Fair Value (Tables)

9 Months Ended

Sep. 30, 2013

Schedule of Financial Instruments Accounted for at Fair Value on a Recurring Basis

The following table sets forth the Company's financial instruments that were accounted for at fair value on a recurring basis as of September 30, 2013, by level within the fair value hierarchy:

	Assets and Liabilities at Fair Value
	Level 1		Level 2		Level 3		Total
Assets
Mortgage loans	$	-	$	-	$	334,793,412	$	334,793,412
Non-Agency RMBS		-		-		196,552,996		196,552,996
Total	$	-	$	-	$	531,346,408	$	531,346,408
Liabilities
Derivative liabilities	$	-	$	596,988	$	-	$	596,988
Total	$	-	$	596,988	$	-	$	596,988

The following table sets forth the Company's financial instruments that were accounted for at fair value on a recurring basis as of December 31, 2012, by level within the fair value hierarchy:

	Assets and Liabilities at Fair Value
	Level 1		Level 2		Level 3		Total
Assets
Real estate securities
Agency RMBS
30-year adjustable rate mortgage	$	-	$	3,240,330	$	-	$	3,240,330
30-year fixed rate mortgage		-		66,519,702		-		66,519,702
Non-Agency RMBS		-		-		100,911,651		100,911,651
Total	$	-	$	69,760,032	$	100,911,651	$	170,671,683
Liabilities
Derivative liabilities	$	-	$	1,144,744	$	-	$	1,144,744
Total	$	-	$	1,144,744	$	-	$	1,144,744

Schedule of Financial Instruments Utilizing Level 3 Inputs

The following table presents additional information about the Company's financial instruments which are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value:

	Nine Months Ended						Twelve Months Ended
	September 30, 2013						December 31, 2012
	Mortgage						Mortgage
	loans			RMBS			loans		RMBS
Beginning balance	$	-		$	100,911,651		$	-	$	76,473,092
Total net transfers into/out of Level 3		-			-			-		-
Acquisitions		334,162,044			193,538,950			-		68,617,460
Proceeds from sales		-			(60,334,338	)		-		(43,379,205	)
Net accretion of discounts		2,918,421			10,481,839			-		1,337,369
Proceeds from principal repayments		(7,911,106	)		(39,969,545	)		-		(16,938,626	)
Total losses (realized/unrealized) included in earnings		(5,208,963	)		(10,058,993	)		-		(2,579,401	)
Total gains (realized/unrealized) included in earnings		10,833,016			1,983,432			-		17,380,962
Ending balance	$	334,793,412		$	196,552,996		$	-	$	100,911,651
The amount of total gains or (losses) for the period
included in earnings attributable to the change in
unrealized gains or losses relating to assets or
liabilities still held at the reporting date	$	5,211,327		$	(5,627,013	)	$	-	$	10,764,268

Schedule of Quantitative Information about Level 3 Fair Value Measurements

The following table presents quantitative information about the Company's mortgage loans which are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value:

Quantitative Information about Level 3 Fair Value Measurements

	Fair Value as of
	September 30,						Weighted
	2013		Valuation Technique(s)	Unobservable Input	Min/Max		Average
Mortgage Loans	$	334,793,412	Model	Constant voluntary prepayment	1.2%	7.5%	3.6%
				Constant default rate	0.2%	4.7%	3.3%
				Loss severity	10.0%	44.8%	28.1%
				Delinquency	2.3%	13.0%	11.2%

During the three months ended September 30, 2013, the Company purchased mortgage loans having an unpaid principal balance of $260.6 million. The Company determined the accretable yield on these mortgage loans to be $139.5 million at the time of purchase. During the nine months ended September 30, 2013, the Company purchased mortgage loans having an unpaid principal balance of $412.9 million for $334.2 million. The Company determined the accretable yield on these mortgage loans to be a total of $222.9 million at the time of purchase. The total accretable yield on the Company's mortgage loans at September 30, 2013 was $215.5 million.

The following table presents quantitative information about the Company's real estate securities which are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value:

Quantitative Information about Level 3 Fair Value Measurements

	Fair Value as of
	September 30,								Weighted
	2013		Valuation Technique(s)	Unobservable Input	Min/Max				Average
Non-Agency RMBS⁽¹⁾
Alternative - A	$	73,597,312	Broker quotes/comparable trades	Constant voluntary prepayment	1.8	%	40.4	%	17.2	%
				Constant default rate	0.5	%	9.5	%	3.1	%
				Loss severity	0.0	%	75.0	%	25.9	%
				Delinquency	1.4	%	29.4	%	9.9	%
Pay option adjustable rate		27,557,335	Broker quotes/comparable trades	Constant voluntary prepayment	1.4	%	20.4	%	9.1	%
				Constant default rate	2.6	%	8.0	%	4.5	%
				Loss severity	1.1	%	63.5	%	40.7	%
				Delinquency	8.3	%	33.0	%	15.5	%
Prime		77,775,713	Broker quotes/comparable trades	Constant voluntary prepayment	2.5	%	19.3	%	10.1	%
				Constant default rate	1.5	%	9.7	%	4.8	%
				Loss severity	1.8	%	59.0	%	34.2	%
				Delinquency	5.7	%	29.6	%	13.7	%
Subprime		17,622,636	Broker quotes/comparable trades	Constant voluntary prepayment	1.7	%	12.6	%	6.0	%
				Constant default rate	3.2	%	14.4	%	4.9	%
				Loss severity	6.4	%	80.3	%	45.7	%
				Delinquency	12.5	%	29.6	%	17.0	%
Total Non-Agency RMBS	$	196,552,996

____________________

(1)

The Company uses third-party dealer quotes to estimate fair value of some of its financial assets. The Company verifies selected prices by using a variety of methods, including comparing prices to internally estimated prices and corroborating the prices by reference to other independent market data, such as relevant benchmark indices and prices of similar instruments. Where the Company has disclosed unobservable inputs for broker quotes or comparable trades, those inputs are based on the Company's validations performed at the security level.

Schedule of Fair Value Option

The following table presents the difference between the fair value and the aggregate unpaid principal amount and/or notional balance of assets for which the fair value option was elected:

	September 30, 2013							December 31, 2012
			Unpaid							Unpaid
			Principal							Principal
			and/or Notional							and/or Notional
	Fair Value		Balance⁽¹⁾		Difference			Fair Value		Balance		Difference
Financial instruments, at fair value
Assets
Mortgage loans	$	334,793,412	$	406,167,821	$	(71,374,409	)	$	-	$	-	$	-
Real estate securities
Agency RMBS
30-year adjustable rate mortgage		-		-		-			3,240,330		3,083,892		156,438
30-year fixed rate mortgage		-		-		-			66,519,702		61,034,333		5,485,369
Non-Agency RMBS		196,552,996		297,368,554		(100,815,558	)		100,911,651		109,197,632		(8,285,981	)
Total RMBS		196,552,996		297,368,554		(100,815,558	)		170,671,683		173,315,857		(2,644,174	)
Total financial instruments, at fair value	$	531,346,408	$	703,536,375	$	(172,189,967	)	$	170,671,683	$	173,315,857	$	(2,644,174	)

____________________

(1)

Non-Agency RMBS includes an IO with a notional balance of $69.6 million.

Schedule of Fair Value of Other Financial Instruments

The following table summarizes the estimated fair value for all other financial instruments:

	September 30, 2013		December 31, 2012
Other financial instruments
Assets
Cash	$	21,467,891	$	19,061,110
Restricted cash		3,031,804		3,768,151
Liabilities
Loan repurchase facility	$	240,866,906	$	-
Securities repurchase agreements		134,246,526		109,270,298
Common stock repurchase liability		-		11,190,687

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

+ References+ Details

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

+ References+ Details

- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

+ References+ Details

- Definition

Tabular disclosure of the application of the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected, provide the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (b) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (c) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) for loans and other receivables held as assets, the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk; (c) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk, the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk; and (3) certain other disclosures as required or determined to be provided.

+ References+ Details