NOTE 13 – FINANCIAL INSTRUMENTS

U.S. GAAP defines fair value and provides a consistent framework for measuring fair value under U.S. GAAP. ASC 820 “Fair Value Measurement” expands fair value financial statement disclosure requirements. ASC 820 does not require any new fair value measurements and only applies to accounting pronouncements that already require or permit fair value measures, except for standards that relate to share-based payments.

Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels are defined as follows:

•

Level 1 Inputs – Quoted prices for identical instruments in active markets.

•

Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

•

Level 3 Inputs – Instruments with primarily unobservable value drivers.

The following tables summarize the valuation of the Company’s assets and liabilities at fair value within the fair value hierarchy levels as of December 31, 2014 and December 31, 2013:

	Quoted prices in		Significant
	active markets		other observable		Unobservable
	for identical assets		inputs		inputs		Balance as of
	Level 1		Level 2		Level 3		December 31, 2014
Assets:
Residential mortgage-backed securities (a)	$	-	$	368,315,738	$	-	$	368,315,738
Residential mortgage loans		-		54,678,382		-		54,678,382
Multi-Family mortgage loans held in securitization trusts		-		1,750,294,430		-		1,750,294,430
Residential mortgage loans held in securitization trusts		-		631,446,984		-		631,446,984
Linked transactions (b)		-		60,818,111		-		60,818,111
Swaptions		-		21,550		-		21,550
Total	$	-	$	2,865,575,195	$	-	$	2,865,575,195

Liabilities:
Interest rate swaps	$	-	$	(1,755,107)	$	-	$	(1,755,107)
Multi-family securitized debt obligations		-		(1,670,573,456)		-		(1,670,573,456)
Residential securitized debt obligations		-		(432,035,976)		-		(432,035,976)
Futures		(533,951)		-		-		(533,951)
Total	$	(533,951)	$	(2,104,365,061)	$	-	$	(2,104,899,012)

	Quoted prices in		Significant
	active markets		other observable		Unobservable
	for identical assets		inputs		inputs		Balance as of
	Level 1		Level 2		Level 3		December 31, 2013
Assets:
Residential mortgage-backed securities (a)	$	-	$	444,984,955	$	-	$	444,984,955
Linked transactions (b)		-		33,352,562		-		33,352,562
TBAs		-		68,359		-		68,359
Interest rate swaps		-		237,989		-		237,989
Swaptions		-		1,770,795		-		1,770,795
Futures		154,265		-		-		154,265
Total	$	154,265	$	480,414,660	$	-	$	480,568,925

Liabilities:
Interest rate swaps	$	-	$	(1,231,667)	$	-	$	(1,231,667)
Total	$	-	$	(1,231,667)	$	-	$	(1,231,667)

(a)

For more detail about the fair value of the Company’s MBS and type of securities, see Note 3 and Note 4.

(b)

For more detail about the fair value of the Company’s Linked Transactions, see Note 3 and Note 8.

During the years ended December 31, 2014 and December 31, 2013, the Company did not have any transfers between any of the levels of the fair value hierarchy. Transfers between levels are deemed to take place on the last day of the reporting period in which the transfer takes place.