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Fair Value of Financial Instruments (Tables)
3 Months Ended
Mar. 31, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measured on Recurring Basis
The following tables present the Company's assets and liabilities measured at fair value on a recurring basis.
 
March 31, 2016
 
 
 
Fair Value Measurements Using:
 
 
 
 
 
 
 
 
 
Total at
$ in thousands
Level 1
 
Level 2
 
Level 3
 
Fair Value
Assets:
 
 
 
 
 
 
 
Mortgage-backed and credit risk transfer securities(1) (2)

 
15,156,772

 
(22,706
)
 
15,134,066

Derivative assets

 
702

 

 
702

Total assets

 
15,157,474

 
(22,706
)
 
15,134,768

Liabilities:
 
 
 
 
 
 
 
Derivative liabilities

 
398,143

 

 
398,143

Total liabilities

 
398,143

 

 
398,143

 
December 31, 2015
 
 
 
Fair Value Measurements Using:
 
 
 
 
 
 
 
 
 
Total at
$ in thousands
Level 1
 
Level 2
 
Level 3
 
Fair Value
Assets:
 
 
 
 
 
 
 
Mortgage-backed and credit risk transfer securities(1) (2)

 
16,091,657

 
(25,722
)
 
16,065,935

Derivative assets

 
8,659

 

 
8,659

Total assets

 
16,100,316

 
(25,722
)
 
16,074,594

Liabilities:
 
 
 
 
 
 
 
Derivative liabilities

 
238,148

 

 
238,148

Total liabilities

 
238,148

 

 
238,148

(1)
For more detail about the fair value of the Company's MBS and GSE CRTs, refer to Note 4 - "Mortgage-Backed and Credit Risk Transfer Securities."
(2)
The Company's GSE CRTs are accounted for as hybrid financial instruments with an embedded derivative. The hybrid instruments consist of debt host contracts classified as Level 2 and embedded derivatives classified as Level 3. As of March 31, 2016, the net embedded derivative liability position of $22.7 million includes $2.0 million of embedded derivatives in an asset position and $24.7 million of embedded derivatives in a liability position. As of December 31, 2015, the net embedded derivative liability position of $25.7 million includes $1.0 million of embedded derivatives in an asset position and $26.7 million of embedded derivatives in a liability position.
Embedded Derivatives Level 3 Roll Forward
The following table shows a reconciliation of the beginning and ending fair value measurements of the Company's GSE CRT embedded derivatives, which the Company has valued utilizing Level 3 inputs:
$ in thousands
March 31, 2016
 
December 31, 2015
Beginning balance
(25,722
)
 
(21,495
)
Sales and settlements
920

 
2,184

Total net gains / (losses) included in net income:
 
 
 
Realized gains/(losses), net
(920
)
 
(2,184
)
Unrealized gains/(losses), net
3,016

 
(4,227
)
Ending balance
(22,706
)
 
(25,722
)
Embedded Derivatives Fair Value Inputs
The following table summarizes significant unobservable inputs used in the fair value measurement of the Company's GSE CRT embedded derivative:
 
Fair Value at
 
Valuation
 
Unobservable
 
 
 
Weighted
$ in thousands
March 31, 2016
 
Technique
 
Input
 
Range
 
Average
GSE CRT Embedded Derivatives
(22,706
)
 
Market Comparables
 
Prepayment Rate
 
5.76% - 14.43%
 
7.85
%
 
 
 
Vendor Pricing
 
Default Rate
 
0.10% - 0.39%
 
0.16
%
 
Fair Value at
 
Valuation
 
Unobservable
 
 
 
Weighted
$ in thousands
December 31, 2015
 
Technique
 
Input
 
Range
 
Average
GSE CRT Embedded Derivatives
(25,722
)
 
Market Comparables
 
Prepayment Rate
 
5.72% - 14.37%
 
7.83
%
 
 
 
Vendor Pricing
 
Default Rate
 
0.10% - 0.35%
 
0.16
%
Carrying Value and Estimated Fair Value of Financial Instruments
The following table presents the carrying value and estimated fair value of the Company's financial instruments that are not carried at fair value on the condensed consolidated balance sheets at March 31, 2016 and December 31, 2015:
 
March 31, 2016
 
December 31, 2015
$ in thousands
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial Assets
 
 
 
 
 
 
 
Commercial loans, held-for-investment
277,701

 
278,413

 
209,062

 
209,790

Other assets
115,878

 
115,878

 
115,072

 
115,072

Total
393,579

 
394,291

 
324,134

 
324,862

Financial Liabilities
 
 
 
 
 
 
 
Repurchase agreements
11,187,159

 
11,187,194

 
12,126,048

 
12,133,252

Secured loans
1,650,000

 
1,650,000

 
1,650,000

 
1,650,000

Exchangeable senior notes
395,187

 
378,000

 
394,573

 
376,500

Total
13,232,346

 
13,215,194

 
14,170,621

 
14,159,752