financial instruments held by the Company at December 31, 2019, change in net unrealized gain (loss) of $2.4 million, $11.5 million, $5.2 million, $0.1 million, $(0.4) million, and $0.1 million, for the year ended December 31, 2019 relate to securities, loans, investments in unconsolidated entities, financial derivatives–assets, financial derivatives–liabilities, and other secured borrowings, at fair value, respectively.

At December 31, 2019, the Company transferred $9.2 million of assets from Level 3 to Level 2 and $35.6 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.

The following table summarizes the estimated fair value of all other financial instruments not measured at fair value on a recurring basis as of December 31, 2020 and 2019:


	As of
	December 31, 2020				December 31, 2019
(In thousands)	Fair Value		Carrying Value		Fair Value		Carrying Value
Other financial instruments
Assets:
Cash and cash equivalents	$	111,647	$	111,647	$	72,302	$	72,302
Restricted cash	175		175		175		175
Due from brokers	63,147		63,147		79,829		79,829
Reverse repurchase agreements	38,640		38,640		73,639		73,639
Liabilities:
Repurchase agreements	1,496,931		1,496,931		2,445,300		2,445,300
Other secured borrowings	51,062		51,062		150,334		150,334
Senior notes, net	86,000		85,561		88,365		85,298
Due to brokers	5,059		5,059		2,197		2,197

Cash and cash equivalents generally includes cash held in interest bearing overnight accounts, for which fair value equals the carrying value, and investments which are liquid in nature, such as investments in money market accounts or U.S. Treasury Bills, for which fair value equals the carrying value; such assets are considered Level 1. Restricted cash includes cash held in a segregated account for which fair value equals the carrying value; such assets are considered Level 1. 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; fair value of these items is approximated by carrying value and such items are considered Level 1. The Company's reverse repurchase agreements, repurchase agreements, and other secured borrowings are carried at cost, which approximates fair value due to their short term nature. Reverse repurchase agreements, repurchase agreements, and other secured borrowings are classified as Level 2 based on the adequacy of the collateral and their short term nature. Senior notes, net 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. As of December 31, 2020 and 2019, the estimated fair value of the Company's Senior notes was based on a third-party valuation.

Valuation

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


Description	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash equivalents	$	12,460	$	—	$	—	$	12,460
Investments, at fair value-
Agency residential mortgage-backed securities	$	—	$	1,442,924	$	7,293	$	1,450,217
U.S. Treasury securities	—		76		—		76
Private label residential mortgage-backed securities	—		211,348		91,291		302,639
Private label commercial mortgage-backed securities	—		33,105		803		33,908
Commercial mortgage loans	—		—		211,185		211,185
Residential mortgage loans	—		—		496,830		496,830
Collateralized loan obligations	—		108,978		14,915		123,893
Consumer loans and asset-backed securities backed by consumer loans	—		—		206,761		206,761
Corporate debt	—		16,074		6,318		22,392
Secured notes	—		—		10,917		10,917
Real estate owned	—		—		34,500		34,500
Common stock	2,200		—		—		2,200
Corporate equity investments	—		—		43,793		43,793
Total investments, at fair value	2,200		1,812,505		1,124,606		2,939,311
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	—		—		1,472		1,472
Credit default swaps on corporate bond indices	—		733		—		733
Credit default swaps on corporate bonds	—		2,473		—		2,473
Credit default swaps on asset-backed indices	—		8,092		—		8,092
Total return swaps	—		1		—		1
Interest rate swaps	—		7,224		—		7,224
Forwards	—		6		—		6
Total financial derivatives–assets, at fair value	—		18,529		1,472		20,001
Repurchase agreements, at fair value	—		61,274		—		61,274
Total investments, financial derivatives–assets, and repurchase agreements, at fair value	$	2,200	$	1,892,308	$	1,126,078	$	3,020,586
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—	$	(772,964)	$	—	$	(772,964)
Government debt	—		(54,151)		—		(54,151)
Corporate debt	—		(6,529)		—		(6,529)
Common stock	(16,933)		—		—		(16,933)
Total investments sold short, at fair value	(16,933)		(833,644)		—		(850,577)


Description	Level 1		Level 2		Level 3		Total
(continued)	(In thousands)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	$	—	$	(11,557)	$	—	$	(11,557)
Credit default swaps on corporate bonds	—		(3,246)		—		(3,246)
Credit default swaps on asset-backed indices	—		(2,125)		—		(2,125)
Interest rate swaps	—		(3,397)		—		(3,397)
Total return swaps	—		(6)		—		(6)
Futures	(355)		—		—		(355)
Forwards	—		(120)		—		(120)
Total financial derivatives–liabilities, at fair value	(355)		(20,451)		—		(20,806)
Other secured borrowings, at fair value	—		—		(297,948)		(297,948)
Total investments sold short, financial derivatives–liabilities, and other secured borrowings, at fair value	$	(17,288)	$	(854,095)	$	(297,948)	$	(1,169,331)

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, 2018:


	Fair Value		Valuation Technique	Unobservable Input	Range						Weighted Average
Description					Min			Max
	(In thousands)
Private label residential mortgage-backed securities	$	36,945	Market Quotes	Non Binding Third-Party Valuation	$	17.42		$	178.00		$	78.31
Collateralized loan obligations	5,828		Market Quotes	Non Binding Third-Party Valuation	2.64			375.00			167.78
Corporate debt, non-exchange traded corporate equity, and secured notes	13,976		Market Quotes	Non Binding Third-Party Valuation	9.69			91.00			59.18
Private label commercial mortgage-backed securities	576		Market Quotes	Non Binding Third-Party Valuation	5.93			6.36			6.14
Agency interest only residential mortgage-backed securities	744		Market Quotes	Non Binding Third-Party Valuation	1.70			9.12			5.64
Private label residential mortgage-backed securities	54,346		Discounted Cash Flows	Yield	3.5		%	66.1		%	10.7		%
				Projected Collateral Prepayments	16.0		%	92.1		%	50.4		%
				Projected Collateral Losses	0.0		%	23.1		%	8.7		%
				Projected Collateral Recoveries	1.5		%	14.6		%	7.3		%
				Projected Collateral Scheduled Amortization	6.1		%	61.8		%	33.6		%
											100.0		%
Private label commercial mortgage-backed securities	227		Discounted Cash Flows	Yield	3.4		%	3.4		%	3.4		%
				Projected Collateral Losses	2.0		%	2.0		%	2.0		%
				Projected Collateral Recoveries	6.6		%	6.6		%	6.6		%
				Projected Collateral Scheduled Amortization	91.4		%	91.4		%	91.4		%
											100.0		%
Corporate debt and non-exchange traded corporate equity	4,793		Discounted Cash Flows	Yield	17.5		%	17.5		%	17.5		%


(continued)	Fair Value		Valuation Technique	Unobservable Input	Range				Weighted Average
Description					Min		Max
	(In thousands)
Collateralized loan obligations	$	9,087	Discounted Cash Flows	Yield	12.6	%	103.1	%	26.7	%
				Projected Collateral Prepayments	8.1	%	88.4	%	65.2	%
				Projected Collateral Losses	3.7	%	40.8	%	13.5	%
				Projected Collateral Recoveries	4.2	%	38.0	%	11.9	%
				Projected Collateral Scheduled Amortization	3.5	%	13.5	%	9.4	%
									100.0	%
Consumer loans and asset-backed securities backed by consumer loans	206,761		Discounted Cash Flows	Yield	7.0	%	18.3	%	8.5	%
				Projected Collateral Prepayments	0.0	%	45.9	%	33.5	%
				Projected Collateral Losses	2.6	%	84.8	%	9.1	%
				Projected Collateral Scheduled Amortization	15.2	%	96.6	%	57.4	%
									100.0	%
Performing commercial mortgage loans	163,876		Discounted Cash Flows	Yield	8.0	%	22.5	%	9.6	%
Non-performing commercial mortgage loans and commercial real estate owned	80,513		Discounted Cash Flows	Yield	9.6	%	27.4	%	13.2	%
				Months to Resolution	3.0		16.0		7.9
Performing residential mortgage loans	171,367		Discounted Cash Flows	Yield	2.7	%	12.9	%	6.0	%
Securitized residential mortgage loans(1)	314,202		Discounted Cash Flows	Yield	4.3	%	4.6	%	4.6	%
Non-performing residential mortgage loans and residential real estate owned	12,557		Discounted Cash Flows	Yield	4.3	%	25.1	%	11.3	%
				Months to Resolution(2)	1.9		42.2		27.8
Credit default swaps on asset-backed securities	1,472		Net Discounted Cash Flows	Projected Collateral Prepayments	33.6	%	42.0	%	36.5	%
				Projected Collateral Losses	11.1	%	15.6	%	12.8	%
				Projected Collateral Recoveries	10.3	%	18.7	%	15.8	%
				Projected Collateral Scheduled Amortization	32.0	%	36.5	%	34.9	%
									100.0	%
Agency interest only residential mortgage-backed securities	6,549		Option Adjusted Spread ("OAS")	LIBOR OAS(3)	211		3,521		677
				Projected Collateral Prepayments	37.7	%	100.0	%	66.2	%
				Projected Collateral Scheduled Amortization	0.0	%	62.3	%	33.8	%
									100.0	%
Non-exchange traded common equity investment in mortgage-related entity	6,750		Enterprise Value	Equity Price-to-Book(4)	3.3x		3.3x		3.3x
Non-exchange traded preferred equity investment in mortgage-related entity	27,317		Enterprise Value	Equity Price-to-Book(4)	1.1x		1.1x		1.1x
Non-exchange traded preferred equity investment in loan origination entity	3,000		Recent Transactions	Transaction Price	N/A		N/A		N/A
Non-controlling equity interest in limited liability company	5,192		Discounted Cash Flows	Yield(5)	12.9%		16.1%		15.4%
Other secured borrowings, at fair value(1)	(297,948)		Discounted Cash Flows	Yield	3.9%		4.4%		4.3%

(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 mortgage loans.

The tables below include a roll-forward of the Company's financial instruments for the year ended December 31, 2018 (including the change in fair value), for financial instruments classified by the Company within Level 3 of the valuation hierarchy.

Level 3—Fair Value Measurement Using Significant Unobservable Inputs:

Year Ended December 31, 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 December 31, 2018
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	6,173	$	(2,233)	$	(10)	$	175	$	2,753	$	(1,169)	$	2,616	$	(1,012)	$	7,293
Private label residential mortgage-backed securities	101,297		383		1,838		(2,135)		75,685		(78,487)		7,074		(14,364)		91,291
Private label commercial mortgage-backed securities	12,347		(243)		2,229		2,120		1,481		(16,896)		—		(235)		803
Commercial mortgage loans	108,301		790		1,146		1,944		149,053		(50,049)		—		—		211,185
Residential mortgage loans	182,472		(1,965)		1,011		(34)		402,235		(86,889)		—		—		496,830
Collateralized loan obligations	24,911		(351)		317		(2,268)		33,549		(33,115)		3,959		(12,087)		14,915
Consumer loans and asset-backed securities backed by consumer loans	135,258		(29,320)		8,415		(1,092)		228,354		(134,854)		—		—		206,761
Corporate debt	23,947		56		241		(964)		7,665		(17,688)		—		(6,939)		6,318
Secured notes	—		870		—		(1,221)		11,268		—		—		—		10,917
Real estate owned	26,277		—		(653)		(1,003)		12,793		(2,914)		—		—		34,500
Corporate equity investments	37,465		—		1,671		8,299		12,708		(16,350)		—		—		43,793
Total investments, at fair value	658,448		(32,013)		16,205		3,821		937,544		(438,411)		13,649		(34,637)		1,124,606
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	3,140		—		(687)		715		102		(1,798)		—		—		1,472
Total financial derivatives– assets, at fair value	3,140		—		(687)		715		102		(1,798)		—		—		1,472
Total investments and financial derivatives–assets, at fair value	$	661,588	$	(32,013)	$	15,518	$	4,536	$	937,646	$	(440,209)	$	13,649	$	(34,637)	$	1,126,078
Liabilities:
Other secured borrowings, at fair value	$	(125,105)	$	—	$	—	$	758	$	49,731	$	(223,332)	$	—	$	—	$	(297,948)
Total other secured borrowings, at fair value	$	(125,105)	$	—	$	—	$	758	$	49,731	$	(223,332)	$	—	$	—	$	(297,948)

All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at December 31, 2018, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2018. For Level 3 financial instruments held by the Company at December 31, 2018, change in net unrealized gain (loss) of $5.3 million, $(0.6) million, and $0.8 million, for the year ended December 31, 2018 relate to investments, financial derivatives–assets, and other secured borrowings, at fair value, respectively.

At December 31, 2018, the Company transferred $34.6 million of securities from Level 3 to Level 2 and $13.6 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.

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 $86.0 million as of December 31, 2018. 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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details