Derivatives

12 Months Ended

Dec. 31, 2016

Derivatives [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

7. Derivatives

The Company’s derivatives included or may include interest rate swaps (“swaps”), swaptions, TBAs, MBS options, Eurodollar Futures and U.S. Treasury Futures (collectively, “Futures”), IO Indexes and linked transactions. Derivatives have not been designated as hedging instruments. The Company may also utilize other instruments to manage interest rate risk, including long and short positions in U.S. Treasury securities.

The following table presents the fair value of the Company’s derivative and other instruments and their balance sheet location as of December 31, 2016 and December 31, 2015.

Derivatives and Other Instruments	Designation	Balance Sheet Location	December 31, 2016		December 31, 2015
Interest rate swaps	Non-Hedge	Derivative liabilities, at fair value	$	(1,847,219)	$	(6,722,170)
Interest rate swaps	Non-Hedge	Derivative assets, at fair value		3,703,366		1,755,467
TBAs	Non-Hedge	Derivative liabilities, at fair value		(423,825)		(141,600)
Short positions on U.S. Treasury Futures	Non-Hedge	Derivative liabilities, at fair value		(636,211)
Long positions on U.S. Treasuries	Non-Hedge	U.S. Treasury securities, at fair value		-		223,434,922
Short positions on U.S. Treasuries	Non-Hedge	Obligation to return securities borrowed under reverse repurchase agreements, at fair value (1)		(22,365,000)		-

(1) The Company's obligation to return securities borrowed under reverse repurchase agreements as of December 31, 2016 relates to securities borrowed to cover short sales of U.S. Treasury securities. The change in fair value of the borrowed securities is recorded in the "Unrealized gain/(loss) on derivatives and other instruments, net" line item in the Company's consolidated statement of operations.

The following table summarizes information related to derivatives and other instruments:

Non-hedge derivatives and other instruments held long/(short):	December 31, 2016		December 31, 2015
Notional amount of Pay Fix/Receive Float Interest Rate Swap Agreements	$	644,000,000	$	969,000,000
Net notional amount of TBAs		(25,000,000)		75,000,000
Notional amount of short positions on U.S. Treasury Futures (1)		(141,500,000)		-
Notional amount of long positions on U.S. Treasuries		-		226,000,000
Notional amount of short positions on U.S. Treasuries		(24,000,000)		-

(1) Each U.S. Treasury Future contract embodies $100,000 of notional value.

The following table summarizes gains/(losses) related to derivatives and other instruments:

		Year Ended		Year Ended		Year Ended
Non-hedge derivatives and other instruments gain/(loss):	Statement of Operations Location	December 31, 2016		December 31, 2015		December 31, 2014
Interest rate swaps, at fair value	Unrealized gain/(loss) on derivative and other instruments, net	$	5,009,458	$	(8,018,902)	$	(52,615,387)
Interest rate swaps, at fair value	Net realized gain/(loss)		(10,938,839)		(11,728,954)		(3,458,409)
Swaptions, at fair value	Unrealized gain/(loss) on derivative and other instruments, net		-		-		(82,102)
Swaptions, at fair value	Net realized gain/(loss)		-		-		(546,750)
Long positions on Eurodollar Futures	Net realized gain/(loss)		(1,045,697)		-		-
Short positions on Eurodollar Futures	Net realized gain/(loss)		2,104,465		-		-
Long positions on U.S. Treasury Futures	Net realized gain/(loss)		(582,876)		-		-
Short positions on U.S. Treasury Futures	Unrealized gain/(loss) on derivative and other instruments, net		(639,030)		-		-
Short positions on U.S. Treasury Futures	Net realized gain/(loss)		2,140,886		-		-
TBAs (1)	Unrealized gain/(loss) on derivative and other instruments, net		(282,225)		(1,622,070)		1,480,471
TBAs	Net realized gain/(loss)		2,771,406		1,909,844		5,500,859
IO Index, at fair value	Net realized gain/(loss)		-		-		(1,770,548)
MBS Options, at fair value	Unrealized gain/(loss) on derivative and other instruments, net		-		-		38,774
MBS Options, at fair value	Net realized gain/(loss)		-		-		19,531
Linked transactions	Income/(loss) from linked transactions, net		-		-		12,503,516
Long positions on U.S. Treasuries	Unrealized gain/(loss) on derivative and other instruments, net		2,588,711		(2,588,711)		-
Long positions on U.S. Treasuries	Net realized gain/(loss)		3,241,250		(5,284,258)		-
Short positions on U.S. Treasuries	Unrealized gain/(loss) on derivative and other instruments, net		1,724,922		-		(12,935)
Short positions on U.S. Treasuries	Net realized gain/(loss)		280,625		(3,013,867)		(1,407,255)

(1) For the year ended December 31, 2016, gains and losses from purchases and sales of TBAs consisted of $0.3 million, of net TBA dollar roll net interest income, and net gains of $2.2 million, due to price changes. For the year ended December 31, 2015, gains and losses from purchases and sales of TBAs consisted of $2.2 million, of net TBA dollar roll net interest income, and net losses of $1.9 million, due to price changes. For the year ended December 31, 2014, gains and losses from purchases and sales of TBAs consisted of $3.5 million, of net TBA dollar roll net interest income, and net gains of $3.5 million, due to price changes.

The following table presents both gross information and net information about derivative and other instruments eligible for offset in the consolidated balance sheets as of December 31, 2016:

							Gross Amounts Not Offset in the
							Consolidated Balance Sheets
	Gross Amounts of		Gross Amounts Offset		Net Amounts of Assets		Financial
	Recognized		in the Consolidated		(Liabilities) Presented in the		Instruments		Cash Collateral
Description	Assets (Liabilities)		Balance Sheets		Consolidated Balance Sheets		(Posted)/Received		(Posted)/Received		Net Amount
Receivable Under Reverse Repurchase Agreements	$	22,680,000	$	-	$	22,680,000	$	22,365,000	$	-	$	315,000
Derivative Assets (1)
Interest Rate Swaps	$	4,559,134	$	-	$	4,559,134	$	-	$	879,575	$	3,679,559
Total Derivative Assets	$	4,559,134	$	-	$	4,559,134	$	-	$	879,575	$	3,679,559
Derivative Liabilities (2)
Interest Rate Swaps	$	(1,705,865)	$	-	$	(1,705,865)	$	-	$	(1,705,865)	$	-
U.S. Treasury Futures - Short		(636,211)		-		(636,211)		-		(636,211)		-
TBAs		(423,824)		-		(423,824)		(423,824)		-		-
Total Derivative Liabilities	$	(2,765,900)	$	-	$	(2,765,900)	$	(423,824)	$	(2,342,076)	$	-

(1) Included in Derivative Assets on the consolidated balance sheet is $4,559,134 less accrued interest of $(855,768) for a total of $3,703,366.

(2) Included in Derivative Liabilities on the consolidated balance sheet is $(2,765,900) plus accrued interest of $(141,355) for a total of $(2,907,255).

The following table presents both gross information and net information about derivative instruments eligible for offset in the consolidated balance sheets as of December 31, 2015:

							Gross Amounts Not Offset in the
							Consolidated Balance Sheets
	Gross Amounts of		Gross Amounts Offset		Net Amounts of Assets		Financial
	Recognized		in the Consolidated		(Liabilities) Presented in the		Instruments		Cash Collateral
Description	Assets (Liabilities)		Balance Sheets		Consolidated Balance Sheets		(Posted)/Received		(Posted)/Received		Net Amount
Derivative Assets (2)
Interest Rate Swaps	$	3,195,522	$	-	$	3,195,522	$	-	$	1,820,022	$	1,375,500
Total Derivative Assets	$	3,195,522	$	-	$	3,195,522	$	-	$	1,820,022	$	1,375,500
Derivative Liabilities (3)
Interest Rate Swaps	$	(5,351,711)	$	-	$	(5,351,711)	$	-	$	(5,351,711)	$	-
TBAs		(141,600)		-		(141,600)		(141,600)		-		-
Total Derivative Liabilities	$	(5,493,311)	$	-	$	(5,493,311)	$	(141,600)	$	(5,351,711)	$	-

(1) Included in Derivative Assets on the consolidated balance sheet is $3,195,522 less accrued interest of $1,440,055 for a total of $1,755,467.

(2) Included in Derivative Liabilities on the consolidated balance sheet is $(5,493,311) plus accrued interest of $(1,370,459) for a total of $(6,863,770).

The Company must post cash or securities as collateral on its derivative instruments when their fair value declines. This typically occurs when prevailing market rates change adversely, with the severity of the change also dependent on the term of the derivatives involved. The posting of collateral is generally bilateral, meaning that if the fair value of the Company’s derivatives increases, its counterparty will post collateral to it. As of December 31, 2016, the Company pledged real estate securities with a fair value of $7.1 million and cash of $9.4 million as collateral against certain derivatives The Company’s counterparties posted cash of $0.9 million to it as collateral for certain derivatives. As of December 31, 2015, the Company pledged real estate securities with a fair value of $4.9 million and cash of $15.3 million as collateral against certain derivatives. The Company’s counterparties posted cash of $1.8 million to it as collateral for certain derivatives.

Interest rate swaps

To help mitigate exposure to increases in short-term interest rates, the Company uses currently-paying and may use forward-starting, one- or three-month LIBOR-indexed, pay-fixed, receive-variable, interest rate swap agreements. This arrangement hedges our exposure to higher short-term interest rates because the variable-rate payments received on the swap agreements largely offset additional interest accruing on the related borrowings due to the higher interest rate, leaving the fixed-rate payments to be paid on the swap agreements as the Company’s effective borrowing rate, subject to certain adjustments including changes in spreads between variable rates on the swap agreements and actual borrowing rates.

As of December 31, 2016, the Company’s interest rate swap positions consist of pay-fixed interest rate swaps. The following table presents information about the Company’s interest rate swaps as of December 31, 2016:

			Weighted Average			Weighted Average			Weighted Average
Maturity	Notional Amount		Pay-Fixed Rate			Receive-Variable Rate			Years to Maturity
2017	$	36,000,000		0.88	%		0.89	%		0.84
2019		170,000,000		1.36	%		0.91	%		2.88
2020		115,000,000		1.59	%		0.90	%		3.20
2021		60,000,000		1.86	%		0.96	%		4.94
2022		53,000,000		1.69	%		0.94	%		5.69
2023		85,000,000		2.30	%		0.94	%		6.43
2025		30,000,000		2.48	%		0.94	%		8.43
2026		95,000,000		2.17	%		0.92	%		9.90
Total/Wtd Avg	$	644,000,000		1.74	%		0.92	%		5.01

As of December 31, 2015, the Company’s interest rate swap positions consist of pay-fixed interest rate swaps. The following table presents information about the Company’s interest rate swaps as of December 31, 2015:

			Weighted Average			Weighted Average			Weighted Average
Maturity	Notional Amount		Pay-Fixed Rate			Receive-Variable Rate			Years to Maturity
2017	$	36,000,000		0.88	%		0.33	%		1.84
2018		165,000,000		1.06	%		0.50	%		2.20
2019		210,000,000		1.29	%		0.43	%		3.73
2020		295,000,000		1.67	%		0.40	%		4.27
2022		73,000,000		1.75	%		0.42	%		6.53
2023		160,000,000		2.31	%		0.43	%		7.42
2025		30,000,000		2.48	%		0.45	%		9.43
Total/Wtd Avg	$	969,000,000		1.59	%		0.43	%		4.56

TBAs

As discussed in Note 2, the Company has entered into TBAs. The Company’s maximum exposure to loss related to its TBAs is the net payable amount on its TBA transactions until the settlement date. As of December 31, 2016, the Company’s maximum exposure to loss on TBAs was $51.4 million. As of December 31, 2015, the Company’s maximum exposure to loss on TBAs was $77.5 million.

The following table presents information about the Company’s TBAs for the years ended December 31, 2016, December 31, 2015, and December 31, 2014:

For the Year Ended December 31, 2016
	Beginning						Ending Net				Net
	Notional						Notional		Net Fair Value		Receivable/(Payable)		Derivative		Derivative
	Amount		Buys or Covers		Sales or Shorts		Amount		as of Year End		from/to Broker		Asset		Liability
TBAs - Long	$	75,000,000	$	429,000,000	$	(454,000,000)	$	50,000,000	$	51,250,000	$	(51,427,734)	$	-	$	(177,734)
TBAs - Short	$	-	$	705,000,000	$	(780,000,000)	$	(75,000,000)	$	(74,589,840)	$	74,343,750	$	-	$	(246,090)

For the Year Ended December 31, 2015
	Beginning						Ending Net				Net
	Notional						Notional		Net Fair Value		Receivable/(Payable)		Derivative		Derivative
	Amount		Buys or Covers		Sales or Shorts		Amount		as of Year End		from/to Broker		Asset		Liability
TBAs - Long	$	225,000,000	$	1,092,000,000	$	(1,242,000,000)	$	75,000,000	$	77,361,330	$	(77,502,930)	$	-	$	(141,600)
TBAs - Short	$	-	$	254,000,000	$	(254,000,000)	$	-	$	-	$	-	$	-	$	-

For the Year Ended December 31, 2014
	Beginning						Ending Net				Net
	Notional						Notional		Net Fair Value		Receivable/(Payable)		Derivative		Derivative
	Amount		Buys or Covers		Sales or Shorts		Amount		as of Year End		from/to Broker		Asset		Liability
TBAs - Long	$	-	$	1,081,000,000	$	(856,000,000)	$	225,000,000	$	236,720,705	$	(235,240,234)	$	1,480,471	$	-
TBAs - Short	$	-	$	751,000,000	$	(751,000,000)	$	-	$	-	$	-	$	-	$	-

Linked transactions

In June 2014, the FASB issued final guidance for repurchase financings, ASU 2014-11, “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures,” which requires separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty. If all derecognition criteria are met, the initial transferee will account for the initial transfer as a purchase and the related repurchase agreement component of the transaction will be accounted for as a secured borrowing. ASU 2014-11 also requires repurchase-to-maturity transactions to be accounted for as secured borrowings as if the transferor retains effective control, even though the transferred financial assets are not returned to the transferor at settlement. The accounting changes were effective for public business entities for the first interim or annual period beginning after December 15, 2014. Entities are required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.

The Company has adopted the guidance under ASU 2014-11 as of January 1, 2015. This change had no effect on net income or stockholders’ equity, but did impact the amounts reported on the consolidated balance sheets and the consolidated statement of operations. The Company has disaggregated amounts previously netted together in the “Linked transactions, net, at fair value” line item on the consolidated balance sheets and has presented these amounts gross. As of January 1, 2015, the Company made a cumulative-effect adjustment to transfer real estate securities with values of $124.9 million and $14.9 million to the “Non-Agency” and “CMBS” line items, respectively, and to transfer secured borrowings of $113.4 million to the “Repurchase agreements” line item on the consolidated balance sheets. As part of the cumulative-effect adjustment the Company also transferred interest receivable and payable of $0.4 million and $0.1 million to the “Interest receivable” and “Interest payable” line items, respectively. There was no effect on prior periods as the FASB did not require full retrospective application. As a result, disclosures for periods prior to January 1, 2015 will not be comparable to disclosures subsequent to that date.

Under previous GAAP, when the initial transfer of a financial asset and repurchase financing are entered into contemporaneously with, or in contemplation of, one another, the transaction was considered linked unless all of the criteria found in ASC 860-10 were met at the inception of the transaction. If the transaction was determined to be linked, the Company recorded the initial transfer and repurchase financing on a net basis and recorded a forward commitment to purchase assets as a derivative instrument. Gains and losses were recorded together with net interest income in the “Income/(loss) from linked transactions, net” line item on the consolidated statement of operations. When, or if a transaction was no longer considered linked, the security and related repurchase agreement was recorded on a gross basis. The fair value of linked transactions reflected the value of the underlying security’s fair market value netted with the respective linked repurchase agreement borrowings and net accrued interest. Disclosures required under previous GAAP have been presented for periods under which the superseded guidance applied.

The following table presents certain information related to the securities accounted for as a part of linked transactions for the year ended December 31, 2014:

			For the Year Ended December 31, 2014
									Amount
							Net		Included in		Weighted			Weighted
			Net Interest		Unrealized		Realized		Statement of		Average			Average
Instrument	Fair Value		Income		Loss		Gain		Operations		Coupon			Life
Non-Agency RMBS	$	124,873,523	$	8,689,418	$	(5,819,864)	$	7,717,452	$	10,587,006		3.87	%		5.60
CMBS		14,904,740		861,288		235,185		820,037		1,916,510		2.12	%		0.76
Total	$	139,778,263	$	9,550,706	$	(5,584,679)	$	8,537,489	$	12,503,516		3.69	%		5.12

The following table presents certain information related to the repurchase agreements accounted for as a part of linked transactions as of December 31, 2014:

			Weighted			Weighted
	Repurchase		Average			Average Years to
Instrument	Agreement		Interest Rate			Maturity
Non-Agency RMBS	$	102,713,873		1.74	%		0.05
CMBS		10,650,000		1.68	%		0.08
	$	113,363,873		1.74	%		0.06