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 March 31, 2018 and December 31, 2017:



	March 31, 2018
	Quoted prices in active markets for identical assets Level 1		Significant other observable inputs Level 2			Unobservable inputs Level 3		Balance as of March 31, 2018
Assets:
Residential mortgage-backed securities (a)	$	—	$	1,095,189,264		$	—	$	1,095,189,264
Multi-Family mortgage loans held in securitization trusts	—		1,106,592,612			—		1,106,592,612
Residential mortgage loans held in securitization trusts	—		111,764,070			—		111,764,070
Mortgage servicing rights	—		—			3,021,549		3,021,549
Futures (Short positions)	18,132,700		—			—		18,132,700
Total	$	18,132,700	$	2,313,545,946		$	3,021,549	$	2,334,700,195

Liabilities:
Multi-family securitized debt obligations	$	—	$	(1,086,279,589	)	$	—	$	(1,086,279,589	)
Residential securitized debt obligations	—		(106,676,747		)	—		(106,676,747		)
Total	$	—	$	(1,192,956,336	)	$	—	$	(1,192,956,336	)



	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 three months ended March 31, 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 March 31, 2018 and December 31, 2017, the Company had $3,021,549 and $2,963,861, 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 11.

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, 2018 and December 31, 2017:



As of March 31, 2018
Valuation Technique	Unobservable Input	Range		Weighted Average
Discounted cash flow	Constant prepayment rate	8.0 - 24.2%		12.2	%
	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	%