We established a fair value hierarchy by prioritizing the inputs to valuation techniques used to measure fair value.  The  hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I  measurements) and the lowest priority to unobservable inputs (Level III measurements).  The three levels of the fair value  hierarchy under this standard are described below: The level of market activity used to determine the fair value hierarchy is based on the availability of observable inputs  market participants would use to price an asset or a liability , including market value price observations. For markets in which  inputs are not observable or limited, we use significant judgment and assumptions that a typical market participant would use to  evaluate the market price of an asset or liability . Given the level of judgment necessary , another market participant may derive a  materially different estimate of fair value.  These assets and liabilities are classified in Level III of our fair value hierarchy .  A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to  the fair value measurement.  At December 31, 2012, our total Level III assets were approximately 4.1% of total assets measured  at fair value and total Level III liabilities accounted for  100% of total liabilities measured at fair value. Available for sale securities, trading securities,  VIE debt, derivative instruments and certain other assets are recorded at  fair value as described in Note 5 of Notes to Consolidated Financial Statements.   All derivative instruments and contracts are  recognized in our consolidated balance sheets as either derivative assets or derivative liabilities.  All changes in fair value of  trading securities, VIE debt, derivative instruments and certain other assets are included in our consolidated statements of  operations. All changes in the fair value of available for sale securities are recorded in accumulated other comprehensive  income (loss). The following are descriptions of our valuation methodologies for financial assets and liabilities measured at fair value. U.S. government and agency securities —The fair value of U.S. government and agency securities is estimated using  observed market transactions, including broker -dealer quotes and actual trade activity as a basis for valuation. U.S. government  and agency securities are categorized in either Level I or Level II of the fair value hierarchy .  State and municipal obligations —The fair value of state and municipal obligations is estimated using recent transaction  activity, including market and market-like observations. Evaluation models are used, which incorporate bond structure, yield  curve, credit spreads and other factors.  These securities are generally categorized in Level II of the fair value hierarchy or in  Level III when market-based transaction activity is unavailable. Money market instruments —The fair value of money market instruments is based on daily prices, which are published  and available to all potential investors and market participants.  As such, these securities are categorized in Level I of the fair  value hierarchy.  Corporate bonds and notes —The fair value of corporate bonds and notes is estimated using recent transaction activity ,  including market and market-like observations. Spread models are used that incorporate issuer and structure characteristics,  such as credit risk and early redemption features, where applicable.  These securities are generally categorized in Level II of the  fair value hierarchy or in Level III when market-based transaction activity is unavailable. RMBS —The fair value of RMBS is estimated based on prices of comparable securities and spreads and observable  prepayment speeds. These securities are generally categorized in Level II of the fair value hierarchy or in Level III when  market-based transaction activity is unavailable.  The fair value of the Level III securities is generally estimated by discounting  estimated future cash flows.  CMBS —The fair value of CMBS is estimated based on prices of comparable securities and spreads and observable  prepayment speeds. These securities are generally categorized in Level II of the fair value hierarchy or in Level III when  market-based transaction activity is unavailable.  The fair value of the Level III securities is generally estimated by discounting  estimated future cash flows. 148 Investments Level III — Prices or valuations that require inputs that are both significant to the fair value measurement and  unobservable.  Level II — Prices or valuations based on observable inputs other than quoted prices in active markets for identical  assets and liabilities; and  Level I  — Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the  measurement date for identical, unrestricted assets or liabilities;