Fair Value (Tables)

3 Months Ended

Mar. 31, 2017

Company's Assets and Liabilities Measured at Fair Value on Recurring Basis

The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis as of the dates indicated (dollars in thousands).

Recurring Fair Value Measurements

As of March 31, 2017

	Level 1		Level 2		Level 3		Carrying Value
Assets
RMBS
Fannie Mae	$	-	$	728,267	$	-	$	728,267
Freddie Mac		-		369,651		-		369,651
CMOs		-		41,138		-		41,138
RMBS total		-		1,139,056		-		1,139,056
Derivative assets
Interest rate swaps		-		8,240		-		8,240
Interest rate swaptions		-		1,300		-		1,300
Derivative assets total		-		9,540		-		9,540
Servicing related assets		-		-		76,698		76,698
Total Assets	$	-	$	1,148,596	$	76,698	$	1,225,294
Liabilities
Derivative liabilities
Interest rate swaps		-		413		-		413
TBAs		-		83		-		83
Treasury futures		-		144		-		144
Derivative liabilities total		-		640		-		640
Total Liabilities	$	-	$	640	$	-	$	640

As of December 31, 2016

	Level 1		Level 2		Level 3		Carrying Value
Assets
RMBS
Fannie Mae	$	-	$	448,937	$	-	$	448,937
Freddie Mac		-		198,103		-		198,103
CMOs		-		24,864		-		24,864
RMBS total		-		671,904		-		671,904
Derivative assets
Interest rate swaps		-		7,639		-		7,639
Interest rate swaptions		-		1,482		-		1,482
Derivative assets total		-		9,121		-		9,121
Servicing related assets		-		-		61,263		61,263
Total Assets	$	-	$	681,025	$	61,263	$	742,288
Liabilities
Derivative liabilities
Interest rate swaps		-		339		-		339
TBAs		-		75		-		75
Treasury futures		-		280		-		280
Derivative liabilities total		-		694		-		694
Total Liabilities	$	-	$	694	$	-	$	694

Company's Level 3 Assets (Servicing Related Assets) Measured at Fair Value on Recurring Basis

The tables below present the reconciliation for the Company’s Level 3 assets (Servicing Related Assets) measured at fair value on a recurring basis as of the dates indicated (dollars in thousands):

Level 3 Fair Value Measurements

As of March 31, 2017

	Level 3 ^(A)
	Pool 2			MSRs			Total
Balance at December 31, 2016	$	29,392		$	31,871		$	61,263
Purchases, sales and principal paydowns:
Purchases		-			33,340			33,340
Sales		(35,905	)		-			(36,748	)
Other changes ^(B)		6,513			(825	)		6,531
Purchases, sales and principal paydowns:	$	(29,392	)	$	32,515		$	3,123
Changes in Fair Value due to:
Changes in valuation inputs or assumptions used in valuation model		-			13,265			13,265
Other changes in fair value ^(C)		-			(953	)		(953	)
Unrealized gain (loss) included in Net Income	$	-		$	12,312		$	12,312
Balance at March 31, 2017	$	-		$	76,698		$	76,698

As of December 31, 2016

	Level 3 ^(A)
	Pool 1			Pool 2			Excess MSR Pool 2014			MSRs			Total
Balance at December 31, 2015	$	43,482		$	33,054		$	1,506		$	19,761		$	97,803
Purchases, sales and principal paydowns:
Purchases		-			-			-			16,179			16,179
Sales		(39,916	)		-			(1,179	)		-			(41,095	)
Proceeds from principal paydowns		(3,566	)		(3,911	)		(327	)		-			(7,804	)
Other changes ^(B)		-			-			-			(784	)		(784	)
Purchases, sales and principal paydowns:	$	(43,482	)	$	(3,911	)	$	(1,506	)	$	15,395		$	(33,504	)
Changes in Fair Value due to:
Changes in valuation inputs or assumptions used in valuation model		-			249			-			227			476
Other changes in fair value ^(C)		-			-			-			(3,512	)		(3,512	)
Unrealized gain (loss) included in Net Income	$	-		$	249		$	-		$	(3,285	)	$	(3,036	)
Balance at December 31, 2016	$	-		$	29,392		$	-		$	31,871		$	61,263

(A)

Includes the recapture agreement for each respective pool.

(B)

Represents purchase price adjustments, principally contractual prepayment protection, and changes due to the Company’s repurchase of the underlying collateral.

(C)

Represents changes due to realization of expected cash flows.

Significant Unobservable Inputs Used in Fair Value Measurement

The tables below present information about the significant unobservable inputs used in the fair value measurement of the Company’s Servicing Related Assets classified as Level 3 fair value assets as of the dates indicated (dollars in thousands):

Fair Value Measurements

As of March 31, 2017

	Fair Value		Valuation Technique	Unobservable Input ^(A)	Range			Weighted Average
MSRs
Conventional	$	31,088	Discounted cash flow	Constant prepayment speed		0.4% - 21.6	%		10.6	%
				Uncollected payments		0.4% - 5.2	%		0.8	%
				Discount rate					9.3	%
				Annual cost to service, per loan				$	71
Government	$	45,610	Discounted cash flow	Constant prepayment speed		5.3% - 20.5	%		8.6	%
				Uncollected payments		1.6% - 67.0	%		3.7	%
				Discount rate					12.0	%
				Annual cost to service, per loan				$	96
TOTAL	$	76,698	Discounted cash flow

As of December 31, 2016

	Fair Value		Valuation Technique	Unobservable Input ^(A)	Range			Weighted Average
Excess MSR Pool 2	$	29,392	Discounted cash flow	Constant prepayment speed		7.8% - 31.9	%		14.3	%
				Uncollected Payments		8.3% - 13.1	%		11.9	%
				Discount rate					16.2	%
Conventional MSRs	$	31,871	Discounted cash flow	Constant prepayment speed		7.1% - 24.9	%		10.6	%
				Uncollected payments		0.8% - 1.4	%		1.3	%
				Discount rate					9.3	%
				Annual cost to service, per loan				$	64
TOTAL	$	61,263	Discounted cash flow

(A)

Significant increases (decreases) in any of the inputs in isolation may result in significantly lower (higher) fair value measurement. A change in the assumption used for discount rates may be accompanied by a directionally similar change in the assumption used for the probability of uncollected payments and a directionally opposite change in the assumption used for prepayment rates.