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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Carrying Values and Estimated Fair Values of Assets and Liabilities

The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at September 30, 2012 and December 31, 2011.


	September 30, 2012				December 31, 2011
(In Thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Residential loans, at fair value	$	370,035	$	370,035	$	-	$	-
Residential loans, held-for-sale		47,947		49,921		395,237		401,909
Residential loans, held-for-investment		3,076,580		2,756,005		3,799,648		3,306,441
Commercial loans, at fair value		12,150		12,150		12,129		12,129
Commercial loans, held-for-investment		286,070		288,658		157,726		158,780
Trading securities		272,925		272,925		253,142		253,142
Available-for-sale securities		1,039,422		1,039,422		728,695		728,695
Cash and cash equivalents		39,384		39,384		267,176		267,176
Restricted cash		42,546		42,546		14,987		14,987
Accrued interest receivable		16,079		16,079		15,840		15,840
Derivative assets		3,424		3,424		2,373		2,373
Mortgage servicing rights ⁽¹⁾		2,655		2,655		-		-
REO ⁽¹⁾		3,919		5,093		5,669		8,161
Margin receivable ⁽¹⁾		66,814		66,814		71,976		71,976

Liabilities
Short-term debt		522,214		522,214		428,056		428,056
Accrued interest payable		6,494		6,494		8,134		8,134
Derivative liabilities		108,555		108,555		127,564		127,564
ABS issued		3,429,007		3,074,969		4,139,355		3,467,054
Long-term debt		139,500		80,910		139,500		57,195

(1)	These assets are included in Other Assets on our consolidated balance sheets.

Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table presents the assets and liabilities recorded that are reported at fair value on our consolidated balance sheets on a recurring basis as well as the fair value hierarchy of the valuation inputs used to measure fair value.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at September 30, 2012


September 30, 2012	Carrying		Fair Value Measurements Using
(In Thousands)	Value		Level 1		Level 2		Level 3
Assets
Residential loans, at fair value	$	370,035	$	-	$	-	$	370,035
Commercial loans, at fair value		12,150		-		-		12,150
Trading securities		272,925		-		-		272,925
Available-for-sale securities		1,039,422		-		-		1,039,422
Derivative assets		3,424		-		3,424		-
MSRs		2,655		-		-		2,655

Liabilities
Derivative liabilities		108,555		618		90,687		17,250
ABS issued - Acacia		255,411		-		-		255,411

Changes in Level 3 Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table presents additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2012.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis


	Assets										Liabilities
(In Thousands)	Residential Loans		Commercial Loans		Trading Securities		AFS Securities		MSRs		Derivative Liabilities		ABS Issued - Acacia
Beginning balance - December 31, 2011	$	-	$	12,129	$	253,142	$	728,695	$	-	$	19,500	$	209,381
Transfer to Level 3		-		-		-		-		-		-		-
Principal paydowns		(727)		(113)		(66,403)		(107,446)		-		-		(42,877)
Gains (losses) in net income, net		15,433		134		75,912		49,257		(1,194)		3,394		73,193
Unrealized gains in OCI, net		-		-		-		84,677		-		-		-
Acquisitions		524,038		-		35,389		430,737		3,849		-		-
Sales		(168,624)		-		(25,657)		(146,608)		-		-		-
Other settlements, net		(85)		-		542		110		-		(5,644)		15,714

Ending Balance - September 30, 2012	$	370,035	$	12,150	$	272,925	$	1,039,422	$	2,655	$	17,250	$	255,411

Portion of Net Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held and Included in Net Income

The following table presents the portion of gains or losses included in our consolidated statements of income that were attributable to Level 3 assets and liabilities recorded at fair value on a recurring basis and held at both September 30, 2012 and 2011. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the three and nine months ended September 30, 2012 and 2011 are not included in this presentation.

Portion of Net Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held at September 30, 2012 and 2011 Included in Net Income


	Included in Net Income Three Months Ended September 30,				Included in Net Income Nine Months Ended September 30,
(In Thousands)	2012		2011		2012		2011
Assets
Residential loans, at fair value	$	11,662	$	-	$	11,662	$	-
Commercial loans, at fair value		11		(184)		134		1,358
Trading securities		28,937		(5,207)		71,136		(3,938)
Available-for-sale securities		(1,207)		(1,083)		(1,842)		(3,551)
Derivative assets		-		-		-		-
Mortgage servicing rights		(578)		-		(1,029)		-

Liabilities
Derivative liabilities		(2,304)		1,651		(3,394)		1,651
ABS issued - Acacia		(28,167)		16,530		(73,193)		9,773

Assets and Liabilities Measured at Fair Value on Non-Recurring Basis

The following table presents information on assets recorded at fair value on a non-recurring basis at September 30, 2012. This table does not include the carrying value and gains or losses associated with the asset types below that were not recorded at fair value on our balance sheet at September 30, 2012.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis at September 30, 2012


									Gain (Loss)
September 30, 2012	Carrying Value		Fair Value Measurements Using						Three Months Ended September 30, 2012		Nine Months Ended September 30, 2012
(In Thousands)	Carrying Value		Level 1		Level 2		Level 3		Three Months Ended September 30, 2012		Nine Months Ended September 30, 2012
Assets
Residential loans, held-for-sale	$	7,358	$	-	$	-	$	7,358	$	(355)	$	(310)
REO		919		-		-		919		(146)		(175)

Market Valuation Adjustments, Net

The following table presents the components of market valuation adjustments, net, recorded in our consolidated statements of income for the three and nine months ended September 30, 2012 and 2011.

Market Valuation Adjustments, Net


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2012		2011		2012		2011
Other market valuation adjustments
Residential loans, held-for-sale	$	90	$	363	$	572	$	374
Commercial loans, at fair value		11		(184)		134		1,358
Trading securities		30,672		(5,359)		75,822		4,963
Impairments on AFS securities		(1,207)		(1,083)		(1,842)		(5,171)
REO		(220)		(255)		(364)		(1,416)
Other derivative instruments, net		(4,649)		(23,460)		(10,632)		(40,216)
ABS issued - Acacia		(28,167)		16,530		(73,193)		9,773

Total other market valuation adjustments, net		(3,470)		(13,448)		(9,503)		(30,335)

Mortgage banking activities market valuation adjustments
Residential loans, at fair value		14,976		-		14,992		-
MSRs		(650)		-		(1,194)		-
Derivative instruments, net		(2,385)		-		(8,784)		-

Total mortgage banking activities market valuation adjustments, net		11,941		-		5,014		-

Total Market Valuation Adjustments, Net	$	8,471	$	(13,448)	$	(4,489)	$	(30,335)

Quantitative Information about Significant Unobservable Inputs Used in Valuation of Level 3 Assets and Liabilities Measured at Fair Value

The following table provides quantitative information about the significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value.

Fair Value Methodology for Level 3 Financial Instruments


September 30, 2012 (In Thousands)	Fair Value		Unobservable Input	Range		Weighted Average
Assets
Residential loans, at fair value	$	370,035	Discount rate		2 - 3 %		3 %
			Prepayment rate		15 - 15 %		15 %

Residential loans, held-for-sale		7,358	Loss severity		5 - 31 %		9 %

Commercial loans, at fair value		12,150	Discount rate		12 - 14 %		13 %
			Debt coverage ratio		1.52 - 1.61		1.54
			Occupancy		86 - 91 %		87 %

Trading and AFS securities		1,312,347	Discount rate		5 -20 %		7 %
			Prepayment speed		2 - 55 %		12 %
			Default rate		1 - 77 %		18 %
			Loss severity		20 - 100 %		48 %
			Credit support		0 - 96 %		8 %

MSRs		2,655	Discount rate		12 - 12 %		12 %
			Prepayment rate		14 - 60 %		32 %

REO		919	Historical loss adjustment		20 - 35 %		28 %

Liabilities
Derivative liabilities		17,250	Collateral cash-flow		N/A		N/A
ABS issued - Acacia		255,411	Discount rate		5 - 20 %		10 %
			Prepayment speed		2 - 55 %		7 %
			Default rate		1 - 77 %		32 %
			Loss severity		20 - 100 %		59 %

- Definition

Tabular disclosure of the amount of gains or losses for the period included in earnings or resulted in a change to net assets, have arisen from the use of significant unobservable inputs (level 3) to measure the fair value of assets, liabilities, and financial instruments classified in shareholders' equity.

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- Definition

Tabular disclosure of assets and liabilities by class, including financial instruments measured at fair value that are classified in shareholders' equity, if any, that are measured at fair value on a nonrecurring basis in periods after initial recognition (for example, impaired assets). Disclosures may include, but are not limited to: (a) the fair value measurements recorded and the reasons for the measurements and (b) the level within the fair value hierarchy in which the fair value measurements are categorized in their entirety (levels 1, 2, 3).

+ References+ Details

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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- Definition

Tabular disclosure of the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such certain disclosures about the financial instruments, assets, and liabilities include: (1) the fair value of the required items together with their carrying amounts (as appropriate) and (2) the methodology and assumptions used in developing such estimates of fair value.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 107

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 159

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef

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-Name Accounting Standards Codification

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-Subparagraph b-d

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

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-Publisher FASB

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 7: http://www.xbrl.org/2003/role/presentationRef

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-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 10: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 11: http://www.xbrl.org/2003/role/presentationRef

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