NOTE 13 – FINANCIAL INSTRUMENTS

U.S. GAAP defines fair value and provides a consistent framework for measuring fair value under U.S. GAAP. ASC 820 “Fair Value Measurement” expands fair value financial statement disclosure requirements. ASC 820 does not require any new fair value measurements and only applies to accounting pronouncements that already require or permit fair value measures, except for standards that relate to share-based payments.

Valuation techniques 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 three levels are defined as follows:

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Level 1 Inputs – Quoted prices for identical instruments in active markets.

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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.

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Level 3 Inputs – Instruments with primarily unobservable value drivers.

The following tables summarize the valuation of the Company’s assets and liabilities at fair value within the fair value hierarchy levels as of March 31, 2016 and December 31, 2015:

	Quoted prices in		Significant
	active markets		other observable		Unobservable
	for identical assets		inputs		inputs		Balance as of
March 31, 2016	Level 1		Level 2		Level 3		March 31, 2016
Assets:
Residential mortgage-backed securities (a)	$	-	$	468,482,202	$	-	$	468,482,202
Residential mortgage loans		-		12,806,307		-		12,806,307
Multi-Family mortgage loans held in securitization trusts		-		1,433,612,858		-		1,433,612,858
Residential mortgage loans held in securitization trusts		-		396,542,860		-		396,542,860
Mortgage servicing rights		-		-		3,368,385		3,368,385
FHLB stock		1,030,500		-		-		1,030,500
Total	$	1,030,500	$	2,311,444,227	$	3,368,385	$	2,315,843,112

Liabilities:
Multi-family securitized debt obligations	$	-	$	(1,346,254,828)	$	-	$	(1,346,254,828)
Residential securitized debt obligations		-		(367,958,982)		-		(367,958,982)
Futures		(5,904,050)		-		-		(5,904,050)
Total	$	(5,904,050)	$	(1,714,213,810)	$	-	$	(1,720,117,860)

	Quoted prices in		Significant
	active markets		other observable		Unobservable
	for identical assets		inputs		inputs		Balance as of
December 31, 2015	Level 1		Level 2		Level 3		December 31, 2015
Assets:
Residential mortgage-backed securities (a)	$	-	$	571,466,581	$	-	$	571,466,581
Residential mortgage loans		-		10,900,402		-		10,900,402
Multi-Family mortgage loans held in securitization trusts		-		1,449,774,383		-		1,449,774,383
Residential mortgage loans held in securitization trusts		-		411,881,097		-		411,881,097
Mortgage servicing rights				-		4,268,673		4,268,673
FHLB Stock		2,403,000				-		2,403,000
Futures		2,558,350				-		2,558,350
Total	$	4,961,350	$	2,444,022,463	$	4,268,673	$	2,453,252,486

Liabilities:
Interest rate swaps	$	-	$		$	-	$	-
Multi-family securitized debt obligations		-		(1,364,077,012)		-		(1,364,077,012)
Residential securitized debt obligations		-		(380,638,423)		-		(380,638,423)
Futures		-		-		-		-
Total	$	-	$	(1,744,715,435)	$	-	$	(1,744,715,435)

(a)

For more detail about the fair value of the Company’s MBS and type of securities, see Note 3 and Note 4.

For the three months ended March 31, 2016 and year ended December 31, 2015, the Company did not have any transfers between any of the levels of the fair value hierarchy. Transfers between levels are deemed to take place on the last day of the reporting period in which the transfer takes place.

As of March 31, 2016 and December 31, 2015, the Company had $3,368,385 and $4,268,673, respectively, in Level 3 assets. The Company’s Level 3 assets are comprised of MSRs. Accordingly, for more detail about Level 3 assets also see Note 12.

The following table provides quantitative information about the significant unobservable inputs used in the fair value measurement of the Company’s MSRs classified as Level 3 fair value assets at March 31, 2016 and December 31, 2015:

As of March 31, 2016
Valuation Technique	Unobservable Input	Range		Weighted Average
Discounted cash flow	Constant prepayment rate		6.9 - 28.3%		16.1	%
	Discount rate		12.0%		12.0	%

As of December 31, 2015
Valuation Technique	Unobservable Input	Range		Weighted Average
Discounted cash flow	Constant prepayment rate		6.5 - 28.6%		13.3	%
	Discount rate		12.0%		12.0	%