Financial Instruments

12 Months Ended

Dec. 31, 2013

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.

Other than the Futures Contracts, all of the Company’s agency securities and other derivatives were valued using Level 2 inputs at December 31, 2013 and 2012. The Futures Contracts were valued using Level 1 inputs at December 31, 2013. See Notes 4 and 7, respectively for a discussion on how agency securities and other derivatives were valued.

The carrying values and fair values of all financial instruments as of December 31, 2013 and 2012 were as follows:

	December 31, 2013				December 31, 2012
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Assets
Mortgage-backed securities	$	17,642,532	$	17,642,532	$	23,919,251	$	23,919,251
Unsettled purchased mortgage backed securities		-		-		138,338		138,338
Cash and cash equivalents		763,326		763,326		168,424		168,424
Restricted cash		225,379		225,379		281,021		281,021
Accrued interest receivable		55,156		55,156		77,113		77,113
Receivable for securities sold		231,214		231,214		1,587,535		1,587,535
Principal payments receivable		95,021		95,021		190,832		190,832
Debt security, held to maturity		15,000		14,307		15,000		13,981
Interest rate swap asset		15,841		15,841		-		-
Futures Contracts*		11,148		11,148		-		-
Short term investment*		19,910		19,910		20,187		20,187
Forward purchase commitments*		-		-		5,452		5,452
Liabilities
Repurchase agreements	$	16,129,683		16,129,683	$	22,866,429	$	22,866,429
Dollar roll liabilities		351,826		351,826		-		-
Payable for unsettled securities		-		-		137,121		137,121
Accrued interest payable		8,279		8,279		7,592		7,592
Interest rate swap liability		125,133		125,133		243,945		243,945
Futures contract liability		36,733		36,733		-		-
Forward purchase commitments**		5,741		5,741		-		-


*These lines are included in other assets on the consolidated balance sheets
**This line included in accounts payable and other liabilities on the consolidated 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+ Details