Valuation (Tables)
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6 Months Ended |
Jun. 30, 2015 |
Fair Value Disclosures [Abstract] |
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Schedule of Fair Value Measurements |
The following tables present the Company's financial instruments measured at fair value on: June 30, 2015: | | | | | | | | | | | | | | | | | | (In thousands) | | | | | | | | | Description | | Level 1 | | Level 2 | | Level 3 | | Total | Assets: | | | | | | | | | Cash equivalents | | $ | 20,000 |
| | $ | — |
| | $ | — |
| | $ | 20,000 |
| Mortgage-backed securities, at fair value: | | | | | | | | | Agency RMBS: | | | | | | | | | 15-year fixed rate mortgages | | $ | — |
| | $ | 166,058 |
| | $ | — |
| | $ | 166,058 |
| 20-year fixed rate mortgages | | — |
| | 9,934 |
| | — |
| | 9,934 |
| 30-year fixed rate mortgages | | — |
| | 1,024,243 |
| | — |
| | 1,024,243 |
| Adjustable rate mortgages | | — |
| | 40,997 |
| | — |
| | 40,997 |
| Reverse mortgages | | — |
| | 56,233 |
| | — |
| | 56,233 |
| Interest only securities | | — |
| | — |
| | 7,070 |
| | 7,070 |
| Non-Agency RMBS | | — |
| | 24,732 |
| | 5,556 |
| | 30,288 |
| Mortgage-backed securities, at fair value | | — |
| | 1,322,197 |
| | 12,626 |
| | 1,334,823 |
| Financial derivatives–assets, at fair value: | | | | | | | | | TBAs | | — |
| | 906 |
| | — |
| | 906 |
| Fixed payer interest rate swaps | | — |
| | 3,635 |
| | — |
| | 3,635 |
| Total financial derivatives–assets, at fair value | | — |
| | 4,541 |
| | — |
| | 4,541 |
| Total mortgage-backed securities and financial derivatives–assets, at fair value | | $ | — |
| | $ | 1,326,738 |
| | $ | 12,626 |
| | $ | 1,339,364 |
| Liabilities: | | | | | | | | | U.S. Treasury securities sold short, at fair value | | $ | — |
| | $ | (51,184 | ) | | $ | — |
| | $ | (51,184 | ) | Financial derivatives–liabilities, at fair value: | | | | | | | | | TBAs | | — |
| | (677 | ) | | — |
| | (677 | ) | Fixed payer interest rate swaps | | — |
| | (3,313 | ) | | — |
| | (3,313 | ) | Fixed payer swaptions | | — |
| | (17 | ) | | — |
| | (17 | ) | Total financial derivatives–liabilities, at fair value | | — |
| | (4,007 | ) | | — |
| | (4,007 | ) | Total U.S. Treasury securities sold short and financial derivatives–liabilities, at fair value | | $ | — |
| | $ | (55,191 | ) | | $ | — |
| | $ | (55,191 | ) |
There were no transfers of financial instruments between Levels 1 and 2 of the fair value hierarchy during the six month period ended June 30, 2015. December 31, 2014: | | | | | | | | | | | | | | | | | | (In thousands) | | | | | | | | | Description | | Level 1 | | Level 2 | | Level 3 | | Total | Assets(1): | | | | | | | | | Cash equivalents | | $ | 35,000 |
| | $ | — |
| | $ | — |
| | $ | 35,000 |
| Mortgage-backed securities, at fair value: | | | | | | | | | Agency RMBS: | | | | | | | | | 15-year fixed rate mortgages | | $ | — |
| | $ | 138,028 |
| | $ | — |
| | $ | 138,028 |
| 20-year fixed rate mortgages | | — |
| | 10,568 |
| | — |
| | 10,568 |
| 30-year fixed rate mortgages | | — |
| | 1,122,254 |
| | — |
| | 1,122,254 |
| Adjustable rate mortgages | | — |
| | 44,283 |
| | — |
| | 44,283 |
| Reverse mortgages | | — |
| | 34,425 |
| | — |
| | 34,425 |
| Interest only securities | | — |
| | — |
| | 11,244 |
| | 11,244 |
| Non-Agency RMBS | | — |
| | 22,419 |
| | 10,082 |
| | 32,501 |
| Mortgage-backed securities, at fair value | | — |
| | 1,371,977 |
| | 21,326 |
| | 1,393,303 |
| Financial derivatives–assets, at fair value: | | | | | | | | | TBAs | | — |
| | 476 |
| | — |
| | 476 |
| Fixed payer interest rate swaps | | — |
| | 2,518 |
| | — |
| | 2,518 |
| Fixed payer swaptions | | — |
| | 78 |
| | — |
| | 78 |
| Total financial derivatives–assets, at fair value | | — |
| | 3,072 |
| | — |
| | 3,072 |
| Total mortgage-backed securities and financial derivatives–assets, at fair value | | $ | — |
| | $ | 1,375,049 |
| | $ | 21,326 |
| | $ | 1,396,375 |
| Liabilities: | | | | | | | | | U.S. Treasury securities sold short, at fair value | | $ | — |
| | $ | (13,959 | ) | | $ | — |
| | $ | (13,959 | ) | Financial derivatives–liabilities, at fair value: | | | | | | | | | TBAs | | — |
| | (1,674 | ) | | — |
| | (1,674 | ) | Fixed payer interest rate swaps | | — |
| | (7,026 | ) | | — |
| | (7,026 | ) | Total financial derivatives–liabilities, at fair value | | — |
| | (8,700 | ) | | — |
| | (8,700 | ) | Total U.S. Treasury securities sold short and financial derivatives–liabilities, at fair value | | $ | — |
| | $ | (22,659 | ) | | $ | — |
| | $ | (22,659 | ) |
(1) Conformed to current period presentation. There were no transfers of financial instruments between Levels 1 or 2 of the fair value hierarchy during the year ended December 31, 2014.
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Unobservable Input Reconciliation |
The following tables present additional information about the Company's investments which are measured at fair value for which the Company has utilized Level 3 inputs to determine fair value: Three month period ended June 30, 2015: | | | | | | | | | (In thousands) | Non-Agency RMBS | | Agency RMBS | Beginning balance as of March 31, 2015 | $ | 5,826 |
| | $ | 6,443 |
| Purchases | — |
| | 602 |
| Proceeds from sales | — |
| | — |
| Principal repayments | (525 | ) | | — |
| (Amortization)/accretion, net | 285 |
| | (618 | ) | Net realized gains (losses) | — |
| | — |
| Change in net unrealized gains (losses) | (30 | ) | | 643 |
| Transfers: | | | | Transfers into level 3 | — |
| | — |
| Transfers out of level 3 | — |
| | — |
| Ending balance as of June 30, 2015 | $ | 5,556 |
| | $ | 7,070 |
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All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company at June 30, 2015, as well as Level 3 financial instruments disposed of by the Company during the three month period ended June 30, 2015. For Level 3 financial instruments held by the Company at June 30, 2015, change in net unrealized gains (losses) of $(30) thousand and $0.6 million, for the three month period ended June 30, 2015 relate to non-Agency RMBS and Agency RMBS, respectively. Three month period ended June 30, 2014: | | | | | | | | | (In thousands) | Non-Agency RMBS | | Agency RMBS | Beginning balance as of March 31, 2014 | $ | 32,045 |
| | $ | 15,924 |
| Purchases | 4,504 |
| | — |
| Proceeds from sales | (1,993 | ) | | — |
| Principal repayments | (1,468 | ) | | — |
| (Amortization)/accretion, net | 468 |
| | (762 | ) | Net realized gains (losses) | 168 |
| | — |
| Change in net unrealized gains (losses) | 1,944 |
| | (886 | ) | Transfers: | | | | Transfers into level 3 | — |
| | — |
| Transfers out of level 3 | — |
| | — |
| Ending balance as of June 30, 2014 | $ | 35,668 |
| | $ | 14,276 |
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All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company at June 30, 2014, as well as Level 3 financial instruments disposed of by the Company during the three month period ended June 30, 2014. For Level 3 financial instruments held by the Company at June 30, 2014, change in net unrealized gains (losses) of $2.0 million and $(0.9) million, for the three month period ended June 30, 2014 relate to non-Agency RMBS and Agency RMBS, respectively. Six month period ended June 30, 2015: | | | | | | | | | (In thousands) | Non-Agency RMBS | | Agency RMBS | Beginning balance as of December 31, 2014 | $ | 10,082 |
| | $ | 11,244 |
| Purchases | — |
| | 1,701 |
| Proceeds from sales | (2,861 | ) | | (4,538 | ) | Principal repayments | (935 | ) | | — |
| (Amortization)/accretion, net | 596 |
| | (1,274 | ) | Net realized gains | 791 |
| | 601 |
| Change in net unrealized gains (losses) | (659 | ) | | (664 | ) | Transfers: | | | | Transfers into level 3 | 3,343 |
| | — |
| Transfers out of level 3 | (4,801 | ) | | — |
| Ending balance as of June 30, 2015 | $ | 5,556 |
| | $ | 7,070 |
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All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company at June 30, 2015, as well as Level 3 financial instruments disposed of by the Company during the three month period ended June 30, 2015. For Level 3 financial instruments held by the Company at June 30, 2015, change in net unrealized gains (losses) of $54 thousand and $0.2 million, for the six month period ended June 30, 2015 relate to non-Agency RMBS and Agency RMBS, respectively. At June 30, 2015, the Company transferred $4.8 million of non-Agency RMBS from Level 3 to Level 2. These assets were transferred from Level 3 to Level 2 based on an increased volume of observed trading of these and similar assets. This increase in observed trading activity has led to greater price transparency for these assets, thereby making a Level 2 designation appropriate in the Company's view. However, changes in the volume of observable inputs for these assets, such as a decrease in observed trading, could impact price transparency, and thereby cause a change in the level designation for these assets in future periods. At June 30, 2015, the Company transferred $3.3 million of non-Agency RMBS from Level 2 to Level 3. Since year end, these securities have exhibited indications of a reduced level of price transparency. Examples of such indications include wider spreads and/or higher delinquencies relative to similar securities and a reduction in observable transactions or executable quotes involving these and similar securities. Changes in these indications could impact price transparency, and thereby cause a change in the level designation in future periods. Six month period ended June 30, 2014: | | | | | | | | | (In thousands) | Non-Agency RMBS | | Agency RMBS | Beginning balance as of December 31, 2013 | $ | 30,681 |
| | $ | 13,527 |
| Purchases | 12,168 |
| | 4,096 |
| Proceeds from sales | (7,416 | ) | | (1,282 | ) | Principal repayments | (2,572 | ) | | — |
| (Amortization)/accretion, net | 857 |
| | (1,420 | ) | Net realized gains | 373 |
| | 358 |
| Change in net unrealized gains (losses) | 1,577 |
| | (1,003 | ) | Transfers: | | | | Transfers into level 3 | — |
| | — |
| Transfers out of level 3 | — |
| | — |
| Ending balance as of June 30, 2014 | $ | 35,668 |
| | $ | 14,276 |
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All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company at June 30, 2014, as well as Level 3 financial instruments disposed of by the Company during the six month period ended June 30, 2014. For Level 3 financial instruments held by the Company at June 30, 2014, change in net unrealized gains (losses) of $1.8 million and $(0.8) million, for the six month period ended June 30, 2014 relate to non-Agency RMBS and Agency RMBS, respectively.
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Quantitative Information |
The following tables identify the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of June 30, 2015 and December 31, 2014: June 30, 2015: | | | | | | | | | | | | | | | | | | | | | | | Range | | | Description | | Fair Value | | Valuation Technique | | Significant Unobservable Input | | Min | | Max | | Weighted Average(1) | | | (In thousands) | | | | | | | | | | | Non-Agency RMBS | | 3,343 |
| | Market quotes | | Non-Binding Third-Party Valuation | | $ | 53.75 |
| | $ | 61.34 |
| | $ | 56.37 |
| Non-Agency RMBS | | 2,213 |
| | Discounted Cash Flows | | Yield | | 11.4 | % | | 21.4 | % | | 15.7 | % | | | | | | | Projected Collateral Prepayments | | 31.4 | % | | 41.1 | % | | 36.9 | % | | | | | | | Projected Collateral Losses | | 3.1 | % | | 3.3 | % | | 3.2 | % | | | | | | | Projected Collateral Recoveries | | 4.4 | % | | 8.8 | % | | 6.3 | % | | | | | | | Projected Collateral Scheduled Amortization | | 51.2 | % | | 56.8 | % | | 53.6 | % | | | | | | | | | | | | | 100.0 | % | Agency RMBS–Interest Only Securities | | 4,845 |
| | Market quotes | | Non-Binding Third-Party Valuation | | $ | 4.27 |
| | $ | 21.63 |
| | $ | 11.41 |
| Agency RMBS–Interest Only Securities | | 2,225 |
| | Option Adjusted Spread ("OAS") | | LIBOR OAS (2) | | (1,289 | ) | | 635 |
| | (384 | ) | | | | | | | Projected Collateral Prepayments | | 60.3 | % | | 87.9 | % | | 76.8 | % | | | | | | | Projected Collateral Scheduled Amortization | | 12.1 | % | | 39.7 | % | | 23.2 | % | | | | | | | | | | | | | 100.0 | % |
| | (1) | Averages are weighted based on the fair value of the related instrument. |
| | (2) | Shown in basis points. |
December 31, 2014: | | | | | | | | | | | | | | | | | | | | | | | | Range | | | Description | | Fair Value | | Valuation Technique | | Significant Unobservable Input | | Min | | Max | | Weighted Average(1) | | | (In thousands) | | | | | | | | | | | Non-Agency RMBS | | $ | 7,819 |
| | Market quotes | | Non-Binding Third-Party Valuation | | $ | 21.38 |
| | $ | 84.91 |
| | $ | 54.11 |
| Non-Agency RMBS | | 2,263 |
| | Discounted Cash Flows | | Yield | | 6.3 | % | | 6.3 | % | | 6.3 | % | | | | | | | Projected Collateral Prepayments | | 35.9 | % | | 35.9 | % | | 35.9 | % | | | | | | | Projected Collateral Losses | | 7.5 | % | | 7.5 | % | | 7.5 | % | | | | | | | Projected Collateral Recoveries | | 11.0 | % | | 11.0 | % | | 11.0 | % | | | | | | | Projected Collateral Scheduled Amortization | | 45.6 | % | | 45.6 | % | | 45.6 | % | | | | | | | | | | | | | 100.0 | % | Agency RMBS–Interest Only Securities | | 7,006 |
| | Market quotes | | Non-Binding Third-Party Valuation | | $ | 4.74 |
| | $ | 20.38 |
| | $ | 13.35 |
| Agency RMBS–Interest Only Securities | | 4,238 |
| | Option Adjusted Spread ("OAS") | | LIBOR OAS(2) | | 83 |
| | 1,952 |
| | 490 |
| | | | | | | Projected Collateral Prepayments | | 63.3 | % | | 92.3 | % | | 75.2 | % | | | | | | | Projected Collateral Scheduled Amortization | | 7.7 | % | | 36.7 | % | | 24.8 | % | | | | | | | | | | | | | 100.0 | % |
| | (1) | Averages are weighted based on the fair value of the related instrument. |
| | (2) | Shown in basis points. |
|