REAL ESTATE SECURITIES

3 Months Ended

Mar. 31, 2017

Investments, Debt and Equity Securities [Abstract]

REAL ESTATE SECURITIES

4. REAL ESTATE SECURITIES

Commercial mortgage backed securities (“CMBS”), CMBS interest-only securities, Agency securities, Government National Mortgage Association (“GNMA”) construction securities and Government National Mortgage Association (“GNMA”) permanent securities are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income. GNMA and Federal Home Loan Mortgage Corp (“FHLMC”) securities (collectively, “Agency interest-only securities”) are recorded at fair value with changes in fair value recorded in current period earnings. The following is a summary of the Company’s securities at March 31, 2017 and December 31, 2016 ($ in thousands):

March 31, 2017

						Gross Unrealized								Weighted Average
Asset Type	Outstanding Face Amount			Amortized Cost Basis		Gains		Losses			Carrying Value		# of Securities	Rating (1)	Coupon %		Yield %		Remaining Duration (years)
CMBS(2)	$	1,306,653		$	1,323,369	$	7,909	$	(6,028	)	$	1,325,250	128	AAA	3.18	%	2.72	%	3.38
CMBS interest-only(2)	7,801,370		(3)	316,486		4,749		(370		)	320,865		59	AAA	1.01	%	3.58	%	3.04
GNMA interest-only(4)	457,597		(3)	17,640		196		(2,211		)	15,625		17	AA+	0.72	%	4.47	%	4.37
Agency securities(2)	760			786		—		(15		)	771		2	AA+	2.88	%	1.90	%	3.35
GNMA permanent securities(2)	38,029			38,836		879		(246		)	39,469		9	AA+	4.08	%	3.69	%	5.81
Total	$	9,604,409		$	1,697,117	$	13,733	$	(8,870	)	$	1,701,980	215		1.31	%	2.92	%	3.38

December 31, 2016

						Gross Unrealized								Weighted Average
Asset Type	Outstanding Face Amount			Amortized Cost Basis		Gains		Losses			Carrying Value		# of Securities	Rating (1)	Coupon %		Yield %		Remaining Duration (years)
CMBS(2)	$	1,676,680		$	1,698,616	$	10,880	$	(8,101	)	$	1,701,395	131	AAA	3.26	%	2.81	%	3.55
CMBS interest-only(2)	8,160,458		(3)	343,438		1,273		(2,540		)	342,171		60	AAA	0.87	%	3.45	%	2.99
GNMA interest-only(4)	478,577		(3)	18,994		159		(2,332		)	16,821		17	AA+	0.73	%	4.19	%	4.44
Agency securities(2)	774			802		—		(22		)	780		2	AA+	2.90	%	1.29	%	3.27
GNMA permanent securities(2)	38,327			39,144		882		(246		)	39,780		9	AA+	4.09	%	3.80	%	10.30
Total	$	10,354,816		$	2,100,994	$	13,194	$	(13,241	)	$	2,100,947	219		1.27	%	2.94	%	3.60

(1) Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating.  For each security rated by multiple rating agencies, the highest rating is used.  Ratings provided were determined by third-party rating agencies as of a particular date, may not be current and are subject to change (including the assignment of a “negative outlook” or “credit watch”) at any time.

(2) CMBS, CMBS interest-only securities, Agency securities, and GNMA permanent securities are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.

(3) The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.

(4) Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. The Company’s Agency interest-only securities are considered to be hybrid financial instruments that contain embedded derivatives. As a result, the Company accounts for them as hybrid instruments in their entirety at fair value with changes in fair value recognized in unrealized gain (loss) on Agency interest-only securities in the consolidated statements of income in accordance with ASC 815.

The following is a breakdown of the carrying value of the Company’s securities by remaining maturity based upon expected cash flows at March 31, 2017 and 2016 ($ in thousands):

March 31, 2017

Asset Type	Within 1 year		1-5 years		5-10 years		After 10 years		Total
CMBS(1)	$	74,889	$	1,008,680	$	241,681	$	—	$	1,325,250
CMBS interest-only(1)	1,128		319,737		—		—		320,865
GNMA interest-only(2)	172		14,691		713		49		15,625
Agency securities(1)	—		771		—		—		771
GNMA permanent securities(1)	1,593		2,086		35,790		—		39,469
Total	$	77,782	$	1,345,965	$	278,184	$	49	$	1,701,980

December 31, 2016

Asset Type	Within 1 year		1-5 years		5-10 years		After 10 years		Total
CMBS(1)	$	132,730	$	1,156,026	$	412,639	$	—	$	1,701,395
CMBS interest-only(1)	11,188		330,983		—		—		342,171
GNMA interest-only(2)	—		15,914		724		183		16,821
Agency securities(1)	—		780		—		—		780
GNMA permanent securities(1)	—		4,488		27,675		7,617		39,780
Total	$	143,918	$	1,508,191	$	441,038	$	7,800	$	2,100,947

(1) CMBS, CMBS interest-only securities, Agency securities, and GNMA permanent securities are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.

(2) Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.

There were $0.4 million and $0.6 million realized losses on securities recorded as other than temporary impairments for the three months ended March 31, 2017 and 2016, respectively. The determination of whether a security is other-than-temporarily impaired involves judgments and assumptions based on subjective and objective factors. Consideration is given to (i) the length of time and the extent to which the fair value has been less than amortized cost, (ii) the financial condition and near-term prospects of recovery in fair value of the security, and (iii) the Company’s intent to sell the security and whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. The Company has no intention to sell the securities before recovery of its amortized cost basis. For cash flow statement purposes, all receipts of interest from interest-only real estate securities are treated as part of cash flows from operations.