TWO Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value (Notes)

Fair Value (Notes)

9 Months Ended

Sep. 30, 2015

Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, or ASC 820, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). Additionally, ASC 820 requires an entity to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring fair value of a liability.

ASC 820 establishes a three-level hierarchy to be used when measuring and disclosing fair value. An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. Following is a description of the three levels:


Level 1	Inputs are quoted prices in active markets for identical assets or liabilities as of the measurement date under current market conditions. Additionally, the entity must have the ability to access the active market and the quoted prices cannot be adjusted by the entity.


Level 2	Inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full-term of the assets or liabilities.


Level 3	Unobservable inputs are supported by little or no market activity. The unobservable inputs represent the assumptions that market participants would use to price the assets and liabilities, including risk. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation.

Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models and significant assumptions utilized.

Investment securities. The Company holds a portfolio of AFS and trading securities that are carried at fair value in the condensed consolidated balance sheets. AFS securities are primarily comprised of Agency and non-Agency RMBS while the Company’s U.S. Treasuries are classified as trading securities. The Company determines the fair value of its U.S. Treasuries and Agency RMBS based upon prices obtained from third-party pricing providers or broker quotes received using bid price, which are deemed indicative of market activity. The third-party pricing providers and brokers use pricing models that generally incorporate such factors as coupons, primary and secondary mortgage rates, rate reset period, issuer, prepayment speeds, credit enhancements and expected life of the security. In determining the fair value of its non-Agency RMBS, management judgment may be used to arrive at fair value that considers prices obtained from third-party pricing providers, broker quotes received and other applicable market data. If observable market prices are not available or insufficient to determine fair value due principally to illiquidity in the marketplace, then fair value is based upon internally developed models that are primarily based on observable market-based inputs but also include unobservable market data inputs (including prepayment speeds, delinquency levels, and credit losses). The Company did not hold any U.S. Treasuries at September 30, 2015. The Company classified 100% of its RMBS AFS securities reported at fair value as Level 2 at September 30, 2015. AFS securities account for 71.8% of all assets reported at fair value at September 30, 2015.

Residential mortgage loans held-for-sale. The Company holds residential mortgage loans held-for-sale that are carried at fair value in the condensed consolidated balance sheets as a result of a fair value option election. The Company determines fair value of its residential mortgage loans based on prices obtained from third-party pricing providers and other applicable market data. If observable market prices are not available or insufficient to determine fair value due principally to illiquidity in the marketplace, then fair value is based upon cash flow models that are primarily based on observable market-based inputs but also include unobservable market data inputs (including prepayment speeds, delinquency levels and credit losses). The Company classified 93.1% and 6.9% of its residential mortgage loans held-for-sale as Level 2 and Level 3 fair value assets, respectively, at September 30, 2015.

Residential mortgage loans held-for-investment in securitization trusts. The Company recognizes on its condensed consolidated balance sheets residential mortgage loans held-for-investment in securitization trusts that are carried at fair value as a result of a fair value option election. An entity is allowed to measure both the financial assets and financial liabilities of a qualifying CFE it consolidates using the fair value of either the CFE’s financial assets or financial liabilities, whichever is more observable. As the Company’s securitization trusts are considered qualifying CFEs, the Company determines the fair value of these residential mortgage loans based on the fair value of its collateralized borrowings in securitization trusts and its retained interests from the Company’s on-balance sheet securitizations (eliminated in consolidation in accordance with U.S. GAAP), as the fair value of these instruments is more observable. The Company classified 100% of its residential mortgage loans held-for-investment in securitization trusts as Level 2 fair value assets at September 30, 2015.

Mortgage servicing rights. The Company holds a portfolio of MSR that are carried at fair value on the condensed consolidated balance sheets. The Company determines fair value of its MSR based on prices obtained from third-party pricing providers. Although MSR transactions are observable in the marketplace, the valuation is based upon cash flow models that include unobservable market data inputs (including prepayment speeds, delinquency levels and discount rates). As a result, the Company classified 100% of its MSR as Level 3 fair value assets at September 30, 2015.

Derivative instruments. The Company may enter into a variety of derivative financial instruments as part of its hedging strategies. The Company principally executes over-the-counter, or OTC, derivative contracts, such as interest rate swaps, swaptions, put and call options for TBAs and U.S. Treasuries, credit default swaps, constant maturity swaps and Markit IOS total return swaps. The Company utilizes third-party pricing providers to value its financial derivative instruments. The Company classified 100% of the interest rate swaps, swaptions, put and call options for TBAs and U.S. Treasuries, credit default swaps, constant maturity swaps and total returns swaps reported at fair value as Level 2 at September 30, 2015.

The Company also enters into certain other derivative financial instruments, such as TBAs, short U.S. Treasuries and inverse interest-only securities. These instruments are similar in form to the Company’s AFS and trading securities and the Company utilizes a pricing service to value TBAs and broker quotes to value short U.S. Treasuries and inverse interest-only securities. The Company classified 100% of its inverse interest-only securities at fair value as Level 2 at September 30, 2015. The Company reported 100% of its TBAs as Level 1 as of September 30, 2015. The Company did not hold any short U.S. Treasuries at September 30, 2015.

The Company may also enter into forward purchase commitments on residential mortgage loans whereby the Company commits to purchasing the loans at a particular interest rate. The fair value of these derivatives is determined based on prices currently offered in the marketplace for new commitments. Fallout assumptions if the borrower elects not to close the loan are applied to the pricing. As of September 30, 2015, the Company had outstanding commitments to purchase $501.2 million of mortgage loans, subject to fallout if the loans do not close, with a fair value asset of $0.8 million and a fair value liability of $0.1 million. The Company classified 100% of the forward purchase commitments reported at fair value as Level 2 at September 30, 2015.

The Company’s risk management committee governs trading activity relating to derivative instruments. The Company’s policy is to minimize credit exposure related to financial derivatives used for hedging by limiting the hedge counterparties to major banks, financial institutions, exchanges, and private investors who meet established capital and credit guidelines as well as by limiting the amount of exposure to any individual counterparty.

The Company has netting arrangements in place with all derivative counterparties pursuant to standard documentation developed by ISDA, or central clearing exchange agreements, in the case of centrally cleared interest rate swaps. Additionally, both the Company and the counterparty or clearing agency are required to post cash collateral based upon the net underlying market value of the Company’s open positions with the counterparty. Posting of cash collateral typically occurs daily, subject to certain dollar thresholds. Due to the existence of netting arrangements, as well as frequent cash collateral posting at low posting thresholds, credit exposure to the Company and/or to the counterparty or clearing agency is considered materially mitigated. Based on the Company’s assessment, there is no requirement for any additional adjustment to derivative valuations specifically for credit.

Collateralized borrowings in securitization trusts. The Company recognizes on its condensed consolidated balance sheets collateralized borrowings that are carried at fair value as a result of a fair value option election. In determining the fair value of its collateralized borrowings, management judgment may be used to arrive at fair value that considers prices obtained from third-party pricing providers, broker quotes received and other applicable market data. If observable market prices are not available or insufficient to determine fair value due principally to illiquidity in the marketplace, then fair value is based upon internally developed models that are primarily based on observable market-based inputs but also include unobservable market data inputs (including prepayment speeds, delinquency levels, and credit losses). The Company classified 100% of its collateralized borrowings in securitization trusts as Level 2 fair value liabilities at September 30, 2015.

The following tables display the Company’s assets and liabilities measured at fair value on a recurring basis. The Company often economically hedges the fair value change of its assets or liabilities with derivatives and other financial instruments. The tables below display the hedges separately from the hedged items, and therefore do not directly display the impact of the Company’s risk management activities.



	Recurring Fair Value Measurements
	At September 30, 2015
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale securities	$	—	$	11,433,195	$	—	$	11,433,195
Residential mortgage loans held-for-sale	—		714,654		53,354		768,008
Residential mortgage loans held-for-investment in securitization trusts	—		2,978,586		—		2,978,586
Mortgage servicing rights	—		—		447,345		447,345
Derivative assets	9,267		287,464		—		296,731
Total assets	$	9,267	$	15,413,899	$	500,699	$	15,923,865
Liabilities
Collateralized borrowings in securitization trusts	$	—	$	1,990,769	$	—	$	1,990,769
Derivative liabilities	3,820		77,653		—		81,473
Total liabilities	$	3,820	$	2,068,422	$	—	$	2,072,242



	Recurring Fair Value Measurements
	At December 31, 2014
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale securities	$	—	$	14,341,102	$	—	$	14,341,102
Trading securities	1,997,656		—		—		1,997,656
Residential mortgage loans held-for-sale	—		500,159		35,553		535,712
Residential mortgage loans held-for-investment in securitization trusts	—		1,744,746		—		1,744,746
Mortgage servicing rights	—		—		452,006		452,006
Derivative assets	10,350		370,441		—		380,791
Total assets	$	2,008,006	$	16,956,448	$	487,559	$	19,452,013
Liabilities
Collateralized borrowings in securitization trusts	$	—	$	1,209,663	$	—	$	1,209,663
Derivative liabilities	17,687		72,546		—		90,233
Total liabilities	$	17,687	$	1,282,209	$	—	$	1,299,896

The Company may be required to measure certain assets or liabilities at fair value from time to time. These periodic fair value measures typically result from application of certain impairment measures under U.S. GAAP. These items would constitute nonrecurring fair value measures under ASC 820. As of September 30, 2015, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis in the periods presented.

The valuation of Level 3 instruments requires significant judgment by the third-party pricing providers and/or management. The third-party pricing providers and/or management rely on inputs such as market price quotations from market makers (either market or indicative levels), original transaction price, recent transactions in the same or similar instruments, and changes in financial ratios or cash flows to determine fair value. Level 3 instruments may also be discounted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the third-party pricing provider in the absence of market information. Assumptions used by the third-party pricing provider due to lack of observable inputs may significantly impact the resulting fair value and therefore the Company’s condensed consolidated financial statements. The Company’s valuation committee reviews all valuations that are based on pricing information received from a third-party pricing provider. As part of this review, prices are compared against other pricing or input data points in the marketplace, along with internal valuation expertise, to ensure the pricing is reasonable. In addition, the Company performs back-testing of pricing information to validate price information and identify any pricing trends of a third-party price provider.

In determining fair value, third-party pricing providers use various valuation approaches, including market and income approaches. Inputs that are used in determining fair value of an instrument may include pricing information, credit data, volatility statistics, and other factors. In addition, inputs can be either observable or unobservable.

The availability of observable inputs can vary by instrument and is affected by a wide variety of factors, including the type of instrument, whether the instrument is new and not yet established in the marketplace and other characteristics particular to the instrument. The third-party pricing provider uses prices and inputs that are current as of the measurement date, including during periods of market dislocations. In periods of market dislocation, the availability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified to or from various levels within the fair value hierarchy.

Securities for which market quotations are readily available are valued at the bid price (in the case of long positions) or the ask price (in the case of short positions) at the close of trading on the date as of which value is determined. Exchange-traded securities for which no bid or ask price is available are valued at the last traded price. OTC derivative contracts, including interest rate swaps, swaptions, credit default swaps and Markit IOS total return swaps, are valued by the Company using observable inputs, specifically quotations received from third-party pricing providers, and are therefore classified within Level 2.

The following table presents the reconciliation for all of the Company’s Level 3 assets measured at fair value on a recurring basis:



	Level 3 Recurring Fair Value Measurements
	Three Months Ended								Nine Months Ended
	September 30, 2015								September 30, 2015
(in thousands)	Residential Mortgage Loans Held-For-Sale				Mortgage Servicing Rights				Residential Mortgage Loans Held-For-Sale				Mortgage Servicing Rights
Beginning of period level 3 fair value	$	61,500			$	437,576			$	35,553			$	452,006
Gains (losses) included in net (loss) income:
Realized gains (losses)	8,242				(5,931		)		23,854				(23,050		)
Unrealized gains (losses)	(1,123		)	⁽¹⁾	(55,618		)	⁽³⁾	(346		)	⁽¹⁾	(73,267		)	⁽³⁾
Total net gains (losses) included in net (loss) income	7,119				(61,549		)		23,508				(96,317		)
Other comprehensive (loss) income	—				—				—				—
Purchases	71,963				67,927				203,683				77,277
Sales	(63,782		)		—				(139,672		)		—
Settlements	(23,446		)		3,391				(69,718		)		14,379
Gross transfers into level 3	—				—				—				—
Gross transfers out of level 3	—				—				—				—
End of period level 3 fair value	$	53,354			$	447,345			$	53,354			$	447,345
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	(84	)	⁽²⁾	$	(55,618	)	⁽⁴⁾	$	182		⁽²⁾	$	(73,267	)	⁽⁴⁾

___________________


(1)	For the three and nine months ended September 30, 2015, the change in unrealized gains or losses on residential mortgage loans held-for-sale was recorded in gain (loss) on residential mortgage loans held-for-sale on the condensed consolidated statements of comprehensive (loss) income.


(2)	For the three and nine months ended September 30, 2015, the change in unrealized gains or losses on residential mortgage loans held-for-sale that were held at the end of the reporting period was recorded in gain (loss) on residential mortgage loans held-for-sale on the condensed consolidated statements of comprehensive (loss) income.


(3)	For the three and nine months ended September 30, 2015, the change in unrealized gains or losses on MSR was recorded in loss on servicing asset on the condensed consolidated statements of comprehensive (loss) income.


(4)	For the three and nine months ended September 30, 2015, the change in unrealized gains or losses on MSR that were held at the end of the reporting period was recorded in loss on servicing asset on the condensed consolidated statements of comprehensive (loss) income.

The Company did not incur transfers between Level 1, Level 2 or Level 3 during the nine months ended September 30, 2015. Transfers between Levels are deemed to take place on the first day of the reporting period in which the transfer has taken place.

The Company used a third-party pricing provider in the fair value measurement of its Level 3 residential mortgage loans held-for-sale. The significant unobservable inputs used by the third-party pricing provider included expected default, severity and discount rate. Significant increases (decreases) in any of the inputs in isolation may result in significantly lower (higher) fair value measurement.

The Company also used a third-party pricing provider in the fair value measurement of its Level 3 MSR. The table below presents information about the significant unobservable inputs used by the third-party pricing provider in the fair value measurement of the Company’s MSR classified as Level 3 fair value assets at September 30, 2015:



As of September 30, 2015
Valuation Technique	Unobservable Input ⁽¹⁾	Range				Weighted Average
Discounted cash flow	Constant prepayment speed	10.4	-	14.9	%	13.0%
	Delinquency	3.4	-	3.9	%	3.7%
	Discount rate	8.9	-	11.4	%	10.3%

___________________


(1)	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 delinquency and a directionally opposite change in the assumption used for prepayment rates.

Fair Value Option for Financial Assets and Financial Liabilities

On July 1, 2015, the Company elected the fair value option for Agency interest-only securities and GSE credit risk transfer securities acquired on or after such date. The fair value option was elected to simplify the reporting of changes in fair value. Agency interest-only securities and GSE credit risk transfer securities are carried within AFS securities on the condensed consolidated balance sheets. The Company’s policy is to separately record interest income, net of premium amortization or including discount accretion, on these fair value elected securities. Fair value adjustments are reported in gain on investment securities on the condensed consolidated statements of comprehensive (loss) income.

The Company elected the fair value option for the residential mortgage loans it has acquired. The fair value option was elected to mitigate earnings volatility by better matching the accounting for the assets with the related hedges. The mortgage loans are carried within residential mortgage loans held-for-sale on the condensed consolidated balance sheets. The Company’s policy is to separately record interest income on these fair value elected loans. Upfront fees and costs related to the fair value elected loans are not deferred or capitalized. Fair value adjustments are reported in gain (loss) on residential mortgage loans held-for-sale on the condensed consolidated statements of comprehensive (loss) income.

The Company also elected the fair value option for both the residential mortgage loans held-for-investment in securitization trusts and the collateralized borrowings in securitization trusts carried on the condensed consolidated balance sheets. The fair value option was elected to better reflect the economics of the Company’s retained interests. The Company’s policy is to separately record interest income on the fair value elected loans and interest expense on the fair value elected borrowings. Upfront fees and costs are not deferred or capitalized. Fair value adjustments are reported in other income (loss) on the condensed consolidated statements of comprehensive (loss) income.

The following tables summarize the fair value option elections and information regarding the line items and amounts recognized in the condensed consolidated statements of comprehensive (loss) income for each fair value option-elected item.



	Three Months Ended September 30, 2015
(in thousands)	Interest income (expense)				Gain on investment securities			Gain (loss) on residential mortgage loans held-for-sale		Other income (loss)			Total included in net (loss)income			Change in fair value due to credit risk
Assets
Available-for-sale securities	$	89			$	(47	)	$	—	$	—		$	42		N/A
Residential mortgage loans held-for-sale	9,479			⁽¹⁾	—			12,814		—			22,293			$	721	⁽²⁾
Residential mortgage loans held-for-investment in securitization trusts	24,841			⁽¹⁾	—			—		16,006			40,847			—		⁽³⁾
Liabilities
Collateralized borrowings in securitization trusts	(15,562		)		—			—		(14,922		)	(30,484		)	—		⁽³⁾
Total	$	18,847			$	(47	)	$	12,814	$	1,084		$	32,698		$	721



	Three Months Ended September 30, 2014
(in thousands)	Interest income (expense)				Gain on investment securities		Gain (loss) on residential mortgage loans held-for-sale			Other income (loss)			Total included in net (loss)income			Change in fair value due to credit risk
Assets
Available-for-sale securities	$	—			$	—	$	—		$	—		$	—		N/A
Residential mortgage loans held-for-sale	5,268			⁽¹⁾	—		(941		)	—			4,327			$	(299	)	⁽²⁾
Residential mortgage loans held-for-investment in securitization trusts	9,526			⁽¹⁾	—		—			(6,924		)	2,602			—			⁽³⁾
Liabilities
Collateralized borrowings in securitization trusts	(5,678		)		—		—			4,722			(956		)	—			⁽³⁾
Total	$	9,116			$	—	$	(941	)	$	(2,202	)	$	5,973		$	(299	)



	Nine Months Ended September 30, 2015
(in thousands)	Interest income (expense)				Gain on investment securities			Gain (loss) on residential mortgage loans held-for-sale		Other income (loss)			Total included in net (loss)income			Change in fair value due to credit risk
Assets
Available-for-sale securities	$	89			$	(47	)	$	—	$	—		$	42		N/A
Residential mortgage loans held-for-sale	21,268			⁽¹⁾	—			18,861		—			40,129			$	751	⁽²⁾
Residential mortgage loans held-for-investment in securitization trusts	64,908			⁽¹⁾	—			—		(33,088		)	31,820			—		⁽³⁾
Liabilities
Collateralized borrowings in securitization trusts	(39,401		)		—			—		13,647			(25,754		)	—		⁽³⁾
Total	$	46,864			$	(47	)	$	18,861	$	(19,441	)	$	46,237		$	751



	Nine Months Ended September 30, 2014
(in thousands)	Interest income (expense)				Gain on investment securities		Gain (loss) on residential mortgage loans held-for-sale		Other income (loss)			Total included in net (loss)income			Change in fair value due to credit risk
Assets
Available-for-sale securities	$	—			$	—	$	—	$	—		$	—		N/A
Residential mortgage loans held-for-sale	12,553			⁽¹⁾	—		3,933		—			16,486			$	770	⁽²⁾
Residential mortgage loans held-for-investment in securitization trusts	25,180			⁽¹⁾	—		—		31,681			56,861			—		⁽³⁾
Liabilities
Collateralized borrowings in securitization trusts	(16,623		)		—		—		(12,741		)	(29,364		)	—		⁽³⁾
Total	$	21,110			$	—	$	3,933	$	18,940		$	43,983		$	770

____________________


(1)	Interest income on residential mortgage loans held-for-sale and residential mortgage loans held-for-investment in securitization trusts is measured by multiplying the unpaid principal balance on the loans by the coupon rate and the number of days of interest due.


(2)	The change in fair value due to credit risk on residential mortgage loans held-for-sale was quantified by holding yield constant in the cash flow model in order to isolate credit risk component.


(3)	The change in fair value on residential mortgage loans held-for-investment in securitization trusts and collateralized borrowings in securitization trusts was due entirely to changes in market interest rates.

The table below provides the fair value and the unpaid principal balance for the Company’s fair value option-elected loans and collateralized borrowings.



	September 30, 2015				December 31, 2014
(in thousands)	Unpaid Principal Balance		Fair Value ⁽¹⁾		Unpaid Principal Balance		Fair Value ⁽¹⁾
Residential mortgage loans held-for-sale
Total loans	$	765,246	$	768,008	$	534,101	$	535,712
Nonaccrual loans	$	35,947	$	30,829	$	26,405	$	20,574
Loans 90+ days past due	$	31,487	$	26,713	$	25,263	$	19,675
Residential mortgage loans held-for-investment in securitization trusts
Total loans	$	2,936,810	$	2,978,586	$	1,699,748	$	1,744,746
Nonaccrual loans	$	860	$	877	$	—	$	—
Loans 90+ days past due	$	860	$	877	$	—	$	—
Collateralized borrowings in securitization trusts
Total borrowings	$	2,002,339	$	1,990,769	$	1,218,589	$	1,209,663

____________________


(1)	Excludes accrued interest receivable.

Fair Value of Financial Instruments

In accordance with ASC 820, the Company is required to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized in the condensed consolidated balance sheets, for which fair value can be estimated.

The following describes the Company’s methods for estimating the fair value for financial instruments. Descriptions are not provided for those items that have zero balances as of the current balance sheet date.

•

AFS securities, trading securities, residential mortgage loans held-for-sale, residential mortgage loans held-for-investment in securitization trusts, MSR, derivative assets and liabilities, and collateralized borrowings in securitization trusts are recurring fair value measurements; carrying value equals fair value. See discussion of valuation methods and assumptions within the Fair Value Measurements section of this Note 15.

•

Commercial real estate loans held-for-investment are carried at cost, net of any unamortized premiums or discounts, unless deemed impaired. Because the Company has not yet recorded any allowances for losses and the rates and terms of the commercial real estate loans held at September 30, 2015 are similar to those observed in the market, carrying value, or amortized cost, approximates fair value. The Company categorizes the fair value measurement of these assets as Level 2.


•	Cash and cash equivalents and restricted cash have a carrying value which approximates fair value because of the short maturities of these instruments. The Company categorizes the fair value measurement of these assets as Level 1.

•

As a condition to membership in the FHLB, the Company is required to purchase and hold a certain amount of FHLB stock, which is considered a non-marketable, long-term investment, and is carried at cost. Because this stock can only be redeemed or sold at its par value, and only to the FHLB, carrying value, or cost, approximates fair value. The Company categorizes the fair value measurement of these assets as Level 3.


•	Equity investments include cost method investments for which fair value is not estimated. Carrying value, or cost, approximates fair value. The Company categorizes the fair value measurement of these assets as Level 3.

•

The carrying value of repurchase agreements and FHLB advances that mature in less than one year generally approximates fair value due to the short maturities. The Company holds $3.7 billion of FHLB advances that are considered long-term. The Company’s long-term FHLB advances have floating rates based on an index plus a spread and, for members of the FHLB, the credit spread is typically consistent with those demanded in the market. Accordingly, the interest rates on these borrowings are at market and thus carrying value approximates fair value. The Company categorizes the fair value measurement of these liabilities as Level 2.

The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at September 30, 2015 and December 31, 2014.



	September 30, 2015				December 31, 2014
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Available-for-sale securities	$	11,433,195	$	11,433,195	$	14,341,102	$	14,341,102
Trading securities	$	—	$	—	$	1,997,656	$	1,997,656
Residential mortgage loans held-for-sale	$	768,008	$	768,008	$	535,712	$	535,712
Residential mortgage loans held-for-investment in securitization trusts	$	2,978,586	$	2,978,586	$	1,744,746	$	1,744,746
Commercial real estate loans held-for-investment	$	290,910	$	290,910	$	—	$	—
Mortgage servicing rights	$	447,345	$	447,345	$	452,006	$	452,006
Cash and cash equivalents	$	811,839	$	811,839	$	1,005,792	$	1,005,792
Restricted cash	$	384,029	$	384,029	$	336,771	$	336,771
Derivative assets	$	296,731	$	296,731	$	380,791	$	380,791
Federal Home Loan Bank stock	$	153,650	$	153,650	$	100,010	$	100,010
Equity investments	$	3,000	$	3,000	$	3,000	$	3,000
Liabilities
Repurchase agreements	$	7,982,928	$	7,982,928	$	12,932,463	$	12,932,463
Collateralized borrowings in securitization trusts	$	1,990,769	$	1,990,769	$	1,209,663	$	1,209,663
Federal Home Loan Bank advances	$	3,710,000	$	3,710,000	$	2,500,000	$	2,500,000
Derivative liabilities	$	81,473	$	81,473	$	90,233	$	90,233

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details