Financial Instruments

9 Months Ended

Sep. 30, 2012

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.

All of the Company’s agency securities and hedging assets and liabilities were valued using Level 2 inputs at September 30, 2012 and December 31, 2011. See Notes 4 and 7, respectively for a discussion on how agency securities and hedging assets and liabilities were valued. The carrying values and fair values of all financial instruments as of September 30, 2012 and December 31, 2011 were as follows:


	September 30, 2012				December 31, 2011
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Assets
Mortgage-backed securities	$	26,375,137	$	26,375,137	$	17,741,873	$	17,741,873
Unsettled purchased mortgage backed securities		120,478		120,478		49,630		49,630
Cash and cash equivalents		150,846		150,846		347,045		347,045
Restricted cash		302,180		302,180		237,014		237,014
Accrued interest receivable		80,056		80,056		63,025		63,025
Principal payments receivable		182,195		182,195		105,333		105,333
Debt Security		15,000		13,816		15,000		13,811
Short term investment*		20,132		20,132		20,221		20,221
Forward purchase commitments*		26,843		26,843		6,327		6,327
Liabilities
Repurchase agreements	$	23,583,180	$	23,583,180	$	16,162,375	$	16,162,375
Payable for unsettled securities		118,925		118,925		48,999		48,999
Accrued interest payable		4,729		4,729		4,596		4,596
Interest rate hedge liability		273,120		273,120		219,167		219,167

*	These lines are included in Other Assets on the balance sheets

- 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

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+ Details