v2.4.1.9
Valuation
 12 Months Ended
Dec. 31, 2014
Fair Value Disclosures [Abstract]  
Valuation
Valuation
The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at December 31, 2014:
Description
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
(In thousands)
Cash and cash equivalents
 
$
114,140

 
$
—

 
$
—

 
$
114,140

Investments, at fair value-
 
 
 
 
 
 
 
 
Agency residential mortgage-backed securities
 
$
—

 
$
1,258,699

 
$
31,385

 
$
1,290,084

U.S. Treasury securities
 
—

 
1,636

 
—

 
1,636

Private label residential mortgage-backed securities
 
—

 
284,748

 
274,369

 
559,117

Private label commercial mortgage-backed securities
 
—

 
—

 
53,311

 
53,311

Commercial mortgage loans
 
—

 
—

 
28,309

 
28,309

Residential mortgage loans
 
—

 
—

 
27,482

 
27,482

Other asset-backed securities and loans
 
—

 
—

 
146,288

 
146,288

Corporate debt
 
—

 
—

 
42,708

 
42,708

Real estate owned
 
—

 
—

 
8,635

 
8,635

Private corporate investments
 
—

 
—

 
14,512

 
14,512

Total investments, at fair value
 
—

 
1,545,083

 
626,999

 
2,172,082

Financial derivatives–assets, at fair value-
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
 
—

 
—

 
11,387

 
11,387

Credit default swaps on corporate bond indices
 
—

 
35,865

 
—

 
35,865

Credit default swaps on asset-backed indices
 
—

 
1,881

 
—

 
1,881

Interest rate swaps
 
—

 
28,654

 
—

 
28,654

Total return swaps
 
—

 
8

 
—

 
8

Swaptions
 
—

 
344

 
—

 
344

 
 
 
 
 
 
 
 
 
Description
 
Level 1
 
Level 2
 
Level 3
 
Total
Liabilities:
 
(In thousands)
Financial derivatives–assets, at fair value- (continued)
 
 
 
 
 
 
 
 
Options
 
—

 
645

 
—

 
645

Futures
 
261

 
—

 
—

 
261

Forwards
 
—

 
884

 
—

 
884

Warrants
 
—

 
—

 
100

 
100

Total financial derivatives–assets, at fair value
 
261

 
68,281

 
11,487

 
80,029

Repurchase agreements
 
—

 
172,001

 
—

 
172,001

Total investments and financial derivatives–assets, at fair value and repurchase agreements
 
$
261

 
$
1,785,365

 
$
638,486

 
$
2,424,112

Liabilities:
 
 
 
 
 
 
 
 
Investments sold short, at fair value-
 
 
 
 
 
 
 
 
Agency residential mortgage-backed securities
 
$
—

 
$
(1,209,539
)
 
$
—

 
$
(1,209,539
)
Government debt
 
—

 
(55,315
)
 
—

 
(55,315
)
Common stock
 
(26,516
)
 
—

 
—

 
(26,516
)
Total investments sold short, at fair value
 
(26,516
)
 
(1,264,854
)
 
—

 
(1,291,370
)
Financial derivatives–liabilities, at fair value-
 
 
 
 
 
 
 
 
Credit default swaps on corporate bond indices
 
—

 
(28,588
)
 
—

 
(28,588
)
Credit default swaps on corporate bonds
 
—

 
(2,953
)
 
—

 
(2,953
)
Credit default swaps on asset-backed indices
 
—

 
(4,410
)
 
—

 
(4,410
)
Credit default swaps on asset-backed securities
 
—

 
—

 
(239
)
 
(239
)
Interest rate swaps
 
—

 
(29,405
)
 
—

 
(29,405
)
Total return swaps
 
—

 
(21
)
 
—

 
(21
)
Options
 
—

 
(146
)
 
—

 
(146
)
Swaptions
 
—

 
(137
)
 
—

 
(137
)
Futures
 
(81
)
 
—

 
—

 
(81
)
Forwards
 
—

 
(136
)
 
—

 
(136
)
Total financial derivatives–liabilities, at fair value
 
(81
)
 
(65,796
)
 
(239
)
 
(66,116
)
Securitized debt(1)
 
—

 
—

 
(774
)
 
(774
)
Total investments sold short, financial derivatives–liabilities, and securitized debt, at fair value
 
$
(26,597
)
 
$
(1,330,650
)
 
$
(1,013
)
 
$
(1,358,260
)

(1)
The asset subject to the resecuritization had a fair value of $2.2 million as of December 31, 2014, which is included on the Consolidated Schedule of Investments under Principal and Interest – Private Label Securities.
The Company's reverse repurchase agreements are carried at cost, which approximates fair value. These liabilities are classified as Level 2 liabilities based on the adequacy of the collateral and their short term nature.
There were no transfers of financial instruments between Level 1 and Level 2 during the year ended December 31, 2014.
The following table identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of December 31, 2014:
 
Fair Value
 
Valuation 
Technique
 
Unobservable Input
 
Range
 
Weighted
Average
Description
 
 
 
Min
 
Max
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
Private label residential mortgage-backed securities (1)
$
201,373

 
Market Quotes
 
Non Binding Third-Party Valuation
 
$
1.83

 
$
119.58

 
$
73.58

Other asset-backed securities
123,029

 
Market Quotes
 
Non Binding Third-Party Valuation
 
$
21.50

 
$
137.00

 
$
94.91

Private label residential mortgage-backed securities
72,222

 
Discounted Cash Flows
 
Yield
 
3.0
%
 
13.6
%
 
7.0
%
 
 
 
 
 
Projected Collateral Prepayments
 
6.7
%
 
100.0
%
 
45.6
%
 
 
 
 
 
Projected Collateral Losses
 
0.0
%
 
44.5
%
 
11.3
%
 
 
 
 
 
Projected Collateral Recoveries
 
0.0
%
 
22.4
%
 
8.0
%
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
0.0
%
 
86.4
%
 
35.1
%
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Private label commercial mortgage-backed securities
12,392

 
Discounted Cash Flows
 
Yield
 
12.0
%
 
51.1
%
 
23.7
%
 
 
 
 
 
Projected Collateral Losses
 
0.1
%
 
2.5
%
 
0.7
%
 
 
 
 
 
Projected Collateral Recoveries
 
0.9
%
 
13.5
%
 
6.2
%
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
85.3
%
 
99.0
%
 
93.1
%
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Corporate debt, non-exchange traded corporate equity, and warrants
45,668

 
Discounted Cash Flows
 
Yield
 
7.5
%
 
24.3
%
 
13.3
%
 
 
 
 
 
Non Binding Third-Party Valuation
 
$
73.00

 
$
108.00

 
$
95.08

Other asset-backed securities and loans
23,259

 
Discounted Cash Flows
 
Yield
 
—
%
 
14.4
%
 
9.1
%
 
 
 
 
 
Projected Collateral Prepayments
 
62.7
%
 
62.7
%
 
62.7
%
 
 
 
 
 
Projected Collateral Losses
 
4.0
%
 
4.0
%
 
4.0
%
 
 
 
 
 
Projected Collateral Recoveries
 
1.7
%
 
1.7
%
 
1.7
%
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
31.6
%
 
31.6
%
 
31.6
%
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Private label commercial mortgage-backed securities
40,919

 
Market Quotes
 
Non Binding Third-Party Valuation
 
$
5.62

 
$
103.25

 
$
66.56

Performing commercial mortgage loans
21,328

 
Discounted Cash Flows
 
Yield
 
9.2
%
 
13.1
%
 
10.3
%
Non-performing commercial mortgage loans
6,981

 
Discounted Cash Flows
 
Yield
 
15.3
%
 
20.1
%
 
16.4
%
 
 
 
 
 
Months to Resolution
 
0.5

 
10.5

 
8.2

Non-performing residential mortgage loan pools and real estate owned
36,117

 
Discounted Cash Flows
 
Yield
 
6.1
%
 
12.0
%
 
7.3
%
 
 
 
 
 
Months to Resolution
 
4.1

 
79.1

 
24.6

Agency interest only residential mortgage-backed securities
22,928

 
Market Quotes
 
Non Binding Third-Party Valuation
 
$
3.62

 
$
24.86

 
$
11.38

Agency interest only residential mortgage-backed securities
8,457

 
Option Adjusted Spread ("OAS")
 
LIBOR OAS(2)
 
(154
)
 
1,796

 
359

 
 
 
 
 
Projected Collateral Prepayments
 
50.2
%
 
100.0
%
 
75.5
%
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
0.0
%
 
49.8
%
 
24.5
%
 
 
 
 
 
 
 
 
 
 
 
100.0
%
(continued)
Fair Value
 
Valuation 
Technique
 
Unobservable Input
 
Range
 
Weighted
Average
Description
 
 
 
Min
 
Max
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
11,148

 
Net Discounted Cash Flows
 
Projected Collateral Prepayments
 
17.8
%
 
55.8
%
 
32.5
%
 
 
 
 
 
Projected Collateral Losses
 
16.5
%
 
37.7
%
 
29.7
%
 
 
 
 
 
Projected Collateral Recoveries
 
7.7
%
 
18.5
%
 
12.8
%
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
15.9
%
 
43.4
%
 
25.0
%
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Non-exchange traded preferred equity investment in commercial mortgage-related private partnership
6,241

 
Discounted Cash Flows
 
Yield
 
10.0
%
 
10.0
%
 
10.0
%
 
 
 
 
 
Expected Holding Period (Months)
 
17

 
17

 
17

Non-exchange traded preferred and common equity investment in mortgage-related entities
5,411

 
Recent Transactions
 
Transaction Price
 
N/A
 
N/A
 
N/A
(1)
Includes securitized debt with a fair value of $0.8 million as of December 31, 2014.
(2)
Shown in basis points.
Third-party non-binding valuations are validated by comparing such valuations to internally generated prices based on the Company's models and to recent trading activity in the same or similar instruments.
For those instruments valued using discounted and net discounted cash flows, collateral prepayments, losses, recoveries, and scheduled amortization are projected over the remaining life of the collateral and expressed as a percentage of the collateral's current principal balance. Averages are weighted based on the fair value of the related instrument. In the case of credit default swaps on asset-backed securities, averages are weighted based on each instrument's bond equivalent value. Bond equivalent value represents the investment amount of a corresponding position in the reference obligation, calculated as the difference between the outstanding principal balance of the underlying reference obligation and the fair value, inclusive of accrued interest, of the derivative contract. For those assets valued using the LIBOR Option Adjusted Spread ("OAS") valuation methodology, cash flows are projected using the Company's models over multiple interest rate scenarios, and these projected cash flows are then discounted using the LIBOR rates implied by each interest rate scenario. The LIBOR OAS of an asset is then computed as the unique constant yield spread that, when added to all LIBOR rates in each interest rate scenario generated by the model, will equate (a) the expected present value of the projected asset cash flows over all model scenarios to (b) the actual current market price of the asset. LIBOR OAS is therefore model-dependent. Generally speaking, LIBOR OAS measures the additional yield spread over LIBOR that an asset provides at its current market price after taking into account any interest rate options embedded in the asset. The Company considers the expected timeline to resolution in the determination of fair value for its non-performing commercial and residential loans.
Material changes in any of the inputs above in isolation could result in a significant change to reported fair value measurements. Additionally, fair value measurements are impacted by the interrelationships of these inputs. For example, for instruments subject to prepayments and credit losses, such as non-Agency RMBS and consumer loans and ABS backed by consumer loans, a higher expectation of collateral prepayments will generally be accompanied by a lower expectation of collateral losses. Conversely, higher losses will generally be accompanied by lower prepayments. Because the Company's credit default swaps on asset-backed security holdings represent credit default swap contracts whereby the Company has purchased credit protection, such credit default swaps on asset-backed securities generally have the directionally opposite sensitivity to prepayments, losses, and recoveries as compared to the Company's long securities holdings. Prepayments do not represent a significant input for the Company's commercial mortgage-backed securities and commercial mortgage loans. Losses and recoveries do not represent a significant input for the Company's Agency RMBS interest only securities, given the guarantee of the issuing government agency or government-sponsored enterprise.
The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at December 31, 2013:
(In thousands)
 
 
 
 
 
 
 
 
Description
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
183,489

 
$
—

 
$
—

 
$
183,489

Investments, at fair value-
 
 
 
 
 
 
 
 
Agency residential mortgage-backed securities
 
$
—

 
$
989,842

 
$
40,504

 
$
1,030,346

Private label residential mortgage-backed securities
 
—

 
—

 
580,772

 
580,772

Private label commercial mortgage-backed securities
 
—

 
—

 
32,994

 
32,994

Commercial mortgage loans
 
—

 
—

 
23,887

 
23,887

Residential mortgage loans
 
—

 
—

 
24,062

 
24,062

Other asset-backed securities
 
—

 
—

 
38,069

 
38,069

Total investments, at fair value
 
—

 
989,842

 
740,288

 
1,730,130

Financial derivatives–assets, at fair value-
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
 
—

 
—

 
16,646

 
16,646

Credit default swaps on corporate bond indices
 
—

 
14,273

 
—

 
14,273

Credit default swaps on asset-backed indices
 
—

 
4,937

 
—

 
4,937

Interest rate swaps
 
—

 
23,553

 
—

 
23,553

Total return swaps
 
—

 
4

 
—

 
4

Options
 
—

 
251

 
—

 
251

Total financial derivatives–assets, at fair value
 
—

 
43,018

 
16,646

 
59,664

Repurchase agreements
 
—

 
27,962

 
—

 
27,962

Total investments and financial derivatives–assets, at fair value and repurchase agreements
 
$
—

 
$
1,060,822

 
$
756,934

 
$
1,817,756

Liabilities:
 
 
 
 
 
 
 
 
Investments sold short, at fair value-
 
 
 
 
 
 
 
 
Agency residential mortgage-backed securities
 
$
—

 
$
(811,957
)
 
$
—

 
$
(811,957
)
Government debt
 
—

 
(27,288
)
 
—

 
(27,288
)
Common stock
 
(6,369
)
 
—

 
—

 
(6,369
)
Total investments sold short, at fair value
 
(6,369
)
 
(839,245
)
 
—

 
(845,614
)
Financial derivatives–liabilities, at fair value-
 
 
 
 
 
 
 
 
Credit default swaps on corporate bond indices
 
—

 
(24,949
)
 
—

 
(24,949
)
Credit default swaps on asset-backed indices
 
—

 
(11,866
)
 
—

 
(11,866
)
Credit default swaps on asset-backed securities
 
—

 
—

 
(350
)
 
(350
)
Interest rate swaps
 
—

 
(5,064
)
 
—

 
(5,064
)
Total return swaps
 
—

 
(67
)
 
—

 
(67
)
Options
 
—

 
(84
)
 
—

 
(84
)
Futures
 
(2,373
)
 
—

 
—

 
(2,373
)
Forwards
 
—

 
(38
)
 
—

 
(38
)
Total financial derivatives–liabilities, at fair value
 
(2,373
)
 
(42,068
)
 
(350
)
 
(44,791
)
Securitized debt(1)
 
—

 
—

 
(983
)
 
(983
)
Total investments sold short, financial derivatives–liabilities, and securitized debt, at fair value
 
$
(8,742
)
 
$
(881,313
)
 
$
(1,333
)
 
$
(891,388
)

(1)
The asset subject to the resecuritization had a fair value of $2.3 million as of December 31, 2013, which is included on the Consolidated Schedule of Investments under Principal and Interest – Private Label Securities.
The Company's reverse repurchase agreements are carried at cost, which approximates fair value. These liabilities are classified as Level 2 liabilities based on the adequacy of the collateral and their short term nature.
There were no transfers of financial instruments between Level 1, Level 2, or Level 3 during the year ended December 31, 2013.
The following table identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of December 31, 2013:
 
Fair Value
 
Valuation 
Technique
 
Unobservable Input
 
Range
 
Weighted
Average
Description
 
 
 
Min
 
Max
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
Private label residential mortgage-backed securities and Other asset-backed securities(1)
$
550,701

 
Market Quotes
 
Non Binding Third-Party Valuation
 
$
1.80

 
$
110.35

 
$
78.09

Private label residential mortgage-backed securities
67,158

 
Discounted Cash Flows
 
Yield
 
3.8
%
 
20.5
%
 
8.0
%
 
 
 
 
 
Projected Collateral Prepayments
 
6.9
%
 
64.5
%
 
29.7
%
 
 
 
 
 
Projected Collateral Losses
 
4.3
%
 
35.2
%
 
17.4
%
 
 
 
 
 
Projected Collateral Recoveries
 
0.3
%
 
17.1
%
 
9.1
%
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
14.1
%
 
87.3
%
 
43.8
%
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Private label commercial mortgage-backed securities
3,480

 
Discounted Cash Flows
 
Yield
 
9.2
%
 
18.2
%
 
13.5
%
 
 
 
 
 
Projected Collateral Losses
 
0.2
%
 
0.2
%
 
0.2
%
 
 
 
 
 
Projected Collateral Recoveries
 
15.4
%
 
15.4
%
 
15.4
%
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
84.4
%
 
84.4
%
 
84.4
%
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Private label commercial mortgage-backed securities and commercial mortgage loans
34,489

 
Market Quotes
 
Non Binding Third-Party Valuation
 
$
14.25

 
$
102.89

 
$
74.24

Performing commercial mortgage loans
8,788

 
Discounted Cash Flows
 
Yield
 
12.7
%
 
12.8
%
 
12.7
%
Non-performing commercial mortgage loans
10,123

 
Discounted Cash Flows
 
Yield
 
15.0
%
 
15.0
%
 
15.0
%
 
 
 
 
 
Months to Resolution
 
5

 
7

 
6

Non-performing residential mortgage loan pools
24,062

 
Discounted Cash Flows
 
Yield
 
7.4
%
 
7.4
%
 
7.4
%
 
 
 
 
 
Months to Resolution
 
16.3

 
16.3

 
16.3

Agency interest only residential mortgage-backed securities
38,783

 
Market Quotes
 
Non Binding Third-Party Valuation
 
$
6.26

 
$
33.77

 
$
14.53

Agency interest only residential mortgage-backed securities
1,721

 
Option Adjusted Spread ("OAS")
 
LIBOR OAS(2)
 
349

 
645

 
422

 
 
 
 
 
Projected Collateral Prepayments
 
49.0
%
 
58.1
%
 
51.2
%
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
41.9
%
 
51.0
%
 
48.8
%
 
 
 
 
 
 
 
 
 
 
 
100.0
%
Credit default swaps on asset-backed securities
16,296

 
Net Discounted Cash Flows
 
Projected Collateral Prepayments
 
19.3
%
 
59.0
%
 
29.9
%
 
 
 
 
 
Projected Collateral Losses
 
15.5
%
 
47.8
%
 
34.8
%
 
 
 
 
 
Projected Collateral Recoveries
 
8.2
%
 
15.2
%
 
13.1
%
 
 
 
 
 
Projected Collateral Scheduled Amortization
 
15.7
%
 
41.2
%
 
22.2
%
 
 
 
 
 
 
 
 
 
 
 
100.0
%
(1)
Includes securitized debt with a fair value of $1.0 million as of December 31, 2013.
(2)
Shown in basis points.
For those instruments valued using discounted and net discounted cash flows, collateral prepayments, losses, recoveries, and scheduled amortization are projected over the remaining life of the collateral and expressed as a percentage of the collateral's current principal balance. Averages are weighted based on the fair value of the related instrument. In the case of credit default swaps on asset-backed securities, averages are weighted based on each instrument's bond equivalent value. Bond equivalent value represents the investment amount of a corresponding position in the reference obligation, calculated as the difference between the outstanding principal balance of the underlying reference obligation and the fair value, inclusive of accrued interest, of the derivative contract. For those assets valued using the LIBOR Option Adjusted Spread valuation methodology, cash flows are projected using the Company's models over multiple interest rate scenarios, and these projected cash flows are then discounted using the LIBOR rates implied by each interest rate scenario. The LIBOR OAS of an asset is then computed as the unique constant yield spread that, when added to all LIBOR rates in each interest rate scenario generated by the model, will equate (a) the expected present value of the projected asset cash flows over all model scenarios to (b) the actual current market price of the asset. LIBOR OAS is therefore model-dependent. Generally speaking, LIBOR OAS measures the additional yield spread over LIBOR that an asset provides at its current market price after taking into account any interest rate options embedded in the asset.
Material changes in any of the inputs above in isolation could result in a significant change to reported fair value measurements. Additionally, fair value measurements are impacted by the interrelationships of these inputs. For example, a higher expectation of collateral prepayments will generally be accompanied by a lower expectation of collateral losses. Conversely, higher losses will generally be accompanied by lower prepayments. Because the Company's credit default swaps on asset-backed security holdings represent credit default swap contracts whereby the Company has purchased credit protection, such default swaps on asset-backed securities generally have the directionally opposite sensitivity to prepayments, losses, and recoveries as compared to the Company's long securities holdings. Prepayments do not represent a significant input for the Company's commercial mortgage-backed securities and commercial mortgage loans. Losses and recoveries do not represent a significant input for the Company's Agency RMBS interest only securities, given the guarantee of the issuing government agency or government-sponsored enterprise.
The tables below include a roll-forward of the Company's financial instruments for the years ended December 31, 2014, 2013, and 2012 (including the change in fair value), for financial instruments classified by the Company within Level 3 of the valuation hierarchy.
Level 3—Fair Value Measurement Using Significant Unobservable Inputs:
Year Ended December 31, 2014
(In thousands)
Beginning
Balance 
as of
December 31, 2013
 
Accreted
Discounts /
(Amortized
Premiums)
 
Net Realized
Gain/
(Loss)
 
Change in Net
Unrealized
Gain/(Loss)
 
Purchases/
Payments
 
Sales/
Issuances
 
Transfers Into Level 3
 
Transfers Out of Level 3
 
Ending
Balance as of 
December 31, 2014
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency residential mortgage-backed securities
$
40,504

 
$
(8,738
)
 
$
1,404

 
$
(2,078
)
 
$
8,448

 
$
(8,155
)
 
$
—

 
$
—

 
$
31,385

Private label residential mortgage-backed securities
580,772

 
20,544

 
38,600

 
(18,406
)
 
382,956

 
(445,349
)
 
—

 
(284,748
)
 
274,369

Private label commercial mortgage-backed securities
32,994

 
1,328

 
7,055

 
(357
)
 
116,128

 
(103,837
)
 
—

 
—

 
53,311

Commercial mortgage loans
23,887

 
2,739

 
3,156

 
(632
)
 
41,856

 
(42,697
)
 
—

 
—

 
28,309

Residential mortgage loans
24,062

 
1,267

 
1,424

 
84

 
14,863

 
(14,218
)
 
—

 
—

 
27,482

Other asset-backed securities and loans
38,069

 
(3,761
)
 
342

 
(2,409
)
 
148,009

 
(33,962
)
 
—

 
—

 
146,288

Corporate debt
—

 
(70
)
 
—

 
(877
)
 
43,808

 
(153
)
 
—

 
—

 
42,708

Real estate owned
—

 
—

 
172

 
(113
)
 
11,247

 
(2,671
)
 
—

 
—

 
8,635

Private corporate investments
—

 
—

 
—

 
(205
)
 
14,717

 
—

 
—

 
—

 
14,512

Total investments, at fair value
740,288

 
13,309

 
52,153

 
(24,993
)
 
782,032

 
(651,042
)
 
—

 
(284,748
)
 
626,999

Financial derivatives–assets, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
16,646

 
—

 
(4,596
)
 
4,547

 
464

 
(5,674
)
 
—

 
—

 
11,387

Warrants
—

 
—

 
—

 
—

 
100

 
—

 
—

 
—

 
100

Total financial derivatives– assets, at fair value
16,646

 
—

 
(4,596
)
 
4,547

 
564

 
(5,674
)
 
—

 
—

 
11,487

Total investments and financial derivatives–assets, at fair value
$
756,934

 
$
13,309

 
$
47,557

 
$
(20,446
)
 
$
782,596

 
$
(656,716
)
 
$
—

 
$
(284,748
)
 
$
638,486

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial derivatives–liabilities, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
$
(350
)
 
$
—

 
$
(78
)
 
$
111

 
$
—

 
$
78

 
$
—

 
$
—

 
$
(239
)
Total financial derivatives– liabilities, at fair value
(350
)
 
—

 
(78
)
 
111

 
—

 
78

 
—

 
—

 
(239
)
Securitized debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securitized debt
(983
)
 
(15
)
 
—

 
(22
)
 
246

 
—

 
—

 
—

 
(774
)
Total securitized debt
(983
)
 
(15
)
 
—

 
(22
)
 
246

 
—

 
—

 
—

 
(774
)
Total financial derivatives– liabilities and securitized debt, at fair value
$
(1,333
)
 
$
(15
)
 
$
(78
)
 
$
89

 
$
246

 
$
78

 
$
—

 
$
—

 
$
(1,013
)

All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at December 31, 2014, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2014. For Level 3 financial instruments held by the Company at December 31, 2014, change in net unrealized gain (loss) of $6.3 million, $(1.6) million, $(0.1) million and $(22.0) thousand, for the year ended December 31, 2014 relate to investments, financial derivatives–assets, financial derivatives–liabilities, and securitized debt, respectively.
As of December 31, 2014, the Company transferred $284.7 million of non-Agency RMBS from Level 3 to Level 2. The decision to transfer these assets from Level 3 to Level 2 was based on observed market developments, including an increased volume of buying and selling of these and similar assets, greater consensus among market participants on price based on market quotes, and generally tighter credit spreads driven by improved performance in the underlying collateral as well as increased demand from investors seeking higher yielding assets. These factors have led to greater price transparency for these assets, thereby making a Level 2 designation appropriate in the Company's view. However, changes in observed market developments could impact future price transparency, and thereby cause a change in the level designation in subsequent periods.
Level 3—Fair Value Measurement Using Significant Unobservable Inputs:
Year Ended December 31, 2013
(In thousands)
Ending
Balance as of December 31, 2012
 
Accreted
Discounts /
(Amortized
Premiums)
 
Net Realized
Gain/
(Loss)
 
Change in
Net
Unrealized
Gain/(Loss)
 
Purchases/
Payments
 
Sales/
Issuances
 
Transfers Into Level 3
 
Transfers Out of Level 3
 
Ending
Balance as of December 31, 2013
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency residential mortgage-backed securities
$
6,644

 
$
(5,929
)
 
$
833

 
$
3,323

 
$
42,051

 
$
(6,418
)
 
$
—

 
$
—

 
$
40,504

Private label residential mortgage-backed securities
528,366

 
26,119

 
43,823

 
12,643

 
524,864

 
(456,043
)
 
—

 
—

 
580,772

Private label commercial mortgage-backed securities
19,327

 
402

 
1,030

 
3,069

 
92,929

 
(83,763
)
 
—

 
—

 
32,994

Commercial mortgage loans
9,546

 
171

 
844

 
652

 
19,587

 
(6,913
)
 
—

 
—

 
23,887

Residential mortgage loans
—

 
—

 
—

 
—

 
24,062

 
—

 
—

 
—

 
24,062

Other asset-backed securities
—

 
(641
)
 
647

 
(690
)
 
56,436

 
(17,683
)
 
—

 
—

 
38,069

Total investments, at fair value
563,883

 
20,122

 
47,177

 
18,997

 
660,929

 
(570,820
)
 
—

 
—

 
740,288

Financial derivatives–assets, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
36,031

 
—

 
(2,826
)
 
1,070

 
204

 
(17,833
)
 
—

 
—

 
16,646

Total financial derivatives– assets, at fair value
36,031

 
—

 
(2,826
)
 
1,070

 
204

 
(17,833
)
 
—

 
—

 
16,646

Total investments and financial derivatives–assets, at fair value
$
599,914

 
$
20,122

 
$
44,351

 
$
20,067

 
$
661,133

 
$
(588,653
)
 
$
—

 
$
—

 
$
756,934

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial derivatives– liabilities, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
$
(1
)
 
$
—

 
$
(78
)
 
$
(349
)
 
$
—

 
$
78

 
$
—

 
$
—

 
$
(350
)
Total financial derivatives– liabilities, at fair value
(1
)
 
—

 
(78
)
 
(349
)
 
—

 
78

 
—

 
—

 
(350
)
Securitized debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securitized debt
(1,335
)
 
(38
)
 
—

 
20

 
370

 
—

 
—

 
—

 
(983
)
Total securitized debt
(1,335
)
 
(38
)
 
—

 
20

 
370

 
—

 
—

 
—

 
(983
)
Total financial derivatives– liabilities and securitized debt, at fair value
$
(1,336
)
 
$
(38
)
 
$
(78
)
 
$
(329
)
 
$
370

 
$
78

 
$
—

 
$
—

 
$
(1,333
)

All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at December 31, 2013, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2013. For Level 3 financial instruments held by the Company at December 31, 2013, change in net unrealized gain (loss) of $27.0 million, $(8.4) million, $(0.3) million, and $20.0 thousand for the year ended December 31, 2013 relate to investments, financial derivatives–assets, financial derivatives–liabilities, and securitized debt, respectively.
Level 3—Fair Value Measurement Using Significant Unobservable Inputs:
Year Ended December 31, 2012
(In thousands)
Ending
Balance as of December 31, 2011
 
Accreted
Discounts /
(Amortized
Premiums)
 
Net Realized
Gain/
(Loss)
 
Change in
Net
Unrealized
Gain/(Loss)
 
Purchases/
Payments
 
Sales/
Issuances
 
Transfers Into Level 3
 
Transfers Out of Level 3
 
Ending
Balance as of December 31, 2012
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency residential mortgage-backed securities
$
5,337

 
$
(2,277
)
 
$
111

 
$
(568
)
 
$
5,201

 
$
(1,160
)
 
$
—

 
$
—

 
$
6,644

Private label residential mortgage-backed securities
417,533

 
21,896

 
15,657

 
69,286

 
323,554

 
(319,560
)
 
—

 
—

 
528,366

Private label commercial mortgage-backed securities
16,093

 
570

 
7,619

 
(255
)
 
110,752

 
(115,452
)
 
—

 
—

 
19,327

Commercial mortgage loans
4,400

 
87

 
—

 
413

 
4,646

 
—

 
—

 
—

 
9,546

Total investments, at fair value
443,363

 
20,276

 
23,387

 
68,876

 
444,153

 
(436,172
)
 
—

 
—

 
563,883

Financial derivatives–assets, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
61,498

 
—

 
(1,164
)
 
3,218

 
10,840

 
(38,361
)
 
—

 
—

 
36,031

Total financial derivatives– assets, at fair value
61,498

 
—

 
(1,164
)
 
3,218

 
10,840

 
(38,361
)
 
—

 
—

 
36,031

Total investments and financial derivatives–assets, at fair value
$
504,861

 
$
20,276

 
$
22,223

 
$
72,094

 
$
454,993

 
$
(474,533
)
 
$
—

 
$
—

 
$
599,914

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial derivatives– liabilities, at fair value-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
$
—

 
$
—

 
$
(79
)
 
$
(1
)
 
$
—

 
$
79

 
$
—

 
$
—

 
$
(1
)
Total financial derivatives– liabilities, at fair value
—

 
—

 
(79
)
 
(1
)
 
—

 
79

 
—

 
—

 
(1
)
Securitized debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securitized debt
—

 
(55
)
 
—

 
(23
)
 
265

 
(1,522
)
 
—

 
—

 
(1,335
)
Total securitized debt
—

 
(55
)
 
—

 
(23
)
 
265

 
(1,522
)
 
—

 
—

 
(1,335
)
Total financial derivatives– liabilities and securitized debt, at fair value
$
—

 
$
(55
)
 
$
(79
)
 
$
(24
)
 
$
265

 
$
(1,443
)
 
$
—

 
$
—

 
$
(1,336
)

All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at December 31, 2012, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2012. For Level 3 financial instruments held by the Company at December 31, 2012, change in net unrealized gain (loss) of $52.4 million, $(10.8) million, $(1.0) thousand, and $(23.0) thousand for the year ended December 31, 2012 relate to investments, financial derivatives–assets, financial derivatives–liabilities, and securitized debt, respectively.