Debt Securities

12 Months Ended

Dec. 31, 2011

Debt Securities

Debt Securities

3. Debt Securities

        We classified all CMBS and RMBS investments as available-for-sale as of December 31, 2011 and December 31, 2010. The CMBS and RMBS classified as available-for-sale are reported at fair value in the balance sheets with changes in fair value recorded in accumulated other comprehensive (loss) income. The tables below summarize various attributes of our investments in mortgage backed securities ("MBS") available-for-sale as of December 31, 2011 and December 31, 2010 (amounts in thousands):

								Unrealized Gains or (Losses) Recognized in Accumulated Other Comprehensive (Loss) Income
December 31, 2011	Purchase Amortized Cost		Credit OTTI			Recorded Amortized Cost		Non-Credit OTTI			Unrealized Gains		Unrealized Losses			Net Fair Value Adjustment			Fair Value
CMBS	$	177,353	$	—		$	177,353	$	—		$	—	$	(567	)	$	(567	)	$	176,786
RMBS		170,424		(6,001	)		164,423		(1,310	)		3,367		(1,532	)		525			164,948
Total	$	347,777	$	(6,001	)	$	341,776	$	(1,310	)	$	3,367	$	(2,099	)	$	(42	)	$	341,734

December 31, 2011	Weighted Average Coupon(1)			Weighted Average Rating			Weighted Average Life ("WAL") (Years)(3)
CMBS		2.1	%		NR	(2)		3.5
RMBS		1.0	%		B-			4.8

(1)

Calculated using the December 31, 2011 one-month LIBOR rate of 0.2953% for floating rate securities.

(2)

Represents securities where the obligors are certain special purpose entities that were formed to hold substantially all of the assets of a worldwide operator of hotels, resorts and timeshare properties; the securities are not rated but the loan-to-value ratio was estimated to be in the range of 39%-44% at December 31, 2011.

(3)

Represents the WAL of each respective group of MBS. The WAL of each individual security or loan is calculated as a fraction, the numerator of which is the sum of the timing (in years) of each expected future principal payment multiplied by the balance of the respective payment, and with a denominator equal to the sum of the expected principal payments. This calculation was made as of December 31, 2011. Assumptions for the calculation of the WAL are adjusted as necessary for changes in projected principal repayments and/or maturity dates of the security.

December 31, 2010	Recorded Amortized Cost		Unrealized Gains		Unrealized Losses			Net Fair Value Adjustment		Fair Value		Weighted Average Coupon(1)			Weighted Average Rating	WAL (Years)
CMBS	$	266,764	$	9,074	$	(683	)	$	8,391	$	275,155		5.6	%	AA-		1.8
RMBS		120,827		2,495		(797	)		1,698		122,525		0.6	%	BB-		1.3
	$	387,591	$	11,569	$	(1,480	)	$	10,089	$	397,680

(1)

Calculated using the December 31, 2010 one-month LIBOR rate of 0.2606% for floating rate securities.

        During the year ended December 31, 2011, the purchases and sales trades executed, as well as the principal payments received, were as follows (amounts in thousands):

	RMBS		CMBS
Purchases	$	161,204	$	—
Sales/Maturities		53,529		238,739
Principal payments received		69,466		44,449

        In June 2011, we exercised a pre-existing right to convert one of our loans into a CMBS in order to maximize the investment's liquidity. As a result, we reclassified the loan, which had a carrying amount of $176.6 million, from loans held for investment to MBS, available-for-sale, and recognized an unrealized gain in connection with this reclassification of $7.9 million.

        During the year ended December 31, 2011, we sold various CMBS positions with aggregate gross proceeds of $211.6 million ($74.0 million after repaying related financing), which generated gains of approximately $10.0 million. Additionally, $27.1 million of our CMBS portfolio matured and were paid off during the year ended December 31, 2011.

        From Inception through the first two quarters of 2010, a portion of our CMBS portfolio was designated as held-to-maturity. However, during the third quarter of 2010 our investment strategy with respect to these securities changed, and we no longer intended to hold them to maturity. As a result, we reclassified the securities to available-for-sale and recorded an unrealized gain in connection with this reclassification of approximately $10.3 million.

        As of December 31, 2011, 100% of the CMBS are variable rate and pay interest at LIBOR plus a weighted-average spread of 1.75%. As of December 31, 2010, 5.0% of the CMBS were variable rate and paid interest at LIBOR plus a weighted-average spread of 1.30%.

        Subject to certain limitations on durations, we have allocated an amount to invest in RMBS that cannot exceed 10% of our total assets. We have engaged a third party manager who specializes in RMBS to execute the trading of RMBS, the cost of which was $0.7 million and $0.4 million for the years ended December 31, 2011 and December 31, 2010, respectively, which has been recorded as an offset to interest income in the accompanying consolidated statements of operations. As of December 31, 2011, approximately $154.7 million, or 93.8%, of the RMBS are variable rate and pay interest at LIBOR plus a weighted-average spread of 0.43%. As of December 31, 2010, approximately $120.7 million, or 98.5%, of the RMBS were variable rate and pay interest at LIBOR plus a weighted-average spread of 0.31%. We purchased all of the RMBS at a discount that will be accreted into income over the expected remaining life of the security. The majority of the income from this strategy is earned from the accretion of these discounts.

        The following table presents the gross unrealized losses and estimated fair value of our securities that are in an unrealized loss position as of December 31, 2011 for which OTTIs (full or partial) have not been recognized in earnings (amounts in thousands):

	Estimated Fair Value				Unrealized Losses
As of December 31, 2011	Securities with a loss less than 12 months		Securities with a loss greater than 12 months		Securities with a loss less than 12 months			Securities with a loss greater than 12 months
CMBS	$	176,786	$	—	$	(567	)	$	—
RMBS		70,103		2,684		(2,444	)		(399	)
Total	$	246,889	$	2,684	$	(3,011	)	$	(399	)

        As of December 31, 2011 there were 42 securities with unrealized losses. After evaluating each security we determined that the impairments on 25 of these securities, all of which are non-agency and whose impairments totaled $4.7 million, were other-than-temporary. Credit losses represented $3.4 million of this total, which we calculated by comparing (i) the estimated future cash flows of each security discounted at the yield determined as of the initial acquisition date or, if since revised, as of the last date previously revised, to (ii) our amortized cost basis. For the year ended December 31, 2011, our aggregate MBS credit losses (as reported in the statement of operations) were $6.0 million. We further determined that none of the 17 remaining securities were other-than-temporarily impaired. We considered a number of factors in reaching this conclusion, including that we did not intend to sell any individual security, it was not considered more likely than not that we would be forced to sell any individual security prior to recovering our amortized cost, and there were no material credit events that would have caused us to otherwise conclude that we would not recover our cost. Significant judgment is required is used in projecting cash flows for our non-agency RMBS. As a result, actual income and/or impairments could be materially different from what is currently projected and/or reported.

        The following table presents the gross unrealized losses and estimated fair value of our securities that are in an unrealized loss position as of December 31, 2010 (amounts in thousands).

As of December 31, 2010	Estimated Fair Value		Unrealized Losses
CMBS	$	19,023	$	(683	)
RMBS		25,729		(797	)
Total	$	44,752	$	(1,480	)