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Fair Value of Financial Instruments | 9 Months Ended
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Sep. 30, 2011
FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract] |
Fair Value of Financial Instruments | FAIR VALUE OF FINANCIAL INSTRUMENTS The Company utilizes fair value measurements at various levels within the hierarchy established by ASC Topic 820 for certain of its assets and liabilities. The three levels of valuation hierarchy established by ASC Topic 820 are as follows:
• | Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
• | Level 2 – Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. The Company’s fair valued assets and liabilities that are generally included in this category are Agency MBS, certain non-Agency CMBS, and derivatives.
• | Level 3 – Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Generally, the Company’s assets and liabilities carried at fair value and included in this category are non-Agency MBS.
The following table presents the fair value of the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2011, segregated by the hierarchy level of the fair value estimate:
|  |  | Fair Value Measurements
| Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |
Agency MBS | $ | 2,072,110 |  |  | $ | — |  |  | $ | 2,072,110 |  |  | $ | — |
Non-Agency MBS: |  |  |  |  |  |  |  |  |  |  |
CMBS | 390,784 |  |  | — |  |  | 255,823 |  |  | 134,961 |
RMBS | 12,921 |  |  | — |  |  | 5,474 |  |  | 7,447 |
Other investments | 25 |  |  | — |  |  | — |  |  | 25 |
Total assets carried at fair value | $ | 2,475,840 |  |  | $ | — |  |  | $ | 2,333,407 |  |  | $ | 142,433 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities | $ | 28,838 |  |  | $ | — |  |  | $ | 28,838 |  |  | $ | — |
Total liabilities carried at fair value | $ | 28,838 |  |  | $ | — |  |  | $ | 28,838 |  |  | $ | — |
The Company’s Agency MBS, as well a portion of its non-Agency CMBS, are substantially similar to securities that either are currently actively traded or have been recently traded in their respective market. Their fair values are derived from an average of multiple dealer quotes and thus are considered Level 2 fair value measurements. The Company’s remaining non-Agency CMBS and non-Agency RMBS are comprised of securities for which there are not substantially similar securities that trade frequently. As such, the Company determines the fair value of those securities by discounting the estimated future cash flows derived from pricing models using assumptions that are confirmed to the extent possible by third party dealers or other pricing indicators. Significant inputs into those pricing models are Level 3 in nature due to the lack of readily available market quotes. Information utilized in those pricing models include the security’s credit rating, coupon rate, estimated prepayment speeds, expected weighted average life, collateral composition, estimated future interest rates, expected credit losses, credit enhancement, as well as certain other relevant information. The following tables present the activity of the instruments fair valued at Level 3 for the three and nine months ended September 30, 2011:
| Level 3 Fair Values
| Non-Agency CMBS |  | Non-Agency RMBS |  | Other |  | Total assets
Balance as of June 30, 2011 | $ | 136,761 |  |  | $ | 4,722 |  |  | $ | 25 |  |  | $ | 141,508 |
Purchases | 2,956 |  |  | 3,000 |  |  | — |  |  | 5,956 |
Sales | — |  |  | — |  |  | — |  |  | — |
Total unrealized losses: |  |  |  |  |  |  |  |  |  |  |
Included in other comprehensive income | (997 | ) |  | 27 |  |  | — |  |  | (970 | )
Principal payments | (3,493 | ) |  | (311 | ) |  | — |  |  | (3,804 | )
Amortization | (266 | ) |  | 9 |  |  | — |  |  | (257 | )
Balance as of September 30, 2011 | $ | 134,961 |  |  | $ | 7,447 |  |  | $ | 25 |  |  | $ | 142,433 |
| Level 3 Fair Values
| Non-Agency CMBS |  | Non-Agency RMBS |  | Other |  | Total assets
Balance as of January 1, 2011 | $ | 146,671 |  |  | $ | 9,307 |  |  | $ | 25 |  |  | $ | 156,003 |
Purchases | 3,054 |  |  | 3,000 |  |  | — |  |  | 6,054 |
Sales | — |  |  | (3,765 | ) |  | — |  |  | (3,765 | )
Total unrealized losses: |  |  |  |  |  |  |  |  |  |  |
Included in other comprehensive income | (431 | ) |  | 37 |  |  | — |  |  | (394 | )
Principal payments | (13,526 | ) |  | (1,139 | ) |  | — |  |  | (14,665 | )
Amortization | (807 | ) |  | 7 |  |  | — |  |  | (800 | )
Balance as of September 30, 2011 | $ | 134,961 |  |  | $ | 7,447 |  |  | $ | 25 |  |  | $ | 142,433 |
The following table presents the recorded basis and estimated fair values of the Company’s financial instruments as of September 30, 2011 and December 31, 2010:
| September 30, 2011 |  | December 31, 2010
| Recorded Basis |  | Fair Value |  | Recorded Basis |  | Fair Value
Assets: |  |  |  |  |  |  |
Agency MBS | $ | 2,072,110 |  |  | $ | 2,072,110 |  |  | $ | 1,192,579 |  |  | $ | 1,192,579 |
Non-Agency CMBS | 390,784 |  |  | 390,784 |  |  | 251,948 |  |  | 251,948 |
Non-Agency RMBS | 12,921 |  |  | 12,921 |  |  | 15,408 |  |  | 15,408 |
Securitized mortgage loans, net | 118,700 |  |  | 108,030 |  |  | 152,962 |  |  | 142,177 |
Other investments | 1,059 |  |  | 988 |  |  | 1,229 |  |  | 1,112 |
Derivative assets | — |  |  | — |  |  | 692 |  |  | 692 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Repurchase agreements | $ | 2,053,686 |  |  | $ | 2,053,686 |  |  | $ | 1,234,183 |  |  | $ | 1,234,183 |
Non-recourse collateralized financing | 84,013 |  |  | 84,425 |  |  | 107,105 |  |  | 109,395 |
Derivative liabilities | 28,838 |  |  | 28,838 |  |  | 3,532 |  |  | 3,532 |
There were no assets or liabilities which were measured at fair value on a non-recurring basis as of September 30, 2011 or December 31, 2010. The following table presents certain information for Agency MBS and non-Agency MBS that were in an unrealized loss position as of September 30, 2011 and December 31, 2010:
| September 30, 2011 |  | December 31, 2010
| FairValue |  | Unrealized Loss |  | FairValue |  | Unrealized Loss
Unrealized loss position for: |  |  |  |  |  |  |
Less than one year: |  |  |  |  |  |  |
Agency MBS | $ | 820,973 |  |  | $ | 6,930 |  |  | $ | 695,854 |  |  | $ | 6,638 |
Non-Agency MBS | 118,222 |  |  | 2,668 |  |  | 45,602 |  |  | 592 |
One year or more: |  |  |  |  |  |  |  |  |  |  |
Agency MBS | 72,573 |  |  | 1,124 |  |  | — |  |  | — |
Non-Agency MBS | 3,084 |  |  | 371 |  |  | 3,494 |  |  | 337 |
| $ | 1,014,852 |  |  | $ | 11,093 |  |  | $ | 744,950 |  |  | $ | 7,567 |
Because the principal and interest related to Agency MBS are guaranteed by issuers who have the implicit guarantee of the U.S. government, the Company does not consider any of the unrealized losses on its Agency MBS to be credit related. The Company assesses its ability to hold an Agency MBS with an unrealized loss until the recovery in its value. This assessment is based on the amount of the unrealized loss and significance of the related investment as well as the Company’s current leverage and anticipated liquidity. Based on this analysis, the Company has determined that the unrealized losses on its Agency MBS as of September 30, 2011 are temporary. The Company reviews any non-Agency MBS in an unrealized loss position to evaluate whether any decline in fair value represents an other-than-temporary impairment. The evaluation includes a review of the credit ratings of these MBS and the seasoning of the mortgage loans collateralizing these securities as well as the estimated future cash flows which include projected losses. The Company performed this evaluation for the non-Agency MBS in an unrealized loss position as of September 30, 2011 and has determined that there have not been any adverse changes in the timing or amount of estimated future cash flows that necessitate a recognition of other-than-temporary impairment amounts as of September 30, 2011.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -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 -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -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 -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-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 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -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 Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -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 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -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 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -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. + Details
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