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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2013

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, 2013 and December 31, 2012.


	September 30, 2013				December 31, 2012
(In Thousands)	Carrying		Fair		Carrying		Fair
(In Thousands)	Value		Value		Value		Value
Assets
Residential loans, held-for-sale
At fair value	$	726,161	$	726,161	$	553,576	$	553,576
At lower of cost or fair value		1,718		1,794		9,082		9,324
Residential loans, held-for-investment		1,864,653		1,690,898		2,272,812		2,062,352
Commercial loans, held-for-sale
At fair value		27,413		27,413		-		-
At lower of cost or fair value		-		-		8,500		8,500
Commercial loans, held-for-investment		352,440		357,077		304,510		309,547
Trading securities		130,854		130,854		33,172		33,172
Available-for-sale securities		1,193,824		1,193,824		1,075,581		1,075,581
Mortgage servicing rights		60,234		60,234		5,315		5,315
Cash and cash equivalents		204,646		204,646		81,080		81,080
Restricted cash		417		417		383		383
Accrued interest receivable		14,523		14,523		12,442		12,442
Derivative assets		4,852		4,852		2,972		2,972
REO ⁽¹⁾		4,050		4,728		4,245		5,540
Margin receivable ⁽¹⁾		46,970		46,970		63,424		63,424
Other collateral posted ⁽¹⁾		5,000		5,000		-		-

Liabilities
Short-term debt	$	838,299	$	838,299	$	551,918	$	551,918
Accrued interest payable		11,162		11,162		4,592		4,592
Derivative liabilities		32,697		32,697		51,081		51,081
ABS issued		2,061,665		1,853,161		2,529,941		2,372,971
Commercial borrowings		44,605		44,605		-		-
Convertible notes		287,500		283,547		-		-
Other long-term debt		139,500		104,625		139,500		90,675

(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 at September 30, 2013, 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, 2013


September 30, 2013	Carrying		Fair Value Measurements Using
(In Thousands)	Value		Level 1		Level 2		Level 3
Assets
Residential loans, at fair value	$	726,161	$	-	$	-	$	726,161
Commercial loans, at fair value		27,413		-		-		27,413
Trading securities		130,854		-		-		130,854
Available-for-sale securities		1,193,824		-		-		1,193,824
MSRs		60,234		-		-		60,234
Derivative assets		4,852		745		4,107		-

Liabilities
Derivative liabilities		32,697		6,341		26,356		-

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, 2013.

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


	Assets
(In Thousands)	Residential Loans		Commercial Loans		Trading Securities		AFS Securities		MSRs
Beginning balance - December 31, 2012	$	553,576	$	0	$	33,172	$	1,075,581	$	5,315
Principal paydowns		(6,675)		(109)		(1,240)		(122,789)		-
(Losses) gains in net income, net		(40,307)		2,818		34,380		45,824		9,628
Unrealized losses in OCI, net		-		-		-		(48,823)		-
Acquisitions		6,448,724		262,806		104,552		417,251		45,291
Sales		(6,228,242)		(238,102)		(40,010)		(173,220)		-
Other settlements, net		(915)		-		-		-		-

Ending Balance - September 30, 2013	$	726,161	$	27,413	$	130,854	$	1,193,824	$	60,234

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 September 30, 2013 and 2012. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the three and nine months ended September 30, 2013 and 2012 are not included in this presentation.

Portion of Net Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held at September 30, 2013 and 2012 Included in Net Income


	Included in Net Income
	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2013		2012		2013		2012
Assets
Residential loans, at fair value	$	(1,864)	$	11,662	$	(3,088)	$	11,662
Commercial loans, at fair value		831		11		831		134
Trading securities		(1,525)		28,937		28,491		71,136
Available-for-sale securities		-		(1,207)		(940)		(1,842)
MSRs		1,344		(578)		12,561		(1,029)

Liabilities
Derivative liabilities		-		(2,304)		-		(3,394)
ABS issued - Acacia		-		(28,167)		-		(73,193)

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, 2013. 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, 2013.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis at September 30, 2013


									Gain (Loss) for
September 30, 2013	Carrying		Fair Value Measurements Using						Three Months Ended		Nine Months Ended
(In Thousands)	Value		Level 1		Level 2		Level 3		September 30, 2013		September 30, 2013
Assets
Residential loans, at lower of cost or fair value	$	1,116	$	-	$	-	$	1,116	$	(13)	$	29
REO		1,305		-		-		1,305		30		(367)

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, 2013 and 2012.

Market Valuation Adjustments, Net


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2013		2012		2013		2012
Other
Residential loans, at lower of cost or fair value	$	(11)	$	90	$	68	$	572
Commercial loans, at fair value		-		11		-		134
Trading securities		540		35,099		(4,168)		84,923
Impairments on AFS securities		-		(1,207)		(1,666)		(1,842)
REO		(76)		(220)		(407)		(364)
Other derivative instruments, net		9		(4,649)		74		(10,632)
ABS issued—Acacia		-		(28,167)		-		(73,193)

Total other		462		957		(6,099)		(402)

Mortgage banking activities
Residential loans, at fair value		(10,804)		14,976		(17,339)		14,992
Commercial loans, at fair value		3,171		-		2,826		-
Trading securities		(1,866)		(4,427)		36,399		(9,101)
MSRs		460		(650)		9,629		(1,194)
Derivative instruments, net		442		(2,385)		51,009		(8,784)

Total mortgage banking activities		(8,597)		7,514		82,524		(4,087)

Total Market Valuation Adjustments, Net	$	(8,135)	$	8,471	$	76,425	$	(4,489)

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, 2013 (Dollars in Thousands)	Fair Value		Unobservable Input	Range		Weighted Average
Assets
Residential loans, at fair value:
Loans priced to securitization	$	230,465	Discount rate		4 - 4 %		4 %
			Prepayment rate		15 -15 %		15 %
			Default rate		1 - 1 %		1 %
			Loss severity		22 - 22 %		22 %
			Credit support		8 - 8 %		8 %

Loans priced to whole loan market and committed to sell		401,009	Pool fallout assumption		0 - 0 %		- %

Loans priced to whole loan market and uncommitted to sell		94,688	Base Price		101.5 - 101.5 %		101.5 %
			Base Coupon		3.2 - 4.1 %		3.9 %
			Buy up (x coupon difference from base coupon)		2 - 2 x		2 x
			Buy Down (x coupon difference from base coupon)		3 - 3 x		3 x

Residential loans, at lower of cost or fair value		1,116	Loss severity		15-28 %		21 %

Commercial loans, held for sale		27,413	Credit Spread		161 bps - 161 bps		161 bps
			Credit Support		20 - 20 %		20 %

Trading and AFS securities		1,324,678	Discount rate		5 - 13 %		7 %
			Prepayment speed		1 - 40 %		13 %
			Default rate		0 - 35 %		8 %
			Loss severity		20 - 66 %		32 %
			Credit support		0 - 61 %		5 %

MSRs		60,234	Discount rate		9 - 11 %		11 %
			Prepayment rate		6 - 60 %		9 %

REO		1,305	Historical loss adjustment		0 - 40 %		15 %

- 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, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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