Financial Instruments

6 Months Ended

Jun. 30, 2011

Financial Instruments

Financial Instruments

3. Financial Instruments

The Company's valuation techniques for financial instruments are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect the Company's market assumptions. The ASC Topic on Fair Value Measurements classifies these inputs into the following hierarchy:

Level 1 Inputs – Quoted prices for identical instruments in active markets.

Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs – Instruments with primarily unobservable value drivers.

The fair values of the Company's Agency MBS and interest rate hedges based on the level of inputs are summarized below:

	June 30, 2011
	Fair Value Measurements Using						Total at
	Level 1		Level 2		Level 3		Fair Value
Assets
Mortgage backed securities	$	—	$	16,416,897	$	—	$	16,416,897
Unsettled purchased mortgage backed securities		—		23,995		—		23,995
Interest rate hedges		—		4,137				4,137
Forward purchase commitments*		—		1,227				1,227
Total	$	—	$	16,446,256	$	—	$	16,446,256
Liabilities
Interest rate hedges	$	—	$	117,536	$	—	$	117,536
Forward purchase commitments*		—		65		—		65
Total	$	—	$	117,601	$	—	$	117,601

* Located in other assets and other liabilities on the balance sheet.

The carrying values and approximate fair values of all financial instruments as of June 30, 2011 and December 31, 2010 were as follows:

	June 30, 2011				December 31, 2010
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Mortgage backed securities	$	16,416,897	$	16,416,897	$	9,587,216	$	9,587,216
Unsettled purchased mortgage backed securities		23,995		23,995		49,710		49,710
Cash and cash equivalents		233,213		233,213		112,626		112,626
Restricted cash		159,469		159,469		75,422		75,422
Accrued interest receivable		60,502		60,502		37,973		37,973
Debt Security		15,000		15,000		15,000		15,000
Interest rate hedge asset		4,137		4,137		23,944		23,944
Forward purchase commitments		1,227		1,227		—		—
Short term investment*		20,158		20,158		19,943		19,943
Liabilities
Repurchase agreements	$	14,800,594	$	14,800,594	$	8,681,060	$	8,681,060
Payable for unsettled securities		23,958		23,958		49,774		49,774
Accrued interest payable		2,571		2,571		3,177		3,177
Interest rate hedge liability		117,536		117,536		71,681		71,681
Forward purchase commitments		65		65		8,545		8,545

* This line item is included in other assets and other liabilities on the balance sheet.