AVAILABLE-FOR-SALE SECURITIES

3 Months Ended

Mar. 31, 2015

Investments, Debt and Equity Securities [Abstract]

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

NOTE 4 – AVAILABLE-FOR-SALE SECURITIES

With effect from January 1, 2015, ASU 2014-11 changes the basis on which we account for repurchase to maturity transactions and linked repurchase financings to be consistent with the basis on which we account for secured borrowings. Accordingly, the assets and repurchase agreements that encompass linked transactions that were previously accounted for on a net basis and recorded as a forward purchase (derivative) contract are now bifurcated, and the gross amounts are reported in available-for-sale securities and repurchase agreements separately. In addition, this resulted in a cumulative adjustment of $4.4 million to OCI from unrealized gains/losses previously recorded in earnings. Consequently, our GAAP financial statements as of and for the period ended March 31, 2015 are not directly comparable to prior period GAAP financials.

The following table presents the Company’s AFS investment securities by collateral type at fair value as of March 31, 2015 and December 31, 2014:

	March 31, 2015		December 31, 2014
Mortgage-backed securities:
Agency
Federal Home Loan Mortgage Corporation	$	160,960,558	$	162,344,627
Federal National Mortgage Association		149,085,531		152,486,058
Non-Agency		171,914,913		53,485,053
Multi-Family		119,165,050
Total mortgage-backed securities	$	601,126,052	$	368,315,738

The following tables present the amortized cost and fair value of the Company’s AFS investment securities by collateral type as of March 31, 2015 and December 31, 2014:

	March 31, 2015
	Agency		Non-Agency			Multi-Family		Total
Face Value	$	301,677,275	$	254,443,355		$	153,662,418	$	709,783,048
Unamortized premium		4,681,293		-			-		4,681,293
Unamortized discount
Designated credit reserve		-		(51,699,067)	(1)		-		(51,699,067)
Net, unamortized		(2,062,001)		(39,141,722)			(37,548,139)		(78,751,862)
Amortized Cost		304,296,567		163,602,566			116,114,279		584,013,412
Gross unrealized gain		6,078,280		10,224,492			3,279,581		19,582,353
Gross unrealized (loss)		(328,758)		(1,912,145)			(228,810)		(2,469,713)
Fair Value	$	310,046,089	$	171,914,913			119,165,050	$	601,126,052

	December 31, 2014
	Agency		Non-Agency		Total
Face Value	$	309,790,551	$	76,672,548	$	386,463,099
Unamortized premium		4,796,106		-		4,796,106
Unamortized discount
Designated credit reserve		-		(12,697,796)		(12,697,796)
Net, unamortized		(2,244,687)		(15,209,335)		(17,454,022)
Amortized Cost		312,341,970		48,765,417		361,107,387
Gross unrealized gain		3,670,643		4,732,247		8,402,890
Gross unrealized (loss)		(1,181,928)		(12,611)		(1,194,539)
Fair Value	$	314,830,685	$	53,485,053	$	368,315,738

(1) Discount designated as Credit Reserve and amount related to OTTI are generally not expected to be accreted into interest income. Amounts disclosed at March 31, 2015 reflect Credit Reserve of $2.0 million and OTTI of $2.9 million.

At March 31, 2015, the Company did not intend to sell any of its MBS that were in an unrealized loss position, and it is “more likely than not” that the company will not be required to sell these MBS before recovery of their amortized cost basis, which may be at their maturity.

The Company recognized credit-related OTTI losses through earnings of approximately $4.9 million on six Non-Agency RMBS during the three months ended March 31, 2015. The company did not recognize any OTTI losses through earnings during the three months ended March 31, 2014.

Non-Agency RMBS on which OTTI is recognized have experienced, or are expected to experience, credit-related adverse cash flow changes, or credit impairment. The Company’s estimate of cash flows for its Non-Agency RMBS is based on its review of the underlying mortgage loans securing these RMBS. The Company considers information available about the structure of the securitization, including structural credit enhancement, if any, and the past and expected future performance of underlying mortgage loans, including timing of expected future cash flows, prepayment rates, default rates, loss severities, delinquency rates, percentage of non-performing loans, FICO scores at loan origination, year of origination, loan-to-value ratios, geographic concentrations, as well as Rating Agency reports, general market assessments, and dialogue with market participants. Significant judgment is used in both the Company’s analysis of the expected cash flows for its Non-Agency RMBS and any determination of OTTI that is the result, at least in part, of credit impairment.

The following table presents the composition of OTTI charges recorded by the Company for the three months ended March 31, 2015 and 2014:

	Three Months Ended		Three Months Ended
	March 31, 2015		March 31, 2014
Increase in credit reserves	$	(1,977,489)	$	-
Additional other-than-temporary credit impairment losses		(2,890,939)		-
Total impairment losses recognized in earnings		(4,868,428)		-

Unrealized losses on the Company’s remaining Non-Agency RMBS were $1.9 million at March 31, 2015, which were reflected as a component of OCI. Based upon the most recent evaluation, the Company does not consider these unrealized losses to be indicative of OTTI and does not believe that these unrealized losses to be credit related, but are rather due to non-credit factors, including changes in the rate of prepayments.

To the extent the Company expects a change in the timing of future cash flows, but no decrease in the gross amount of such cash flows, this is considered a non-credit impairment, and such changes are generally recognized prospectively through adjustment of the loan’s yield over its remaining life.

  

The following table presents a summary of the Company’s net realized gain (loss) from the sale of AFS securities, inclusive of securities previously booked as linked, for the three months ended March 31, 2015 and March 31, 2014:

	Three Months Ended		Three Months Ended
	March 31, 2015		March 31, 2014
AFS securities sold, at cost	$	-	$	94,748,794
Proceeds from AFS securities sold		-		90,620,039
Net realized gain (loss) on sale of AFS securities	$	-	$	(4,128,755)

The following tables present the fair value of AFS investment securities by rate type as of March 31, 2015 and December 31, 2014:

	March 31, 2015
	Agency		Non-Agency		Multi-Family		Total
Adjustable rate	$	226,499,622	$	171,914,913		-	$	398,414,535
Fixed rate		83,546,467		-		119,165,050		202,711,517
Total	$	310,046,089	$	171,914,913		119,165,050	$	601,126,052

	December 31, 2014
	Agency		Non-Agency		Total
Adjustable rate	$	229,648,342	$	53,485,053	$	283,133,395
Fixed rate		85,182,343		-		85,182,343
Total	$	314,830,685	$	53,485,053	$	368,315,738

The following tables present the fair value of AFS investment securities by maturity date as of March 31, 2015 and December 31, 2014:

	March 31, 2015		December 31, 2014
Less than one year	$	-	$	-
Greater than one year and less than five years		63,628,832		35,855,146
Greater than or equal to five years		537,497,220		332,460,592
Total	$	601,126,052	$	368,315,738

As described in Note 3, when the Company purchases a credit-sensitive AFS security at a significant discount to its face value, the Company generally does not amortize into income a significant portion of this discount that the Company is entitled to earn because it does not expect to collect it due to the inherent credit risk of the security. The Company may also record an OTTI for a portion of its investment in the security to the extent the Company believes that the amortized cost will exceed the present value of expected future cash flows. The amount of principal that the Company does not amortize into income is designated as an off balance sheet credit reserve on the security, with unamortized net discounts or premiums amortized into income over time to the extent realizable.

 

Actual maturities of AFS securities are affected by the contractual lives of the associated mortgage collateral, periodic payments of principal, and prepayments of principal. Therefore actual maturities of available-for-sale securities are generally shorter than stated contractual maturities. Stated contractual maturities are generally greater than ten years.

The following tables present the changes for the three months ended March 31, 2015 and year ended December 31, 2014 of the unamortized net discount and designated credit reserves on the Company’s MBS.

	March 31, 2015
	Designated		Unamortized
	credit reserve		net discount		Total
Beginning Balance as of January 1, 2015	$	(49,325,117)	$	(64,545,980)	$	(113,871,097)
Acquisitions		-		(20,272,373)		(20,272,373)
Dispositions		-		-		-
Accretion of net discount		-		4,036,759		4,036,759
Realized gain on paydowns		-		52,244		52,244
Realized credit losses		2,494,478		-		2,494,478
Addition to credit reserves		(1,977,489)		1,977,489		-
Release of credit reserves		-		-		-
Ending balance at March 31, 2015	$	(48,808,128)	$	(78,751,861)	$	(127,559,989)

	December 31, 2014
	Designated		Unamortized
	credit reserve		net discount		Total
Beginning Balance as of January 1, 2014	$	(16,126,355)	$	(22,400,380)	$	(38,526,735)
Acquisitions		-		(2,361,186)		(2,361,186)
Accretion of net discount		559,860		1,667,828		2,227,688
Realized gain on paydowns		-		4,760,729		4,760,729
Realized credit losses		-		223,212		223,212
Release of credit reserves		2,868,699		-		2,868,699
Ending balance at December 31, 2013		-		655,775		655,775
	$	(12,697,796)	$	(17,454,022)	$	(30,151,818)

Gains and losses from the sale of AFS securities are recorded within realized gain (loss) on sale of investments, net in the Company's consolidated statements of operations.

Unrealized gains and losses on the Company’s AFS securities are recorded as unrealized gain (loss) on available-for-sale securities, net in the Company's condensed consolidated statement of comprehensive income (loss). For the three months ended March 31, 2015, the Company had unrealized gains (losses) on AFS securities of $7,424,415.

The following tables present components of interest income on the Company’s AFS securities for the three months ended March 31, 2015 and March 31, 2014:

	Three Months Ended March 31, 2015						Three Months Ended March 31, 2014
			Net (premium						Net (premium
	Coupon		amortization)/		Interest		Coupon		amortization)/		Interest
	interest		discount accretion		income		interest		discount accretion		income
Agency	$	1,991,553	$	148,255	$	2,139,808	$	2,696,219	$	60,385	$	2,756,604
Non-Agency		303,510		2,858,679		3,162,189		47,426		1,042,384		1,089,810
Multi-Family		456,266		1,047,695		1,503,961		45,034		11,514		56,548
Total	$	2,751,329	$	4,054,629	$	6,805,958	$	2,788,679	$	1,114,283	$	3,902,962