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REAL ESTATE SECURITIES
 9 Months Ended
Sep. 30, 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 September 30, 2017 and December 31, 2016 ($ in thousands):

September 30, 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)
 
$
934,559

 
$
946,231

 
$
6,195

 
$
(2,397
)
 
$
950,029

 
89

 
AAA
 
3.24
%
 
2.73
%
 
2.85
CMBS interest-only(2)
 
3,308,063

(3)
102,986

 
1,542

 
(45
)
 
104,483

 
27

 
AAA
 
0.75
%
 
3.14
%
 
2.88
GNMA interest-only(4)
 
279,567

(3)
9,138

 
188

 
(1,327
)
 
7,999

 
16

 
AA+
 
0.60
%
 
5.99
%
 
4.36
Agency securities(2)
 
731

 
754

 
—

 
(12
)
 
742

 
2

 
AA+
 
2.84
%
 
1.82
%
 
3.08
GNMA permanent securities(2)
 
34,014

 
34,675

 
790

 
(247
)
 
35,218

 
6

 
AA+
 
3.98
%
 
3.63
%
 
5.82
Total
 
$
4,556,934

 
$
1,093,784

 
$
8,715

 
$
(4,028
)
 
$
1,098,471

 
140

 
 
 
1.28
%
 
2.82
%
 
2.96
 
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 September 30, 2017 and 2016 ($ in thousands):
 
September 30, 2017
 
Asset Type
 
Within 1 year
 
1-5 years
 
5-10 years
 
After 10 years
 
Total
 
 
 
 
 
 
 
 
 
 
 
CMBS(1)
 
$
72,958

 
$
770,559

 
$
106,512

 
$
—

 
$
950,029

CMBS interest-only(1)
 
737

 
103,746

 
—

 
—

 
104,483

GNMA interest-only(2)
 
101

 
7,368

 
516

 
14

 
7,999

Agency securities(1)
 
—

 
742

 
—

 
—

 
742

GNMA permanent securities(1)
 
—

 
1,881

 
33,337

 
—

 
35,218

Total
 
$
73,796

 
$
884,296

 
$
140,365

 
$
14

 
$
1,098,471

 
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 $0.2 million unrealized losses on securities recorded as other than temporary impairments for the three months ended September 30, 2017 and no unrealized losses on securities recorded as other than temporary impairments for the three months ended September 30, 2016. There were $1.2 million and $0.6 million realized losses on securities recorded as other than temporary impairments for the nine months ended September 30, 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.