Fair Value Measurements

12 Months Ended

Dec. 31, 2015

4.	Fair Value Measurements

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. FASB Topic 820, 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 Company’s Futures Contracts were valued using Level 1 inputs. The Company’s MBS, mortgage loans held for sale and derivatives other than Futures Contracts were valued using Level 2 inputs. Mortgage loans held for investment along with related purchase commitments and MSR were valued using Level 3 inputs. See Notes 5, 6, 7 and 10, respectively, for a discussion of the valuation of MBS, mortgage loans, MSR and derivatives.

The carrying values and fair values of all the Company’s financial instruments as of December 31, 2015 and 2014 were as follows:

	December 31, 2015				December 31, 2014
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
MBS	$	14,302,230	$	14,302,230	$	17,587,010	$	17,587,010
Agency CRT securities		109,387		109,387		-		-
Mortgage loans held for investment		116,857		116,857		31,460		31,460
Mortgage loans held for investment in securitization trusts		226,908		226,908		-		-
Mortgage loans held for sale		17,542		17,542		-		-
MSR		269,926		269,926		-		-
Cash and cash equivalents		816,715		816,715		627,595		627,595
Unsettled purchased MBS		12,582		12,582		24,792		24,792
Receivable for securities sold		-		-		5,197		5,197
Accrued interest receivable		45,008		45,008		54,274		54,274
Principal payments receivable		108,201		108,201		111,439		111,439
Debt security, held-to-maturity ⁽¹⁾		15,000		14,871		15,000		14,853
Short-term investments ⁽¹⁾		30,327		30,327		20,252		20,252
Interest rate swaps and swaptions ⁽²⁾		2,031		2,031		11,050		11,050
Futures Contracts asset ⁽²⁾		693		693		-		-
Forward purchase commitments ⁽²⁾		190		190		16,101		16,101
Liabilities
Repurchase agreements	$	13,443,883		13,443,883	$	15,759,831	$	15,759,831
Warehouse lines of credit		60,096		60,096		-		-
FHLB advances		14,132		14,132		-		-
Collateralized borrowings in securitization trusts		57,611		57,611		-		-
Payable for unsettled securities		12,582		12,582		24,750		24,750
Accrued interest payable		4,938		4,938		6,968		6,968
Interest rate swap liability ⁽³⁾		6,802		6,802		42,052		42,052
Futures Contracts liability ⁽³⁾		286,058		286,058		202,501		202,501
Forward purchase commitments ⁽³⁾		32,373		32,373		38		38

⁽¹⁾Included in other investments on the consolidated balance sheets.

⁽²⁾Included in derivative assets on the consolidated balance sheets.

⁽³⁾Included in derivative 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.

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