Valuation

The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at September 30, 2017:



Description	Level 1			Level 2			Level 3		Total
Assets:	(In thousands)
Cash equivalents	$	60,000		$	—		$	—	$	60,000
Investments, at fair value-
Agency residential mortgage-backed securities	$	—		$	931,391		$	5,819	$	937,210
U.S. Treasury securities	—			1,519			—		1,519
Private label residential mortgage-backed securities	—			78,553			73,648		152,201
Private label commercial mortgage-backed securities	—			18,421			11,632		30,053
Commercial mortgage loans	—			—			67,895		67,895
Residential mortgage loans	—			—			162,963		162,963
Collateralized loan obligations	—			108,146			26,918		135,064
Consumer loans and asset-backed securities backed by consumer loans	—			—			116,340		116,340
Corporate debt	—			76,400			12,908		89,308
Real estate owned	—			—			25,762		25,762
Corporate equity investments	790			—			37,327		38,117
Total investments, at fair value	790			1,214,430			541,212		1,756,432
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	—			—			4,530		4,530
Credit default swaps on corporate bond indices	—			631			—		631
Credit default swaps on corporate bonds	—			10,109			—		10,109
Credit default swaps on asset-backed indices	—			6,987			—		6,987
Interest rate swaps	—			6,721			—		6,721
Options	50			2			—		52
Futures	143			—			—		143
Forwards	—			723			—		723
Total financial derivatives–assets, at fair value	193			25,173			4,530		29,896
Repurchase agreements	—			193,070			—		193,070
Total investments and financial derivatives–assets, at fair value and repurchase agreements	$	983		$	1,432,673		$	545,742	$	1,979,398
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—		$	(470,487	)	$	—	$	(470,487	)
Government debt	—			(120,407		)	—		(120,407		)
Corporate debt	—			(70,567		)	—		(70,567		)
Common stock	(14,189		)	—			—		(14,189		)
Total investments sold short, at fair value	(14,189		)	(661,461		)	—		(675,650		)



Description	Level 1			Level 2			Level 3			Total
(continued)	(In thousands)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	$	—		$	(11,646	)	$	—		$	(11,646	)
Credit default swaps on corporate bonds	—			(13,611		)	—			(13,611		)
Credit default swaps on asset-backed indices	—			(1,495		)	—			(1,495		)
Credit default swaps on asset-backed securities	—			—			(207		)	(207		)
Interest rate swaps	—			(5,303		)	—			(5,303		)
Forwards	—			(16		)	—			(16		)
Total financial derivatives–liabilities, at fair value	—			(32,071		)	(207		)	(32,278		)
Total investments sold short and financial derivatives–liabilities, at fair value	$	(14,189	)	$	(693,532	)	$	(207	)	$	(707,928	)

The following table identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of September 30, 2017:



	Fair Value		Valuation Technique	Unobservable Input	Range						Weighted Average
Description	Fair Value		Valuation Technique	Unobservable Input	Min			Max			Weighted Average
	(In thousands)
Private label residential mortgage-backed securities	$	23,182	Market Quotes	Non Binding Third-Party Valuation	$	46.28		$	478.10		$	95.08
Collateralized loan obligations	24,586		Market Quotes	Non Binding Third-Party Valuation	3.10			440.00			122.21
Corporate debt and non-exchange traded corporate equity	9,782		Market Quotes	Non Binding Third-Party Valuation	0.88			99.50			81.87
Private label commercial mortgage-backed securities	7,721		Market Quotes	Non Binding Third-Party Valuation	5.36			42.00			18.18
Agency interest only residential mortgage-backed securities	502		Market Quotes	Non Binding Third-Party Valuation	16.89			18.44			17.85
Private label residential mortgage-backed securities	50,466		Discounted Cash Flows	Yield	1.7		%	25.6		%	9.8		%
				Projected Collateral Prepayments	2.5		%	84.6		%	44.0		%
				Projected Collateral Losses	1.3		%	18.2		%	9.0		%
				Projected Collateral Recoveries	0.0		%	13.9		%	6.4		%
				Projected Collateral Scheduled Amortization	12.9		%	90.7		%	40.6		%
											100.0		%
Private label commercial mortgage-backed securities	3,911		Discounted Cash Flows	Yield	9.1		%	50.1		%	23.1		%
				Projected Collateral Losses	0.1		%	5.1		%	2.2		%
				Projected Collateral Recoveries	1.3		%	14.8		%	8.0		%
				Projected Collateral Scheduled Amortization	80.1		%	98.6		%	89.8		%
											100.0		%
Corporate debt and non-exchange traded corporate equity	7,194		Discounted Cash Flows	Yield	8.7		%	16.1		%	15.0		%



(continued)	Fair Value		Valuation Technique	Unobservable Input	Range				Weighted Average
Description	Fair Value		Valuation Technique	Unobservable Input	Min		Max		Weighted Average
	(In thousands)
Collateralized loan obligations	$	2,332	Discounted Cash Flows	Yield	11.2	%	58.7	%	26.9	%
				Projected Collateral Prepayments	67.8	%	68.7	%	68.4	%
				Projected Collateral Losses	18.8	%	21.0	%	19.5	%
				Projected Collateral Recoveries	7.8	%	12.5	%	10.9	%
				Projected Collateral Scheduled Amortization	—	%	3.5	%	1.2	%
									100.0	%
Consumer loans and asset-backed securities backed by consumer loans	116,340		Discounted Cash Flows	Yield	9.0	%	18.4	%	10.3	%
				Projected Collateral Prepayments	0.0	%	51.4	%	36.5	%
				Projected Collateral Losses	0.0	%	95.0	%	7.2	%
				Projected Collateral Scheduled Amortization	5.0	%	100.0	%	56.3	%
									100.0	%
Performing commercial mortgage loans	61,339		Discounted Cash Flows	Yield	8.0	%	15.4	%	11.1	%
Non-performing commercial mortgage loans and commercial real estate owned	31,632		Discounted Cash Flows	Yield	4.5	%	23.2	%	12.9	%
				Months to Resolution	3.0		12.0		8.7
Performing residential mortgage loans	153,709		Discounted Cash Flows	Yield	1.6	%	24.7	%	6.2	%
Non-performing residential mortgage loans and residential real estate owned	9,940		Discounted Cash Flows	Yield	0.7	%	42.9	%	11.3	%
				Months to Resolution⁽¹⁾	3.0		34.1		12.6
Credit default swaps on asset-backed securities	4,323		Net Discounted Cash Flows	Projected Collateral Prepayments	19.6	%	26.6	%	22.7	%
				Projected Collateral Losses	14.4	%	24.6	%	21.3	%
				Projected Collateral Recoveries	5.6	%	15.1	%	9.5	%
				Projected Collateral Scheduled Amortization	44.2	%	53.3	%	46.5	%
									100.0	%
Agency interest only residential mortgage-backed securities	5,317		Option Adjusted Spread ("OAS")	LIBOR OAS⁽²⁾	423		1,950		729
				Projected Collateral Prepayments	8.7	%	100.0	%	71.3	%
				Projected Collateral Scheduled Amortization	0.0	%	91.3	%	28.7	%
									100.0	%
Non-exchange traded common equity investment in mortgage-related entity	2,814		Enterprise Value	Equity Price-to-Book⁽³⁾	1.8x		1.8x		1.8x
Non-exchange traded preferred equity investment in mortgage-related entity	19,000		Enterprise Value	Equity Price-to-Book⁽³⁾	1.0x		1.0x		1.0x
Non-controlling equity interest in limited liability company	5,588		Market Quotes	Non Binding Third-Party Valuation of the Underlying Assets⁽⁴⁾	100.00		100.00		100.00
Non-controlling equity interest in limited liability company	5,857		Discounted Cash Flows	Yield⁽⁴⁾	9.0%		9.0%		9.0%


(1)	Excludes certain loans that are re-performing.


(2)	Shown in basis points.


(3)	Represent an estimation of where market participants might value an enterprise on a price-to-book basis.


(4)	Represents the significant unobservable inputs used to fair value the financial instruments of the limited liability company. The fair value of such financial instruments is the largest component of the valuation of the limited liability company as a whole.

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, 2016:



Description	Level 1		Level 2		Level 3		Total
Assets:	(In thousands)
Cash equivalents	$	90,000	$	—	$	—	$	90,000
Investments, at fair value-
Agency residential mortgage-backed securities	$	—	$	868,345	$	29,622	$	897,967
U.S. Treasury securities	—		5,419		—		5,419
Private label residential mortgage-backed securities	—		53,525		90,083		143,608
Private label commercial mortgage-backed securities	—		—		43,268		43,268
Commercial mortgage loans	—		—		61,129		61,129
Residential mortgage loans	—		—		84,290		84,290
Collateralized loan obligations	—		—		44,956		44,956
Consumer loans and asset-backed securities backed by consumer loans⁽¹⁾	—		—		107,157		107,157
Corporate debt	—		55,091		25,004		80,095
Real estate owned	—		—		3,349		3,349
Corporate equity investments⁽¹⁾	4,396		—		29,392		33,788
Total investments, at fair value	4,396		982,380		518,250		1,505,026



Description	Level 1			Level 2			Level 3			Total
(continued)	(In thousands)
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	$	—		$	—		$	5,326		$	5,326
Credit default swaps on corporate bond indices	—			2,744			—			2,744
Credit default swaps on corporate bonds	—			2,360			—			2,360
Credit default swaps on asset-backed indices	—			16,713			—			16,713
Interest rate swaps	—			8,102			—			8,102
Total return swaps	—			—			155			155
Options	42			2			—			44
Futures	29			—			—			29
Forwards	—			16			—			16
Warrants	—			—			106			106
Total financial derivatives–assets, at fair value	71			29,937			5,587			35,595
Repurchase agreements	—			184,819			—			184,819
Total investments and financial derivatives–assets, at fair value and repurchase agreements	$	4,467		$	1,197,136		$	523,837		$	1,725,440
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—		$	(404,728	)	$	—		$	(404,728	)
Government debt	—			(132,442		)	—			(132,442		)
Corporate debt	—			(39,572		)	—			(39,572		)
Common stock	(8,154		)	—			—			(8,154		)
Total investments sold short, at fair value	(8,154		)	(576,742		)	—			(584,896		)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	—			(2,840		)	—			(2,840		)
Credit default swaps on corporate bonds	—			(6,654		)	—			(6,654		)
Credit default swaps on asset-backed indices	—			(2,899		)	—			(2,899		)
Credit default swaps on asset-backed securities	—			—			(256		)	(256		)
Interest rate swaps	—			(5,162		)	—			(5,162		)
Total return swaps	—			(55		)	(249		)	(304		)
Futures	(69		)	—			—			(69		)
Forwards	—			(472		)	—			(472		)
Mortgage loan purchase commitments	—			(31		)	—			(31		)
Total financial derivatives–liabilities, at fair value	(69		)	(18,113		)	(505		)	(18,687		)
Total investments sold short, and financial derivatives–liabilities, at fair value	$	(8,223	)	$	(594,855	)	$	(505	)	$	(603,583	)


(1)	Conformed to current period presentation.

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, 2016:



	Fair Value			Valuation Technique	Unobservable Input	Range						Weighted Average
Description	Fair Value			Valuation Technique	Unobservable Input	Min			Max			Weighted Average
	(In thousands)
Private label residential mortgage-backed securities	$	47,024		Market Quotes	Non Binding Third-Party Valuation	$	2.00		$	101.02		$	67.51
Collateralized loan obligations	37,517			Market Quotes	Non Binding Third-Party Valuation	9.42			100.25			83.36
Corporate debt and non-exchange traded corporate equity	19,017			Market Quotes	Non Binding Third-Party Valuation	1.88			102.25			87.14
Private label commercial mortgage-backed securities	27,283			Market Quotes	Non Binding Third-Party Valuation	5.17			77.75			40.88
Agency interest only residential mortgage-backed securities	23,322			Market Quotes	Non Binding Third-Party Valuation	2.47			20.17			11.65
Total return swaps	(94		)	Market Quotes	Non Binding Third-Party Valuation ⁽¹⁾	98.25			99.50			98.77
Private label residential mortgage-backed securities	43,059			Discounted Cash Flows	Yield	0.6		%	20.5		%	11.0		%
					Projected Collateral Prepayments	0.0		%	81.0		%	10.0		%
					Projected Collateral Losses	1.4		%	51.2		%	41.4		%
					Projected Collateral Recoveries	0.4		%	53.6		%	41.2		%
					Projected Collateral Scheduled Amortization	0.0		%	90.7		%	7.4		%
												100.0		%
Private label commercial mortgage-backed securities	15,985			Discounted Cash Flows	Yield	8.8		%	57.0		%	23.6		%
					Projected Collateral Losses	0.1		%	5.3		%	2.2		%
					Projected Collateral Recoveries	0.9		%	20.5		%	10.7		%
					Projected Collateral Scheduled Amortization	77.8		%	99.0		%	87.1		%
												100.0		%
Corporate debt and warrants	10,080			Discounted Cash Flows	Yield	19.7		%	19.7		%	19.7		%
Collateralized loan obligations	7,439			Discounted Cash Flows	Yield	11.2		%	50.3		%	20.5		%
					Projected Collateral Prepayments	11.4		%	55.2		%	45.5		%
					Projected Collateral Losses	4.5		%	28.3		%	10.7		%
					Projected Collateral Recoveries	1.5		%	27.2		%	8.6		%
					Projected Collateral Scheduled Amortization	29.8		%	51.5		%	35.2		%
												100.0		%
Consumer loans and asset-backed securities backed by consumer loans⁽²⁾	107,157			Discounted Cash Flows	Yield	9.0		%	25.0		%	11.0		%
					Projected Collateral Prepayments	0.0		%	45.4		%	25.6		%
					Projected Collateral Losses	3.3		%	97.4		%	9.4		%
					Projected Collateral Scheduled Amortization	0.0		%	87.7		%	65.0		%
												100.0		%
Performing commercial mortgage loans	32,557			Discounted Cash Flows	Yield	8.0		%	17.2		%	11.6		%



(continued)	Fair Value		Valuation Technique	Unobservable Input	Range				Weighted Average
Description	Fair Value		Valuation Technique	Unobservable Input	Min		Max		Weighted Average
	(In thousands)
Non-performing commercial mortgage loans and commercial real estate owned	$	30,222	Discounted Cash Flows	Yield	10.2	%	27.8	%	16.3	%
				Months to Resolution	3.0		39.1		19.5
Performing residential mortgage loans	78,576		Discounted Cash Flows	Yield	5.0	%	13.5	%	6.6	%
Non-performing residential mortgage loans and residential real estate owned	7,413		Discounted Cash Flows	Yield	5.8	%	39.9	%	9.7	%
				Months to Resolution	1.8		162.9		41.9
Credit default swaps on asset-backed securities	5,070		Net Discounted Cash Flows	Projected Collateral Prepayments	19.3	%	29.8	%	22.7	%
				Projected Collateral Losses	15.3	%	27.6	%	22.2	%
				Projected Collateral Recoveries	4.7	%	15.3	%	8.7	%
				Projected Collateral Scheduled Amortization	43.2	%	50.2	%	46.4	%
									100.0	%
Non-exchange traded equity investments in commercial mortgage-related private partnerships	3,090		Discounted Cash Flows	Yield	16.5	%	16.5	%	16.5	%
				Expected Holding Period (Months)	2.9		2.9		2.9
Agency interest only residential mortgage-backed securities	6,300		Option Adjusted Spread ("OAS")	LIBOR OAS⁽³⁾	142		2,831		568
				Projected Collateral Prepayments⁽²⁾	0.0	%	100.0	%	63.6	%
				Projected Collateral Scheduled Amortization	0.0	%	88.1	%	36.4	%
									100.0	%
Non-exchange traded preferred and common equity investment in mortgage-related entity	2,500		Enterprise Value	Equity Price-to-Book⁽⁴⁾	1.3x		1.3x		1.3x
Non-controlling equity interest in limited liability company⁽²⁾	7,315		Net Discounted Cash Flows	Yield	8.5	%	8.5	%	8.5	%
Non-exchange traded preferred equity investment in mortgage-related entity	12,500		Recent Transactions	Transaction Price	N/A		N/A		N/A


(1)	Represents valuations on underlying assets.


(2)	Conformed to current period presentation.


(3)	Shown in basis points.


(4)	Represent an estimation of where market participants might value an enterprise on a price-to-book basis.

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 three and nine month periods ended September 30, 2017 and 2016 (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:

Three Month Period Ended September 30, 2017



(In thousands)	Ending Balance as of June 30, 2017		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 September 30, 2017
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	4,896	$	(377	)	$	(78	)	$	—		$	1,649	$	(28	)	$	772	$	(1,015	)	$	5,819
Private label residential mortgage-backed securities	79,123		261			1,018			409			3,040		(9,116		)	5,207		(6,294		)	73,648
Private label commercial mortgage-backed securities	13,809		(144		)	(752		)	934			2,100		(5,718		)	1,713		(310		)	11,632
Commercial mortgage loans	65,896		140			—			17			4,342		(2,500		)	—		—			67,895
Residential mortgage loans	136,097		(874		)	388			(1,013		)	37,170		(8,805		)	—		—			162,963
Collateralized loan obligations	42,536		346			61			(839		)	7,108		(13,416		)	—		(8,878		)	26,918
Consumer loans and asset-backed securities backed by consumer loans	108,671		(3,366		)	500			(528		)	33,125		(22,062		)	—		—			116,340
Corporate debt	20,535		(19		)	128			(415		)	409		(7,730		)	—		—			12,908
Real estate owned	24,977		—			—			49			1,137		(401		)	—		—			25,762
Corporate equity investments	35,698		—			329			(806		)	4,641		(2,535		)	—		—			37,327
Total investments, at fair value	532,238		(4,033		)	1,594			(2,192		)	94,721		(72,311		)	7,692		(16,497		)	541,212
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	5,107		—			603			(577		)	27		(630		)	—		—			4,530
Total return swaps	—		—			21			—			—		(21		)	—		—			—
Total financial derivatives– assets, at fair value	5,107		—			624			(577		)	27		(651		)	—		—			4,530
Total investments and financial derivatives–assets, at fair value	$	537,345	$	(4,033	)	$	2,218		$	(2,769	)	$	94,748	$	(72,962	)	$	7,692	$	(16,497	)	$	545,742



(In thousands)	Ending Balance as of June 30, 2017			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 September 30, 2017
Liabilities:
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(207	)	$	—	$	(20	)	$	—	$	20		$	—	$	—	$	—	$	(207	)
Total return swaps	—			—		13			—		(13		)	—		—		—		—
Total financial derivatives– liabilities, at fair value	$	(207	)	$	—	$	(7	)	$	—	$	7		$	—	$	—	$	—	$	(207	)

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 September 30, 2017, as well as Level 3 financial instruments disposed of by the Company during the three month period ended September 30, 2017. For Level 3 financial instruments held by the Company at September 30, 2017, change in net unrealized gain (loss) of $(2.9) million and $(0.6) million for the three month period ended September 30, 2017 relate to investments and financial derivatives–assets, respectively.

As of June 30, 2017, the Company modified its procedures to determine the level within the hierarchy for certain financial instruments. Under the revised procedure, the Company examines financial instruments individually rather than in cohorts of like instruments as it had previously. As of September 30, 2017, the Company transferred $16.5 million of securities from Level 3 to Level 2 and $7.7 million from Level 2 to Level 3. Transfers between these hierarchy levels were based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The leveling of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third-party pricing sources.

Three Month Period Ended September 30, 2016



(In thousands)	Ending Balance as of June 30, 2016		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 September 30, 2016
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	20,506	$	(1,821	)	$	(77	)	$	(169	)	$	1,385	$	—		$	—	$	—		$	19,824
Private label residential mortgage-backed securities	112,511		256			(958		)	6,086			—		(23,652		)	1,517		(13,815		)	81,945
Private label commercial mortgage-backed securities	34,942		429			87			(292		)	5,335		(3,556		)	—		—			36,945
Commercial mortgage loans	49,466		801			72			(1,140		)	13,226		(5,456		)	—		—			56,969
Residential mortgage loans	46,649		67			(78		)	(66		)	24,002		(26,499		)	—		—			44,075
Collateralized loan obligations	33,109		(890		)	(703		)	2,844			4,241		(10,198		)	—		—			28,403
Consumer loans and asset-backed securities backed by consumer loans	154,395		(2,919		)	204			(2,290		)	51,775		(82,066		)	—		—			119,099
Corporate debt	36,974		(52		)	(1,942		)	3,753			83,700		(66,116		)	—		—			56,317
Real estate owned	4,162		—			53			(214		)	1,942		(2,359		)	—		—			3,584
Private corporate equity investments	19,418		—			733			349			5,100		(10,082		)	—		—			15,518
Total investments, at fair value	512,132		(4,129		)	(2,609		)	8,861			190,706		(229,984		)	1,517		(13,815		)	462,679



(In thousands)	Ending Balance as of June 30, 2016			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 September 30, 2016
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	$	6,068		$	—		$	604		$	(221	)	$	65	$	(659	)	$	—	$	—		$	5,857
Total return swaps	824			—			3,222			(628		)	954		(4,176		)	—		—			196
Warrants	100			—			—			—			7,486		—			—		—			7,586
Total financial derivatives– assets, at fair value	6,992			—			3,826			(849		)	8,505		(4,835		)	—		—			13,639
Total investments and financial derivatives–assets, at fair value	$	519,124		$	(4,129	)	$	1,217		$	8,012		$	199,211	$	(234,819	)	$	1,517	$	(13,815	)	$	476,318
Liabilities:
Investments sold short, at fair value
Corporate debt	$	(9,947	)	$	—		$	(122	)	$	(7	)	$	20,974	$	(50,085	)	$	—	$	—		$	(39,187	)
Total investments sold short, at fair value	(9,947		)	—			(122		)	(7		)	20,974		(50,085		)	—		—			(39,187		)
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed securities	(234		)	—			18			(67		)	47		(26		)	—		—			(262		)
Total return swaps	(1,016		)	—			(2,143		)	(207		)	1,890		253			—		—			(1,223		)
Total financial derivatives– liabilities, at fair value	(1,250		)	—			(2,125		)	(274		)	1,937		227			—		—			(1,485		)
Guarantees:
Guarantees	(312		)	—			—			162			—		—			—		—			(150		)
Total guarantees	(312		)	—			—			162			—		—			—		—			(150		)
Total investments sold short, financial derivatives– liabilities, and guarantees, at fair value	$	(11,509	)	$	—		$	(2,247	)	$	(119	)	$	22,911	$	(49,858	)	$	—	$	—		$	(40,822	)

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 September 30, 2016, as well as Level 3 financial instruments disposed of by the Company during the three month period ended September 30, 2016. For Level 3 financial instruments held by the Company at September 30, 2016, change in net unrealized gain (loss) of $0.6 million, $(0.03) million, $0.4 million, $(1.1) million, and $0.2 million, for the three month period ended September 30, 2016 relate to investments, investments sold short, financial derivatives–assets, financial derivatives–liabilities, and guarantees, respectively.

As of September 30, 2016, the Company transferred $13.8 million of non-Agency RMBS from Level 3 to Level 2. These assets were transferred from Level 3 to Level 2 based on an increased volume of observed trading of these and similar assets. This increase in observed trading activity has led to greater price transparency for these assets, thereby making a Level 2 designation appropriate in the Company's view.

In addition, as of September 30, 2016, the Company transferred $1.5 million of non-Agency RMBS from Level 2 to Level 3. Since June 30, 2016, these securities have exhibited indications of a reduced level of price transparency. Examples of such indications include wider spreads relative to similar securities and a reduction in observable transactions involving these and similar securities.

Nine Month Period Ended September 30, 2017



(In thousands)	Ending Balance as of December 31, 2016			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 September 30, 2017
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	29,622		$	(7,233	)	$	(515	)	$	(140	)	$	3,962	$	(153	)	$	—	$	(19,724	)	$	5,819
Private label residential mortgage-backed securities	90,083			1,672			1,334			7,319			31,117		(37,278		)	15,043		(35,642		)	73,648
Private label commercial mortgage-backed securities	43,268			574			(3,434		)	7,873			2,120		(31,542		)	—		(7,227		)	11,632
Commercial mortgage loans	61,129			771			416			1,167			31,887		(27,475		)	—		—			67,895
Residential mortgage loans	84,290			(196		)	1,469			(1,090		)	108,356		(29,866		)	—		—			162,963
Collateralized loan obligations	44,956			(5,702		)	1,477			2,135			52,269		(54,305		)	—		(13,912		)	26,918
Consumer loans and asset-backed securities backed by consumer loans⁽¹⁾	107,157			(9,631		)	426			(247		)	83,138		(64,503		)	—		—			116,340
Corporate debt	25,004			236			676			(229		)	83,900		(96,679		)	—		—			12,908
Real estate owned	3,349			—			424			(246		)	25,348		(3,113		)	—		—			25,762
Corporate equity investments⁽¹⁾	29,392			—			1,848			(1,529		)	16,416		(8,800		)	—		—			37,327
Total investments, at fair value	518,250			(19,509		)	4,121			15,013			438,513		(353,714		)	15,043		(76,505		)	541,212
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	5,326			—			971			(796		)	95		(1,066		)	—		—			4,530
Total return swaps	155			—			243			(155		)	—		(243		)	—		—			—
Warrants	106			—			(100		)	(6		)	—		—			—		—			—
Total financial derivatives– assets, at fair value	5,587			—			1,114			(957		)	95		(1,309		)	—		—			4,530
Total investments and financial derivatives–assets, at fair value	$	523,837		$	(19,509	)	$	5,235		$	14,056		$	438,608	$	(355,023	)	$	15,043	$	(76,505	)	$	545,742
Liabilities:
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed securities	$	(256	)	$	—		$	(485	)	$	477		$	485	$	(428	)	$	—	$	—		$	(207	)
Total return swaps	(249		)	—			(279		)	249			291		(12		)	—		—			—
Total financial derivatives– liabilities, at fair value	$	(505	)	$	—		$	(764	)	$	726		$	776	$	(440	)	$	—	$	—		$	(207	)


(1)	Conformed to current period presentation.

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 September 30, 2017, as well as Level 3 financial instruments disposed of by the Company during the nine month period ended September 30, 2017. For Level 3 financial instruments held by the Company at September 30, 2017, change in net unrealized gain (loss) of $2.8 million, $(0.8) million, and $0.05 million for the nine month period ended September 30, 2017 relate to investments, financial derivatives–assets, and financial derivatives–liabilities, respectively.

As of June 30, 2017, the Company modified its procedures to determine the level within the hierarchy for certain financial instruments. Under the revised procedure, the Company examines financial instruments individually rather than in cohorts of like instruments as it had previously. As of September 30, 2017, the Company transferred $76.5 million of securities from Level 3 to Level 2 and $15.0 million from Level 2 to Level 3. Transfers between these hierarchy levels were based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The leveling of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third-party pricing sources.

Nine Month Period Ended September 30, 2016



(In thousands)	Ending Balance as of December 31, 2015			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 September 30, 2016
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	24,918		$	(5,766	)	$	(168	)	$	(849	)	$	1,689	$	—		$	—	$	—		$	19,824
Private label residential mortgage-backed securities	116,435			1,518			(1,305		)	2,995			7,439		(34,904		)	8,360		(18,593		)	81,945
Private label commercial mortgage-backed securities	34,145			1,315			409			(4,132		)	13,179		(7,971		)	—		—			36,945
Commercial mortgage loans	66,399			2,073			254			(917		)	26,650		(37,490		)	—		—			56,969
Residential mortgage loans	22,089			315			787			61			56,068		(35,245		)	—		—			44,075
Collateralized loan obligations	45,974			(3,759		)	98			3,261			5,418		(22,589		)	—		—			28,403
Consumer loans and asset-backed securities backed by consumer loans	115,376			(8,515		)	210			(2,839		)	140,731		(125,864		)	—		—			119,099
Corporate debt	27,028			(99		)	(1,687		)	1,652			136,020		(106,597		)	—		—			56,317
Real estate owned	12,522			—			2,291			(545		)	12,614		(23,298		)	—		—			3,584
Private corporate equity investments	22,088			—			704			(182		)	11,617		(18,709		)	—		—			15,518
Total investments, at fair value	486,974			(12,918		)	1,593			(1,495		)	411,425		(412,667		)	8,360		(18,593		)	462,679
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	6,332			—			1,068			(476		)	77		(1,144		)	—		—			5,857
Total return swaps	85			—			3,119			111			1,377		(4,496		)	—		—			196
Warrants	150			—			(50		)	—			7,486		—			—		—			7,586
Total financial derivatives– assets, at fair value	6,567			—			4,137			(365		)	8,940		(5,640		)	—		—			13,639
Total investments and financial derivatives–assets, at fair value	$	493,541		$	(12,918	)	$	5,730		$	(1,860	)	$	420,365	$	(418,307	)	$	8,360	$	(18,593	)	$	476,318
Liabilities:
Investments sold short, at fair value
Corporate debt	$	(448	)	$	(8	)	$	409		$	(566	)	$	32,230	$	(70,804	)	$	—	$	—		$	(39,187	)
Total investments sold short, at fair value	(448		)	(8		)	409			(566		)	32,230		(70,804		)	—		—			(39,187		)
Financial derivatives– liabilities, at fair value-
Credit default swaps on asset-backed securities	(221		)	—			(61		)	(42		)	47		15			—		—			(262		)
Total return swaps	(4,662		)	—			(6,508		)	3,438			6,576		(67		)	—		—			(1,223		)
Total financial derivatives– liabilities, at fair value	(4,883		)	—			(6,569		)	3,396			6,623		(52		)	—		—			(1,485		)
Guarantees:
Guarantees	(828		)	—			—			678			—		—			—		—			(150		)
Total guarantees	(828		)	—			—			678			—		—			—		—			(150		)
Total financial derivatives– liabilities and guarantees, at fair value	$	(6,159	)	$	(8	)	$	(6,160	)	$	3,508		$	38,853	$	(70,856	)	$	—	$	—		$	(40,822	)

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 September 30, 2016, as well as Level 3 financial instruments disposed of by the Company during the nine month period ended September 30, 2016. For Level 3 financial instruments held by the Company at September 30, 2016, change in net unrealized gain (loss) of $(10.4) million, $(0.3) million, $(0.3) million, $(1.2) million, and $0.7 million, for the nine month period ended September 30, 2016 relate to investments, investments sold short, financial derivatives–assets, financial derivatives–liabilities, and guarantees, respectively.

As of September 30, 2016, the Company transferred $18.6 million of non-Agency RMBS from Level 3 to Level 2. These assets were transferred from Level 3 to Level 2 based on an increased volume of observed trading of these and similar assets. This increase in observed trading activity has led to greater price transparency for these assets, thereby making a Level 2 designation appropriate in the Company's view.

In addition, as of September 30, 2016, the Company transferred $8.4 million of non-Agency RMBS from Level 2 to Level 3. Since December 31, 2015, these securities have exhibited indications of a reduced level of price transparency. Examples of such indications include wider spreads relative to similar securities and a reduction in observable transactions involving these and similar securities.

There were no transfers of financial instruments between Level 1 and Level 2 during the three or nine month periods ended September 30, 2017 and 2016.

Not included in the disclosures above are the Company's other financial instruments, which are carried at cost and include, Cash, Due from brokers, Due to brokers, Reverse repurchase agreements, Other secured borrowings, and the Company's unsecured long-term debt, or the "Senior Notes," which is reflected on the Consolidated Statement of Assets, Liabilities, and Equity in Senior notes, net. Cash includes cash held in various accounts including an interest bearing overnight account for which fair value equals the carrying value; such assets are considered Level 1 assets. Due from brokers and Due to brokers include collateral transferred to or received from counterparties, along with receivables and payables for open and/or closed derivative positions. These receivables and payables are short term in nature and any collateral transferred consists primarily of cash; carrying value of these items approximates fair value and such items are considered Level 1 assets and liabilities. The Company's reverse repurchase agreements and other secured borrowings are carried at cost, which approximates fair value due to their short term nature. Reverse repurchase agreements and other secured borrowings are considered Level 2 assets and liabilities based on the adequacy of the associated collateral and their short term nature. The Company estimates the fair value of the Senior Notes at $86.0 million as of September 30, 2017. The Senior Notes are considered Level 3 liabilities given the relative unobservability of the most significant inputs to valuation estimation as well as the lack of trading activity of these instruments.