FINANCIAL INSTRUMENTS

GAAP defines fair value and provides a consistent framework for measuring fair value under 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:


•	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 following tables summarize the valuation of the Company’s assets and liabilities at fair value within the fair value hierarchy levels as of June 30, 2018 and December 31, 2017:



	June 30, 2018
	Quoted prices in active markets for identical assets Level 1		Significant other observable inputs Level 2		Unobservable inputs Level 3		Balance as of June 30, 2018
Assets:
Multi-family mortgage loans held in securitization trusts	—		23,842,162		—		23,842,162
Mortgage servicing rights	—		—		4,105,613		4,105,613
Total	$	—	$	23,842,162	$	4,105,613	$	27,947,775

Liabilities:
Multi-family securitized debt obligations	$	—	$	19,481,546	$	—	$	19,481,546
Total	$	—	$	19,481,546	$	—	$	19,481,546



	December 31, 2017
	Quoted prices in active markets for identical assets Level 1		Significant other observable inputs Level 2			Unobservable inputs Level 3		Balance as of December 31, 2017
Assets:
Residential mortgage-backed securities (a)	$	—	$	1,290,825,648		$	—	$	1,290,825,648
Multi-family mortgage loans held in securitization trusts	—		1,130,874,274			—		1,130,874,274
Residential mortgage loans held in securitization trusts	—		119,756,455			—		119,756,455
Mortgage servicing rights	—		—			2,963,861		2,963,861
Futures (Short positions)	5,349,613		—			—		5,349,613
Total	$	5,349,613	$	2,541,456,377		$	2,963,861	$	2,549,769,851

Liabilities:
Multi-family securitized debt obligations	$	—	$	(1,109,204,743	)	$	—	$	(1,109,204,743	)
Residential securitized debt obligations	—		(114,418,318		)	—		(114,418,318		)
Total	$	—	$	(1,223,623,061	)	$	—	$	(1,223,623,061	)


(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 six months ended June 30, 2018 and year ended December 31, 2017, the Company had no 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 June 30, 2018 and December 31, 2017, the Company had $4,105,613 and $2,963,861, respectively, in Level 3 assets. The Company’s Level 3 assets are comprised of commercial mortgage loans and MSRs. Accordingly, for more detail about Level 3 assets, also see Notes 5 and 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 June 30, 2018 and December 31, 2017:



As of June 30, 2018
Valuation Technique	Unobservable Input	Range		Weighted Average
Discounted cash flow	Constant prepayment rate	8.0 - 22.3%		11.3	%
	Discount rate	12.0	%	12.0	%



As of December 31, 2017
Valuation Technique	Unobservable Input	Range		Weighted Average
Discounted cash flow	Constant prepayment rate	8.0 - 25.4%		12.8	%
	Discount rate	12.0	%	12.0	%

As discussed in Note 3, GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial position, for which it is practicable to estimate that value. The following table details the carrying amount, face amount and fair value of the financial instrument described in Note 3:



	June 30, 2018
	Carrying Value		Face Amount		Fair Value
Assets:
Cash and cash equivalents	$	73,380,534	$	73,380,534	$	73,380,534
Restricted cash	7,932,233		7,932,233		7,932,233
Commercial mortgage loans held-for-investment	326,883,547		326,883,547		326,883,547
Total	$	408,196,314	$	408,196,314	$	408,196,314

Liabilities
Collateralized loan obligations (Hunt CRE 2017-FL1, Ltd.)	$	287,738,948	$	290,732,000	$	290,761,639
Total	$	287,738,948	$	290,732,000	$	290,761,639



	December 31, 2017
	Carrying Value		Face Amount		Fair Value
Assets:
Cash and cash equivalents	$	34,347,339	$	34,347,339	$	34,347,339
Restricted cash	11,275,263		11,275,263		11,275,263
Total	$	45,622,602	$	45,622,602	$	45,622,602

Liabilities:
Repurchase agreements	$	1,234,522,000	$	1,234,522,000	$	1,234,522,000
Total	$	1,234,522,000	$	1,234,522,000	$	1,234,522,000

Estimates of cash and cash equivalents and restricted cash are measured using quoted market prices, or Level 1 inputs. Estimates of the fair value of collateralized loan obligations are measured using observable, quoted market prices, in inactive markets, or Level 2 inputs. All other fair value significant estimates are measured using unobservable inputs, or Level 3 inputs. See Note 3 for further discussion regarding fair value measurement of certain of our assets and liabilities.