Fair Value

The following tables set forth the fair value of financial assets and liabilities by level within the fair value hierarchy as of September 30, 2018 and December 31, 2017 ($ in thousands):



			Level 1		Level 2		Level 3
September 30, 2018	Carrying value		Quoted prices in active markets		Observable inputs other than Level 1 prices		Unobservable inputs
Financial assets
Mortgage loans, net	$	1,272,644	$	—	$	—	$	1,397,101
Investments in debt securities at fair value	$	50,695	$	—	$	50,695	$	—
Investments in equity securities at fair value	$	1,056	$	1,056	$	—	$	—
Investment in Manager	$	1,826	$	—	$	—	$	5,743
Investment in AS Ajax E	$	1,056	$	—	$	1,224	$	—
Investment in GAFS, including warrants	$	2,842	$	—	$	—	$	3,320
Financial liabilities
Secured borrowings, net	$	631,207	$	—	$	—	$	631,688
Borrowings under repurchase transactions	$	420,461	$	—	$	420,461	$	—
Convertible senior notes, net	$	103,162	$	107,698	$	—	$	—



			Level 1		Level 2		Level 3
December 31, 2017	Carrying value		Quoted prices in active markets		Observable inputs other than Level 1 prices		Unobservable inputs
Financial assets
Mortgage loans, net	$	1,253,541	$	—	$	—	$	1,375,722
Investments in debt securities at fair value	$	6,285	$	—	$	6,285	$	—
Investment in Manager	$	850	$	—	$	—	$	6,427
Investment in AS Ajax E	$	1,201	$	—	$	1,224	$	—
Financial liabilities
Secured borrowings, net	$	694,040	$	—	$	—	$	693,255
Borrowings under repurchase transactions	$	276,385	$	—	$	276,385	$	—
Convertible senior notes, net	$	102,571	$	109,641	$	—	$	—

The fair value of mortgage loans is estimated using the Manager’s proprietary pricing model which estimates expected cash flows with the discount rate used in the present value calculation representing the estimated effective yield of the loan. The value of transfers of mortgage loans to REO is based upon the present value of future expected cash flows of the loans being transferred.

The Company values its Investments in securities at fair value using estimates provided by banking institutions for debt securities and the stock price on the NYSE for the equity securities (See Note 10 - Investments at fair value).

The Company's investment in the Manager is valued by applying an earnings multiple to expected earnings.

The Company’s investment in AS Ajax E is valued using estimates provided by banking institutions.

The fair value of the Company's investment in GAFS is presented by applying an earnings multiple to expected earnings.

The fair value of secured borrowings is estimated using the Manager’s proprietary pricing model which estimates expected cash flows of the underlying mortgage loans which collateralize the debt, and which drive the cash flows used to make interest payments. The discount rate used in the present value calculation of the mortgage loans used as collateral, therefore, represents the estimated effective yield on the secured debt. The discount rate is then applied to the face value of the secured debt to derive the debt's fair value.

The Company’s borrowings under repurchase agreement are short-term in nature, and the Company’s management believes it can renew the current borrowing arrangements on similar terms in the future. Accordingly, the carrying value of these borrowings approximates fair value.

The Company’s Convertible senior notes are traded on the NYSE; the debt’s fair value is determined from the NYSE closing price on the Balance Sheet date.

The carrying values of its Cash and cash equivalents, Cash held in trust, Receivable from servicer, Loans purchase deposit, Prepaid expenses and other assets, Management fee payable and Accrued expenses and other liabilities are equal to or approximate fair value.

Non-financial assets

Property held-for-sale is carried at the lower of its acquisition basis or net realizable value. Fair market value is determined based on appraisals, broker price opinions, or other market indicators of fair value. Since net unrealized losses due to changes in market value are recognized through a valuation allowance by charges to income, aggregate fair value for the Company’s REO Property is conservatively stated as its carrying value. The following tables set forth the fair value of non-financial assets by level within the fair value hierarchy as of September 30, 2018 and December 31, 2017 ($ in thousands):



					Level 1		Level 2		Level 3
September 30, 2018	Carrying value		Nine months ended fair value adjustment recognized in the consolidated Statements of Income		Quoted prices in active markets		Observable inputs other than Level 1 prices		Unobservable inputs
Non-financial assets
Property held-for-sale	$	20,463	$	2,049	$	—	$	—	$	20,463



					Level 1		Level 2		Level 3
December 31, 2017	Carrying value		Fiscal year 2017 fair value adjustment recognized in the consolidated Statements of Income		Quoted prices in active markets		Observable inputs other than Level 1 prices		Unobservable inputs
Non-financial assets
Property held-for-sale	$	24,947	$	2,516	$	—	$	—	$	24,947

During the year ended December 31, 2017, the Company transferred the balance of its Property held-for-sale from Level 2 to Level 3 to reflect the additional uncertainty inherent in the estimation process for real estate values.