Valuation

The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments that are measured at fair value on a recurring basis as of March 31, 2019:



Description	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Securities, at fair value-
Agency RMBS	$	—	$	1,137,826	$	6,389	$	1,144,215
Non-Agency RMBS	—		111,500		94,670		206,170
CMBS	—		28,055		5,137		33,192
CLOs	—		76,559		21,438		97,997
Asset-backed securities, backed by consumer loans	—		—		24,108		24,108
Corporate debt securities	—		—		5,737		5,737
Corporate equity securities	—		—		1,465		1,465
U.S. Treasury securities	—		16,601		—		16,601
Loans, at fair value-
Residential mortgage loans	—		—		583,252		583,252
Commercial mortgage loans	—		—		239,623		239,623
Consumer loans	—		—		192,115		192,115
Investment in unconsolidated entities, at fair value	—		—		58,152		58,152
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	—		—		1,233		1,233
Credit default swaps on asset-backed indices	—		3,276		—		3,276
Credit default swaps on corporate bonds	—		715		—		715
Credit default swaps on corporate bond indices	—		3,519		—		3,519
Interest rate swaps	—		5,391		—		5,391
TBAs	—		531		—		531
Futures	138		—		—		138
Forwards	—		430		—		430
Total return swaps	—		123		—		123
Total assets	$	138	$	1,384,526	$	1,233,319	$	2,617,983



Description	Level 1			Level 2			Level 3			Total
(continued)	(In thousands)
Liabilities:
Securities sold short, at fair value-
Government debt	$	—		$	(21,771	)	$	—		$	(21,771	)
Corporate debt securities	—			(4,441		)	—			(4,441		)
Financial derivatives–liabilities, at fair value-
Credit default swaps on asset-backed indices	—			(822		)	—			(822		)
Credit default swaps on corporate bonds	—			(953		)	—			(953		)
Credit default swaps on corporate bond indices	—			(11,907		)	—			(11,907		)
Interest rate swaps	—			(7,571		)	—			(7,571		)
TBAs	—			(3,075		)	—			(3,075		)
Futures	(2,454		)	—			—			(2,454		)
Forwards	—			(122		)	—			(122		)
Other secured borrowings, at fair value	—			—			(282,124		)	(282,124		)
Total liabilities	$	(2,454	)	$	(50,662	)	$	(282,124	)	$	(335,240	)

The following table identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of March 31, 2019:



	Fair Value		Valuation Technique	Unobservable Input	Range						Weighted Average
Description	Fair Value		Valuation Technique	Unobservable Input	Min			Max			Weighted Average
	(In thousands)
Non-Agency RMBS	$	42,096	Market Quotes	Non Binding Third-Party Valuation	$	15.72		$	184.92		$	82.84
CMBS	5,137		Market Quotes	Non Binding Third-Party Valuation	5.94			70.90			60.88
CLOs	13,508		Market Quotes	Non Binding Third-Party Valuation	27.30			80.00			72.87
Agency interest only RMBS	705		Market Quotes	Non Binding Third-Party Valuation	8.42			14.43			11.96
Corporate debt and equity	1,452		Market Quotes	Non Binding Third-Party Valuation	83.50			83.50			83.50
Non-Agency RMBS	52,574		Discounted Cash Flows	Yield	0.5		%	67.1		%	9.5		%
				Projected Collateral Prepayments	15.1		%	77.8		%	46.6		%
				Projected Collateral Losses	0.1		%	17.6		%	8.8		%
				Projected Collateral Recoveries	1.7		%	15.8		%	8.2		%
				Projected Collateral Scheduled Amortization	16.3		%	63.0		%	36.4		%
											100.0		%
Corporate debt and equity	5,750		Discounted Cash Flows	Yield	10.0		%	19.6		%	16.7		%
CLOs	7,930		Discounted Cash Flows	Yield	8.7		%	15.2		%	11.8		%
				Projected Collateral Prepayments	19.9		%	87.3		%	52.5		%
				Projected Collateral Losses	5.3		%	30.8		%	15.7		%
				Projected Collateral Recoveries	4.2		%	13.7		%	8.8		%
				Projected Collateral Scheduled Amortization	—		%	65.2		%	23.0		%
											100.0		%



(continued)	Fair Value		Valuation Technique	Unobservable Input	Range				Weighted Average
Description	Fair Value		Valuation Technique	Unobservable Input	Min		Max		Weighted Average
	(In thousands)
ABS backed by consumer loans	24,108		Discounted Cash Flows	Yield	12.0	%	18.7	%	12.2	%
				Projected Collateral Prepayments	0.0	%	11.0	%	9.4	%
				Projected Collateral Losses	1.6	%	16.6	%	14.9	%
				Projected Collateral Scheduled Amortization	72.9	%	98.4	%	75.7	%
									100.0	%
Consumer loans	192,115		Discounted Cash Flows	Yield	7.0	%	10.0	%	8.0	%
				Projected Collateral Prepayments	0.0	%	55.4	%	41.5	%
				Projected Collateral Losses	4.0	%	86.6	%	8.0	%
				Projected Collateral Scheduled Amortization	13.4	%	85.7	%	50.5	%
									100.0	%
Performing commercial mortgage loans	198,823		Discounted Cash Flows	Yield	8.0	%	22.5	%	9.4	%
Non-performing commercial mortgage loans	40,800		Discounted Cash Flows	Yield	10.5	%	14.1	%	12.8	%
				Months to Resolution	0.0		5.0		3.0
Performing and re-performing residential mortgage loans	274,572		Discounted Cash Flows	Yield	4.1	%	22.6	%	6.0	%
Securitized residential mortgage loans⁽¹⁾	296,366		Discounted Cash Flows	Yield	4.4	%	4.6	%	4.5	%
Non-performing residential mortgage loans	12,314		Discounted Cash Flows	Yield	4.3	%	33.3	%	11.9	%
				Months to Resolution	13.5		62.6		32.3
Credit default swaps on asset-backed securities	1,233		Net Discounted Cash Flows	Projected Collateral Prepayments	34.1	%	38.6	%	36.0	%
				Projected Collateral Losses	11.7	%	18.1	%	13.3	%
				Projected Collateral Recoveries	14.2	%	17.5	%	16.2	%
				Projected Collateral Scheduled Amortization	29.1	%	36.5	%	34.5	%
									100.0	%
Agency interest only RMBS	5,684		Option Adjusted Spread ("OAS")	LIBOR OAS⁽²⁾	93		3,527		654
				Projected Collateral Prepayments	30.0	%	100.0	%	67.7	%
				Projected Collateral Scheduled Amortization	0.0	%	70.0	%	32.3	%
									100.0	%
Investment in unconsolidated entities	31,849		Enterprise Value	Equity Price-to-Book⁽³⁾	1.0X		3.1X		1.4X
Investment in unconsolidated entities	3,000		Recent Transactions	Transaction Price	n/a		n/a		n/a
Investment in unconsolidated entities	23,303		Discounted Cash Flows	Yield⁽⁴⁾	5.5%		19.6%		10.2%
Other secured borrowings, at fair value⁽¹⁾	(282,124	)	Discounted Cash Flows	Yield	4.0%		4.1%		4.1%


(1)	Securitized residential mortgage loans and Other secured borrowings, at fair value, represent financial assets and liabilities of the Company's CFE as discussed in Note 2.


(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 unconsolidated entity. The fair value of such financial instruments is the largest component of the valuation of such entity 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, when available, 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 ("LIBOR 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 mortgage 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 tables below include a roll-forward of the Company's financial instruments for the three-month period ended March 31, 2019 (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 March 31, 2019



(In thousands)	Beginning Balance as of January 1, 2019			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 March 31, 2019
Assets:
Securities, at fair value:
Agency RMBS	$	7,293		$	(774	)	$	(594	)	$	189		$	6	$	—		$	842	$	(573	)	$	6,389
Non-Agency RMBS	91,291			63			(101		)	(535		)	15,546		(19,436		)	10,492		(2,650		)	94,670
CMBS	803			(14		)	—			(8		)	—		—			4,356		—			5,137
CLOs	14,915			(406		)	(83		)	49			8,304		—			—		(1,341		)	21,438
Asset-backed securities backed by consumer loans	22,800			(609		)	(512		)	762			4,940		(3,273		)	—		—			24,108
Corporate debt securities	6,318			16			(1		)	(77		)	384		(903		)	—		—			5,737
Corporate equity securities	1,530			—			—			(65		)	—		—			—		—			1,465
Loans, at fair value:
Residential mortgage loans	496,829			(927		)	(136		)	1,901			157,602		(72,017		)	—		—			583,252
Commercial mortgage loans	195,301			306			—			(333		)	48,857		(4,508		)	—		—			239,623
Consumer loans	183,961			(8,572		)	(2,055		)	1,842			54,256		(37,317		)	—		—			192,115
Investment in unconsolidated entities, at fair value	72,302			276			1,560			(39		)	13,428		(29,375		)	—		—			58,152
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	1,472			—			275			(239		)	2		(277		)	—		—			1,233
Total assets, at fair value	$	1,094,815		$	(10,641	)	$	(1,647	)	$	3,447		$	303,325	$	(167,106	)	$	15,690	$	(4,564	)	$	1,233,319
Liabilities:
Other secured borrowings, at fair value	$	(297,948	)	$	—		$	—		$	57		$	15,767	$	—		$	—	$	—		$	(282,124	)
Total liabilities, at fair value	$	(297,948	)	$	—		$	—		$	57		$	15,767	$	—		$	—	$	—		$	(282,124	)

All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Condensed 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 March 31, 2019, as well as Level 3 financial instruments disposed of by the Company during the three-month period ended March 31, 2019. For Level 3 financial instruments held by the Company at March 31, 2019, change in net unrealized gain (loss) of $0.7 million, $3.4 million, $(2.1) million, $(0.2) million, and $57 thousand, for the three-month period ended March 31, 2019 relate to securities, loans, investments in unconsolidated entities, financial derivatives–assets, and other secured borrowings, at fair value, respectively.

At March 31, 2019, the Company transferred $4.6 million of assets from Level 3 to Level 2 and $15.7 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.

The following table summarizes the estimated fair value of all other financial instruments not measured at fair value on a recurring basis as of March 31, 2019:



	March 31, 2019
(In thousands)	Fair Value		Carrying Value
Other financial instruments
Assets:
Cash and cash equivalents	$	55,876	$	55,876
Restricted cash	175		175
Due from brokers	58,145		58,145
Reverse repurchase agreements	25,381		25,381
Liabilities:
Repurchase agreements	1,550,016		1,550,016
Other secured borrowings	117,315		117,315
Senior notes, net	85,100		85,100
Due to brokers	4,820		4,820

Cash and cash equivalents includes cash held in an interest bearing overnight account, for which fair value equals the carrying value, and cash held in money market accounts, which are liquid in nature and for which fair value equals the carrying value; such assets are considered Level 1. Restricted cash includes cash held in a segregated account for which fair value equals the carrying value; such assets are considered Level 1. 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; fair value of these items is approximated by carrying value and such items are considered Level 1. The Company's reverse repurchase agreements, repurchase agreements, and other secured borrowings are carried at cost, which approximates fair value due to their short term nature. Reverse repurchase agreements, repurchase agreements, and other secured borrowings are classified as Level 2 based on the adequacy of the collateral and their short term nature. 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.

Valuation

The table below reflects the value of the Company's Level 1, Level 2, and Level 3 financial instruments at December 31, 2018:



Description	Level 1			Level 2			Level 3		Total
	(In thousands)
Assets:
Cash equivalents	$	12,460		$	—		$	—	$	12,460
Investments, at fair value-
Agency residential mortgage-backed securities	$	—		$	1,442,924		$	7,293	$	1,450,217
U.S. Treasury securities	—			76			—		76
Private label residential mortgage-backed securities	—			211,348			91,291		302,639
Private label commercial mortgage-backed securities	—			33,105			803		33,908
Commercial mortgage loans	—			—			211,185		211,185
Residential mortgage loans	—			—			496,830		496,830
Collateralized loan obligations	—			108,978			14,915		123,893
Consumer loans and asset-backed securities backed by consumer loans	—			—			206,761		206,761
Corporate debt	—			16,074			6,318		22,392
Secured notes	—			—			10,917		10,917
Real estate owned	—			—			34,500		34,500
Common stock	2,200			—			—		2,200
Corporate equity investments	—			—			43,793		43,793
Total investments, at fair value	2,200			1,812,505			1,124,606		2,939,311
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	—			—			1,472		1,472
Credit default swaps on corporate bond indices	—			733			—		733
Credit default swaps on corporate bonds	—			2,473			—		2,473
Credit default swaps on asset-backed indices	—			8,092			—		8,092
Total return swaps	—			1			—		1
Interest rate swaps	—			7,224			—		7,224
Forwards	—			6			—		6
Total financial derivatives–assets, at fair value	—			18,529			1,472		20,001
Repurchase agreements, at fair value	—			61,274			—		61,274
Total investments, financial derivatives–assets, and repurchase agreements, at fair value	$	2,200		$	1,892,308		$	1,126,078	$	3,020,586
Liabilities:
Investments sold short, at fair value-
Agency residential mortgage-backed securities	$	—		$	(772,964	)	$	—	$	(772,964	)
Government debt	—			(54,151		)	—		(54,151		)
Corporate debt	—			(6,529		)	—		(6,529		)
Common stock	(16,933		)	—			—		(16,933		)
Total investments sold short, at fair value	(16,933		)	(833,644		)	—		(850,577		)



Description	Level 1			Level 2			Level 3			Total
(continued)	(In thousands)
Financial derivatives–liabilities, at fair value-
Credit default swaps on corporate bond indices	$	—		$	(11,557	)	$	—		$	(11,557	)
Credit default swaps on corporate bonds	—			(3,246		)	—			(3,246		)
Credit default swaps on asset-backed indices	—			(2,125		)	—			(2,125		)
Interest rate swaps	—			(3,397		)	—			(3,397		)
Total return swaps	—			(6		)	—			(6		)
Futures	(355		)	—			—			(355		)
Forwards	—			(120		)	—			(120		)
Total financial derivatives–liabilities, at fair value	(355		)	(20,451		)	—			(20,806		)
Other secured borrowings, at fair value	—			—			(297,948		)	(297,948		)
Total investments sold short, financial derivatives–liabilities, and other secured borrowings, at fair value	$	(17,288	)	$	(854,095	)	$	(297,948	)	$	(1,169,331	)

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, 2018:



	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	$	36,945	Market Quotes	Non Binding Third-Party Valuation	$	17.42		$	178.00		$	78.31
Collateralized loan obligations	5,828		Market Quotes	Non Binding Third-Party Valuation	2.64			375.00			167.78
Corporate debt, non-exchange traded corporate equity, and secured notes	13,976		Market Quotes	Non Binding Third-Party Valuation	9.69			91.00			59.18
Private label commercial mortgage-backed securities	576		Market Quotes	Non Binding Third-Party Valuation	5.93			6.36			6.14
Agency interest only residential mortgage-backed securities	744		Market Quotes	Non Binding Third-Party Valuation	1.70			9.12			5.64
Private label residential mortgage-backed securities	54,346		Discounted Cash Flows	Yield	3.5		%	66.1		%	10.7		%
				Projected Collateral Prepayments	16.0		%	92.1		%	50.4		%
				Projected Collateral Losses	0.0		%	23.1		%	8.7		%
				Projected Collateral Recoveries	1.5		%	14.6		%	7.3		%
				Projected Collateral Scheduled Amortization	6.1		%	61.8		%	33.6		%
											100.0		%
Private label commercial mortgage-backed securities	227		Discounted Cash Flows	Yield	3.4		%	3.4		%	3.4		%
				Projected Collateral Losses	2.0		%	2.0		%	2.0		%
				Projected Collateral Recoveries	6.6		%	6.6		%	6.6		%
				Projected Collateral Scheduled Amortization	91.4		%	91.4		%	91.4		%
											100.0		%
Corporate debt and non-exchange traded corporate equity	4,793		Discounted Cash Flows	Yield	17.5		%	17.5		%	17.5		%



(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	$	9,087		Discounted Cash Flows	Yield	12.6	%	103.1	%	26.7	%
					Projected Collateral Prepayments	8.1	%	88.4	%	65.2	%
					Projected Collateral Losses	3.7	%	40.8	%	13.5	%
					Projected Collateral Recoveries	4.2	%	38.0	%	11.9	%
					Projected Collateral Scheduled Amortization	3.5	%	13.5	%	9.4	%
										100.0	%
Consumer loans and asset-backed securities backed by consumer loans	206,761			Discounted Cash Flows	Yield	7.0	%	18.3	%	8.5	%
					Projected Collateral Prepayments	0.0	%	45.9	%	33.5	%
					Projected Collateral Losses	2.6	%	84.8	%	9.1	%
					Projected Collateral Scheduled Amortization	15.2	%	96.6	%	57.4	%
										100.0	%
Performing commercial mortgage loans	163,876			Discounted Cash Flows	Yield	8.0	%	22.5	%	9.6	%
Non-performing commercial mortgage loans and commercial real estate owned	80,513			Discounted Cash Flows	Yield	9.6	%	27.4	%	13.2	%
					Months to Resolution	3.0		16.0		7.9
Performing residential mortgage loans	171,367			Discounted Cash Flows	Yield	2.7	%	12.9	%	6.0	%
Securitized residential mortgage loans⁽¹⁾	314,202			Discounted Cash Flows	Yield	4.3	%	4.6	%	4.6	%
Non-performing residential mortgage loans and residential real estate owned	12,557			Discounted Cash Flows	Yield	4.3	%	25.1	%	11.3	%
					Months to Resolution⁽²⁾	1.9		42.2		27.8
Credit default swaps on asset-backed securities	1,472			Net Discounted Cash Flows	Projected Collateral Prepayments	33.6	%	42.0	%	36.5	%
					Projected Collateral Losses	11.1	%	15.6	%	12.8	%
					Projected Collateral Recoveries	10.3	%	18.7	%	15.8	%
					Projected Collateral Scheduled Amortization	32.0	%	36.5	%	34.9	%
										100.0	%
Agency interest only residential mortgage-backed securities	6,549			Option Adjusted Spread ("OAS")	LIBOR OAS⁽³⁾	211		3,521		677
					Projected Collateral Prepayments	37.7	%	100.0	%	66.2	%
					Projected Collateral Scheduled Amortization	0.0	%	62.3	%	33.8	%
										100.0	%
Non-exchange traded common equity investment in mortgage-related entity	6,750			Enterprise Value	Equity Price-to-Book⁽⁴⁾	3.3x		3.3x		3.3x
Non-exchange traded preferred equity investment in mortgage-related entity	27,317			Enterprise Value	Equity Price-to-Book⁽⁴⁾	1.1x		1.1x		1.1x
Non-exchange traded preferred equity investment in loan origination entity	3,000			Recent Transactions	Transaction Price	N/A		N/A		N/A
Non-controlling equity interest in limited liability company	5,192			Discounted Cash Flows	Yield⁽⁵⁾	12.9%		16.1%		15.4%
Other secured borrowings, at fair value⁽¹⁾	(297,948		)	Discounted Cash Flows	Yield	3.9%		4.4%		4.3%


(1)	Securitized residential mortgage loans and Other secured borrowings, at fair value, represent financial assets and liabilities of the Company's CFE as discussed in Note 2.


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


(3)	Shown in basis points.


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


(5)	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 mortgage loans.

The tables below include a roll-forward of the Company's financial instruments for the three-month period ended March 31, 2018 (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 March 31, 2018



(In thousands)	Ending Balance as of December 31, 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 March 31, 2018
Assets:
Investments, at fair value-
Agency residential mortgage-backed securities	$	6,173	$	(600	)	$	39		$	264		$	1,101	$	(388	)	$	—	$	(461	)	$	6,128
Private label residential mortgage-backed securities	101,297		106			2,288			293			20,660		(21,574		)	11,561		(2,769		)	111,862
Private label commercial mortgage-backed securities	12,347		(183		)	1,554			121			9,624		(7,366		)	—		(2,388		)	13,709
Commercial mortgage loans	108,301		618			330			(161		)	3,988		(3,782		)	—		—			109,294
Residential mortgage loans	182,472		(715		)	(54		)	(653		)	73,040		(13,309		)	—		—			240,781
Collateralized loan obligations	24,911		455			2			226			10,095		(8,210		)	—		—			27,479



(In thousands)	Ending Balance as of December 31, 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 March 31, 2018
(Continued)
Consumer loans and asset-backed securities backed by consumer loans	$	135,258		$	(5,896	)	$	501		$	3,804		$	42,133	$	(27,378	)	$	—	$	—		$	148,422
Corporate debt	23,947			(114		)	52			364			456		(6,705		)	—		—			18,000
Real estate owned	26,277			—			(456		)	615			4,098		(1,424		)	—		—			29,110
Corporate equity investments	37,465			—			—			4,326			9,078		—			—		—			50,869
Total investments, at fair value	658,448			(6,329		)	4,256			9,199			174,273		(90,136		)	11,561		(5,618		)	755,654
Financial derivatives–assets, at fair value-
Credit default swaps on asset-backed securities	3,140			—			86			(71		)	24		(110		)	—		—			3,069
Total financial derivatives– assets, at fair value	3,140			—			86			(71		)	24		(110		)	—		—			3,069
Total investments and financial derivatives–assets, at fair value	$	661,588		$	(6,329	)	$	4,342		$	9,128		$	174,297	$	(90,246	)	$	11,561	$	(5,618	)	$	758,723
Liabilities:
Other secured borrowings, at fair value	$	(125,105	)	$	—		$	—		$	784		$	10,546	$	—		$	—	$	—		$	(113,775	)
Total other secured borrowings, at fair value	$	(125,105	)	$	—		$	—		$	784		$	10,546	$	—		$	—	$	—		$	(113,775	)

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 March 31, 2018, as well as Level 3 financial instruments disposed of by the Company during the three-month period ended March 31, 2018. For Level 3 financial instruments held by the Company at March 31, 2018, change in net unrealized gain (loss) of $8.6 million, $(0.1) million, and $0.8 million, for the three-month period ended March 31, 2018 relate to investments, financial derivatives–assets, and other secured borrowings, at fair value, 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 procedures, the Company examines financial instruments individually rather than in cohorts of like instruments as it had previously. As of March 31, 2018, the Company transferred $5.6 million of securities from Level 3 to Level 2 and $11.6 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.

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 December 31, 2018. 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.