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Valuation | 3 Months Ended
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Mar. 31, 2013
Fair Value Disclosures [Abstract] |
Valuation | Valuation The Company applies Accounting Standards Codification ("ASC") ASC 820-10, Fair Value Measurement and Disclosures ("ASC 820-10"), to its holdings of financial instruments. ASC 820-10 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Financial instruments include securities and derivatives. A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. The following is a description of the valuation methodologies used for financial instruments: Level 1—valuation methodologies include the observation of quoted prices (unadjusted) for identical assets or liabilities in active markets, often received from widely recognized data providers. Level 2—valuation methodologies include the observation of (i) quoted prices for similar assets or liabilities in active markets, (ii) inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves) in active markets and (iii) quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3—valuation methodologies include (i) the solicitation of valuations from third parties (typically, broker-dealers), (ii) the use of proprietary models that require the use of a significant amount of judgment and the application of various assumptions including, but not limited to, prepayment assumptions and default rate assumptions, and (iii) the assessment of observable or reported recent trading activity. The Company utilizes such information to assign a good faith fair value (the estimated price that would be received to sell an asset or paid to transfer a liability in an orderly transaction at the valuation date) to each such financial instrument. The Company seeks to obtain at least one third-party indicative valuation for each instrument, and often obtains multiple indicative valuations when available. Third-party valuation providers often utilize proprietary models that are highly subjective and also require the use of a significant amount of judgment and the application of various assumptions including, but not limited to, prepayment assumptions and default rate assumptions. The Company has been able to obtain third-party valuations on the vast majority of its assets, and the Company expects to continue to solicit third-party valuations on substantially all assets in the future to the extent practical. Beginning January 1, 2013, the Company generally values each financial instrument at the average of third party valuations received and not rejected as described below. Third-party valuations are not binding on the Company and while the Company generally does not adjust valuations it receives, it may challenge or reject a valuation when, based on validation criteria, the Company determines that such valuation is unreasonable or erroneous. Furthermore, the Company may determine, based on validation criteria, that for a given instrument the average of the third-party valuations received does not result in what the Company believes to be fair value, and in such circumstances the Company may override this average with its own good faith valuation. The validation criteria include the use of the Company's own models, recent trading activity in the same or similar instruments, and valuations received from third parties. Prior to 2013, the valuation process relied more heavily on the use of models and the observation of reported recent trading activity, which was substantiated by third party valuations. The Company's valuation process, including the application of validation criteria, is overseen by a valuation committee. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been used had a ready market for the financial instruments existed, and the differences could be material to the consolidated financial statements. The following tables present the Company's financial instruments measured at fair value on: March 31, 2013:
(In thousands) |  |  |  |  |  |  |  |
Description |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |
Non-Agency RMBS |  | $ | — |  |  | $ | — |  |  | $ | 12,360 |  |  | $ | 12,360 |
Total Real Estate Securities at Fair Value |  | $ | — |  |  | $ | — |  |  | $ | 12,360 |  |  | $ | 12,360 |
There were no transfers of financial instruments between Levels 1, 2, or 3 of the fair value hierarchy during the three month period ended March 31, 2013. December 31, 2012:
(In thousands) |  |  |  |  |  |  |  |
Description |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |
Non-Agency RMBS |  | $ | — |  |  | $ | — |  |  | $ | 13,596 |  |  | $ | 13,596 |
Total Real Estate Securities at Fair Value |  | $ | — |  |  | $ | — |  |  | $ | 13,596 |  |  | $ | 13,596 |
There were no transfers of financial instruments between Levels 1, 2, or 3 of the fair value hierarchy during the period September 25, 2012 (commencement of operations) through December 31, 2012. The following tables present additional information about the Company's investments which are measured at fair value for which the Company has utilized Level 3 inputs to determine fair value: Three month period ended March 31, 2013:
(In thousands) | Non-Agency RMBS
Beginning balance 12/31/2012 | $ | 13,596 |
Transfers(1): |
Transfers into level 3 | — |
Transfers out of level 3 | — |
Purchases | 3,331 |
Proceeds from sales | (5,309 | )
Principal repayments | (440 | )
Amortization/accretion, net | 139 |
Net realized gains | 888 |
Change in net unrealized gains | 155 |
Ending balance 3/31/2013 | $ | 12,360 |
Change in net unrealized gain for level 3 assets still held as of March 31, 2013 | $ | 220 |
(1) | Transfers are assumed to occur at the beginning of the period.
The following tables present a summary of quantitative information, which management is aware of, about the significant unobservable inputs used in the fair value measurement of investments for which the Company has utilized Level 3 inputs to determine fair value: March 31, 2013:
|  | Range |  |
Description |  | Fair Value |  | Valuation Technique |  | Significant Unobservable Input |  | Min |  | Max |  | Weighted Average(1)
|  | (In thousands) |  |  |  |  |  |  |  |  |  |
Private Label Residential Mortgage Backed Securities |  | $ | 10,129 |  |  | Market quotes |  | Non Binding Indicative Price |  | $ | 25.55 |  |  | $ | 82.13 |  |  | $ | 69.63 |
Private Label Residential Mortgage Backed Securities |  | $ | 2,231 |  |  | Discounted Cash Flows |  | Yield |  | 7.9 | % |  | 7.9 | % |  | 7.9 | %
|  |  |  |  |  | Projected Collateral Prepayments |  | 18.9 | % |  | 18.9 | % |  | 18.9 | %
|  |  |  |  |  | Projected Collateral Losses |  | 34.7 | % |  | 34.7 | % |  | 34.7 | %
|  |  |  |  |  | Projected Collateral Recoveries |  | 26.0 | % |  | 26.0 | % |  | 26.0 | %
|  |  |  |  |  | Projected Collateral Scheduled Amortization |  | 20.4 | % |  | 20.4 | % |  | 20.4 | %
|  |  |  |  |  |  |  |  |  |  |  | 100.0 | %
(1) | Averages are weighted based on the fair value of the related instrument.
December 31, 2012:
|  | Range |  |
Description |  | Fair Value |  | Valuation Technique |  | Significant Unobservable Input |  | Min |  | Max |  | Weighted Average(1)
|  | (In thousands) |  |  |  |  |  |  |  |  |  |
Private Label Residential Mortgage Backed Securities |  | $ | 13,596 |  |  | Discounted Cash Flows |  | Yield |  | 6.2 | % |  | 20.4 | % |  | 8.5 | %
|  |  |  |  |  | Projected Collateral Prepayments |  | 12.6 | % |  | 52.2 | % |  | 29.4 | %
|  |  |  |  |  | Projected Collateral Losses |  | 11.3 | % |  | 41.4 | % |  | 26.9 | %
|  |  |  |  |  | Projected Collateral Recoveries |  | 6.8 | % |  | 33.2 | % |  | 23.8 | %
|  |  |  |  |  | Projected Collateral Scheduled Amortization |  | 3.0 | % |  | 52.7 | % |  | 19.9 | %
|  |  |  |  |  |  |  |  |  |  |  | 100.0 | %
(1) | Averages are weighted based on the fair value of the related instrument.
Third-party non-binding indicative prices are validated by comparing such prices 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 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. Material changes in any of the inputs above in isolation could result in a significant change to reported fair value measurements. Fair value measurements are impacted by the interrelationships of these inputs. For example, a higher expectation of collateral prepayments will generally result in a lower expectation of collateral losses. Conversely, higher losses will generally result in lower prepayments.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13504-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13433-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7578670&loc=d3e19207-110258 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 + Details
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