9. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is based upon market quotations, broker quotations, counterparty quotations or pricing services quotations, which provide valuation estimates based upon reasonable market order indications and are subject to significant variability based on market conditions, such as interest rates, credit spreads and market liquidity. The fair value of the mortgage loan receivables held for sale is based upon a securitization model utilizing market data from recent securitization spreads and pricing.

Fair Value Summary Table

The carrying values and estimated fair values of the Company’s financial instruments, which are both reported at fair value on a recurring basis (as indicated) or amortized cost/par, at June 30, 2014 and December 31, 2013 are as follows ($ in thousands):

June 30, 2014

								Weighted Average
	Outstanding		Amortized				Fair Value	Yield		Remaining
	Face Amount		Cost Basis		Fair Value		Method	%		Maturity/Duration (years)
Assets:
CMBS(1)	$	1,199,855	$	1,204,777	$	1,239,297	Internal model, third-party inputs	3.51	%	4.60
CMBS interest-only(1)	7,435,884		368,593		378,705		Internal model, third-party inputs	4.12	%	3.34
GNMA interest-only(1)	1,714,071		90,460		88,898		Internal model, third-party inputs	5.07	%	4.35
FHLMC interest-only(1)	217,926		7,137		7,394		Internal model, third-party inputs	5.33	%	1.91
GN construction securities(1)	20,193		20,737		20,277		Internal model, third-party inputs	3.51	%	6.68
GN permanent securities(1)	95,868		97,761		99,917		Internal model, third-party inputs	4.35	%	3.70
Mortgage loan receivable held for investment, at amortized cost	1,040,581		1,026,118		1,028,918		Discounted Cash Flow(3)	8.00	%	2.15
Mortgage loan receivable held for sale	103,719		103,719		109,651		Discounted Cash Flow(4)	4.88	%	8.99
FHLB stock(5)	57,240		57,240		57,240		(5)	3.50	%	N/A
Nonhedge derivatives(1)(6)	81,272		N/A		196		Counterparty quotations	N/A		5.94

Liabilities:
Repurchase agreements - short-term	677,932		677,932		677,932		Discounted Cash Flow(2)	1.30	%	0.28
Repurchase agreements - long-term	7,761		7,761		7,761		Discounted Cash Flow(2)	2.57	%	1.78
Long-term financing	309,720		314,555		313,623		Discounted Cash Flow(2)	4.90	%	8.32
Borrowings from the FHLB	903,000		903,000		902,812		Discounted Cash Flow(2)	0.67	%	1.77
Senior unsecured notes	325,000		325,000		350,188		Broker quotations, pricing services	7.38	%	3.25
Nonhedge derivatives(1)(6)	859,400		N/A		15,733		Counterparty quotations	N/A		2.15

(1) Measured at fair value on a recurring basis.

(2) Fair value for repurchase agreement liabilities is estimated to approximate carrying amount primarily due to the short interest rate reset risk (30 days) of the financings and the high credit quality of the assets collateralizing these positions. For the borrowings from the FHLB, the carrying value approximates the fair value discounting the expected cash flows. For the long-term financing, the carrying value approximates the fair value discounting the expected cash flows. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any security positions.

(3) Fair value for mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (30 days) and no significant change in credit risk.

(4) Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.

(5) The fair value of the FHLB stock approximates outstanding face amount as the Company’s wholly-owned subsidiary is restricted from trading the stock and can only put the stock back to the FHLB, at the FHLB’s discretion, at par.

(6) The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.

(7) Represents notional outstanding balance of underlying collateral.

December 31, 2013

								Weighted Average
	Outstanding		Amortized				Fair Value	Yield		Remaining
	Face Amount		Cost Basis		Fair Value		Method	%		Maturity/Duration (years)
Assets:
CMBS(1)	$	1,160,741	$	1,156,230	$	1,164,936	Broker quotations, pricing services	4.08	%	4.88
CMBS interest-only(1)	5,702,862		259,061		258,058		Broker quotations, pricing services	4.19	%	3.38
GNMA interest-only(1)	1,848,270		103,136		99,877		Broker quotations, pricing services	5.32	%	2.12
FHLMC interest-only(1)	219,677		7,904		8,152		Broker quotations, pricing services	5.21	%	3.04
GN construction securities(1)	12,858		13,261		13,007		Broker quotations, pricing services	3.49	%	6.57
GN permanent securities(1)	108,310		110,724		113,216		Broker quotations, pricing services	4.64	%	3.27
Mortgage loan receivable held for investment, at amortized cost	549,574		539,078		541,578		Discounted Cash Flow(3)	9.76	%	2.14
Mortgage loan receivable held for sale	440,775		440,490		455,804		Discounted Cash Flow(4)	5.47	%	9.62
FHLB stock(5)	49,450		49,450		49,450		(5)	3.50	%	N/A
Nonhedge derivatives(1)(6)	808,700		N/A		8,244		Counterparty quotations	N/A		0.50

Liabilities:
Repurchase agreements - short-term	409,334		409,334		409,334		Discounted Cash Flow(2)	1.46	%	0.04
Repurchase agreements - long-term	200,501		200,501		200,501		Discounted Cash Flow(2)	2.13	%	1.49
Long-term financing	287,246		291,053		278,129		Discounted Cash Flow(2)	4.84	%	8.70
Borrowings from the FHLB	989,000		989,000		987,896		Discounted Cash Flow(2)	0.57	%	1.60
Senior unsecured notes	325,000		325,000		341,250		Broker quotations, pricing services	7.38	%	3.75
Nonhedge derivatives(1)(6)	154,500		N/A		7,031		Counterparty quotations	N/A		4.55

(1) Measured at fair value on a recurring basis.

(2) Fair value for repurchase agreement liabilities is estimated to approximate carrying amount primarily due to the short interest rate reset risk (30 days) of the financings and the high credit quality of the assets collateralizing these positions. For the borrowings from the FHLB, the carrying value approximates the fair value discounting the expected cash flows. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any security positions.

(3) Fair value for mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (30 days, and no significant change in credit risk).

(4) Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.

(6) The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.

(7) Represents notional outstanding balance of underlying collateral.

The following table summarizes the Company’s financial assets and liabilities, which are both reported at fair value on a recurring basis (as indicated) or amortized cost/par, at June 30, 2014 and December 31, 2013 ($ in thousands):

June 30, 2014

	Outstanding Face			Fair Value
	Amount			Level 1		Level 2		Level 3		Total

Assets:
CMBS(1)	$	1,199,855		$	—	$	1,239,297	$	—	$	1,239,297
CMBS interest-only(1)	7,435,884		(2)	—		378,705		—		378,705
GNMA interest-only(1)	1,714,071		(2)	—		88,898		—		88,898
FHLMC interest-only(1)	217,926		(2)	—		7,394		—		7,394
GN construction securities(1)	20,193			—		20,277		—		20,277
GN permanent securities(1)	95,868			—		99,917		—		99,917
Mortgage loan receivable held for investment	1,040,581			—		—		1,028,918		1,028,918
Mortgage loan receivable held for sale	103,719			—		—		109,651		109,651
FHLB stock	57,240			—		—		57,240		57,240
Nonhedge derivatives(1)	81,272			—		196		—		196
Liabilities:
Repurchase agreements - short-term	677,932			—		677,932		—		677,932
Repurchase agreements - long-term	7,761			—		7,761		—		7,761
Long-term financing	309,720			—		—		313,623		313,623
Borrowings from the FHLB	903,000			—		—		902,812		902,812
Senior unsecured notes	325,000			—		350,188		—		350,188
Nonhedge derivatives(1)	859,400			—		15,733		—		15,733

December 31, 2013

	Outstanding Face			Fair Value
	Amount			Level 1		Level 2		Level 3		Total

Assets:
CMBS(1)	$	1,160,741		$	—	$	1,164,936	$	—	$	1,164,936
CMBS interest-only(1)	5,702,862		(2)	—		258,058		—		258,058
GNMA interest-only(1)	1,848,270		(2)	—		99,877		—		99,877
FHLMC interest-only(1)	219,677		(2)	—		8,152		—		8,152
GN construction securities(1)	12,858			—		13,007		—		13,007
GN permanent securities(1)	108,310			—		113,216		—		113,216
Mortgage loan receivable held for investment	549,574			—		—		541,578		541,578
Mortgage loan receivable held for sale	440,775			—		—		455,804		455,804
FHLB stock	49,450			—		—		49,450		49,450
Nonhedge derivatives(1)	808,700			—		8,244		—		8,244
Liabilities:
Repurchase agreements - short-term	409,334			—		409,334		—		409,334
Repurchase agreements - long-term	200,501			—		200,501		—		200,501
Long-term financing	287,246			—		—		278,129		278,129
Borrowings from the FHLB	989,000			—		—		987,896		987,896
Senior unsecured notes	325,000			—		341,250		—		341,250
Nonhedge derivatives(1)	154,500			—		7,031		—		7,031

(1) Measured at fair value on a recurring basis. The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.

(2) Represents notional outstanding balance of underlying collateral.