v3.8.0.1
Valuation (Tables)
 9 Months Ended
Sep. 30, 2017
Fair Value Disclosures [Abstract]  
Schedule Of Financial Instruments
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 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
)
Schedule Of Significant Unobservable Inputs, Qualitative Information
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
 
 
 
 
Min
 
Max
 
 
 
(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
 
 
 
 
Min
 
Max
 
 
 
(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.
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
 
 
 
 
Min
 
Max
 
 
 
(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
 
 
 
 
Min
 
Max
 
 
 
(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.
Fair Value Measurement Using Significant Unobservable Inputs
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.