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Valuation (Tables)

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Schedule of Fair Value Measurements

The following tables present the Company's financial instruments measured at fair value on:

September 30, 2018:

(In thousands)
Description		Level 1				Level 2				Level 3				Total
Assets:
Mortgage-backed securities, at fair value:
Agency RMBS:
15-year fixed-rate mortgages		$	—			$	145,769			$	—			$	145,769
20-year fixed-rate mortgages		—				7,866				—				7,866
30-year fixed-rate mortgages		—				1,297,612				—				1,297,612
Adjustable rate mortgages		—				19,051				—				19,051
Reverse mortgages		—				75,049				—				75,049
Interest only securities		—				14,576				4,108				18,684
Non-Agency RMBS		—				4,319				7,633				11,952
Mortgage-backed securities, at fair value		—				1,564,242				11,741				1,575,983
Financial derivatives–assets, at fair value:
TBAs		—				1,447				—				1,447
Interest rate swaps		—				18,189				—				18,189
Futures		3,413				—				—				3,413
Total financial derivatives–assets, at fair value		3,413				19,636				—				23,049
Total mortgage-backed securities and financial derivatives–assets, at fair value		$	3,413			$	1,583,878			$	11,741			$	1,599,032
Liabilities:
U.S. Treasury securities sold short, at fair value		$	—			$	(26,367	)		$	—			$	(26,367	)
Financial derivatives–liabilities, at fair value:
TBAs		—				(320		)		—				(320		)
Interest rate swaps		—				(13		)		—				(13		)
Total financial derivatives–liabilities, at fair value		—				(333		)		—				(333		)
Total U.S. Treasury securities sold short and financial derivatives–liabilities, at fair value		$	—			$	(26,700	)		$	—			$	(26,700	)

December 31, 2017:

(In thousands)
Description		Level 1				Level 2				Level 3				Total
Assets:
Mortgage-backed securities, at fair value:
Agency RMBS:
15-year fixed-rate mortgages		$	—			$	176,774			$	—			$	176,774
20-year fixed-rate mortgages		—				9,230				—				9,230
30-year fixed-rate mortgages		—				1,369,589				—				1,369,589
Adjustable rate mortgages		—				29,558				—				29,558
Reverse mortgages		—				70,617				—				70,617
Interest only securities		—				9,951				2,254				12,205
Non-Agency RMBS		—				9,193				8,832				18,025
Mortgage-backed securities, at fair value		—				1,674,912				11,086				1,685,998
Financial derivatives–assets, at fair value:
TBAs		—				402				—				402
Interest rate swaps		—				8,038				—				8,038
Swaptions		—				181				—				181
Futures		171				—				—				171
Total financial derivatives–assets, at fair value		171				8,621				—				8,792
Total mortgage-backed securities and financial derivatives–assets, at fair value		$	171			$	1,683,533			$	11,086			$	1,694,790
Liabilities:
U.S. Treasury securities sold short, at fair value		$	—			$	(81,289	)		$	—			$	(81,289	)
Financial derivatives–liabilities, at fair value:
TBAs		—				(735		)		—				(735		)
Interest rate swaps		—				(1,128		)		—				(1,128		)
Total financial derivatives–liabilities, at fair value		—				(1,863		)		—				(1,863		)
Total U.S. Treasury securities sold short and financial derivatives–liabilities, at fair value		$	—			$	(83,152	)		$	—			$	(83,152	)

Unobservable Input Reconciliation

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 September 30, 2018:

(In thousands)	Non-Agency RMBS				Agency RMBS
Beginning balance as of June 30, 2018	$	6,993			$	3,626
Purchases	—				—
Proceeds from sales	—				—
Principal repayments	(369		)		—
(Amortization)/accretion, net	62				(251		)
Net realized gains (losses)	—				(11		)
Change in net unrealized gains (losses)	289				62
Transfers:
Transfers into level 3	658				1,598
Transfers out of level 3	—				(916		)
Ending balance as of September 30, 2018	$	7,633			$	4,108

All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company at September 30, 2018, as well as Level 3 financial instruments disposed of by the Company during the three-month period ended September 30, 2018. For Level 3 financial instruments held by the Company as of September 30, 2018, change in net unrealized gains (losses) of $0.3 million and $0.2 million, for the three-month period ended September 30, 2018 relate to non-Agency RMBS and Agency RMBS, respectively.

At September 30, 2018, the Company transferred $0.9 million of RMBS from Level 3 to Level 2 and $2.3 million of RMBS 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 level designation 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, 2017:

(In thousands)	Non-Agency RMBS				Agency RMBS
Beginning balance as of June 30, 2017	$	6,450			$	2,525
Purchases	2,508				—
Proceeds from sales	—				—
Principal repayments	(260		)		—
(Amortization)/accretion, net	100				(277		)
Net realized gains (losses)	4				(106		)
Change in net unrealized gains (losses)	82				(13		)
Transfers:
Transfers into level 3	2,400				777
Transfers out of level 3	—				(500		)
Ending balance as of September 30, 2017	$	11,284			$	2,406

All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) 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 as of September 30, 2017, change in net unrealized gains (losses) of $0.3 million and $(12) thousand, for the three-month period ended September 30, 2017 relate to non-Agency RMBS and Agency RMBS, respectively.

At September 30, 2017, the Company transferred $0.5 million of RMBS from Level 3 to Level 2 and $3.2 million of RMBS 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 level designation 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, 2018:

(In thousands)	Non-Agency RMBS				Agency RMBS
Beginning balance as of December 31, 2017	$	8,832			$	2,254
Purchases	—				160
Proceeds from sales	(3,638		)		—
Principal repayments	(593		)		—
(Amortization)/accretion, net	197				(884		)
Net realized gains (losses)	1,254				(177		)
Change in net unrealized gains (losses)	(660		)		536
Transfers:
Transfers into level 3	2,241				2,219
Transfers out of level 3	—				—
Ending balance as of September 30, 2018	$	7,633			$	4,108

All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company at September 30, 2018, as well as Level 3 financial instruments disposed of by the Company during the nine-month period ended September 30, 2018. For Level 3 financial instruments held by the Company as of September 30, 2018, change in net unrealized gains (losses) of $0.3 million and $0.7 million, for the nine-month period ended September 30, 2018 relate to non-Agency RMBS and Agency RMBS, respectively.

At September 30, 2018, the Company transferred $4.5 million of RMBS 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 level designation 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, 2017:

(In thousands)	Non-Agency RMBS				Agency RMBS
Beginning balance as of December 31, 2016	$	6,498			$	12,347
Purchases	4,324				2,621
Proceeds from sales	(2,866		)		—
Principal repayments	(675		)		—
(Amortization)/accretion, net	236				(2,469		)
Net realized gains (losses)	184				(180		)
Change in net unrealized gains (losses)	1,009				(1,369		)
Transfers:
Transfers into level 3	4,414				—
Transfers out of level 3	(1,840		)		(8,544		)
Ending balance as of September 30, 2017	$	11,284			$	2,406

All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company as of 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 as of September 30, 2017, change in net unrealized gains (losses) of $1.4 million and $(0.3) million, for the nine-month period ended September 30, 2017 relate to non-Agency RMBS and Agency RMBS, respectively.

At September 30, 2017, the Company transferred $10.4 million of RMBS from Level 3 to Level 2 and $4.4 million of RMBS 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 level designation of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third party pricing sources.

Quantitative Information

The following tables identify the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of September 30, 2018 and December 31, 2017:

September 30, 2018:

										Range
Description		Fair Value				Valuation Technique		Significant Unobservable Input		Min				Max				Weighted Average(1)
		(In thousands)
Non-Agency RMBS		$	6,387			Market quotes		Non-Binding Third-Party Valuation		$	53.49			$	90.37			$	76.94
Non-Agency RMBS		1,246				Discounted Cash Flows		Yield		3.7		%		4.9		%		4.1		%
								Projected Collateral Prepayments		51.7		%		66.5		%		60.4		%
								Projected Collateral Losses		4.4		%		9.3		%		6.4		%
								Projected Collateral Recoveries		10.3		%		11.9		%		10.8		%
								Projected Collateral Scheduled Amortization		18.0		%		28.0		%		22.4		%
																		100.0		%
Agency RMBS–Interest Only Securities		4,108				Option Adjusted Spread ("OAS")		LIBOR OAS (2)		548				1,426				634
								Projected Collateral Prepayments		31.7		%		69.4		%		58.4		%
								Projected Collateral Scheduled Amortization		30.6		%		68.3		%		41.6		%
																		100.0		%

(1) Averages are weighted based on the fair value of the related instrument.

(2) Shown in basis points.

December 31, 2017:

										Range
Description		Fair Value				Valuation Technique		Significant Unobservable Input		Min				Max				Weighted Average(1)
		(In thousands)
Non-Agency RMBS		$	2,258			Market quotes		Non-Binding Third-Party Valuation		$	57.84			$	87.45			$	78.02
Non-Agency RMBS		6,574				Discounted Cash Flows		Yield		4.6		%		5.1		%		4.8		%
								Projected Collateral Prepayments		19.2		%		44.9		%		26.5		%
								Projected Collateral Losses		0.9		%		20.1		%		9.2		%
								Projected Collateral Recoveries		8.8		%		31.5		%		22.5		%
								Projected Collateral Scheduled Amortization		33.1		%		47.5		%		41.8		%
																		100.0		%
Agency RMBS–Interest Only Securities		2,254				Option Adjusted Spread ("OAS")		LIBOR OAS(2)		627				1,408				781
								Projected Collateral Prepayments		43.8		%		88.1		%		71.2		%
								Projected Collateral Scheduled Amortization		11.9		%		56.2		%		28.8		%
																		100.0		%

(1) Averages are weighted based on the fair value of the related instrument.

(2) Shown in basis points.

Fair Value, Other Financial Instruments

The following table summarizes the estimated fair value of all other financial instruments not included in the disclosures above as of September 30, 2018 and December 31, 2017:

		September 30, 2018								December 31, 2017
(In thousands)		Fair Value				Carrying Value				Fair Value				Carrying Value
Other financial instruments
Assets:
Cash and cash equivalents		$	41,016			$	41,016			$	56,117			$	56,117
Due from brokers		27,044				27,044				26,754				26,754
Reverse repurchase agreements		26,769				26,769				81,461				81,461
Liabilities:
Repurchase agreements		1,500,632				1,500,632				1,597,206				1,597,206
Due to brokers		8,298				8,298				489				489

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 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; fair value of these items approximates carrying value and such items are considered Level 1 assets and liabilities. The Company's repurchase and reverse repurchase agreements are carried at cost, which approximates fair value due to their short term nature. Repurchase agreements and reverse repurchase agreements are classified as Level 2 assets and liabilities based on the adequacy of the collateral and their short term nature.

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Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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